The Three SaaS Growth Qualities of Qualtrics

Qualtrics filed its  S-1 on December 28, 2020, and went public on January 28. The filing provides a good opportunity to showcase three key SaaS metrics: Revenue growth, the ‘Magic Number’ as a proxy for sales efficiency, and the ‘rule of 40’ as indicator of how fast-growing SaaS companies balance growth and profitability.

In fact, much has been written about the definitions of various metrics. There is broad consensus in the investment community that GAAP principles are not suitable for SaaS companies, and that a different set of metrics is needed to actually run a SaaS company and to benchmark performance against a peer group of competitors on a quarterly and annual basis. 

It is important to note that no definition is ‘better’ than the other but it rather matters to pick one definition and execute against it. Scale Venture Partners in Silicon Valley has probably most extensively used, benchmarked, and written about SaaS metrics, and they have defined ‘Four Vital Signs of SaaS’. 

30+% year on year revenue growth

Revenues increased by 39% between 2017 and 2018 in the run-up to the planned 2018 IPO, 47% between 2018 and 2019 in the first year after the SAP acquisition, and 31% between 2019 and 2020 for the first 9 months where the second and third quarter of 2020 were fully affected by the uncertainties brought on by the Coronavirus.

This compares to 17% revenue growth at Medallia and 20% revenue growth at Surveymonkey, Qualtrics’ two main competitors, based on data from the BVP Nasdaq Emerging Cloud Index.

The share of international revenues steadily increased from 23% in 2018 to 26% in 2019 and to 28% in the first nine months of 2020. 

Magic Number >1 is a proxy for sales efficiency

For a recurring revenue business, the most intuitive way to measure the ‘Magic Number’ is by dividing the New ARR for the quarter by the fully-loaded Sales & Marketing spend for the previous quarter. A Magic Number greater than 1x tends to be a compelling business investment, and a sample of public SaaS company benchmarks can be found here. 

Public companies don’t report ARR, but Scale has found a nifty way to approximate new ARR by multiplying the intra-quarter difference in GAAP subscription revenue by 4 to annualize it.

Qualtrics’ has generated steady annualized ARR growth of about $35 million in each quarter. The net retention rate (NRR) has consistently been above 120% in each of the past eight quarters.

Applying this math to Qualtrics results in a Magic Number of 1.0 in 2019, and 0.9 for the last seven quarters. 

There are lots of reasons why this metric is way too simple, and some important assumptions have to be made around the revenue accounting* and the sales and marketing expenses**. But as Scale Venture notes: ‘However the Magic Number has one redeeming virtue that in our view outweighs all the negatives. Because it is a GAAP based number it is freely available for all public companies and it is comparable between companies’.

Rule of 40

SaaS management teams are often driving towards either rapid growth or increased profitability, and the Rule of 40 has become a construct for framing the balance of these two phenomena. The Rule of 40 (‘Ro40’ or ‘efficiency score’) states that, at scale, a company's revenue growth rate plus profitability margin should be equal to or greater than 40%.

A ten-year look at the data shows that the Ro40 has remained quite consistent among public SaaS companies, suggesting that the measure is a useful barometer of the balance between a business' expansion and profitability, and by extension, the general sustainability of company performance over longer intervals of time.

In 2019 Qualtrics clocked 47% revenue growth at a negative -4% FCF margin to yield a 43% efficiency score. This was slightly down from 2018 50% efficiency score based on 39% revenue growth and 11% FCF margin. During the first nine months of 2020 revenue growth slowed to 31% and the FCF margin dropped to -13% to yield a 18% efficiency score. 
Medallia is sporting a 14% efficiency score and 17% and SurveyMonkey 34% based on data from the BVP Nasdaq Emerging Cloud Index .

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* Qualtrics’ professional services were included in the Magic Number calculation. They are comprised of research services, implementation services, and engineering services. They are non-recurring and account for approximately 25% of total revenues. Qualtrics’ professional services typically increase proportionally to subscription revenues and account for approximately a quarter of total revenues, but took a downturn in 2020.

** Sales & marketing expenses: Qualtrics had significant stock based compensation expenses and amortization expenses in 2019 and 2020 which have been stripped out. Sales & marketing expenses generally increase sequentially primarily due to headcount growth in connection with the expansion of the business, and small bumps in those expenses have been smoothed out.

2020 Was a Great Year For SaaS Valuations And Exits. For Pre-Seed And Seed Stage Companies, Not So Much.

 2019 had seen more than half a dozen IPOs in B2B SaaS such as Medallia, Cloudflare, Dynatrace, Slack, Fastly, Zoom and Pagerduty. And while the markets ended on an historically all time high, the stock price of most of these companies had performed far worse than any index by year end. The outlook for 2020 was cloudy. 

