Workday 13 Update

Workday provided a preview of the latest product update, Workday 13 at the end of April.  This appeared to be a major release of functionality across their entire ERP suite including Workday HCM, Workday Payroll, Workday Initiatives (Work Management), Workday Financial Management, Workday Spend Management as well as some new user experience capabilities.

This was the first update we have received in about two years so it was really impressive to see how much progress the company has made not only with their products but also with their overall business.  Here are some key facts:

• 200 customers and more than 130 of them are live
• Flextronics have over 100,000 employees using their systems
• Over 1,000,0000 employees are using their various products across their customer base
• Targeting an IPO for the second half of 2012
• Releasing about 3 updates per year, compared to 1 every 18+ months for their ERP competitors

Workday HCM

As I mentioned, the last time I saw a Workday product demonstration, they didn’t very much in the way of talent management functionality but that has really changed. They now have compensation planning, performance management, succession planning and competency management.  They have wrapped these capabilities in a robust in-line analytics and decision support framework.  This framework includes pre-packaged reports and some really slick user interfaces for workforce management.  This screen shot is of their 9-box interface for their succession planning product.  What I thought was really cool is how they have integrated their position management and organization charting capabilities right into this 9-box interface for their Talent Matrix.  These capabilities look very competitive to most of the other leading SaaS TMS players in the market.

For capabilities that they don’t currently have in the their talent management products like recruitment they will continue to partner with leading specialists like StepStone (now Lumesse) who acquired MrTed and Taleo.

For learning management they have built an intelligent interface into Plateau (recently acquired by SuccessFactors).

When they demonstrated the Workday 13 product, the one thing that popped out at me was the user experience and how engaging it was.  The user interface appeared to quite flexible, allowing the user to drill down, or across to access important information, as well as the use of compelling charts, graphs and dashboards.  I thought it was interesting to see how an object oriented architecture can really impact the overall usability of your SaaS products.

Workday Payroll

For an ERP system it is very useful to provide a payroll solution to tie into.  Workday’s product has been built from the ground up to be a SaaS-based payroll solution.  Workday Payroll was launched in 2009 and supports US based payroll requirements.  The news for Workday Payroll is a new partnership with OneSource VHR for payroll co-sourcing services such as payroll settlement, tax and garnishment administration.  These are common requirements for organizations with very large workforces.

Workday 13 still offers integrations into third-party payroll providers and payroll aggregators such as Patersons and ADP.

Workday Mobility

Seems like every HR software company is now offering a mobile application for users.  The news in this area was the announcement of limited availability of Workday for the iPad.  Again, one of Workday’s strengths is user interface design and this product is no exception.  The product is not intended for heavy transactional use but more for the executive or manager that wants to easily browse through talent profiles, monitor their Chatter-like personal Workday Workfeed or gain insight into their workforce by running a report or analytics.   The general availability for Workday for iPad is planned for Workday 14.

Overall, I thought that the Workday 13 release contained some useful improvements and the product is really impressive.  Given their 3 times a year release cycle, they will continue to innovate at a brisk pace which will be difficult for the traditional ERP competitors to keep up with.  Also, their laser focus on usability will also become a huge differentiator when looking at incumbent solutions, as long as Workday can deliver the necessary functionality and security that enterprises are going to continue to demand.

By Kevin Dobbs

Montclair Advisors, LLC

Now that many software companies really feel that the risks associated with a second recession are firmly in the rearview mirror, it now seems like everyone is looking to grow their businesses.

I read a great post yesterday by Bruce Cleveland at InterWest Ventures about the Value of Growth for SaaS Companies, which I thought really accurately captured a challenge that many software firms face when transitioning to a SaaS model.   This is a subject that is near and dear to me given my background as a reformed marketing executive and someone who was responsible lead generation at Oracle years ago during the Tom Siebel and Marc Benioff era.   I think it was Tom Siebel when he was running Oracle’s inside sales team that told me “I want it to rain leads from the sky!” At the time I was actually shocked because he was asking me to literally drown his sales team with qualified opportunities who wanted to buy Oracle’s database products.

