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2019 2020 Cloud Enterprise Exit Fundings & Exits SaaS Startups TC unicorns

Public investors loved SaaS stocks in 2019, and startups should be thankful

Hello and welcome back to our regular morning look at private companies, public markets and the gray space in between.

Today, something short. Continuing our loose collection of looks back of the past year, it’s worth remembering two related facts. First, that this time last year SaaS stocks were getting beat up. And, second, that in the ensuing year they’ve risen mightily.

If you are in a hurry, the gist of our point is that the recovery in value of SaaS stocks probably made a number of 2019 IPOs possible. And, given that SaaS shares have recovered well as a group, that the 2020 IPO season should be active as all heck, provided that things don’t change.

Let’s not forget how slack the public markets were a year ago for a startup category vital to venture capital returns.

Last year

We’re depending on Bessemer’s cloud index today, renamed the “BVP Nasdaq Emerging Cloud Index” when it was rebuilt in October. The Cloud Index is a collection of SaaS and cloud companies that are trackable as a unit, helping provide good data on the value of modern software and tooling concerns.

If the index rises, it’s generally good news for startups as it implies that investors are bidding up the value of SaaS companies as they grow; if the index falls, it implies that revenue multiples are contracting amongst the public comps of SaaS startups.*

Ultimately, startups want public companies that look like them (comps) to have sky-high revenue multiples (price/sales multiples, basically). That helps startups argue for a better valuation during their next round; or it helps them defend their current valuation as they grow.

Given that it’s Christmas Eve, I’m going to present you with a somewhat ugly chart. Today I can do no better. Please excuse the annotation fidelity as well:

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cbinsights charts Enterprise Fundings & Exits TC unicorns Venture Capital

Tech startups going public raise 3x more today than in 2015

Hello and welcome back to our regular morning look at private companies, public markets and the grey space in between.

Today we’re exploring the 2019 IPO cohort from a capital-in perspective. How much did tech companies going public in 2019 raise before they went public, and what impact that did that have on their valuation when they debuted?

Looking ahead, the tech startups and other venture-backed companies expected to go public in 2020 will include a similar mix of mid-sized offerings, unicorn debuts and perhaps a huge direct listing. What we’ve seen in 2019 should be a good prelude to the 2020 IPO market.

With that in mind, let’s examine how much money tech companies that went public this year raised before their IPO. Spoiler: It’s a lot more than was normal just a few years ago. Afterwards, I have a question regarding what to call companies in the $100 million ARR club (more here) that we’ve been exploring lately. Let’s go!

Privately rich

According to CBInsights’ recent IPO 2020 IPO report, there’s a sharp, upward swing in the amount of capital that tech companies raise before they go public. It’s so steep that the data draw a nearly linear breakout from a preceding, comfortable normal.

Here’s the chart:

There are two distinct periods; from 2012 to 2015, raising up to $100 million was the norm (median) for tech companies going public. That’s still a lot of cash, mind.

The second period is more exciting. From 2016 on we can see a private capital arms race in which tech companies going public stacked ever-greater sums under their mattresses before debuting. This is generally consistent with a different trend that you are also aware of, namely the rise of $100 million financings.

Before we turn back to the CBInsights data, let’s observe a chart from Crunchbase News that underscores the simply astounding rise of $100 million financings that was published just a few weeks ago. As you look at this chart, remember that prior to 2016, more than half of venture-backed technology companies going public had raised less than $100 million total:

Now, compare the two data sets.