We analyzed the performance of all the B2B SaaS companies that we’ve ever underwritten at Capchase, going back to July 2021, with trailing 3-month averages. Here’s what we found.
- SaaS is uniquely resilient
- Margins can improve even in today’s economic environment
- Improved cash flow is possible
SaaS stays stable
YoY growth has been trending down across the B2B SaaS space since the start of 2022. Interestingly, most of the downward trend is driven by large companies, while small- and mid-sized companies are growing or staying stable YoY.
Margins are improving
Even with a decline in growth, net margins have improved across the board, especially in the bottom quartile: the share of companies with net margins of below -50% is at its lowest since 2021.
Many SaaS companies opted to cut costs to meaningfully offset margins, while others opted to partner with underwriters like Capchase to capture full ARR upfront for more cash on hand.
It’s clear that SaaS leaders are using lessons learned in the 2008 recession: cutting costs for improved margins works against declining growth rates for slow but steady growth.
A reliable cash flow boosts efficiency
A steady cash flow is key to staying nimble and productive in an economic downturn. The percentage of companies with a monthly burn of more than 10% of ARR has been declining since the middle of 2022. This appears to be a direct response to rate hikes, and highlights unique flexibility of SaaS companies.
Improved monthly operating cash flow has led to improved runways across the board. The median runway across companies has improved from 5.5 months to 7 months since Q3 2022. That 27% improvement in runway has real impact on companies, allowing them to focus on producing quality products with more peace of mind.
Companies that prioritize efficiency and healthier long-term strategies are feeling the benefits of improved runways and a better cash balance. In fact, the second half of 2023 has seen a significant increase in cash balances across the portfolio.
Equity markets aren’t all that
Improvements in cash and runway have led a number of SaaS founders to delay raising equity. For those who have chosen to raise equity, round values have been lower than historical levels.
Although SaaS has been able to resist the worst of the declining economy, it’s not completely immune to the current environment, and changes in equity round behavior make that clear.
Revenue-based financing makes more sense
As a result of declining fundraising rounds, more SaaS leaders are looking to revenue-based financing (RBF) to help them grow. Products like Capchase Grow underwrite SaaS companies against their predictable ARR. It’s a reliable way to finance growth without unnecessary dilution.
The strength of the SaaS space is that leaders learn from each other, and change happens quickly. The first 9 months of 2023 saw an increase in the number of applications for Grow by 24% as compared to the same period in 2022.
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