This February Meridian Capital’s Technology practice leads, Patrick Ringland and Tony Richardson, joined some of the technology industry’s top executives, entrepreneurs, business owners, and professional service providers in Silicon Valley for Saastr Annual 2019, the largest non-vendor Software-as-a-Service (“SaaS”) conference on the planet. With over 12,500 attendees from 94 countries in attendance, the three-day event included over 200 interactive sessions, 300 speakers, and abundant networking opportunities for the SaaS industry’s leading professionals. Below are a few highlights and takeaways from the event:
Continued Industry Growth Driving Investor Demand and Premium Valuations:
As the technology industry continues to realize the benefits of cloud computing and hosted infrastructure, the SaaS industry has been able to maintain significant growth. This trend of strong industry growth was even reflected by the size of this year’s SaaStr conference itself as the number of vendors and exhibitors increased so much that the event had to be moved from San Francisco to a larger venue in San Jose. Bessemer Venture Partners1, a leading technology Venture Capital firm headquartered in Silicon Valley, shared a few statistics that displayed the industry’s rapid growth in their State of the Cloud 2019 session. One statistic they shared was that there are now over 55 private SaaS unicorns (companies valued at over $1 billion), up from zero just ten years ago. They also mentioned that SaaS M&A hit a record high in 2018 with total M&A value equaling nearly $90 billion, up from around $15 billion in 2017. With current market dynamics yielding premium valuations, many SaaS business owners are finding the timing for M&A and minority investments to be more appealing than ever.
Marketing, Sales, and Lead Generation – The Flywheel:
Marketing, sales, and lead generation were popular topics for many of this year’s sessions. Brian Halligan, the founder of HubSpot, led a particularly insightful discussion on his company’s approach to lead generation which he referred to as the “Marketing Flywheel.”
The Flywheel replaces the traditional “Marketing Funnel” which lists the steps a Company must take to gain a customer’s brand loyalty. Rather than providing a linear, step-by-step process, Halligan’s Flywheel, centers the entire marketing process around the customer, relying primarily on word-of-mouth influence. This topic is extremely relevant for early stage SaaS businesses looking to achieve organic growth, maintain high customer retention, and establish a positive brand reputation.
Market Expansion Strategies — A Key to Scaling Your Business and Driving Valuation:
Karen Peacock, the COO of Intercom, led a session where she shared some of the strategies that helped Intercom scale from $1M to $500M in Annual Recurring Revenue (“ARR”). As we listened to her, we couldn’t help but notice that the tactics she mentioned overlapped a great deal with the growth strategies of companies that we’ve seen earn high valuations in the M&A market.
The first topic Karen touched on was the importance of having a market expansion strategy. She explored a variety of ways to expand into new markets, including going vertical, upmarket, or downmarket. However one of the most insightful points she made was regarding how companies are often distracted from their market expansion strategy by one large customer. “Everyone has a strategy until they’re handed a big check,” she explained. When SaaS businesses focus on providing a service for one large customer they often focus more on what that single customer wants rather than the key problem their solution is meant to address. This heavy emphasis on a single customer also increases customer concentration, resulting in increased risk.
Both market expansion opportunities as well as customer concentration are key factors that M&A investors consider when determining the value of a business. We’ve seen that SaaS businesses that follow Karen and Intercom’s strategy of having a focused market expansion strategy with limited customer concentration are able to achieve premium valuations.
“SaaStr Annual 2019 was filled with terrific insights, speakers, and networking opportunities. The Meridian Capital Technology Team is looking forward to next year’s conference!”
Patrick Ringland, Principal & Managing Director