There are lots of inspiring stories of success in the tech industry. There are also a lot of lessons that product managers can learn from failures as well. Failure stories are always interesting to read. Product managers sometimes get a vicarious thrill and say “there by the grace of God I don’t go.” The stories of Oxy Media, ScaleFactor, and Quibi are especially informative.
CB Insights recently published Insights State Of Venture Q3 2021, a 246-page analysis of what is going on in the global technology investing and M&A world. Not surprisingly, tech investing has reached all-time highs and Asia-Pacific is driving a lot of the activity.
Private SaaS companies have always been valued less than their public company peers. SaaS Capital recently reported that the gap had grown to almost 50%. While SaaS valuations have moderated a bit in 2021, they still stand at near all-time highs. As the Software Equity Group has reported, median public company SaaS EV/Revenue valuations were almost 15x at the end of Q2 2021. Leading companies like Zoom and Shopify are valued at over 50x EV/Revenue. There are many factors that account for private companies being valued less than public companies: illiquid equity, no public/audited financials, no SarBox certifications.
In SaaS businesses, the Rule of 78 is used to plan how much revenue is needed each month to achieve a certain target. Accounting standards require that revenue be recognized ratably over time. This makes it hard to hit an annual goal when you have underperformance in the early part of a year. You simply can’t make up for lost time. Product managers should first quantify what has happened, understand why it happened, and use short and long-term tactics to achieve annual SaaS product revenue goals.
The first investor lawsuit in response to the crisis at Oxy Media has been filed. On Monday LifeLine Legacy Holdings of Beverly Hills, Calif., which put more than $2 million into the Oxy’s Series C fundraise, filed suit in Federal Court. The suit alleges multiple fraud violations associated with Ozy’s dealings with Lifeline during their Series C raise where Lifeline invested $2 million. With daily revelations of wrongdoing on Ozy and Carlos Watson, what shoe will drop tomorrow?
ARR growth rates are the largest factor driving private SssS company valuations. SaaS Capital’s long-term research (>10 years) shows some great insights, especially for smaller revenue SaaS companies.
Growing revenues is a challenge for all product managers. The further along a product is in the Technology Adoption Life Cycle, the harder it gets. A company’s valuation, whether they are a public company or are privately held, is driven by the scale of total revenues and the revenue growth rate. Fortunately, there are several tactics product managers can use to optimize current revenue streams and innovate new ones.