Written by Alex Wilhelm

A few late additions to the $100M ARR club, and what we might call it

The $100 million ARR club is a collection of private companies that have reached the revenue threshold. Originally, I posited the idea as a way to reclaim what the unicorn moniker once signified, a rare company that was of exceptional value.

As the unicorn club has grown to hundreds and hundreds of members, the tag has lost nearly all of its cachet. Not every unicorn has $100 million in revenue, let alone annual recurring revenue. And even more, not every company that is generating top line at a pace of $100 million each year is a unicorn.

By focusing more on revenue (ARR being the popular modern measurement), we’ve limited ourselves to far fewer companies to care about.

Catching you up, our current list of private companies that are at $100 million ARR or greater include GitLab, Egnyte, Asana, WalkMe, Druva, Braze, and O’Reilly. Today we can add a few more names to the mix.

In response to our prior work, Sisense noted that it passed the $100 million ARR mark earlier this year. Then there’s the case of Lemonade which we need to explore more at a later date (I’m looking into the larger insurtech market, especially as it relates to the financial performance of companies like Lemonade, Root Insurance, and MetroMile). Lemonade mostly fits our criteria, but if we want to count premiums as ARR is still something I’m working on.

But more important for us today is what to call these $100 million ARR companies? There have been a few suggestions.

Club names

The most common names proffered for members of the $100 million ARR club are

What the hell, SaaS valuations?

SaaS stocks are at it again, and I think I’ve got it figured it out.

More precisely I think I’ve figured out what other people think is going on. After rigorous fact-checking by both reading tweets, making VCs talk to me on the phone, and chatting with the CEO of a $27 billion cloud company this morning, it all makes sense.

Some background to start, I think.

Today, Friday the 21st of May, the day after the economy shed another 2.4 million jobs, bringing the COVID-19 jobs-lost tally to nearly 40 million, SaaS and cloud stocks reached yet another all-time high, as measured by the Bessemer cloud index.

That particular basket of stocks is the best thing we have to understand how public investors are valuing SaaS companies at any given moment. And as I’ve made you read ad nauseam, public SaaS valuations impact private SaaS valuations; the mechanism is a little slow, as Bessemer’s Mary D’Onofrio explained here, but when SaaS stocks surge or fall, startup SaaS valuations move as well.

Another record today after several preceding records this week seems odd, given the world. Sure, the stock market is largely recovered from its March-era, COVID-19-driven lows, but successive new records are more gauche than merely working to get back to flat, as other public equity cohorts have generally managed (not all, mind).

That we’re at a record is more than my idea, or Bessemer’s — Meritech Capital wrote earlier this week that “we are now sitting at the all-time peak of public SaaS valuations in the midst of a global pandemic.” But don’t think that these valuations predicated on companies promising more growth. As the same Meritech report states: “Generally speaking, the outlooks of these businesses haven’t changed that much since February, except for Q1 earnings where, in almost all cases, management waved a yellow caution flag to investors and withdrew or lowered guidance.”

Wild, right?

There are some warning signs that growth is going to slow, as Redpoint’s Jamin Ball noted on Twitter:

But who cares! Not the markets. It’s time for some new fucking records, y’all.

Let’s talk about why this is all happening.

The Hybrid Theory Of COVID-19 Era SaaS Valuations

This is my third post in what I suppose is now a series on this stuff (more here and here), so we’re largely building on prior foundations while adding a little.

Here’s the argument in a multi-bullet nutshell:

  • Investors want to buy into growth, and while many companies are struggling to grow at all, digital whatnot is still performing reasonably well, so capital is flowing from other equities into the shares of digital companies, many of which are SaaS companies. This trend is accelerated by:
  • ZIRP, or the era of free money. After a hot second of rising rates (quickly brow-beaten by POTUS and then whacked by an economy in free fall), money once again costs nothing and thus yields are hot garbage. This has led investors to look for any place to stuff their lucre that might provide some sort of return. So, capital is moving away from safer stuff (boo, safety!) and is instead flowing where some return might be found. Like SaaS.
  • The above two (rather related) points are made a little bit more reasonable by the fact that the digital transformation that CEOs and CTOs and every webinar you’ve ever been invited to is now going at warp speed. Like, no shit, it’s a real thing, not just something that Levie tweets about when his engagement numbers dip. That acceleration is making investors very excited about what might come later. So SaaS stocks go up.

This morning I spent 30 minutes yammering with Splunk’s CEO Doug Merritt. It went pretty well. After digging through his company’s earnings report (SaaS transformation continues, some revenue recognition headwinds, lots of cash, good ARR growth, and the company spends heavily spreading stock around to all its workers, which I dig) I asked him about whether the digital transformation stuff that he mentioned in Splunk’s earnings letter is actually making stuff move to the cloud faster, and thus boosting SaaS stocks.

He assented.

So, what’s powering the SaaS rally, stretching valuations to comical levels — recall that we’re always valuing SaaS and cloud companies on revenue, and not profit multiples, so they’re always graded on a comfortable curve — is two parts greed (capital rotation into SaaS stocks from other equities, and ZIRP limiting return to only a few asset buckets) and one part common sense (if SaaS companies are riding the digital transformation trend, an acceleration thereof could raise their long-term growth prospects).

Got it?

Anyway I’m on vacation for the next week as soon as this hits the internet. Have fun, everyone, and let me know what happens to SaaS stocks. Pretty sure my partner will end me if I keep up to speed on the stock market when I’m supposed to be napping. Hugs.

API startups are so hot right now

Hello and welcome back to our regular morning look at private companies, public markets and the gray space in between.

A cluster of related companies recently caught our eye by raising capital in rapid-fire fashion. TechCrunch covered a few of them, and I read coverage of others. Looking back through my notes and the media cycles that they generated, it feels safe to say that API -based startups are hot right now.

What’s fun about this trend is that the startups we’re considering are all relatively early-stage, so they aren’t limping unicorns staring down a closed IPO window. Instead, we’re taking a peek at startups that mostly haven’t raised material external capital — yet. They have lots of room to grow.

And the group is somewhat easy to understand. Sure, I don’t fully grok their underlying tech — that’s a bit of the point with API startups; they take something complex and offer it in an easy-to-consume fashion — but I do get how they make money. Not only are their business models fairly easy to understand, there are public companies that monetized in similar ways for us to use as a framework as the startups themselves scale.

This morning let’s look at FalconX and Treasury Prime and Spruce and and Skyflow and Evervault, all API-focused startups to one degree or another, to see what’s up.

What’s an API-based startup?

Simply: a high-growth company that delivers its main service via an application programming interface, or API.

APIs help services communicate with other apps, allowing them to execute tasks or request information quickly and easily. These services are sometimes highly valuable because they can offer something complex and difficult, easily and simply.