So far this year, SaaS and enterprise software companies have raised $4.7 billion in seed- through growth-stage financing, per Crunchbase data. That puts 2024 on track to come in far below last year’s $17.4 billion annual tally — which was itself the lowest total in years.

For perspective, we charted out funding and deal counts from 2019 through 2024.

A tough week for enterprise software stocks

Startup funding declines come amid what is shaping up as a challenging period for publicly traded SaaS and enterprise software companies.

On Thursday, Salesforce 1 shares were down more than 20% after the company lowered guidance for the current quarter, citing cooling demand from customers who were taking more time to complete orders.

At the same time, shares of process automation software provider UiPath dropped by around 30% following a disappointing earnings report and downwardly revised quarterly forecast.

More broadly, it’s been a tough month for enterprise software. The Bessemer Cloud Index, which includes many of the most prominent public SaaS businesses, has sharply underperformed the Nasdaq and S&P 500 and is now in negative territory for 2024. The Bessemer index saw a particularly steep decline beginning in late May.

Some big startup rounds are still closing

Even amid a tougher fundraising environment, we are still seeing some large financings for SaaS and enterprise software this year.

The biggest by far is cloud security provider Wiz’s $1 billion Series E earlier this month, co-led by Andreessen Horowitz, Lightspeed Venture Partners and Thrive Capital. The round set a $12 billion valuation for the 4-year-old company, which was founded in Israel and is headquartered in New York.

Another large financing went to Silicon Valley-based Glean, which markets AI-powered work assistants to enterprise customers. The company raised $200 million in a February Series D.

In the food service market, meanwhile, Irvine, California-based Restaurant365 landed $175 million in an early May financing led by Iconiq Growth. The company sells software to restaurant operators for managing and optimizing finances and staffing.

Not like it used to be

While funding hasn’t evaporated, we’re seeing far fewer megadeals in SaaS and enterprise software than a few years ago.

Over the past 12 months, 21 deals of $100 million or more have closed, per Crunchbase data. By comparison, during the peak year for deal-making — 2021 — there were 147 such financings.

For 2024, year-over-year investment totals are also quite a bit lower due to a single large 2023 round: the $6.5 billion Series I for fintech unicorn Stripe. That’s the largest financing in the space ever, per Crunchbase data, and thus obviously a tough comp to match.

Going forward, we’ll be looking to public markets to see if earnings outlooks improve for SaaS heavyweights and if investors regain their enthusiasm for the space. In private markets, meanwhile, investment remains subdued, albeit with a steady flow of deals still getting done.

Related Crunchbase Pro query:

• US SaaS And Enterprise Software Startup Funding

Related reading:

• The State Of Saas: After A Positive Start To 2024, Founders Can Find Success In A Reset Market
• 3 Strategic Steps Toward SaaS Profitability 

Illustration: Li-Anne Dias

That has seemed only to accelerate this month, as Salesforce Ventures 1 — Salesforce’s venture arm — announced it will double the size of its Generative AI Fund to $500 million just three months after establishing it. That was followed by AI startup Synthesia raising a $90 million Series C at a $1 billion valuation that included an investment from NVentures — Nvidia’s venture capital arm.

However, while everyone already knows Nvidia and Microsoft are making strong bids to be dominant players in the AI ecosystem with their startup investments, there are several other tech giants that also quietly have placed some bets in AI and others who have made surprisingly few.

Let’s take a look at some companies and their VC arms not covered last month and what they’ve done:

Qualcomm Ventures

Nvidia isn‘t the only U.S.-based semiconductor giant that has been looking at AI startups for the last handful of years.

Qualcomm Ventures, Qualcomm’s investment arm, has taken part in 34 funding deals since the start of 2019 involving startups using AI, per Crunchbase data.

The firm’s most active year was — not shockingly — 2021 when it invested in nine startups using AI. That included taking part in a $235 million Series C investment in Israel-based AnyVision — now called Oosto – a vision AI and facial recognition company. Those nine deals totaled $714 million in total (although Qualcomm Ventures’ stake is not known).

This year, the venture arm has made four deals in the AI space, including investing in Union City, California-based DeepHow, which develops an AI-powered learning platform for manufacturing and repair, and Brazil-based Aravita, which uses AI to try to solve waste issues.

Those deals this year, however, have been relatively small, totalling only $37 million.

Cisco Investments

Few corporate VC arms are as old as Cisco Investments — founded 30 years ago — and few have the breadth of their investment portfolio.

For some reason it is sometimes easy to pass over the networking giant and its VC arm, but they don’t overlook much — including AI. Just this week, Cisco Systems launched its own networking chips for AI supercomputers that would compete with offerings from the likes of Broadcom and others.

