Jeffe Mathew
Newion vs The 2020 SaaS Survey
As the year draws to a close, we here at Newion see the value in evaluating the performance of our portfolio companies and comparing them to industry benchmarks. Thanks to KeyBanc Capital Markets' (KBCM) leading survey, we can compare our portfolio to 500 other SaaS businesses to analyse what impact COVID-19 has had and what decisions make sense for the coming months.
Key Takeaways:
- Although COVID-19 has slowed the growth of SaaS startups this year, most startups are continuing to grow (albeit slower than initially forecasted).
- Newion’s portfolio has, on average, outperformed other software startups when focussing on ARR growth (as of September 2020).
- On average, SaaS companies reduced the size of their workforce by 39% to cut costs. At Newion, this was, unfortunately, higher at 46% for the first six months of the year.
- Following the end of summer, most of Newion’s portfolio companies began hiring again.
COVID-19 has had an ever-tightening grip on our world, and the unforeseen consequences it brought along are testing the resilience of the SaaS business model. In mid-March, we understood our portfolio companies needed to alter their plan for the year. The lockdown measures heavily impacted the BeNeLux, the Nordics and the US (i.e., the regions our portfolio focuses on). We, therefore, implemented a stress test (that was monitored and updated regularly) which focussed on modelling limited incoming revenues; a reallocation of part of the sales & marketing budget towards customer retention and product development; (some) hiring freezes, and managing cash weekly. The result of these tests ended with us asking all our CEO’s to revise their budgets with a clear focus on lengthening their runway. After summer ended, we re-examined the progress of our portfolio companies to see if they were meeting their “Corona Budget” and the impact this new budget has had on their business. Although we used several metrics for our internal analysis, we will focus on ARR Growth and the change in full-time employees for this article. Grouping companies together and only using 2 KPI’s does limit the level of our inference, but it will nonetheless indicate our progress.
Annual Recurring Revenue (ARR) Growth
Figure 1: How has Newion's portfolio grown its ARR in comparison to the industry?
ARR growth is the area which always gets the most focus in these surveys and to some extent rightfully so. Realistically, we are on the lookout for exponential growth, and we want every company growing +100% YoY. In 2019, SaaS companies -on average- increased their ARR by 36% and KBCM’s original forecast predicted this to rise to 39% in 2020. However, following COVID’s impact KBCM revised 2020 top-line growth projections and nearly cut them in half with median ARR growth for 2020 falling to 20%. BUT… let’s acknowledge that this is still impressive given the economic fallout! In 2020 +20% growth is very strong and +50% is off-the-charts. Figure 1 illustrates the results of our revised roadmap. Our portfolio companies (on average) have outperformed the SaaS companies surveyed this year. Not only this, but our companies have realised growth rates which are not just impressive for a pandemic but better than pre-COVID expectations!
Of course, we can’t take all the credit here; we have to give a huge congratulations to our portfolio companies who understood the issues and problems at hand and worked tirelessly to make this a reality. During this whole period, what we have really learnt is the importance of revising business plans regularly (or at least monitoring and assessing them regularly) when new information presents itself. Our portfolio companies faced better than most SaaS companies not just because of their product but because of their preparation. No-one knew the full implications that would arise from COVID-19 when it began, but planning for different scenarios based on the most up to date information is a crucial way to stay one step ahead. Companies should always hope for the best, but being prepared for the worst with the willingness to alter course for the short-term to ensure long-term survival allows companies to be slightly less susceptible to market swings.
Reduction in Full-Time Employees (FTE)
Figure 2: Have you had to reduce the size of your workforce due to COVID-19?
Although ARR growth remained somewhat positive for the industry as a whole, unfortunately in 2020, 39% of SaaS companies saw reductions in their workforce to cut costs. Sales, R&D, and customer support/ success were the hardest-hit areas during this period. Here at Newion, during the first six months of 2020, 46% of our companies reduced the size of their workforce to reduce costs. Although the median reduction at our portfolio companies was only 7% as opposed to the industry median, which saw between 10-15% reduction in FTE, this is not a trend we wanted to continue. Following those six difficult months at the start of the year, our portfolio companies began to really show their resilience. The worst has come and gone (fingers crossed), and the reduction in staff has been kept as low as possible.
Now their pipelines are recuperating well, and their growth prospects are edging their way back to pre-COVID levels, most of our companies that saw reductions in their workforce are beginning to hire once again! Our opinion at Newion is that in the long-term B2B SaaS will be more robust than ever. Although our comparison could be somewhat subjective (especially only using 2 KPI’s), we hope it provides you with an indication of our progress. We are proud of our portfolio companies in their ability to adapt and stay on budget in these uncertain times, but we have to be ready for what is to come. 2020 may have slowed down the growth of our portfolio, but the speed of digital transformation will only continue to grow in the coming years, and we are optimistic we will be able to develop more future market leaders!
