What Are Public SaaS Companies Taken Private At?

So one thing that has exploded in SaaS in the past decade is the role of Private Equity buying both public SaaS companies (to take them private, “fix” some metrics, and IPO or sell them again), and generally later-stage private SaaS companies. E.g., Vista bought leaders like Pipedrive, Gainsight, Salesloft and so many others for $1B+ or more.

They are generally looking for good but not great deals.  

By that I mean, too good a deal on paper at least … then likely the SaaS company isn’t truly a break-out leader. PE wants to invest in leaders, if not necessarily always #1 in a category. Products that are as close to an annuity as possible, that are amenable to efficiency gains.

So what do they pay on average? Well, certainly it exploded in 2021, in my portfolio at least, if perhaps not as dramatically as in the public markets. The startup I invested in that were acquired by PE in the 2020-2021 Boom were acquired for 8x in one case, 12x in another, and 15x in a third. The prices would be lower today for the latter two I suspect.

Todd Gardner took a look at a series of public “take private” deals from 8/21 to 8/23, spanning the Boom and the Reset. What did he find?

7.7x ARR was the Median acquisition price in a “take private deal”.

We’re on the brink of one of the biggest technological advancements of our lifetime — AI. For the first time in twenty years, we have a blank canvas, complete artistic freedom to reimagine everything in B2B software. 

At this year’s SaaStr Annual, Mark Roberge, co-founder and Managing Director of Stage 2 Capital, takes the stage to have a bake-off between startups and incumbents when it comes to who will win the AI Go-to-Market race. 

The question entrepreneurs and founders need to ask themselves is…

SaaStr is the largest community of SaaS executives, founders, and entrepreneurs in the world and we bring them together each year at our flagship event—SaaStr Annual.

If you want leads, you want brand exposure, and/or you want to connect with your customers -- the SaaStr Annual is the #1 non-vendor event in the world.  Period. 

And importantly, we understand how much work "doing a show" is. We have designed the event so you will not just be exhibiting at the #1 event in the industry, but just as importantly, will have constant traffic. 

I’ve come to almost exclusively invest in founder-CEOs that are engineers. Or at least where the co-founder CTO is a true equal partner to the CEO.

Why?

Well to get something off the ground,

• You need to build it. If you can’t help here in the early days, you better be a darn good salesperson.
• You need to recruit a great engineering team. Why at least in the early, pre-revenue days, do they want to work for a CEO that can’t also ship product? Maybe only if you have already done it before.
• You usually need to understand how and where technology is going. You don’t need to be an engineer to do this, but most “salespeople” CEOs can’t pull this off. At a minimum, you need to have steered a product from nothing to success to pull this off.
• You need to be able to build if not a jaw-dropping product, then at least, a very start-of-the-art one. Want to outsource it instead? How in this day and age you are going to build a great product that way, I don’t know.

How do you do this, if the CEO isn’t at least a pretty good engineer? It takes, best case, a lot more money. Maybe 3x-5x more money to get it off the ground. You’ve got to recruit a much bigger, and more expensive, engineering team in many cases. Unless again, you have a true CTO as well, that is also leading the company.

My toughest times:

• COO pulling out after signed term sheet — VCs then pulled term sheet. This of course was my fault — I hired the “wrong” COO. But boy it was tough. I had 9 employees on payroll and $0 in the bank.
• Co-founder walking out the door. Man that’s tough.
• Co-founder firing my other co-founder — without telling me. That was tough. It was hard to walk that one back.  I did, but things were sort of broken after that a bit.
• Almost running out of money, having to work for $0 salary “again”. Working for $0 is not a big deal in the beginning, but it’s much tougher later.
• Key / top customer telling you your product doesn’t work — and they won’t reconsider buying it for at least 3 years. Man.  Ship early, but not too early.  Especially to bigger customers.
• Not being able to get the team to build something truly mission-critical, losing hugest deal because of it. You can’t do it all on your own.
• Doing customer support for Europe every night for 3 months. Never really slept.
• Not closing the epic VP of Engineering I really needed.  I tried 5 times, maybe 10.  I offered him half my equity and the largest salary in the company.  But looking back, I should have tried even harder.
• Selling when you already have $10m+ ARR, growing 100% YoY, and are cash-flow positive. Even if the deal was fair.

As tough as all these were …

You are always one truly great VP hire away from solving them. That’s my biggest lessons of all from these mistakes.

So this is a post on a point we’ve made many times over the years at SaaStr, but I wanted to call it out specifically. Because especially in more challenging times, we make the mistake of … Settling.

Settling:

• For a VP That Looks Good on Paper But You Know Isn’t Truly Great.  They will be gone in 6 months.  And have burnt up a ton of time and capital on the way,.
• For a Cofounder That Almost Wants to Do It, But Not Quite.  No matter how great they may be in theory, if they don’t 100.000% want it, they’ll leave or quiet quit when it gets tough.   Which it will.
• For Someone That Doesn’t 100% Believe.  You might think they will believe more, later.  But that’s rare.
• For an Investment That is Very Good, But Not Great.  It’s just so, so hard to truly build something huge and important.  Good but not great founders don’t get you there.  Good but not great traction? Sometimes, but it’s rare.  Rare.

We settle when we get tired. We settle when we don’t interview at least 30 candidates for every position. We settle when folks we know and trust don’t believe 100% in our product, our market, our journey.  We settle when we think we are out of time.

But if you are going long, you are never out of time. Not really.

Sometimes, yes.  But just as often, the ones that complain are the ones that care.  And oftentimes, their complaints help focus you on the gaps you really do need to fix.

One thing most SaaS companies get wrong in customer success is they don’t spend enough time surfacing customers that are truly at risk, but aren’t complaining.

The thing is:

• Somewhat and even very satisfied customers that still want more from you and your product often complain the most.

and

• Unhappy customers that are planning to leave often don’t complain at all.  They just find another solution and leave.  And …
• Once usage drops, it’s too late.  You’ve already lost them.  They’ve already gone somewhere else.  So pure usage meters don’t really work.

So … #1  We all spend too much time on complaining customers and #2  We spend too much time looking at usage and even engagement metrics.  They matter.  But once they drop — it’s often too late.

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