Powering Up Your SaaS Game: 5 Metrics to Know and 14 Funding Rounds to Watch
An In-Depth Look at the Vertical SaaS Market and How to Secure Funding with Jessica Bartos
Get ready for an action-packed edition, squad!
This week's newsletter is loaded with game-changing insights that you won't want to miss. Buckle up and let's dive in!
🍿 Quick Snack
📈 The Vertical SaaS market projected to reach $402.4B by 2032
🧺 Learn about the all-in-one SaaS solution for growth, management, and customer satisfaction in the laundromat industry
🤖 There is a pressing need to create a more equitable technology industry by investing in diverse AI startups
💰 Maximize your chances of securing investment with the five crucial SaaS metrics outlined by Jessica Bartos from Salesforce Ventures.
🖤 +2 exciting M&A transactions
💸 +14 funding rounds, including Jobber ($100m), ExtroTrail ($58m), and InfluxData ($51m)
🍔 The Full Meal
Vertical SaaS: A Growing Market on the Rise
I wrote about Vertical SaaS a few weeks ago, and I'm doing so again today 😂 for a good reason.
The vertical market software projected to reach $402.4B by 2032 (growing at a CAGR of 12.6%), due to demand for software tailored to specific industries or applications. (source: Future Market Insights)
To put this in perspective, at present, vertical SaaS accounts for only 28% of the overall software market (based on sales data from 2021).
But what exactly is contributing to this growth?
For one, vertical software facilitates better organization and more effective resource utilization, as it can be easily integrated into a client's daily operations.
It also reduces technology costs for clients, as they no longer need to purchase multiple software packages from multiple vendors
Given that solutions are tailored to individual industries, clients feel like the solution was designed just for them (and are therefore more likely to buy).
Due to its specialized nature, vertical software can also contain powerful analytics making it more useful and appealing to clients.
However, there are also drawbacks to vertical SaaS:
Vertical software targets much smaller end markets. In other words, the client base is smaller.
Given the specialized nature of vertical market software, it is inevitable that the success or failure of these businesses is often linked to the condition of the end markets they serve.
Vertical market software vendors often incur higher costs for client education. Specialized software requires a more specialized salesforce and supporting material.
Vertical market software businesses tend to have fewer exit options for shareholders (e.g. M&A) due to their more limited use-cases. Unless there are strong incentives to pursue a specific vertical market, strategic software acquirers usually prefer horizontal solutions.
Revolutionizing the Laundromat Business with Vertical SaaS
Turns provides vertical SaaS services for the laundromat industry. The company aims to be a single system for new-age laundry businesses to leverage technology solutions and grow their businesses.
The goal of Turns is to help laundry and dry cleaning operators grow their businesses, manage their operations, and improve the customer experience.
It provides a comprehensive set of tools and integrated products for online scheduling, payment collection and reconciliation, accounting, payroll management, pickup and delivery operations, order management, machine usage tracking, and hardware management.
Success to date: Currently, Turns works with over 100 businesses across multiple markets, including India, Australia, EU, and the US.
Growth plans: In the future, Turns plans to roll out hardware that can be connected to washing machines and diversify its services to include marketing and advertising and capital financing.
Addressing Bias in AI and the Importance of Diverse Investment
AI has been a hot topic in recent months, particularly with the release of OpenAI's ChatGPT at the end of 2022.
However, what you may not be aware of is that despite its advancements, AI continues to struggle with issues of racism, including discriminatory job recruitment, slower home approval rates for Black individuals, and difficulty detecting dark skin in self-driving cars.
It is now recognized that the insufficient investment in businesses founded by Black individuals, combined with the homogeneity of AI teams at current companies, creates a cyclical issue. Capital allocated for businesses with a Black co-founder has persistently remained under 1% for recent years, without any indication of improvement.
On the bright side, investment in AI companies with at least one female founder has seen a steady rise in recent years, as reported by TechCrunch. This boost in funding is expected to contribute to the inclusivity of the industry and mitigate the biases present in AI.
The 5 Metrics Every SaaS Company Should Care About
In this challenging economic environment, it's not surprising that many businesses struggle to secure capital. So, what's the best way to attract investors?
PS. I watched the 50-min video, so you don't have to. 😉
Investors are keen to invest in SaaS companies that show strong growth potential.