While not nearly as active as some other VC arms, Cisco Investments has made eight different deals that would fall into the AI sector, per Crunchbase data.

Its most recent deals include participating in a $4.7 million round for Israel-based Voiceitt, an automatic speech recognition technology platform last December, as well as a huge $140 million Series D for Palo Alto, California-based Uniphore, a startup specializing in conversational automation, in March 2021.

The deals the investment arm participated in last year totaled $78 million — actually down from 2021 when it took part in two rounds that totaled $160 million.

Amazon Alexa Fund

Another company one would logically think has its eye on AI would be retail and web giant Amazon. However, for the most part Amazon and its AWS division have only made a select few investments in AI-related startups. 

However, its Alexa Fund has been quite active in making AI deals — participating in 20 different rounds since the start of 2019, per Crunchbase data.

The fund has not made any deals this calendar year, but made a handful even last year, including participating in a $55 million Series D for Irvine, California-based Syntiant, a deep learning tech company that develops AI voice and sensor solutions, in March 2022.

That same month, the fund also participated in a $24 million Series A in London-based Logically. The startup uses artificial intelligence and expert analysts to detect and assess disinformation that can harm companies and governments.

The deals the fund participated in last year totaled $85 million.

The others

Some other big tech goliaths also have made a select few deals in the AI space — although logic would dictate they will make more.

Social media and advertising giant Meta made a handful of deals between 2021-22, but none this year, per Crunchbase data.

However, its deals were rather intriguing. Meta took part in a $19 million Series A for Paris-based PhotoRoom, an AI-enabled image capturing app which creates studio-quality product pictures.

Meta also was included in Mountain View, California-based Inworld AI’s $7.2 million seed round. The metaverse startup is a developer platform for AI-driven virtual characters and immersive realities.

Oracle is another company that has not made too much noise investing in AI startups through the years, but the company did make a couple this year — its only, per Crunchbase data.

Most notably, Oracle took part in Toronto-based Cohere’s $270 million round in May. The startup’s AI platform competes with OpenAI.

It also took part in a pre-seed round for New Haven, Connecticut-based ChestAi, which provides AI-based image analysis for chest diseases. ChestAi:

Just like the other companies and VC arms mentioned above, expect the number — and value — of the AI deals the likes of Meta and Oracle will participate in to significantly increase in the coming months. 

Further reading:

• AI Investing Boom Is Not New To Tech Giants (At Least Not Their VC Arms)

Illustration: Dom Guzman

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This new unicorn count took place in a funding environment where the most active unicorn investor, Tiger Global, is looking to sell its stakes in private companies, and investors continue to downgrade unicorn portfolio values.

The 10 companies hailed across nine different industries, and AI topped the list with two companies. Other sectors with a single new unicorn ranged from energy, biotech, robotics, enterprise SaaS and transportation among others.

Five of the new unicorns are U.S.-based and two are from China. Canada, Indonesia and Japan each counted one new unicorn this past month.

Around $5 billion of the $22 billion in global venture funding raised in May 2023 went to unicorn companies.  That’s less than half of the $11 billion that unicorns raised in May 2022. The largest funding last month went to fast-fashion e-commerce platform Shein, which raised $2 billion in a single round at a reduced valuation of $66 billion.

Here are the new unicorns:

AI

• Toronto-based Cohere, a generative AI large language model developer for enterprises, raised $270 million in its Series C funding. The funding was led by Inovia Capital  valuing the 4-year-old company at $2.2 billion. 
• Generative video AI company Runway, based out of New York, raised a $100 million Series D led by Google. The funding valued the 5-year-old company at $1.5 billion.

Energy

• China-based Ryefield Energy, a battery energy storage company, raised $140 million led by Sparkedge Capital. The company was valued at $1.4 billion.

Agtech

• Indonesia-based eFishery, developer of an IoT feeding device for shrimp and fish, and an e-commerce platform for aquafarmers, raised a $108 million Series D led by Abu Dhabi PE fund G42 Expansion Fund. The company was valued at $1.3 billion.

Cleantech

• Massachusetts-based Gradiant helps enterprises dependent on water reduce and treat wastewater. It raised a $225 million Series D led by BoltRock Holdings and Centaurus Capital in a round which valued the company at $1 billion.

Enterprise SaaS

• Restaurant management software company Restaurant365 based in Irvine, California, raised a $135 million round which valued the company at $1 billion. The funding was led by private equity firms Kohlberg Kravis Roberts and L Catterton.

Proptech

• Proptech company Avenue One provides a platform of services from brokers, contractors and property managers for buyers of rental properties. The company based in New York raised $100 million led by WestCap valuing the company at $1 billion.

