Does anybody know of any guides or resources for Saas investing? Specially for PE?
Going through recruiting and having difficulty talking about the space from a PE view point and building an LBO with the proper assumptions.
Would really appreciate any guidance!
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Hi Analyst 1 in IB-M&A, don't worry, the WSO Monkey Bot is here.... I'm hoping one of these links will help find your answer:
More suggestions...
You're welcome.
what level are you recruiting for? analyst or associate?
Associate
pm me
Would love to learn more as well
Not aware of buyout-specific SaaS guides, but I'd first get a feel for general industry dynamics / multiples so that you understand the underlying drivers of any SaaS model you build / have a general idea of typical margins / growth etc.
Look at the sites of funds of interest that have info on SaaS portcos and press releases discussing the investment. Check out the funds that fit your desired scale, ie Thoma Bravo, Vista, Silver Lake, etc. for large cap investing
I'd then look at broader SaaS industry reports that touch on trends & multiples / recent transactions. Some of these sources include Bain PE report on tech investing, Vista insights, & insights from IBs such as HL that have software reports
https://www.bain.com/insights/technology-global-private-equity-report-2…
https://www.vistaequitypartners.com/insights/
https://hl.com/insights/
http://cdn.hl.com/pdf/2022/software-sector-report-q4-2021-.pdf
I’d recommend subscribing to Clouded Judgment (weekly email newsletter). Not necessarily PE-focused prep but the author (a partner at Altimeter) gives weekly updates on the broader SaaS market (i.e. valuations, news, macro backdrop, operating metrics, etc)
From a modeling perspective:
Your build to recurring revenue should be based on a rollforward. So start with monthly or annual recurring revenue, add in new bookings and upsell, subtract churn and downsell, to get to ending recurring revenue for period, then that ending recurring revenue becomes beginning recurring revenue for next period. In terms of drivers, you can control things like annual bookings ($), gross retention, net retention, etc.. Spend some time getting familiar with the mechanics of a rollforward so you feel comfortable if you encounter a model that requires it
Then other thing to call out here is S&M efficiency. Google / read about sales efficiency metrics - stuff like LTV / CAC, payback period, etc.. Most software firms will be focused on seeing how your revenue growth assumptions link to S&M spend
Deferred revenue is another concept you'll probably see - at a high level, a lot of software companies will include change in deferred revenue as an adjustment to revenue or EBITDA.
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