As I have come to learn that he knew exactly what he was talking about and his track record demonstrates that productive sales teams deliver amazing revenue growth results.  Bruce’s post highlights that a SaaS company without meaningful growth is not worth very much and probably will fetch the low-end of the valuation curve, which is still pretty good in today’s crazy market (See last week’s post about the SaaS Bubble).   So how are high flying SaaS companies like Salesforce and SuccessFactors achieving CAGR’s in excess of 30% every year?   Check out this chart I put together on some of the leading publicly traded SaaS firms (sans Salesforce because they will skew the chart):

As you can see the companies with the higher growth rates are also the ones that have high market caps (valued more highly by Wall Street).  What is really interesting is that SuccessFactors was able to grow by almost 50% for the past three years, even through one of the worst recessions in the last 100 years.  The value of growth can also been seen by a company that recently went public, Cornerstone OnDemand, they have been rewarded with a market cap that is over $800M even though the company lost more than $40M last year.  Seems crazy right?  But they have a great organic growth story along with a major channel relationship with ADP which could also signal even faster growth in the future.

If you talk to any software sales rep they often complain about their pipeline and the lack of quality leads. Reminds me of those coveted Glengarry leads  from Mitch and Murray downtown.    So at the heart of all of these companies and their rapid growth rates is that they have all developed a core competency to generate high quality leads and build pipelines quickly.

(click on picture to see clip)

Here are some tricks that I have learned along the way that will help you to build out your SaaS lead generation strategies:

• Use a Portfolio Approach - Depending on your product, buyers, and market there may be many ways to generate interest.  Campaign elements of a typical lead generation strategy are a combination of organic and paid web traffic, email campaigns, webinars, customer programs, social media and targeted events.   Don’t put all of your investment in a single demand generation approach, but reward the tactics that generate quality leads at an affordable price.
• Test and Test Again - With the portfolio approach you will need to continually test your messaging, packaging, value propositions, and price points.   The best-in-class SaaS firms are continually testing and refining their lead strategies.  This is important as most SaaS marketing organizations are trying to lower and optimize their Customer Acquisition Costs (CAC).
• Automate Where Possible -  There are a lot of great Sales 2.0 tools available today that can give you a real unfair advantage in the lead generation process.  Companies like Marketo, Pardot, Eloqua, Constant Contact, NetSuite and even Salesforce offer many tools to help you automate and analyze your marketing efforts.  I would definitely recommend implementing a lead nurturing or drip marketing program to continue to work your lower quality leads, this is a great way to build your pipeline over time with little direct human intervention.
• Track Everything - Make sure your sales operations and marketing teams are tracking and analyzing all of your lead activities and conversion rates.  You don’t need to be overly complex, but just tracking some basic things like lead scores, lead acceptance rates, leads converting to opportunities and close rates can help your organization to fuel your high growth SaaS sales engine.

With Cornerstone OnDemand’s recent IPO (NASDAQ: CSOD) and their high valuation based on a negative EBIDTA, many are starting to ask if we are headed for a second Internet or SaaS Bubble?

I do agree that some of the valuations at this point are a lot higher than a reasonable person would expect, but this is probably just pent up interest in the technology sector. It doesn’t help that Facebook and LinkedIn has seriously pumped up the valuations for Internet/Social Media firms, but today’s SaaS companies are very different from the Dot Bombs of 1999/2000.

Remember these companies?

All of these companies were built on bad business models, too much money and expectations that were out of control. And by the way are all out of business.

But not all of the Internet companies that were formed during this period were bombs; in fact there are a number of firms that are now pillars of the technology industry including these firms:

It would be safe to say that each of these companies struggled during and after the Dot-Com collapse but they were able to modify their models to take advantage of the efficiencies that the Internet provided. Amazon has built a business that can effectively compete against the largest retailer in the world, Walmart, even though its sales are only 1/12^th their revenues.