Transportation

• Tokyo-based GO, the leading ride hailing app in Japan, raised a $72 million Series D led by Goldman Sachs which valued the company at $1 billion. The company is also developing software to monitor safe driving practices.

Robotics

• Humanoid robot developer Zhiyuan Robotics based in Shanghai, raised its third funding led by Baidu Capital, valuing the company at $1 billion. The amount raised was not disclosed.

Biotech

• VectorBuilder, a gene delivery technology company headquartered in Chicago, raised a funding which valued the company at $1 billion.

Unicorn queries

• Unicorn leaderboard (1,460)
• Unicorns in the U.S. (721)
• Unicorns in Asia (458)
• European unicorns (197)
• Emerging unicorn leaderboard (376)
• Exited unicorns (426)

Methodology

The Crunchbase Unicorn Board is a curated list that includes private unicorn companies with post-money valuations of $1 billion or more and is based on Crunchbase data. New companies are added to the Unicorn Board as they reach the $1 billion valuation mark as part of a funding round.

The unicorn board does not reflect internal company valuations — such as those set via a 409a process for employee stock options — as these differ from, and are more likely to be lower than, a priced funding round. We also do not adjust valuations based on investor writedowns, which change quarterly, as different investors will not value the same company consistently within the same quarter.

Funding to unicorn companies includes all private financings to companies that are tagged as unicorns, as well as those that have since graduated to The Exited Unicorn Board.

Please note that all funding values are given in U.S. dollars unless otherwise noted. Crunchbase converts foreign currencies to U.S. dollars at the prevailing spot rate from the date funding rounds, acquisitions, IPOs and other financial events are reported. Even if those events were added to Crunchbase long after the event was announced, foreign currency transactions are converted at the historic spot price.

Correction: The funding round for Cohere was updated to $270 million and its valuation to $2.2 billion based on an updated funding announcement.

Illustration: Dom Guzman

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Rounds were not that big this week, as only a handful were $100 million or more. Much like last week, investment was all over the board, as storage, grocery and energy startups led the way in what was a pretty down week.

1. Wasabi Technologies, $125M, storage: The cloud services sector is dominated by the big tech names we all know. Boston-based Wasabi would like to change that, and just this week became a unicorn as it travels down that road. The “hot” cloud storage company raised $125 million in Series D equity led by L2 Point Management at a valuation of $1.1 billion. The company also expanded its existing debt facility to $125 million. The startup claims it can offer its hot cloud storage—which refers to data that is readily available—at a fifth of the price of the big guys and now has 40,000 customers in over 100 countries. The cloud data market is big, but dominated by incumbents not likely to let new players in. We’ll see if Wasabi can heat things up. Founded in 2015, the company has raised more than $535 million, according to Crunchbase.

2. GrubMarket, $120M, grocery: It was reported this week that San Francisco-based GrubMarket raised $120 million from new investors including General Mills’ venture arm. The company develops software and has an e-commerce platform that connects farmers and wholesalers with customers. It’s been quite busy in the last few years, making 60 acquisitions in the last four years and just last year raised $200 million at a $1.2 billion valuation. Per the story, GrubMarket now has an annual run rate of about $1.5 billion. Founded in 2014, the company has raised approximately $500 million, according to Crunchbase.

3. Moxion Power, $100M, energy: Sustainable and cleaner alternatives for power has been a big theme this year for investors. So far this year, the cleantech industry has seen 17 funding rounds worth $100 million or more, according to Crunchbase. This week included one of those rounds, as Richmond, California-based Moxion Power locked up a $100 million Series B led by Tamarack Global. Moxion manufactures mobile batteries and energy storage to enable last-mile electrification in sectors that include construction, transportation, events and entertainment, film production and telecommunications. Although venture capital in general has slowed this year, cleantech is on pace to see a slight uptick from last year, according to Crunchbase. Last year, VC-backed cleantech startups saw $7 billion of investmentment, while already this year investors have poured more than $6.6 billion into the sector. Founded in 2020, the company has now raised just more than $113 million, according to Crunchbase.

4. Strike, $80M, payments: While digital payments can be convenient, they can also be slow and cluttered with fees. Chicago-based Strike, built on Bitcoin’s Lightning Network, is looking to allow customers to avoid those hassles. The Lightning Network is known for fast transactions and could be a solution to Bitcoin’s scalability issues. Strike is looking to leverage that and make cheaper, faster, global payments a real thing for everyone. To that end, the company raised an $80 million funding round led by Ten31, its first funding round, according to Crunchbase. The company will look to use that new cash to attract large merchants, marketplaces and financial institutions to its payments platform.

