Over the last decade, private companies, in the areas of SaaS and Marketing as well as venture capital firms have been firmly focused on essentially one set of metrics: Drivers of Growth. Growth in customers, annual recurring revenue (ARR), pricing and retention had become almost exclusively the drivers of value. Venture firms have focused on total addressable market (TAM) and the assessment of a management team to successfully execute on a roadmap to achieve growth. Economies of scale have, over the years, always been believed to be the holy grail for growth companies. It has not been that profitability didn’t matter; but rather such profitability could readily take a back seat (in fact sometimes even in the proverbial trunk!) so long as growth was achieved, and preferably accelerated growth (often without regard to the cost of such growth).

It is certainly no secret to most any market observer that economic activity and most public equity markets worldwide have been quite robustly supported from a combination of the following primary drivers/factors:

Public market valuations reflect real-time information and have high data integrity because they include a wide array of companies and are based on audited financial statements. Public valuation data is the primary starting point for valuation analysis by both buyers and sellers. One key valuation index is one developed by SaaS Capital – aptly called The SaaS Capital Index. The index represents pure B2B SaaS companies, and specifically excludes companies like LinkedIn (when public), PayPal, Carbonite, and Dropbox. The index also excludes legacy and conglomerate software vendors such as Microsoft and Oracle, who have a mix of perpetual and SaaS revenue.

The last decade and a half (really since the Great Financial crisis of 2008) has brought many challenges to businesses worldwide; amongst perhaps the most salient: maturing economies, low growth and, in turn, deflation and negative real rates of return most everywhere. The Covid crisis has unfortunately aggravated and perpetuated this reality. Virtually the only games in town over the past five years or so which offer a decent investment return over and above the rate of inflation: Equities and (perhaps unbelievably), Crypto.