By Kevin Dobbs

The last few months have been quite active in the SaaS market and here are some things that caught my attention:

• Who would have believed that we would be seeing Initial Public Offerings after our recent recession but new offerings include SciQuest (NASDAQ: SQI), Qlik Technologies (NASDAQ: QLIK), Ancestory.com (NASDAQ: ACOM) and Financial Engines (NASDAQ: FNGN).  There are a number of upcoming IPO’s including Talent Management provider Cornerstone OnDemand.

• You can tell the SaaS and Software markets continue to gain momentum based on the number of M&A deals over the past 90 days including Oracle buying Art Technology Group, hardware company Dell purchased SaaS integration firm Boomi, Deltek buys government market research firm INPUT, talent management leader SuccessFactors buys analytics firm Youcalc, Taleo purchasing Learn.com for $125M, recruiting firm Kenexa acquired Salary.com and even PE-owned SumTotal Systems buying Softscape.

• Firms that are making good progress in their SaaS transitions include Callidus (NASDAQ: CALD) and Plateau Systems.

• Software companies who seem to be having more trouble with their current subscription and license models include Concur (NASDAQ: CNQR), MicroStrategy (NASDAQ: MSTR), Manhattan Associates (NASDAQ: MANH), and SAP (NYSE: SAP).

• The Venture community continues to fund SaaS and Cloud Computing firms, several who have been profiled by this blog have received funding in the last six months (congrats!) internet billing firm Zuora lands $20M, Cloud management platform RightScale grabbed $25M, multi-tenancy Cloud platform firm Nimbula raises $15M, marketing automation provider Marketo, Bill.com, social platform provider Jive Software raises $30M, Gooddata and Cloud9 Analytics.

• SaaS, Software and Cloud Computing firms have also made some interesting management changes over the past few months including; ex-Oracle president Charles Phillips (video) moved over to become the new CEO at Infor, Taleo lands a new CFO former Palm executive Douglas Jefferies, Saba has added a SaaS-experienced CMO Karen Steele, SuccessFactors brings in seasoned President from Salesforce.com - Doug Dennerline, PeopleclickAuthoria Chairman Charles Jones returns as CEO to run company and well-respected analyst Ray Wang joins Constellation Research.

Seems like we were just here a few months ago but a lot of things have happened since the last Oracle OpenWorld in 2009.

It was great to see a full house of exhibitors that consumed most of the Moscone center in San Francisco. Walking through the two completely full tradeshow floors, which indicates some degree of growth in the broader technology market, especially after I saw a number of mega-booths with a lot of promotional events.

Fusion Applications

I didn’t see the Sunday keynote with Larry Ellison, but I heard multiple times that he announced everything at that session.  It appeared that area that SaaS followers were keenly interested in learning more about was Fusion and as one analyst mentioned to me it, ‘Larry mentioned a couple of the new Fusion Apps and then went Yada Yada Yada for the rest of them.’  His opinion was the anytime you Yada Yada anything that means you are not taking it seriously.  Well maybe.

It sounds like Oracle is taking Fusion serious, having invested close to $4B in R&D during 2010 alone,  in order to be ready to launch these next generation apps.  Oracle is offering 100 modules and over 7 different product families including Financials, Procurement, Sourcing, Project and Portfolio Management, HCM, CRM and SCM. We will see over the next few days if there is real detail and deliverables around all of this investment in Fusion or just more Yada Yada.

If Oracle plays this correctly, they will be able to cash in on the buying public’s shift to OPEX spending rather than traditional capital spending on software, which is no longer in vogue.  Fusion applications could be a viable alternative to smaller more risky best-of-breed application alternatives, but they need to be both pure-SaaS and functionally complete.  We will know over next few days.

Riding Hurd

I personally think that Oracle’s hiring of Mark Hurd was a true master stroke, and a major mistake on the part of HP for letting him go.  Mark kicked off the Monday keynote session and he looked like he had worked at Oracle for years, brimming with confidence and very comfortable.  It is also clear that having someone with his knowledge of the hardware world at the helm, is a major advantage, with all of the Sun technology now firmly part of the Oracle ‘Full Stack’ offerings.