5. Ventus Therapeutics, $70M, biotech: Waltham, Massachusetts-based Ventus Therapeutics announced an exclusive license agreement with Novo Nordisk and received an upfront payment of $70 million in cash as part of the deal. Under terms of the agreement, Novo will help develop and commercialize therapies from Ventus’ portfolio. Ventus has developed a platform to identify and develop small molecule therapeutics for a broad range of diseases. Ventus will be eligible to receive up to an additional $633 million in potential milestone payments as well under the agreement. Founded in 2019, the company has raised $370 million, according to Crunchbase.

6. Sitetracker, $66M, SaaS: Montclair, New Jersey-based Sitetracker, a developer of deployment operations software servicing critical infrastructure, closed a new round of equity and debt financing totaling $96 million.The round includes $66 million in equity and was led by Energize Ventures. Sitetracker has raised nearly $200 million since 2013, per the company.

7. Workstream, $60M, human resources: San Francisco-based Workstream extended its Series B funding round with an additional $60 million, bringing the total Series B to $108 million. The extension was led by GGV Capital. The company had developed a mobile-first hiring and onboarding platform for the deskless workforce. Founded in 2017, Workstream has raised $118 million to date, according to Crunchbase data.

8. (tied) Flatfile, $50M, cloud data services: Denver-based Flatfile, a AI-assisted data exchange platform, locked up a $50 million Series B funding led by Tiger Global. Founded in 2018, Flatfile has raised $100 million, per the company.

8. (tied) Unravel Data, $50M, big data: Palo Alto, California-based observability platform startup Unravel Data closed a $50 million Series D led by Third Point Ventures. Founded in 2013, the company has raised $107 million, according to the company.

10. Candle Labs, $48M, blockchain: Santa Barbara, California-based blockchain technology platform Candle Labs raised a $48 million funding round. Lead investors in that round were not disclosed. The startup develops software for decentralized services in sectors like finance.

Big global deals

Rounds were on the small side this week for U.S.-based startups. However, there was a large global deal.

• Saudi Arabia-based Almosafer, a flight booking firm, raised a $1 billion venture round.

Methodology

We tracked the largest rounds in the Crunchbase database that were raised by U.S.-based companies for the seven-day period of Sept. 24 to 30. Although most announced rounds are represented in the database, there could be a small time lag as some rounds are reported late in the week.

Illustration: Dom Guzman

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Enter Pipe, which this morning announced it raised $6 million in seed funding led by Craft Ventures.

Harry Hurst, Josh Mangel and Zain Allarakhia founded Pipe in September 2019. Their goal is to offer SaaS companies a way to grow without diluting their current cap table.

Pipe claims it does this by offering an instant cash advance against the full annual value of a company’s software subscriptions. So basically, according to co-CEO Hurst, it turns monthly recurring revenue into annual recurring revenue.

“We built this for SaaS companies because they, in particular, benefit from immediate payment,” he wrote via email. “With Pipe, they don’t need to discount revenues to entice customers to prepay.”

Fika Ventures, MaC Venture Capital, AngelList Founder Naval Ravikant, Okta’s General Counsel Jon Runyan, Work Life Ventures, Liquid2 and Weekend Fund also participated in the round. (There’s been a recent trend of startup founders investing in other startups as of late, such as in the case of Front, which we wrote about here.)

The premise behind the Los Angeles-based company was appealing to David Sacks, co-founder and general partner at Craft Ventures. Historically, he said, the main financing option for SaaS companies has been dilutive equity rounds.

“Pipe is the tool every SaaS founder has been waiting for,” he said in a written statement. “It allows SaaS companies to grow without dilution by financing their SaaS receivables.”

How it works

Pipe says it is addressing a $250 billion worldwide cloud services market (as of 2018), which is growing by double-digit percentages year over year.

The Pipe’s platform assesses a customer’s key metrics by integrating with its accounting, billing and subscription management systems. It then makes “an instant decision on whether the company qualifies for a PipeLine of finance.” Facilities range from $10,000 per month to several million dollars per month for later-stage companies.

I was curious as to how Pipe could provide such facilities with just $6 million in seed funding. Hurst told me the company is also backed by debt providers (such as Silicon Valley Bank) to be able to provide the facilities to its customers. But he emphasizes that Pipe is “not providing debt,” and is “not a loan.”

Fountain CEO Keith Ryu said his SaaS company has risked losing deals in the past by requiring annual upfront payments when customers wanted to pay monthly.

“Pipe solves this for us and allows us to invest more heavily into our growth,” he said. “It may easily save us a fundraise.’’

Pipe has only officially been in the market for a few weeks but Hurst said it’s been “growing 100 percent week-over-week during beta.” The company is officially launching out of beta today.

