SaaS has immeasurable benefits over traditional software distribution models.
We are looking for great products that solve a massive pain point with a team having a convincing go-to-market plan
TEAM (excellent founding team)
PRODUCT (great and highly differentiated product)
TAM (large Total Addressable Market)
SALES (repeatable sales model)
RETENTION (retention rate of over 100%, i.e. negative ARR churn)
MOAT (strong defensibility against attack)
What is SaaS?
Unlike a few years when software was bought in a physical form at a store, much of today’s software runs right off the cloud. This is made possible by worldwide broadband access and powerful computers – and SaaS allows users to consume software in a different way:
· Customers connect to the software online
· Customers are charged on an ongoing subscription basis for access
· The latest version of the software is automatically provided to the user
In the beginning, it’s all about the team and getting to Product and Market Fit. Over time, the focus shifts to a repeatable sales model and healthy unit economics, and eventually it’s all about defensibility and the size of the market. Being a workflow tool with a nice UI isn’t enough to create long-term defensibility – hence the focus on building moat, usually through some kind of data assets or network effects.
· It can be used everywhere, including on mobile
· It has easy integration with plug-ins or add-ons
· There is no overhead, packaging, or distribution costs
· It limits piracy
· It has a flexible and clear licensing model
· Software is always up-to-date
· User data can be collected and new features can be tested easily
While the benefits of SaaS to the end user are plenty, it has even more interesting properties as an investment.
Investors love businesses that have a reputation for minting cash. The Software as a Service (SaaS) model is as good as it gets. It provides predictable, quantifiable, and fast-growing revenue for any company that can execute correctly – and everyone from venture capitalists to asset managers love investing in companies with these traits.
Aside from performance, here are a few last reasons why we love SaaS:
Costs go down: As SaaS businesses scale, the cost of servicing each customer goes down. In the long run, this helps lead to a growing, predictable cash flow.
Buyouts: It’s common for SaaS businesses to get gobbled up by the bigger fish in the pond, which often offers investors a premium on the current stock price.
Low Barriers: The SaaS model has erased barriers to entry for software, allowing new entrepreneurs to enter the fold in almost every niche possible. This creates a wide array of new opportunities for investors, as well.
Instead of relying on one-time transactions or upfront fees, SaaS is built around smaller, subscription-based transactions that recur each month or year.
Recurring revenue makes SaaS extremely predictable, measurable, and built to scale.
Unlike some other types of startups, measuring performance in SaaS is heavily focused on growing important metrics like LTV (lifetime value) or MRR (monthly recurring revenue), while minimizing CAC (customer acquisition costs) and churn (the rate at which customers stop buying the product).
As a result of the inherent attributes of the SaaS model, the industry has been exploding with growth. The BVP Cloud Index, which tracks publicly traded cloud companies easily beats benchmarks like the Nasdaq, S&P 500, and DJIA by multiple digits.