Credit: BVP Nasdaq Emerging Cloud Index

It all turned out completely different, and 2020 ended on yet another all time high: The Dow Jones ended up 10.6% (from 28868.8 to 30606.5), the Nasdaq up 41.8% (from 9092 to 12,888), and the BP/Nasdaq Emerging Cloud Index EMCLOUD more than doubled at 105.5% (from 1231.6 to 2530.88).

The Coronavirus struck and on March 12 the financial markets had the worst drop since 1987. IPOs seemed to be off for the rest of the year. There was talk of down rounds, ratchets and other potions from the poison cabinet of venture deal terms.

Yet the markets also quickly adjusted to where things were headed: Zoom became worth more than Uber on March 19. And Zoom wasn’t the only beneficiary. Services like Peloton and Doordash saw massive increases in usage and customers.

Record new levels were reached in late July, and with it talk of IPOs came back. And it wasn’t only IPOs: The direct listings pioneered by Spotify and Slack saw wider use and a previously scarcely known financing vehicle called SPAC suddenly became the next new thing. Going public again was an option for high growth SaaS companies and by the end of September unicorn SaaS companies such as Asana, Snowflake, Unity, JFrog and Palantir were publicly traded entities. On the flipside, multiples of slower growth SaaS companies suffered. As the year came to an end it was off to the races as retail investors piled into the most attractive stocks and the  forward revenue multiples seemed like an anachronistic benchmark. 

The US unicorn population continued to increase and the total value of these unicorns hit record highs. Venture growth investments reached an all time high in 2020 and later stage deal sizes surged. Simple math showed that providing private growth funding to private unicorns was attractive at even elevated valuation levels. 

The picture was quite different at the early venture stages.Seed stage deals declined in terms of US$ and number of deals. Taking the  Band of Angels as a proxy for pre-seed and seed investing, the number of investments in 2020 decreased by a third. Seed stage deal sizes remained fairly constant at a median seed stage deal of $3 million compared to $0.8 million at the end of 2014. These large seed stage deals have led to a proliferation of seed funds and the emergence of pre-seed funds. According to Pitchbook, there were 1,162 venture funds focused on Seed in 2019 and only 126 focused on Pre-seed. 

Will the success of the 2020 exits trickle down to pre-seed investing in 2021?

The largest SaaS exits for German startups and investors in 2020

The attractiveness of an ecosystem is driven by the investors ability to achieve liquidity for their investments, and for stock owning employees to get a return on the risk of joining a startup. In the majority of the cases this is through M&A, and in some cases through going public in the form of IPOs, SPACs, or direct listings. 

Source: pxhere.com

Here are the largest 2020 SaaS exits of German companies and for German investors. 

• $1.5 billion: The valuation of Estonian based Pipedrive after Vista Equity Partners acquired a majority stake. Berlin based Paua Ventures was the Series A investor in this leading CRM provider.
  
  
• €700 million: transaction value of the Thinkproject acquisition by private equity firm EQT. Thinkproject is a Munich based provider of Construction Intelligence Software and was founded in 2000. TA Associates invested in a prior private equity round in 2017 and now sold a majority stake to EQT.
  
  
• $500 million: Instana was acquired by IBM in November for an estimated $400 million purchase price plus a $100 million earn out. Instana provides Application Performance Management with a special focus on observability. Instana was founded in Germany in 2015, and Target Partners was a Series A investor.
  
  
• $360 million: Avira was acquired by Norton Lifelock in December. Avira had just been acquired by Investcorp for $180 million in April. This provider of antivirus software is based in Tettnang, Germany.
  
  
• €200 million: Exasol, an analytics database provider based in Nuremberg, went public on the Frankfurt stock exchange in May. Mountain Partners was an early investor. More on Exasol here.
  
  
• €136.5 million: Ubimax, an AR solutions provider for wearables, was acquired by Teamviewer in July. Westcott LLC and Fielmann Ventures were the main investors.

There are several large IPO candidates in the pipeline for 2021: UiPath where Munich based Earlybird was the first investor, and Munich based Celonis where Accel and 83North were early investors.

Wann wird es in Deutschland zehn SaaS Einhornstartups geben?

In den USA gibt es heute hunderte von B2B SaaS Unternehmen mit mehr als 100 Millionen US-Dollar Umsatz. Der BVP Nasdaq Emerging Cloud Index führt mehr als 50 Unternehmen mit einem Wert von über einer Milliarde US-Dollar auf, und es sind hundert weitere private Einhörner in der Pipeline. Wie steht es um die deutschen SaaS-Unternehmen?