We saw a fully buzzword set of presentations this morning; OLTP, Petabyte, threads, cores, and ZFS to name a few.  Speeds and feeds were the name of the game and Mark Hurd and John Fowler discussed the new Exadata 2 and Exalogic products.  Oracle loves fast products and breaking records, so owning the entire technology stack is going to be fun for Larry.   It is interesting that all of these really fast “Full Stack” products will be huge advances and will definitely improve the performance and scalability of future Cloud Computing services, offered by Oracle and others.

M&A in the Air

There have been a number of deals in the technology space over the past 30 days including HP purchasing both 3PAR and ArcSight for close to $4B.  In the HCM space there have been a very rapid spat of deals including one announced between SumTotal Systems purchasing Softscape, Taleo purchasing Learn.com, Kenexa buys Salary.com and Stepstone picks up MrTed.  One has to wonder if there won’t be a big announcement at Larry’s Wednesday afternoon keynote.  I have heard that Oracle might buy Netsuite, which is interesting considering that Larrry already owns about 65% of the company.  Considering Salesforce.com is speaking and exhibiting here at OpenWorld that might be sort of embarassing to everyone concerned.  It might also not be a ringing endorsement of Fusion either, but we will wait and have to see what happens.

More from OpenWorld tomorrow.

Here is our updated Public Company SaaS interactive spreadsheet.  Enjoy!

After our post on January 26th we got several great comments about the cost of starting a SaaS company.  It definitely takes a commitment to build a true SaaS company, especially when you consider some the following facts about the 15 public companies that I tracked in my high level analysis:

• Average Start-up Capital Required:                                   $44M
• Average Time Required from Start-up till IPO:                 7 years
• Average Capital Required per Year till IPO (Burn):             $6.8M
• Average IPO Proceeds:                                                    $76M
• Additional Capital Raised After the IPO:                           $243M
• Average Total Capital Raised:                                          $363M
• Average Market Capitalization:                                      $1,262M
• Companies Who are Profitable:                                            8

The costs of getting a SaaS start-up off the ground are substantial but only about half of the firms we tracked actually started out as a pure SaaS company.   These other Cross-Over firms started out as either Application Service Providers (ASP’s) or were traditional On-premise ISV’s that move to SaaS through a combination of organic migration or through a series of acquisitions.  Companies like Concur, Kenexa, Taleo and Ultimate Software have all transitioned to SaaS from an on-premise heritage.

Montclair Advisors - SaaS Start Up Costs - Pre IPO

The shortest time to go from start-up phase to an IPO was 4 years and the longest was 13 years.  Most of the firms we tracked were founded between 1997 to 1999, which was prior and during the Internet Bubble.

When these firms went public they raised a range between $30M (LivePerson and Ultimate Software) to over $150M (DealerTrack and NetSuite), but on average they raised about $75M.  All the firms then went on to do additional capital raises from $32M (LivePerson) up to $750M (DealerTrack) but on average each raised $243M!   The total capital raised, when considering both pre IPO, IPO and post IPO capital raised, these firms raised between $100M (LivePerson and Ultimate Software) to close to more than $500M (DealerTrack, Salesforce.com and SuccessFactors).

Montclair Advisors - SaaS Start Up Costs - Post IPO

After going public, this SaaS market basket of companies have done well as a group.  The majority of the firms are profitable, which makes for solid cash flow performance, revenue visibility and overall stability of the company’s stock, for the real SaaS firms.

The most valuable company, based on their Market Cap is Salesforce.com at more than $8B and there are at least 4 other SaaS firms with valuations over $1B (Blackboard, Concur, NetSuite and SuccessFactors).  When comparing the amount of capital raised to the market valuation, the 5 best performing firms are Salesforce.com (.09), Ultimate Software (.13) , Concur (.19), RightNow (.22) and LivePerson (.31).

Montclair Advisors - SaaS Start Up Costs - Market Caps

This year, as the economy improves, promises to launch a few new SaaS IPOs and we will continue to track this core group as well as a larger group of Hybrids and Cross Overs and will periodically report back with our findings.

When speaking with entrepreneurs and investors about the investment required to start up a new Software-as-a-Service company, I often refer back to this list.   At Montclair Advisors thought this would be a handy reference for those looking to start a SaaS company during 2010.

Looks like you might need a money tree to start a SaaS company, but for those that reach critical mass and go public, there is a tremendous payback.  This is information has been gathered from various sources including Wachovia, CrunchBase and Google Finance.