The six-person company plans to use its first round of funding to expand its sales and engineering teams out of its L.A. headquarters and in San Francisco and Phoenix. But looking ahead, the company considers what it’s doing “as a global opportunity.”

Illustration: Li-Anne Dias

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The news comes less than six months after Druva raised $130 million in a round led by Viking Global Investors, and reached unicorn status. That round brought the 11-year-old company’s total venture raised to $328 million. Other backers include Riverwood Capital, Tenaya Capital, Nexus Venture Partners

Druva says its growth has been fueled by the fact that an increasing number of enterprises are becoming more open to cloud adoption and a SaaS business model.

Specifically, Druva says it has almost tripled its annual revenue in three years. It also says that more than 600 customers (including more than 10 percent of the Fortune 500) use its data center workloads platform, up 70 percent year-over-year. The company also says that over 800 customers are protecting their cloud workloads using Druva – a figure that has doubled compared to 18 months ago. Customers include Flex, Hitachi, Live Nation, Marriott, and Pfizer, among others.

Built on Amazon Web Services (AWS), Druva touts itself as “a SaaS solution in a market dominated by legacy hardware vendors.” By offering its service as a subscription, it claims to be able to help cut costs for customers by “up to 50 percent” by eliminating the need for “unnecessary hardware, capacity planning, and software management.”

Other SaaS companies that have crossed the $100 million ARR  mark as of late include social media management company Sprout Social, which recently filed to go public, and Asana, developer of a work management and productivity suite.

Illustration: Li-Anne Dias

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So when a venture capitalist reached out wanting to talk about a cloud slowdown, I had to get on the phone and hear what they had to say. That this particular VC also mentioned revenue multiples before our chat made it all the more attractive a conversation, really.

Initially, I expected to just speak with the VC in question, Matt Holleran, a general partner at Cloud Apps Capital Partners, learn something, and leave it at that. But, after yammering with him a bit, I decided to bring a version of the conversation to you as it proved both useful and interesting to myself. (Cloud Apps Capital Partners is based in San Francisco, last raised $87 million in its second fund, and invests in early-stage cloud companies.)

So, I sent over a list of questions and let him compose answers at length, something that is nigh journalistic malpractice. Reporters nearly always value recorded and transcribed interviews over written chats as nearly everyone is more interesting, and authentic, when speaking out loud. Not to mention that such conversations brook less interference from third-parties. But in this case, we were discussing something technical so it felt like a good exception to the rule.

To make things fairer, I’ve weighed his lightly-edited and occasionally condensed responses with my notes from our first conversation (everything is fine) and have provided small commentary following some of his answers. Let’s go!

Questions, Answers

First, a few questions about the state of the cloud and SaaS market.

Crunchbase News: Could you detail your views regarding the slowing of growth among the most valuable public cloud companies, and what that might mean for SaaS and cloud startups?

Matt Holleran: The largest 25 public cloud companies by market capitalization had revenue growth of 27 percent in calendar 2018 and forecast 25 percent in 2019, 22 percent in 2020 and 20 percent in 2021. Part of the issue here is that these companies are larger, and adding incremental revenue at those growth rates gets more challenging. But we think reduction in the revenue growth forecasts is mainly due to executives at end-buying companies weighing the risk of recession in the US and abroad.

End customers are still and will still be buying new cloud business applications and growing their usage of existing applications because of the value proposition of the applications and the customer benefits of the recurring revenue model. But the size of new purchases may get smaller, and the rate of growth of existing applications may be slower than the last few years. Public and late-stage cloud companies will need to thoroughly qualify the opportunities in their pipelines and reframe their landing and expand strategies.

Cloud business application startups will need to be laser-focused on serving executives at buying companies with titles that have access to reasonable budgets and have the drive and authority to make new purchases and roll out meaningful applications. If solving a problem with a cloud business application is not a top-three priority for a target business executive title, it may not get done in a time of slowing economic growth and uncertainty. The first deployments may be smaller and take a little longer, but history has shown that great cloud business application companies have been started and gone through the foundational stages during major recessions and minor ones. Salesforce.com in 2000 and ServiceMax in 2008 are two good examples.

Alex’s Take: What was pretty interesting about Holleran’s take regarding cloud growth wasn’t that it was maximalist or negative, but that it split the difference. It’s not hard to find positive or negative cloud takes but to hear someone in the middle did stand out.

Crunchbase News: We discussed the size of new cloud/SaaS deployments and how they may shrink in time. What impact might that situation have on SaaS and cloud companies large and small?

Matt Holleran: We are already seeing the impact of smaller initial cloud purchases and deployments as enterprise customers become more cautious with their software spending in the face of global economic uncertainty.