Quelle: Pixabay

Teamviewer war das erste SaaS Einhorn, das 2019 an die Börse ging, und wird jetzt mit einer Marktkapitalisierung von 8,9 Milliarden Euro gehandelt. Noch beeindruckender ist, dass eine EBITDA-Marge von 55% und eine Umsatzrendite von 15% im dritten Quartal 2020 zusammen einen Effizienzwert von 70% ergeben, der weit über der Bessemer Regel von 40 und dem Mittelwert von 35% aller in den USA gelisteten SaaS-Unternehmen liegt. Teamviewer beweist mit dem Kauf von Ubimax auch die Bedeutung von börsennotierten Unternehmen für das Ökosystem.

In Deutschland gibt es drei privat finanzierte SaaS-Einhörner: Celonis, Sennder und Contentful. Tricentis aus Österreich muss hinzugefügt werden, wenn der Geltungsbereich auf alle deutschsprachigen Länder ausgedehnt wird.

Weitere sieben private SaaS Unternehmen haben einen Wert zwischen 300 und 500 Millionen US-Dollar (die vollständige Liste der zehn besten SaaS-Unternehmen ist hier zu finden).

Thinkproject, ein in München ansässiger und im Jahre 2000 gegründeter Anbieter von Construction Intelligence Software im Bau- und Ingenieurwesen, verkaufte eine Mehrheitsbeteiligung an die Private-Equity-Gesellschaft EQT zu einem geschätzten Transaktionswert von 700 Millionen Euro.

Exasol, ein Unternehmen für Analytics-Datenbanken aus Nürnerg, wurde ebenfalls im Jahr 2000 gegründet. Exasol ging im Mai mit einer Marktkapitalisierung von 200 Millionen Euro an die Börse und notierte zum Jahresende bei 647 Millionen Euro. Exasol erzielte 2019 einen Umsatz von 21,6 Millionen Euro und verzeichnete im dritten Quartal 2020 ein 35% Wachstum der jährlich wiederkehrenden Umsätze (ARR) gegenüber dem Vorjahr. Dieses Wachstum liegt aber weit unter den beobachteten 75% für Einhörner dieser Umsatzgröße. Da das EBITDA leicht negativ ist, lag der geschätzte Effizienzwert wahrscheinlich bei 30% und damit deutlich unter der ‘Rule of 40’.

Alle Startups in der Einhornpipeline haben in letzter Zeit beträchtliches Wachstumskapital aufgebracht, und es ist unwahrscheinlich, dass sie mit mehr Kapital kurzfristig noch schneller wachsen könnten. Wie ein Blick auf B2C-Startups zeigt stehen im Markt jedenfalls ausreichend Mittel für weiteres Wachstum zur Verfügung: B2C Fintech N26 schloss eine Series D in Höhe von 570 Millionen US-Dollar ab, und das E-Scooter-Startup Tier Mobility eine Series C in Höhe von 250 Millionen US-Dollar. Zudem wurde im Bundestag im November ein neuer Zukunftsfonds in Höhe von 10 Milliarden Euro beschlossen, um Startups in den nächsten zehn Jahren zu unterstützen.

SaaS-Einhörner haben in der Vergangenheit durchschnittlich 8,5 Jahre gebraucht, um von 1 auf 100 Millionen US-Dollar ARR zu wachsen. Wenn man sich die jetzige Einhornpipeline unter diesem Gesichtspunkt anschaut wird es also mindestens drei Jahre dauern bis es in Deutschland 10 SaaS Einhörner gibt, und auch nur wenn man annimmt, dass jedes Startup perfekt exekutiert.

There were four SaaS Unicorns in Germany in 2020 - how long will it take to get to 10?

There are 100+ B2B SaaS companies in the US today. The BVP Nasdaq Emerging Cloud Index lists more than 50 companies with valuations in excess of $1 billion, and there are many more private unicorns in the pipeline. How do German SaaS companies compare?

Image: Pixabay

Teamviewer was the first SaaS unicorn to go public in 2019 and are now trading at a €8.9 billion market cap. Even more impressive, a 55% EBITDA margin and 15% revenue CAGR in Q3/2020 combine to a 70%  Efficiency Score, far exceeding the Bessemer rule of 40 and the median score of 35% across all US listed SaaS companies. Teamviewer also shows the importance of publicly traded companies for the ecosystem when they acquired Ubimax.

There are three privately funded SaaS unicorns in Germany: Celonis, Sennder and Contentful. Tricentis from Austria needs to be added if the scope is extended to all German speaking countries.


Another seven private SaaS companies are valued at between $300 million and $500 million (the complete list of the top ten SaaS companies can be found here).


Thinkproject, a Munich based provider of Construction intelligence software founded in 2000, sold a majority stake to private equity firm EQT at an estimated €700 million transaction value.