All of these Internet Survivors had to develop a real business model that would deliver solid margins, profits and growth. They each had to assemble experienced management teams, learn how to deliver superior customer service and build trusted brands. Not easy to do, but they did it.

Fast-forward to today and we have a whole new set of Internet and Software-as-a-Service companies that have emerged and gone public including these firms:

(1) CSOD IPO: March 17, 2011

(2) SREV IPO: March 25, 2011

As you can see most of these companies were founded before the Internet Bubble burst and were forced to create real business models that could deliver profits.

At Montclair Advisors, we specialize in SaaS business advisory services and we know many of these firms quite well and they all have strong management teams, growing businesses and staying power. Unlike the Internet firms that went IPO in 1999 or 2000, most of these firms have had to build up their businesses over ten or more years and are based on some form of recurring revenues.

Major differences between the companies on this list versus the early Dot Bomb firms include:

• Proven Over Time. As you can see most of these firms are at least ten years old and have weathered the economic changes through the last two recessions.

• Businesses at Scale. Most of these companies are over $100M in annual revenues, which means they have been successful in selling into multiple markets and geographies.

• Recurring Revenue Streams. Anyone who has been involved with a company that has developed a subscription business can tell you how hard it is to create a meaningful recurring revenue stream. The advantages of being a SaaS software company based on subscriptions means that revenues remain consistent so there is a high degree of transparency and visibility.

• High Degree of Customer Satisfaction. All of these companies are dependent on satisfied customers that want to renew their annual subscription agreements and purchase more services. This is quite different than the ‘drive-by’ relationships many of the early Internet companies developed with their customers.

• Strong Management Teams. After the Dot Com crash it became much harder to file for an IPO and manage a company in the post Sarbanes-Oxley world. These next generation of Internet companies have attracted leading management expertise that knows how to innovate and rapidly scale viable businesses.

So are the valuations of companies like Cornerstone OnDemand and Servicesource, Facebook and LinkedIn too high? Are we beginning to see a SaaS Bubble? Maybe, but all of these companies have been built for the long term and will be around long after any correction, unlike their early Internet cousins Web Van or Kozmo.com.

It is always hard to predict the future, but here are my 10 Predictions for the SaaS market in 2011, and they might just happen:

Blockbuster Subscription Software IPO’s

A number of large consumer subscription software players including Facebook, Groupon, LinkedIn, Zynga and Skype could really open up the public markets with a major blockbuster IPO (or IPO’s) in 2011.  SaaS firms that look to get everyone’s attention with potential IPO’s next year include Cornerstone OnDemand, Workday, Marketo, Service-Now and possibly Plateau.

Major Players Merge to Form the Next Big SaaS Brand

So my prediction (which is a pure guess) is that SuccessFactors and Taleo finally get over their respective CEO ego issues and decide to merge.   Sounds a little crazy, but when you really consider their product portfolios, there might not be as much of an overlap as you might think.  SuccessFactors is basically a performance and analytics company and Taleo is a recruiting and learning (after acquiring Learn.com) company.  They both have some additional components that could be plugged into to create a more comprehensive suite of CPM and Talent Management offerings.

This would also create a combined company with a market cap approaching (SFSF + TLEO) $4B and annual revenues in excess of $400M, which would be the second largest SaaS firm in the market, and a clear leader in their space.  Another potential marriage might be Concur and Ultimate Software.

Oracle Finally Pulls the Trigger on NetSuite

It seems like most Oracle SaaS rumors involve the acquisition of Salesforce.com, and that may happen some day, but the more likely combination for 2011 is NetSuite.  Larry Ellison is a major investor in NetSuite (early investor) and own/controls more that 50% of the company’s shares.  He may come to the conclusion that he needs some real SaaS DNA inside of Oracle to help grow their Fusion business in 2011 and beyond.