Startups can demonstrate this through growth metrics, such as achieving $1 million in ARR within 12 months of launch, or displaying "T2D3" growth (tripling for 2 years and doubling for the following 3).
2️⃣ Net Dollar Retention:
Net Dollar Retention (NDR) is a metric that measures a company's Annual Recurring Revenue (ARR) growth or decline over time.
It considers customer expansion, negative churn, and downgrades and is calculated by adding upsells/cross-sells to the beginning ARR, subtracting churn, and dividing by the beginning ARR.
A good NDR is over 100% and shows the company's ability to generate revenue from existing customers.
3️⃣ Gross Margin:
The low cost of goods sold (COGS) in software results in high gross margins (70-80%) due to its asset-light nature, meaning they doesn't require much infrastructure or inputs to deliver the product or service to the client.
This metric is attractive to investors as it shows which companies are truly SaaS-based and not requiring significant input and manual intervention.
4️⃣ Rule of 40:
The Rule of 40 states that the combined revenue growth rate and profit margin of a software company should be equal to or exceed 40%.
To calculate the Rule of 40, the ARR growth rate or revenue growth rate is added to the EBITDA margin or Free Cash Flow (FCF) margin.
Companies with a score above 40% show sustainability in profits, while those below 40% may have cash flow or liquidity problems and may not be able to support growth.
5️⃣ Burn Multiple:
The Burn Multiple measures a company's efficiency by dividing cash burn by net ARR.
A high burn multiple reflects cash flow issues such as low gross margins, poor sales efficiency, and high R&D expenses.
Early-stage companies tend to have a high burn multiple, but as ARR grows, companies should aim for it to be under 2, then 1.5, and eventually below 1.
🖤 M&A Transactions
Montreal-based SaaS start-up GSoft has acquired Quebec City-based Didacte, with the aim of expanding its employee engagement software suite. (link)
Didacte provides a web-based learning management system (LMS) that allows organizations to create, distribute, and manage digital courseware, as well as tools for tracking participation, performance assessment, and reporting.
GSoft has built and launched three software products to date: ShareGate, OfficeVibe, and SoftStart, and claims over 15,000 companies use its offerings, including McDonald's, Ikea, Bose, and Salesforce.
Enghouse Systems has acquired Navita, a provider of SaaS-based Enterprise Mobility Management solutions in Sao Paulo, Brazil. (link)
Navita's annual revenue is approximately $7.5 million and its solutions include Telecom Expense Management (TEM), Enterprise Mobility Management (EMM), and IT Expense Management (ITEM).
These products ensure the compliant use of mobile assets for large enterprises, government agencies, and business customers through direct sales and indirect sales through leading telecom providers and hardware manufacturers in Brazil.
💸 Funding Rounds
Jobber | $100m Series D: cloud software that helps mobile service businesses organize their scheduling, invoicing, CRM, and team management. (link)
Exotrail | $58m Series B: electric propulsion solutions for small satellites. (link)
InfluxData | $51m Series E: open source time series database and platform. (link
Ushur | $50m Series D: cloud-based AI company that automates service workflows in both the backend process and conversational interfaces. (link)
Skybox Security | $50m: security platform that helps organizations quickly map, prioritize, and remediate vulnerabilities. (link)
Magic | $23m Series A: AI-powered software engineer. (link)
Faro Health | $20m: software platform that orchestrates complex clinical development with a single source of truth. (link)
Flox | $16.5m Series A: empowering teams to view and manage their entire software inventory. (link)
MindsDB | $16.5m Series A: in-database machine learning: for time-series & anomaly detection. (link)
Moderne | $15m Series A: code automation solution for software development. (link)
LandTech | $12m Series A: platform enabling property developers to identify and evaluate off-market opportunities. (link)
Riot | $12m Series A: security platform designed for fighting phishing attempts. (link)
Rezolve AI | $11m Series A: AI-powered auto resolution skills to deliver a highly autonomous employee servicing experience. (link)
Hatica | $3.7m Seed: engineering Analytics to boost developer productivity. (link)
What did you think of today's newsletter?
💬 If you have any feedback or suggestions for future topics, please don’t hesitate to reach out. Follow me on Twitter to stay in touch.