In Q3, Workday said that sales of their flagship HR application to the world’s largest enterprises was slowing.

Public cloud companies will continue to sell to new enterprise customers, but the size of those initial deals will not be as large as they were in the recent past. Large public cloud companies like Workday and Salesforce.com will likely focus more on cross-selling new or acquired products to their existing customer base to grow revenue. Medium-sized cloud companies will likely focus on pipeline rationalization to focus on bringing on the most qualified new customers and proposing smaller initial new purchase prices to make the customer successful and plan for more future revenue versus upfront purchases.

Next, let’s talk about the most interesting thing in the world, cloud and SaaS revenue multiples.

Crunchbase News: We discussed rising SaaS and cloud company revenue multiples that seemed to peak over the summer; what drove that rise in valuations?

Matt Holleran: The average public cloud business application company forward revenue valuation multiple hit a record 12x this July. This run-up followed a significant revenue multiple compression and stock market correction in this market in December of 2018.

Early in 2019, the Fed lowered interest rates, which increased GDP growth and forecasts. As a result, executives at end-buying companies continued their purchases of cloud business applications all over the world. The lower rates also likely forced more capital to look for good sectors to invest in to generate returns resulting in an influx of capital with experience in the cloud business application business model and likely many new investors without prior experience.

The professional investors with experience in this market may have realized their substantial gains from the first half run-up by selling in Q3. The new investors may have conflated investing in good cloud companies with good recurring revenue models with good fundamental customer unit economics but losing money from investing in growth with unprofitable consumer companies and exited post the peak without significant gains or with losses.

We have seen this before, with one example being SuccessFactors. They spelled out their customer unit economics in their S-1 filing in 2007 and went public with good customer unit economics and large losses because they were investing in growth. In 2008, their stock dropped significantly and later regained a lot of the lost value prior to being acquired by SAP.

Public market investors’ understanding of the recurring revenue model, good customer unit economics and appreciating smart growth with losses has grown since Salesforce.com went public in the mid 2000s, but there may be many new investors who don’t have experience with the business model yet and may cause a flight to safety with profitable cloud companies but not necessarily a flight to quality.

Alex’s take: Years ago, an executive from a newly public company called me after their firm got beat up in earnings to explain how SaaS companies invest (i.e. lose money) in the short term to build long-term, high-margin recurring revenue. Happily, I was already read-in, but we do live in very different times today, at least in terms of the market’s familiarity with SaaS economics. 

Crunchbase News: Later in our conversation, we discussed cloud and SaaS multiples returning to more historically normal levels. What levels would you consider to be normal?

Matt Holleran: At the peak this summer, companies on the BVP Nasdaq Emerging Cloud Index were trading at an average of 12x forward revenue. The historical norms are closer to 6-8x. The Index is trading at 10x today on average. 8x on average is probably a reasonable valuation multiple. With 22% average revenue growth for the Top 25 cloud companies by market capitalization expected in 2020, these companies could grow into their current average revenue multiples within a year.

Alex’s take: We’ve touched on this idea before. If SaaS stocks held their value flat for a few quarters, revenue multiples would compress as the companies continued to grow.

Now, let’s wrap with a short note on the IPO window and a sports analogy.

Crunchbase News: We discussed how the SaaS and cloud IPO window may be closed for all but the best companies, why is that?

Matt Holleran: I think buyers will take a wait and see approach, wondering if the cloud market still has farther to fall. Similarly, cloud companies and their boards will make the calculation that it might be better to stay on the sidelines and wait it out. The market leaders targeting large global markets, serving meaningful titles with great customer unit economics will be able to come public if they choose to or they will access private capital until they think the time is right.

Alex’s take: If your current valuation is too rich for public-market multiples to be palatable today, and your most-recent investor wants a return, your IPO is a ways out. 

Crunchbase News: Finally, you remain bullish on the SaaS transformation that we’ve seen in the software over the past few decades. Stretching ourselves to a baseball analogy, what inning are we in today?

Matt Holleran: I’d say we’re still in the fourth inning. End customers realize the business value of deploying cloud applications and appreciate the recurring revenue business model as much as companies and their investors. The horizontal cloud application market is expanding globally across the small, medium, large, and enterprise markets. The vertical cloud business application market is also now a global market across many customer size segments. The global scale of these horizontal and vertical markets is creating the opportunity for more entrepreneurs to build global category leaders that can become public scale companies.

Illustration: Li-Anne Dias.