SAP Throws in The Towel and Buys Leading SaaS Player

Similar to the realization that many other major traditional ISV’s will come to in 2011, that they are too far beyond in SaaS to catch up organically, SAP will buy their way into SaaS.  The Business ByDesign project for SAP, by some estimates, has cost more than $1 billion and there isn’t much to show for it.  I always thought that the Sybase acquisition was just a smoke screen to cover up how little progress has been made with BBD at their most recent Sapphire user meeting.   Like Oracle, I think SAP reaches out into the market and purchases a SaaS firm to jump start BBD.  RightNow would be an interesting choice since SAP wants to make a splash in the CRM market.

Master Brands Continue to March Towards SaaS

These big software companies are no longer just paying lip service to SaaS or the Cloud, they continue to catch up with the subscription software market transition that is happening everywhere.  All sizes of customers who were battered during the recession are no longer interested in spending a lot of capital and time that has been associated with traditional software projects and are becoming increasing comfortable with SaaS.  This shift in the Software market is massive and is going to take at least 10 years, and we are probably only in the second year (post-recession) of this shift.  Continue to look to see what SaaS moves firms like Oracle, SAP, HP, CA and Infor make in 2011.

Continued Explosion of PaaS offerings

Look at Salesforce.com’s recent moves to expand their Force.com Platform-as-a-Service portfolio with VMForce and then buying Ruby on Rails provider Heroku for over $200 million.  Beyond Force.com there are many other offerings here today and coming in 2011 including App Engine by Google, Apprenda, Azure by Microsoft, Corent, Engine Yard, Facebook, Flex by Adobe, Fusion by Oracle, Intalio, IPP by Intuit, LongJump, Nimbula, SuiteCloud by NetSuite, and Wolf Frameworks.

As long as traditional ISV’s continue to move towards SaaS, there will be a green field opportunity for all types of PaaS solutions. Look for several of these firms to be acquired in 2011 by larger ISV’s.

Salesforce.com Continues to Expand Beyond CRM

After attending Dreamforce this month, it was curious to see a number of Force.com firms offering ERP extensions starting to gain real market momentum. Companies like FinancialForce.com (they purchased Appirio’s PSE business) who are delivering a growing suite of financial and accounting applications, JobScience who continue to build out their Talent Relationship Management suite on Force.com, Less Software who is selling a targeted Supply Chain Management solution and even Remedy’s Service Desk offering, RemedyForce Cloud.   If Salesforce offers an attractive exit for any of these firms or their Force.com products, like they did with Heroku, then it might be possible to do a quick roll-up of key partners to create a competitive Cloud-based ERP solution.

Interestingly this type of move might be triggered by Oracle buying Netsuite or Workday going public.

Fake SaaS Firms That Use Private Clouds Will Loose Altitude

Although Private Clouds might be a viable alternative for enterprises who are looking to leverage the economics of the Cloud, for software companies this type of approach will only provide short term ‘Fake SaaS‘ types of solutions.  This type of business model of hosting single-tenant software was known as Application Service Providers (ASP’s) and none of these companies that emerged about 10 years ago were able to find a business model that really scaled profitably.   Private Clouds will offer a short term technology transition steps for software companies who are moving away from just offering traditional on-premise software but this trend will really start to fade by later next year.

New Revenue Streams for SaaS Firms That OEM

At Dreamforce ‘10 Salesforce.com announced that they are launching their new Database.com offering, a Database in the Cloud. What was interesting about this news is that Salesforce is really just reselling a private-label version of Oracle’s database technology.  For Salesforce this is a unique way to take proven Oracle software, designed for on-premise deployment, and create a true subscription-based version of this product.  No doubt that Salesforce will need to do some work to create a massive multi-tenant version of an ORACLE database and then deliver it as a service, but they are already doing this today through their Force.com platform.  This could be a significant new revenue stream for both companies and look for other SaaS firms to try OEM’ing their software as a way to improve their CAGRs in 2011.

