• Revenue Operations Forecasting

What Can We Learn from the 2020 IPO Boom?

Kevin Yao headshot

Kevin Yao
Director of Finance, Clari

Photograph of New York Stock Exchange building

Snowflake, Palantir, Sumo Logic, ZoomInfo—these are just a handful of the 16 SaaS companies that went public during 2020. Together they raised a combined $11 billion in the public markets, according to Palo Alto venture capital firm Meritech Capital. That’s more than double 2019’s haul, when a dozen SaaS companies raised $5 billion.  

Obviously, 2020 stands out as an unusual year: a black swan type global pandemic happens maybe once in a lifetime. But sometimes, such a stress test accelerates trends already unfolding, and lessons learned can help power next steps.

With that mindset, here’s what we learned from 2020, and how revenue operations teams can prepare for their own initial public offerings in the months and years ahead.

Why did SaaS IPOs Boom During 2020?

We’re in the heat of an IPO frenzy not seen in years. 

In 2020, 456 U.S. IPOs raised $167.4 billion by December 25, according to Dealogic. To put those numbers into perspective, that’s more than the previous record set back in 2000, when 592 companies went public, and more than all the U.S. IPOs in 2020 combined.

Some of the frenzy was driven by SPACs, or special purpose acquisition companies. There are shell companies formed expressly to merge with or buy a promising company and take it public. Because SPAC IPOs are subject to less regulatory scrutiny than more-traditional routes to capital markets (say, through an investment bank), and because they take less time to complete, investors have flocked to them as a quick way to tap market exuberance. They also offer hope for meaningful returns in a zero/low-interest-rate environment. 

At the same time, some companies that utilize SPACs did so because they likely wouldn't have succeeded with an initial public offering with a traditional listing

SaaS companies are prime targets for investors (SPAC and otherwise) looking for a stake in the next-gen technologies enabling the digital transformation accelerated by the pandemic. 

2020 SaaS IPOs

In 2020, SaaS IPOs were a departure from the Silicon Valley mold forged by Salesforce’s groundbreaking IPO in 2004. In fact, these companies were more likely to be based outside rather than inside Silicon Valley, according to research compiled by Meritech Capital.

Location aside, the 2020 SaaS IPOs went public with an average valuation of nearly $4 billion after 13 years in business and 1,200 employees on the payroll. They’re also losing money on average, but boast roughly $200 million of ARR, growing around 40% year-over-year. 

Other key findings from Meritech show that, on average, the SaaS IPOs in 2020 have:

  • 70%+ gross profit margins
  • 115% dollar-based net expansion rate or net dollar retention rate 
  • Raised $350 million of equity capital from venture capitalists or are majority-owned by a private equity firm 
  • Sold $500 million of stock to public investors for 14% of the company 
  • Seen 4% of post-IPO ownership going to CEOs

Revenue leaders at SaaS businesses considering an IPO or other fundraising should ask themselves how they compare to this data, and where they fall short—and whether they have the tools at their disposal to track critical metrics like these. 

For example, a company that has 95% net dollar expansion and a three-year plan to IPO might invest time and money into increasing that rate, both as a way to grow revenue and to appease future investors. A platform like Clari, which tracks NDR, including using artificial intelligence to predict which accounts are most likely to churn (and therefore might need more attention), can become an invaluable tool.

Revenue Forecasting for Funding 

SaaS businesses that go public in 2020 also needed accurate, transparent revenue tracking systems in place complete with solid projections years out. For example, valuation is based in part on projected growth, which requires accurate forecasting

Meritech found that the 2020 class of SaaS IPOs had an average of 21% next-twelve-month growth rates (which were likely conservative projects so companies could easily beat them). 

Your business should be no different. 

The chief financial officer of a SaaS firm going public needs real-time revenue  and retention forecasts at their fingertips, which allows companies to plan in real time: 

  • What’s your average customer acquisition cost? 
  • What’s your annual contract value by customer?
  • What’s recurring revenue’s share of total revenue?   
  • How long are your sales cycles?
  • What’s your revenue-to-FTE ratio? 

And, the more accurate their forecast, the more trust they build for potential investors and stockholders. 

Clari gathers data from around the business into one revenue operations platform. There’s no need to rely on manually-pulled spreadsheets that are outdated almost as soon as they are compiled, or spend hours of management’s time on data-wrangling. Clari ingests such data automatically, and then adds a layer of artificial intelligence that can predict end-of-quarter results within 7% accuracy by the second week of a quarter, and predict how much pipeline is necessary for the next quarter, and the next. 

Clari offers granular views that allow front line managers to see all activity in every account to better coach sales reps, and also allows executives to zoom out for a more holistic view of the entire company with just a few taps on a mobile app. 

The result: unparalleled revenue insight, and the transparency and rigor that teams can align around to hit key targets. When investors come knocking, you have the data you need to score a high valuation and secure your next round of funding. 

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