So Thomasz Tunguz put together a great chart summarizing one of my top worries over the past 24+ months in SaaS. He summarized the M&A (acquisitions) of The Top 10 Software Acquirers:
And what you can see is there is really almost no liquidity for startups and scale-ups in SaaS and Cloud at the moment. And there hasn’t been for a while:
It was great times for SaaS liquidity in late 2020 through the end of 2021. Epic times.
In SaaStr Fund alone, we had billion+ cash exits in Salesloft, Pipedrive and Greenhouse (almost $1B). And 2021 was a record year for IPOs. VCs didn’t care if they got secondary shares (buying them from others) or new primary shares. Liquidity was everywhere. It really was.
But Since December 2021 it’s been rough for SaaS liquidity:
- There have only been 3 SaaS IPOs: Klaviyo, Rubrik, and Onestream. Just 3. A record low.
- The Top 10 Software acquirors’ M&A activitiy is down -90% or more from 2021. See above from Thomasz.
Now, to some extent, the issues here have been masked by several factors:
- The VC engine continues, more or less, and has been re-energized by AI. Deals are fast and furious. Mostly this is actually anti-liquidity. Cash goes into illiquid shares. But the deal energy maintains a sense of momentum toward big liquidity events.
- Top late-stage VC deals include tender offers and a material amount of secondary liquidity. Stripe recently did a VC deal that was all for employees and shareholders, a tender offer. OpenAI has done plenty of them. That’s liquidity. So this is ongoing, albeit really only at the top start-ups and scale-ups.
- It’s “only” been 2.5 years or so. VCs and employees can more or less deal with ~2 years of illiquidity. We don’t fully expect it to be linear.
- Public SaaS and Cloud companies, and AI leaders like NVidia, have still generated a lot of cash for shares. These are good liquidity times for employees at Samsara, Cloudflare, Klaviyo, etc. Just less so for start-ups and scale-ups.
What will the future bring for SaaS liquidity?
At the moment, it seems … mixed.
The Good:
- There are some just epic IPOs, just waiting. Canva, Databricks, Wiz, ServiceTitan, and many more will generate billions and billions in liquidity. All could IPO today. They are just waiting.
- Private Equity is still buying SaaS companies. Thomasz’ chart looks at the Top 10 public company acquirers by market cap. But mega PE firms Thoma Bravo, Vista, etc. are still buying big SaaS companies. Vista just bought Smartsheet for $8.4 Billion.
The Bad:
- Public multiples remain low. This makes M&A (acquisitions) less attractive. Folks don’t want to overpay. Slack for $27 Billion by Salesforce at $1B ARR seems almost unfathomable today.
- The bar to IPO sure seems high. Klaviyo, Rubrik, and OneStream (the only 3 SaaS IPOs since 2021) all were at $500m ARR growing 50% or so.
The Ugly:
- Antitrust is a big mess. Not just in the U.S., but around the world. BigTech really will struggle to make any $1B+ acquisitions for real if antitrust somewhere will block it, like Figma and Adobe. It’s a big chilling effect. And VC and start-ups need $1B exits to make the math work. SaaS VCs need what I call a “Series of Looms” (which Atlassian bought for $1B) to make their model work. Loom did close, so it still happens. It’s just a lot harder for these big deals to happen.
One thing is clear: liquidity is harder to come by than any time for the past 7-8 years or so, as Thomasz’ chart points out.
It should get better. But maybe not that much better. The bar has gone up everywhere in SaaS and B2B.
The post The Quiet Liquidity Crisis in SaaS appeared first on SaaStr.
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Jason Lemkin, Khareem Sudlow