This should be an interesting year as the economy improves and the SaaS market really begins to gain some serious momentum.  It should be a fun time to be in the Software business again.

Kevin Dobbs,  Montclair Advisors, LLC

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.

Last week’s Oracle OpenWorld show was quite an event with many different story lines including the tie-in to the Iron Man 2 movie.  In fact, in the main area outside the keynote hall there were three Iron Man suites along side their Exadata and Exalogic cousins.  So here is what we learned:

Cloud in a Box according to Marc Benioff and Larry Ellison.  There was quite a number of heated, yet humorous references to Marc Benioff’s (CEO at Salesforce) comments related to Oracle’s view of Cloud Computing that it has to reside in an Exadata box.  In fact in one session I attended, he even said that the Internet was not made of Cloud boxes that were even taller than Marc, and he is tall.  In the Sunday afternoon session, Larry was very dismissive of both Marc’s vision of the Internet and his book Behind the Cloud. If you have some time check out Marc Benioff’s OpenWorld keynote, very funny.

What is really interesting is that in many ways they are both right.  Larry is very famous about a his rant on Cloud Computing and that it is nothing more than a network, servers and software.  This is true, even the most Cloudy providers in the market like Amazon and Salesforce.com are dependent on a real infrastructure that can scale and is reliable and many of these firms are Oracle customers.

On the other hand, Marc is right that the Cloud is less about buying, building and maintaining this scalable architecture and more about leveraging a firm that provides their Infrastructure-as-a-Service.  This has been one of the main catalysts for the software industry’s move to a subscription business model or SaaS, just like Salesforce.com.

In some ways both companies are right, it just depends on your viewpoint.   I think that Oracle is thinking more like IBM and HP and Salesforce is more aligned to Facebook and Zynga. Even though Larry and Marc were both exchanging jabs last week, they are both customers of each other, and in the end that is good for all of their customers.

Mark Hurd looks like he fits in well with Oracle.  The keynote sessions where Mark presented, he was relaxed and really knew the material.   Given Oracle’s absorption of Sun, it is really helpful to have someone with Mark Hurd’s background helping Larry run the company.  The hardware business is quite different than running a software firm and Oracle was able to secure one of the best hardware executives in the industry from HP.

Oracle is really embracing the hardware world.  It was interesting to see the focus on the new Exadata and Exalogic products.  The company’s messaging revolved around performance, availability, security and management and not very much around applications or Cloud Computing.  A lot of discussion around hardware and software being engineered together to create these incredibly powerful database and middleware server platforms.  But does this approach raise concerns around ‘vendor lock-in‘?   This hardware-centric strategy makes sense because Oracle really views IBM as their biggest competitor and they need to monetize the Sun acquisition as well.

Fusion applications are coming at the end of the year, but not sure if anyone at Oracle cares. Larry told the crowd that the writing of the new Oracle Fusion applications for Financial Management, Procurement and Sourcing, Project and Portfolio Management, Human Capital Management, Customer Relationship Management, Supply Chain Management, and Governance Risk and Compliance.  These are the products that were promised last year at OpenWorld but they appear to be real at this point.  Although I didn’t attend the deep dive sessions for Fusion, others who did told me that they have done a good job.  At the Wednesday afternoon keynote, the demos of the products looked good and the user interface looks quite modern.

According to Larry the writing of the new Fusion applications was the biggest development project in Oracle’s history, it was interesting to see that there was little for no fanfare surrounding this major milestone.  As long as the Fusion applications sell more database and infrastructure software and more Exadata servers, I guess that’s what is important.   The successful roll out of the Fusion applications later in the year is going to be important for the overall software market but I doubt it will really impact the leading SaaS providers like Salesforce.com, Taleo, SuccessFactors or Workday.  It will be interesting to see how Oracle evolves its thinking about the applications market and it’s approach to the Cloud, because that is where all the growth will come over the next 5 years.

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.