Exasol, an analytics database company from Nuremberg, was also founded in 2000. Exasol went public at a market cap of €200 million in May and ended up trading at €647 million (close to $800 million) at year end. Exasol generated €21.6 million in revenues in 2019 and posted a 35% year-on-year ARR growth in Q3/2020. This growth is far less than the observed 75% for unicorns at that revenue mark. Since EBITDA is slightly negative the estimated Efficiency Score was likely around 30%, significantly below the rule of 40.  

It seems unlikely that the startups in the pipeline can grow even faster. All of them raised significant growth capital recently, and there is ample funding available in the market as recent funding rounds for B2C startups demonstrate. B2C fintech N26 raised a $570 million Series D and e-scooter startup Tier Mobility a $250 million Series C. And in November a new €10 billion (around $12 billion) state fund was announced to back German startups over the next ten years, with a view to attracting an additional €20 billion in private VC investment. 


In the past decade it has taken SaaS unicorns an average of 8.5 years to grow from $1 million to $100 million in ARR. It will take at least three years for there to be 10 SaaS unicorns in Germany assuming that every single startup in the pipeline executes flawlessly.

Das sind die 10 größten privaten B2B SaaS Startups Deutschlands

In den USA gibt es über 100 private B2B Startups mit Einhornstatus. 2020 sind schnell wachsende Startups wie Snowflake, JFrog und Palantir an die Börse gegangen, und schon im Januar 2021 steht der Börsengang von Qualtrics an. Welche sind die wertvollsten B2B Startups in Deutschland? 

Quelle: Berlinstadtservice.de

Der in den USA schon lange anhaltende Triumphzug der B2B Startups dehnt sich auch nach Deutschland aus. 2020 wuchsen die Bewertungen vieler Unternehmen weiterhin, und in der Folge gesellten sich zu Celonis zwei weitere B2B Einhörner: Sennder im Speditionsbereich und Contentful im Content Management. 

Danach kommen mit Spryker, Lean IX und Personio drei weitere Startups mit einer Bewertung von ungefähr einer halben Milliarde US-Dollar. Die Liste wird abgerundet durch PriceFx, Scoutbee, Signavio und Commercetools, die jeweils zwischen 300 und 500 Millionen US-Dollar wert sind. 

Fünf der top zehn Startups sammelten 2020 Geld von Investoren ein. Die größten Finanzierungen gab es für Spryker mit 130 Millionen US-Dollar, und die restlichen Investitionen bewegten sich zwischen 65 und 80 Millionen US-Dollar. US Amerikanische und Europäische Investoren wie TCV, Sapphire, Accel, Goldman Sachs und Apax Digital stellten dieses Kapital bereit. 

Die überwiegende Mehrheit der Startups bietet Anwendungssoftware für Geschäftsnutzer an, und nur Lean IX ist vollständig auf das IT Management und die Entwickler als Zielgruppe fokussiert. Die jüngsten Startups mit Gründungsjahr 2015 sind Sennder, Personio und Scoutbee, dagegen wurde Commercetools bereits 2006 gegründet.

Das durchschnittliche Gründerteam bestand aus drei Mitgliedern. Leider sieht das Bild dunkel aus was die Vielfalt unter den Gründer betrifft. Während in Silicon Valley ungefähr die Hälfte der Startups von Einwanderern gegründet wird, liegt dieser Anteil bei der deutschen Stichprobengröße bei geschätzt weniger als zehn Prozent. Noch schlimmer ist es dann beim Frauenanteil in den Gründungsteams - unter den 29 Gründern gab es keine einzige Frau. 

In der Vergangenheit haben erfolgreiche Startups in vielfältiger Weise von Netzwerkeffekten profitiert. Diese Netzwerkeffekte werden in erster Linie durch die Konzentration von Kapital und Talent, und insbesondere oft von technischem Talent, verstärkt. Nimmt man sich wieder die USA als Beispiel, dann sind dort fast 80% des Wagniskapitals in den fünf Großraumregionen Silicon Valley/San Francisco, New York, Boston und Los Angeles konzentriert. Andere große Top Ten Städte wie Chicago, Houston, Phoenix spielen hier nur eine geringe und letztendlich zu vernachlässigende Rolle. In Deutschland existieren solche Netzwerke in nennenswertem Maße in Berlin und München, und es ist nicht überraschend, dass jeweils vier der top zehn ihren Standort in Berlin und München haben. 

Die Zahl der Einhörner ist somit sehr überschaubar, und auch die Kandidatenliste zukünftiger Einhörner. Es bleibt zu hoffen, dass möglichst viele dieser Startups an die Börse gehen werden, diese Firmen als zukünftige Käufer von Startups agieren werden und ihre Mitarbeiter als Gründer und Investoren neuer Startups auftreten werden und damit das gesamte Startup Ökosystem schneller wächst.


This blog post has also been published in English.