startups are picking up Record sums worldwide, thanks to several contributing factors. As the exchange discovered yesterday, historically low interest rates have helped venture capitalists raise more capital than ever before, to take one example.
Lower rates have helped startups in another way: As returns for some assets fell, investors chased returns by betting on growth. And in recent years, investment classes have turned their attention to public software companies, in a bid to drive the value of their revenues to a record high.
It boosted the value of startups in general terms, and the comps of private tech companies enjoyed a steady, upward climb in the value of their revenues. If a dollar of SaaS revenue was worth $1 one year and $2 the next, then revaluation was good for private companies, even if we’re tracking metrics from the perspective of public companies.
The free ride may be coming to an end.
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I’ve held off on covering the software’s (SaaS, roughly) revenue for a few months after spending a little more time on this in the past quarters – that’s when VCs start pointing out that you’re looking at numbers from quarter to quarter. and write the same post, it’s time for a break. But the Value of Software revenue posted an incredible run, and I can’t say “no” to the charts.
The speed at which software revenue has grown over the years is astonishing. To Bessemer Cloud IndexIn 2016, the average revenue multiplier for public SaaS companies was around 5x. When 2018 began, the mean SaaS multiples had expanded to about 7x.
That’s a 40% increase in pricing, but it turned out to be just a foreshadowing of the feast to come.
By the end of 2019, the average figure had risen to around 9x. And today it has shrunk by only 18x. that This is why software companies have been able to raise so much money in the first place, and in large part. Every dollar of recurring revenue they sold was worth $5 in market cap in mid-2016. At the end of 2019, the same dollar of revenue was worth $9. and for today median Public software company, it is valued at about $18.
There are nuances to the data, but we care less about precise definitions than that directional change: The average value of SaaS revenue more than tripled from 2016 to 2021. This is an insane amount of development.