Key takeaways
01
Spending on cloud computing and cybersecurity accelerates
With nearly half of US workers still working remote, spending continues to increase on cloud computing as well as cybersecurity to protect against an exponentially growing number of cyberattacks.
02
Monstrous year for investment in SaaS companies
Driven by factors such as wider acceptance of remote due diligence and heightened competition, US SaaS VC investment reached $90 billion spread over 3,901 deals in 2021.
03
Valuations soften for late-stage companies
After a spike last year, late-stage valuations have started to plateau as investment firms pivot toward tech stocks and early-stage startups.
SaaS investment still strong
US SaaS VC investment hit $90 billion in 2021, the highest on record, with over 263 US SaaS VC deals greater than $100 million – 3x the total last year and 7x the total in 2015.
Last year saw the first increase in US VC SaaS deal count since 2015, led by growth in Series C+ deals. The pace is expected to grow at a healthy clip in 2022, albeit at a more tempered pace, as $400B in US VC and PE dry powder is waiting to be deployed.
Investment firms rebase late-stage valuation
In 2021, fierce competition drove valuations to an all-time high with Series C valuations more than doubling. With the landscape in 2022 changing, investors are reassessing where and at what stage they want to deploy their capital.
Already, we are seeing a plateau as heightened valuations are brought into focus amid the continued downturn in public markets. If the public markets continue to slide and companies struggle to grow, pressure on late-stage private valuations to rebase will mount.
Hybrid investment in SaaS companies remains steady
As public markets remain volatile, hybrid PE/VC firms have focused efforts on beaten-down public tech stocks as well as early-stage companies out of concerns over Series D+ valuations softening and muted exit activity.
Hybrid investment in SaaS companies has remained steady, with no material drop so far in 2022, due to strong enterprise demand and multi-year contracted revenues insulating companies from volatility.
Revenue growth less of a determinant of revenue multiple
Historically, revenue growth has been the primary driver of revenue multiples for SaaS startups. However, 2021 saw this relationship bend, which could signal other factors such as profitability, vision and addressable market are becoming increasingly more valued.
In order to maintain strong multiples, private companies will need to demonstrate strong revenue growth, as it is a major determinant of the multiple received in the public markets.
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