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Today, the company announced that it raised CAD$227 million ($172 million USD), in a round led by OMERS Growth Equity. The new round for the Candian company pushes its valuation above the $1 billion mark (USD), making Coveo a new member of the unicorn cohort.1

Coveo plans on using the money to fund its “aggressive growth” and expand its platform, according to CEO Louis Tetu. The company has been hiring about 60 employees per quarter and that will likely accelerate. Coveo will probably make some acquisitions with the new cash as well, Tetu said.

“At a high level, we can help any company be like Amazon or Netflix, so to speak,” Tetu said of the software’s ability to personalize suggestions. In an increasingly digital world, what Coveo is doing – bringing companies a SaaS product to unlock growth and better understand their elusive customer – seems to matter: over 500 companies (largely enterprise companies) work with Coveo.

For example, in a healthcare context, Coveo can help by giving relevant context to a patient’s needs, “whether that be to create a more personalized website experience or a more effortless self-service interaction,” according to its website. In the retail space, Coveo offers an AI-powered search to check out website visits of a customer, and then use those to bring up relevant suggestions. The goal? Increase online conversion rates and get more money for the company.

Other applications can tell a company when it is time to update its website, untangle a complex catalog, or help a sales team with suggestions on what a client might need next. Coveo calls its service day-to-day “AI-powered relevance.”

Coveo last raised money in April 2018, when it brought in $100 million in a private equity round led by Evergreen Coast Capital. It acquired AI search and discovery startup Tooso in July, according to Crunchbase.

Fast forwarding, let’s get to the new unicorn in the room.

Unicorns, Timings, Rules

Coveo’s entrance into the unicorn club is notable for its timing. There are now hundreds of unicorns around the globe (Coveo is not Canada’s first, of course; Shopify, another Canadian company, was a phenom while private and has proved an impresario since going public), meaning that Coveo is merely one in a crowd.

Given recent chop in the late-stage market and how it has impacted how private market investors are said to vet investments, Coveo could be a company invested in under a new, stricter set of criteria. Catching you up, after some late-stage companies have seen their valuations fall, investors in more mature private companies are said to have higher expectations for things like paths to profitability, and efficient growth.

As for whether or not the company will IPO in the near future, Tetu said Coveo could have gone public but there was enough interest and competitiveness from the private market for their product that staying private was a better outcome for the time being. An IPO is a financing event, not a destination, Tetu said, and he and other executives on the Coveo team have been through public offerings before.

“We would be a candidate [for an IPO], yeah, but I’ve got that T-shirt, so it might not be as much of a destination for me as for others.”

Coveo’s growth rate of 55 percent expansion of SaaS revenue compared to a year ago meets the general credential for later-stage companies. However, as we don’t have companion profitability metrics it’s hard to further vet the company’s health in terms of new investor assumptions.

The Coveo round was completed sufficiently far in advance (when a round is announced it has been fully-baked for some time) to have missed the tightening gauntlet altogether. That said, we’d hazard that it did in fact have to deal with changing winds in the late-stage capital market.

This is all rather impressive for a company nearly impossible to decipher.

Illustration: Dom Guzman

It’s been a busy week here on the News desk, including some news from Crunchbase itself that I’m sure you’ve seen by now. While we tidy up the weekend email draft, prep the final podcast episode of our first-ever mini-series, and compile startup financings into Last Week in Venture, I have a few more things to put on the site before we all break for a nap.

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And so for what I believe is on the second time ever, it’s time for a grab bag!

Progyny!

Last week I got on the phone with Pete Anevski, President, CFO and COO of Progyny, a company that went public that very day.

Progyny, as a reminder, is a venture-backed company that raised a known $99.5 million before going public. It priced its IPO at $13 per share. Today it’s up past $16. That’s a pretty good IPO cycle.

The company is fascinating in that it helps employers provide fertility services to employees. It works with employers (who pay), employees (who use), and medical professionals (who use) to deliver its service.

Chatting with Anevski, I asked about the changing face of society and how that may, or may not be impacting the company’s growth trajectory (read its S-1 here). He agreed that societal changes that make it more feasible to discuss fertility are changing the game. His company is right in the sweet spot of riding that trend.

And as people have children later in life over time, Progyny’s usefulness will probably only rise. It’s a company to watch, and a win for Kleiner Perkins, TPG Biotech, Mellon Ventures, and others.

The State Of SaaS!

