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Ready? Let’s talk about money, startups, and spicy IPO rumors.
Despite some recent market volatility, the valuations that software companies have generally been able to achieve in recent quarters have been impressive. On Friday, we took a look at why this is the case and where the reviews might be a little more bubbly than others. According to a report by a few Battery Ventures investors, it stands to reason that the middle of the SaaS market could be where valuation inflation is at its peak.
Something to keep in mind if your startup’s growth rate is slowing down. But today, instead of being a huge disappointment and worrying about you, I have come up with some historically remarkable data to show you just how good modern software startups and their big brothers have it today.
In case you’re not 100% excited about the tables, let me save your time. At the top right, we can see that SaaS companies that are growing at less than 10% a year today are trading on average for 6.9 times their revenue over the next 12 months.
In 2011, SaaS companies that grew 40% or more were trading at 6.0x their revenue for the next 12 months. Climate change, but for software valuations.
Another note from my conversation with Battery. Its investor Brandon Gleklen riffed with The Exchange about the definition of ARR and its nuances in the modern market. As more SaaS companies trade traditional software-as-a-service pricing for its consumption-based equivalent, he declined to quibble over definitions of ARR, arguing instead that all that matters in Software revenue is whether they are retained and grow over the long term. term. This brings us to our next topic.
Consumption vs SaaS pricing
I have taken a number of revenue calls over the past few weeks with public software vendors. One theme that comes up time and time again is consumer pricing versus more traditional SaaS pricing. There is some evidence that consumer-priced software vendors are trading at higher multiples than traditional-priced software vendors, thanks to above-average retention figures.
But there is more to the story than that. Chat with the CEO of Fastly Joshua Bixby after reporting on his company’s results, we noted an interesting and important distinction in the market between sectors where consumption may be more attractive and those where it may not. According to Bixby, Fastly finds that larger customers prefer consumption-based pricing because they can afford variability and prefer their bills to be more closely tied to revenue. However, according to Bixby, smaller customers prefer SaaS billing because it offers rock-solid predictability.
I brought the argument to Open View Partners Kyle Poyar, an entrepreneur who has written on this topic for TechCrunch in recent weeks. He noted that in some cases the reverse may be true, as variable-price offerings may be of interest to small businesses, as their developers can often test the product without making a significant commitment.
So maybe we see the software market favoring SaaS pricing with smaller customers when they are certain of their needs, and choosing consumer pricing when they want to experiment first. And large companies, when their expenses are linked to equivalent variations in income, also favor consumer prices.
The evolution of SaaS prices will be slow and never complete. But people really think about it. Appian CEO Matt Calkins has a general pricing thesis that the price should “hover” below the delivered value. Asked about the topic of consumption versus SaaS, he was a bit shy, but noted that he was not “completely happy” with the way pricing is executed today. He wants pricing that is a “better indicator of customer value,” although he declined to share much more.
If you don’t think about that conversation and you’re running a startup, what’s up with it? More to come on this topic, including notes from an interview with the CEO of BigCommerce, which is betting on SaaS rather than the more consumer-driven Shopify.
Next Insurance and its changing market
Next Insurance bought another company this week. This time it was AP Intego, who will bring integration into various payroll providers for the leading digital insurance provider for SMBs. Next Insurance should be familiar to you as TechCrunch has written about its growth several times. The company, for example, doubled its premium execution rate to $ 200 million in 2020.
The AP Intego deal brings $ 185.1 million in active premium to Next Insurance, which means the neo-insurance provider has seen strong growth so far in 2021, even without counting its organic expansion. But while the Next Insurance deal and the impending Hippo SPAC are interesting notes from a hot private sector, insurtech has lost some of its heat in the public market.
Shares of public neoinsurance companies such as Root, Lemonade and MetroMile have fallen significantly in value in recent weeks. So the exit landscape for companies like Next and Hippo – private insurtech startups with plenty of capital supporting their rapid premium growth – is changing for the worse.
Hippo decided he would debut via a SPAC. But I doubt that Next Insurance will continue a rapid ramp to the public markets until things go well. Not that it has to be made public quickly; he raised a quarter of a billion in September of last year.
Miscellaneous and miscellaneous
What else? Sisense, a member of the $ 100 million ARR club, has hired a new CFO. So we expect them to be made public in the next four or five quarters.
And the following table, which is via Deena Shakir of Lux Capital, via Nasdaq, via SPAC Alpha: