15th annual report suggests AI and macro-economic optimism as a driver of growth in 2025

SAN FRANCISCO and Menlo Park, Calif. (October 22, 2024) – KeyBanc Capital Markets (KBCM), the corporate and investment banking unit of KeyCorp, in partnership with Sapphire Ventures, a global software venture capital firm backing companies of consequence, released results from its 15^th annual Private SaaS Company Survey, the benchmarking report by which the SaaS industry measures financial and operating performance.

This year’s survey included more than 100 private software as a service (SaaS) companies revealing a continued focus on efficient execution and profitability — a resounding theme throughout the report. The report also suggests that private SaaS companies have an opportunity to shift their focus from dealing with uncertainty to pursuing future growth, with AI-first SaaS companies in particular expecting to experience growth acceleration in the next 12 months.

TOP TRENDS AND INSIGHTS:

Annual Recurring Revenue (ARR) growth and retention remain consistent.

• ARR growth is expected to slightly decelerate year-over-year to ~19% in 2024; however, this is still nearly twice as fast as public software companies, which have an estimated median growth rate of ~11% in 2024.
• Both gross retention and net retention have remained, and are expected to remain, relatively consistent at ~90% and ~101%, respectively.

Anticipated increase in sales quotas and attainment rates for Go-To-Market (GTM) teams as companies adopt artificial intelligence (AI) and learn how to further improve headcount efficiency.

• Sales team quotas increased by more than 10% in 2023 and have remained elevated in 2024 with quota attainment expectations also having expanded from ~70% to ~75% this year, two positive signs that highlight how private SaaS companies are able to navigate today’s changing market.
• Recent headcount additions to GTM teams indicate some optimism moving forward as companies anticipate and prepare for a rebound in 2025.

Companies remain focused on successful execution and improving profitability.

• Major profitability metrics saw a slight improvement in 2023; however, there is an even more pronounced improvement in 2024 as companies continue to focus on operating efficiency and improving their EBITDA margins instead of aggressively pursuing top-line growth.
• Continued budget cuts and a more conservative approach to expense management are anticipated, especially for larger-sized companies with >$50M ARR.

Both public and private markets are showing signs of improvement–primarily driven by recent AI developments and a more optimistic view of the macro environment

• Public market software valuations are returning to near-normalized levels at ~5-6x next twelve months (NTM) revenue, compared to the all-time highs of ~17x in 2021.
• Private market financing activity and multiples are beginning to show strength, with high growth companies growing more than 50% commanding super premium multiples of ~14x ARR.

Primarily driven by the availability of capital and a positive economic outlook, companies invested to pursue aggressive growth targets in 2021-2022. However, many companies scaled back operations and shifted their focus from growth to profitability," says Scott Peterson, Managing Director, Software Investment Banking at KeyBanc Capital Markets. "Despite this trend continuing into 2024, we see strong long-term prospects for the sector, due to factors such as the continued transition to the cloud and increased adoption of artificial intelligence.”

Scott Peterson, managing director, Software Investment Banking at KeyBanc Capital Markets

Over the past year, we saw companies become even more efficient as they learned to do more with less and refined their ideal target customer profiles,” said Steve Abbott, Partner at Sapphire Ventures. “Moving forward, we see private company SaaS growth inflecting higher as the macro economy improves and as companies take advantage of AI tailwinds.”

Steve Abbott, partner, Sapphire Ventures

Rule of 40 benchmarking, a “best-in-class” SaaS company performance calculated by adding a company’s growth rate and profitability margin, is showing signs of improvement amongst private SaaS companies. While none of our surveyed companies are expected to achieve or exceed the Rule of 40 this year, many of them are getting closer to it, primarily due to EBITDA margin improvements.

The KBCM and Sapphire Ventures Private SaaS Company Survey provides credible operational and financial benchmarking data for executives and investors in SaaS companies of all sizes. This includes everything from GTM selling strategies, historical and projected growth, and retention rates, to operational management and margin structures, as well as proprietary data on valuation and exit expectations. This year’s survey polled senior executives at more than 100 privately held global SaaS companies with a median 2023 ARR of ~$26 million in several sectors including Infrastructure Management, FinTech, Cybersecurity, Communications, Vertical Market Applications and Horizontal Applications. To view the full survey results, methodology and to see a deeper analysis of the findings, visit us at http://www.key.com/saassurvey.

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The information contained in this report has been obtained from sources deemed to be reliable but is not represented to be complete, and it should not be relied upon as such. This report does not purport to be a complete analysis of any security, issuer, or industry and is not an offer or a solicitation of an offer to buy or sell any securities. This report is prepared for general information purposes only.