Most Important SaaS Diligence Items?
Newbie to this sector, wondering if anyone has thoughts or a primer I could consult to get my feet wet
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Based on the most helpful WSO content, here are some key diligence items to focus on for SaaS companies:
Revenue Metrics:
Cost Structure:
Valuation Metrics:
Due Diligence Areas:
For a more detailed primer, you can refer to the following links provided in the WSO content: - https://a16z.com/2015/08/21/16-metrics/</a">16 Metrics - https://a16z.com/2015/09/23/16-more-metrics/</a">16 More Metrics
These resources should help you get a comprehensive understanding of the key metrics and diligence items for SaaS companies.
Sources: PE recruiting technical questions (software specific), Q&A: Technology IB Analyst, PE recruiting technical questions (software specific), Due Diligence - Most common deal killers or reasons for negotiating a reduction in price?, Sell-Side M&A Overview
Different roles might look at different metrics.
I work in sponsor finance specifically in software and we look at the following: Gross Retention, Net Retention, ARR (CARR vs ARR), ARR Growth (organic vs inorganic), Gross Margins, Deferred Revenue, RML (if not CF+), Customer Concentration, what type of software and what sector (financial, healthcare, automotive) and size customer (SMB or Enterprise), do they offer any other services or have a payments aspect. I am sure I am missing a few.
For a Primer I would just look at the insights that sole SaaS focused VC/Growth Equity firms post like
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