The bar for initial public offerings (IPOs) in the enterprise software sector has risen significantly, leading investors to turn their attention to private equity. In 2023, the sentiment for Enterprise SaaS, traditionally favored by venture capitalists for its high exit success rates, declined, resulting in the lowest deal volume since 2017. Companies now need to generate at least $500 million in annual recurring revenue (ARR), raise $500 million, and achieve an implied valuation of $5 billion to be considered for an IPO. Additionally, firms are expected to grow revenue by at least 20%, aim to break even on free cash flow, and achieve 3x year-over-year growth. These stringent criteria have left few companies eligible for IPOs, raising concerns about the future of the exit market.
“Firms need to be generating at least $500M in ARR... growing revenue by at least 20% and aim to break even on free cash flow… there’s not a lot of companies that meet those criteria.” — @SapphireVC’s @jai_das w @akashpasricha at @CollisionHQ https://t.co/zeTXdeZodv
“Firms need to be generating at least $500M in ARR... growing revenue by at least 20% and aim to break even on free cash flow… there’s not a lot of companies that meet those criteria, which means there’s not a lot of IPO-able companies.” — @SapphireVC’s @jai_das w @akashpasricha…
“Firms need to be generating at least $500M in ARR... growing revenue by at least 20% and aim to break even on free cash flow… There’s not a lot of companies that meet those criteria.” — @SapphireVC’s @jai_das w @akashpasricha at @CollisionHQ https://t.co/zeTXdeZodv
“Firms need to be generating at least $500M in ARR to be big enough to raise around $500M and attract interest from large, well-known investors… growing revenue by at least 20% and aim to break even on free cash flow… There’s not a lot of companies that meet those criteria,… https://t.co/ZIbKHELWmw
For A investors, what are you seeing as the median benchmarks? I’ve been hearing: $2-3M rev for recurring business models $3-5M rev for non-recurring 3x YoY growth
What’s required for co’s to go IPO today in ‘24? One perspective here says $500M ARR, raising $500M, implied $5B valuation. Not many private co’s gonna make it to those levels. https://t.co/YiZmuipoyV
Enterprise SaaS, historically a mainstay for VCs with the best expected exit success rates, saw sentiment wane in 2023 with the lowest deal volume since 2017. The question of when the exit market will heat back up remains unanswered. https://t.co/zru1OWigh9
Dealmaker: The bar for initial public offerings is so high that enterprise software investors are pinning their hopes on another savior: private equity. https://t.co/PtBpFBuccg From @akashpasricha.