Private SaaS Companies Shift Focus to Growth and AI Adoption, Survey Reveals

SaaS Industry Trends: Balancing Efficiency and Growth

The 15th annual Private SaaS Company Survey, conducted by KeyBanc Capital Markets (KBCM) and Sapphire Ventures, has revealed significant insights into the current state and future prospects of the software-as-a-service (SaaS) industry. The survey, which included over 100 private SaaS companies, highlights a continued focus on operational efficiency and profitability while signaling a shift towards future growth 1

1

2

Key Performance Indicators

Annual Recurring Revenue (ARR) growth is expected to slightly decelerate to approximately 19% in 2024, which is still nearly double the estimated median growth rate of 11% for public software companies. Gross retention and net retention rates have remained relatively stable at around 90% and 101%, respectively 2

2

The survey also indicates an anticipated increase in sales quotas and attainment rates for Go-To-Market (GTM) teams. Sales team quotas increased by more than 10% in 2023 and have remained elevated in 2024, with quota attainment expectations expanding from about 70% to 75% 2

2

Profitability and Efficiency Focus

Companies surveyed demonstrated a continued emphasis on improving profitability metrics. Scott Peterson, Managing Director of Software Investment Banking at KBCM, noted:

"Many companies scaled back operations and shifted their focus from growth to profitability as we entered 2023. Despite this trend continuing into 2024, we see strong long-term prospects for the sector." 1

1

The Rule of 40, a benchmark for SaaS company performance, is showing signs of improvement among private SaaS companies, primarily due to EBITDA margin enhancements 1

1

2

AI and Economic Optimism as Growth Drivers

The report suggests that private SaaS companies are poised to shift their focus from dealing with uncertainty to pursuing future growth. Artificial intelligence (AI)-first SaaS companies, in particular, are expected to experience growth acceleration in the next 12 months 1

1

Steve Abbott, Partner at Sapphire Ventures, commented:

"Moving forward, we see private company SaaS growth inflecting higher as the macro economy improves and as companies take advantage of AI tailwinds." 2

2

Related Stories

AI Reshaping Multiple Industries: From Renewable Energy to Wealth Management

AI Drives Growth Across InsurTech, NFT, Digital Content and Auto Parts Markets

AI-Driven Cloud Services Fuel Growth in IT and Business Services Market

Global AI Market Projected to Reach $3.68 Trillion by 2034, Driving Growth Across Industries

Market Valuation and Financing

Both public and private markets are showing signs of improvement, driven by recent AI developments and a more optimistic view of the macroeconomic environment. Public market software valuations are returning to near-normalized levels at approximately 5-6x next twelve months (NTM) revenue, compared to the all-time highs of about 17x in 2021 2

2

Survey Scope and Methodology

The KBCM and Sapphire Ventures Private SaaS Company Survey provides operational and financial benchmarking data for executives and investors in SaaS companies of all sizes. This year's survey polled senior executives at more than 100 privately held global SaaS companies with a median 2023 ARR of approximately $26 million across various sectors, including Infrastructure Management, FinTech, Cybersecurity, and others 1

1

2

As the SaaS industry continues to evolve, this survey offers valuable insights into the strategies and performance metrics shaping the future of software companies in an increasingly AI-driven and economically optimistic landscape.