What it takes to go public for a SaaS company

What it takes to go public for a SaaS(source: SaaS Industry) company
At a Glance

Since Salesforce’s initial public offering in 2004, almost 70 more pure-play SaaS/cloud companies have gone public, with the number increasing year after year. In 2018, 16 high-growth SaaS companies filed S-1s, making it a banner year for SaaS IPOs. Many private SaaS companies believe that an IPO and attaining $100 million in revenue or ARR will lead to a public offering. Since the Great Recession’s two “SaaS Crashes” in early 2014 and early 2016, things have been generally up and to the right. Given all of the recent IPOs and high trading multiples, it’s interesting looking at the track records of each public SaaS firm.


Since Salesforce’s initial public offering in 2004, almost 70 other pure-play SaaS/cloud firms have gone public, with more and more going public each year. Going public has become an everyday occurrence.

In this article, we shall see the path to go public and what strategies will help a company along the route.

Going public 

The selling shares of a private business to the public in a fresh stock issuance is known as an initial public offering (IPO). A corporation can raise cash from the general public by issuing public shares. Because it generally involves share premiums for current private investors, the transition from a private to a public business may be a crucial opportunity for private investors to realize benefits from their investment ultimately. Meanwhile, public investors are allowed to participate in the offering.

SaaS and IPO

Sixteen high-growth SaaS businesses filed S-1s in 2018, which was a boom year for SaaS IPOs. Many private SaaS firms assume that an IPO and achieving $100 million in sales or ARR (annual recurring revenue) is the ultimate goal. In actuality, SaaS companies reach great returns in the public markets, much beyond $100 million in revenue. 

Things have mainly been up and to the right since the Great Recession’s two “SaaS Crashes” in early 2014 and early 2016. Given all of the recent IPOs and high trading multiples, it’s worth considering each public SaaS company’s past success.

According to historical statistics, the “median SaaS company” at IPO is ten years old, has 530 people, earns over $100 million in run-rate revenue, grows at a pace of 48%, and continues to lose money.

Founders, early employees, and investors would most certainly see their SaaS firms price over the filing range to attain a market valuation of $600 million and have their shares rise 32 percent on their first day of trading. 

While public investors expect more strong revenue growth from technology firms than other industries, SaaS companies’ bar is much higher. After all, one of these firms’ strengths is their product’s simplicity of deployment. 

A SaaS firm is unlikely to be profitable at its IPO; just 29% of SaaS companies had positive operating margins in the fiscal year before their IPO. They are, however, rapidly expanding their client base, securing contracts with large margins and recurring income. Investors like to take advantage of this early momentum, assuming that profits will follow. 

The “land and expand” strategy, for example, allows SaaS businesses to generate incremental profit by upselling increased product features and services to current customers at a lower cost of sale.

There were only 190 in 2018, a dramatic drop in nearly two decades. Despite these figures, the number of SaaS firms that have gone public continues to rise. SaaS businesses accounted for more than a third of the more than 40 IT companies that went public in 2018.

Three of the SaaS companies that have gone public share their strategies, 

Zoom

In the months leading up to Zoom’s IPO in April 2019, the business made substantial management appointments, as reported by Silicon Valley Business Journal and Forbes. Zoom, like Slack, used both local and top-tier media channels to get in front of local investors in the Bay Area and positioned themselves as a developing industry leader.

Using a press release strategy and targeted media coverage to announce important appointments to the C-suite team not only shows corporate movement, but it also attracts investors and future workers – two crucial components in the four pillars of B2B SaaS PR.

Slack

In April, the cloud-based messaging platform filed for an initial public offering. Slack made substantial achievements in its product plan to improve the user experience in the months preceding up to the filing, which the SaaS brand leveraged to signify momentum. Slack’s product upgrades were covered by several sources, including ZDNet, The Verge, and TechCrunch, in the run-up to the company’s IPO.

CrowdStrike 

After it’s Series E, CrowdStrike was valued at $3 billion, and the SaaS business hinted at an IPO more than a year before filing. While CrowdStrike garnered a lot of press after its Series E, one item in particular from CNBC jumps out. CrowdStrike was rated #27 on CNBC’s Disruptor 50 list. CEO George Kurtz highlighted the firm’s current and future development, without disclosing the company’s intention to file for an IPO. Kurtz’s remarks focused on how the firm is disrupting the industry and why it is a disruptor, a topic that served to underline market opportunity.    

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