I wanted to do a pretty deep dive into the KeyBanc 2019 SaaS report but only wound up mentioning it in this post. You can read the whole thing for yourself here (do, if you are in the SaaS world in any capacity), but let’s snag a few notes for the busy among us:

• SaaS companies as a cohort grow more slowly than you’d expect, even at modest ARR levels. This means that the percentage of SaaS startups that are venture capital-friendly is smaller than I expected. (Amongst survey respondees with over $5 million ARR, a 36.3 percent growth rate was the median.)
• In 2018, companies in the survey had blended CAC of $1.14 for a marginal dollar of ARR and burned $1.47 in capital for the same new $1 in annual recurring revenue. You can dig deeper into the figures, but having those top-line metrics are useful rubrics for your cranium.
• ACV has very little impact on a SaaS company’s growth rate, looking at all participants across all ACVs.
• SaaS companies of all sizes derive an average of just under 37 percent of new ARR from upsells and expansions; I can’t decide if that feels high or low, but, again, having a broad metric is useful.
• Expansion ARR is the cheapest to generate. Upsells are a close second. You knew that, but it’s nice to see it in chart format. Thanks, page 26.
• A working median for SaaS only ARR is 78 percent. That feels precisely correct and goes to show why companies in the 80s can generate such high revenue multiples. They’re exceptional.
• Nearly exactly one-fifth (20 percent) of companies surveyed met the Rule of 40 benchmark. Put another way, 80 percent of SaaS companies failed the Rule of 40.

There’s a lot more. Go read it if you want to get a better view of SaaS as it stands this year.

The State Of The Market!

The folks over at Silicon Valley Bank put out their Q4 2019 State of the Markets report, bringing its regular dose of data to our lives. As with most SVB reports, it’s worth reading. I want to highlight two small bits from it while we’re here, as I was slightly gripped by the pair.

First, observe this chart:

And then this one:

I’m sure you can see the risks. Sleep as well as you can.

A Crypto Boomlet!

Here at Crunchbase News we’ve only covered crypto only a bit lately. We did a pulse check of the industry and touched on Coinbase’s regular profitability (well done), and peeked at its venture scene.

But that’s been it, mostly because the wild price gyrations that make bitcoin and friends fun to watch have dried up to some degree. Until the other day, that is, when the entire crypto market rallied, creating tens of billions of value seemingly instantly.

It was a positive rejoinder to market prices for cryptocurrencies that had fallen in lockstep before. What to take away from the recent boost to crypto values? That while the rest of the world is busy watching the Astros lose at home (four times!), the crypto believers are still busy out there building the future that they see as best. And sometimes the price of their underlying assets wakes up to remind us of that fact.

Next Up:

Esports! Vindex is a new company from a passel of MLG alums (Sundance DiGiovanni, Mike Sepso) who are building out what appears to backend tech and services for the world of competitive gaming. With $60 million in the bank, we’re writing about them. I’ve touched-base with DiGiovanni, so prep up for words from us concerning esports on Monday.

Alright! That’s enough from me this week. Get some rest!

Illustration: Li-Anne Dias.

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Onshape offers a subscription-based product that combines computer aided design (CAD) with data management. The deal was approximately $470 million and is expected to close in November, per a press release.

Onshape was founded in 2012 by a multitude of CAD entrepreneurs. It has raised over $150 million in funding to date.

At its core, Onshape helps designers, engineers, suppliers and contractors develop product. It claims that the cloud workspace it provides makes product developers speedier, thanks to collaboration tools and real time analytics. Other features include risk mitigation and IP protection. With subscription-as-a-service (SaaS), customers can have faster roll out and lower costs.

“With traditional file-based CAD, your product designs and intellectual property are subject to unauthorized duplication, data breaches, or even accidental sharing,” according to Onshape’s website. Onshape combats this by basing itself on “any modern web browser,” avoiding downloads, installations, or license codes. Additionally, it claims it has strong authorization and authentication methods.

So why does PTC, a startup born in 1985 that has over 28,000 businesses worldwide, need this startup under its wing?

The Industry Moves

For software services, subscription models these days feel like part of the DNA from day one. There’s the big ones like Slack, a recently-public messaging platform, Flexport, which helps with logistics and freight, and Snowflake, which creates a home for an organization’s data.

And there’s also the smaller startups integrating SaaS as a business imperative. Think Flowhub, which offers a retail management system for cannabis shops, o Grammarly, which helps check a user’s language for typos and other literary nuance.

Yet within CAD and product management, the SaaS model hasn’t quite caught on in comparison to the slew of startups above. For example, PTC just transitioned to offer a subscription licensing option in January 2019.

The acquisition, per the press release, is part of PTC’s larger strategy to grab new customers and “capitalize on the inevitable industry transition to SaaS.”

Plus, as Jason D. Rowley told us in the past: “One of the attractive aspects of software that’s sold on a service model (rather than, say, a one-time purchase of a cardboard box) is that, from an accounting perspective, it converts periodic large capital expenditures into more incremental operational expenses.”

With over a billion in revenue already, PTC’s latest acquisition shows us that despite a big footprint it’s looking to diversify, and innovate within its stable world.

Illustration: Li-Anne Dias