Can your SaaS company IPO without raising venture capital?

Probably. But as far as I can tell, it hasn’t happened yet.

I recently put together a benchmarking analysis for one of our portfolio companies that compares a number of its metrics to those of 12 public SaaS companies a few years before their IPOs (when they were generating between $15 – 25 million in annual revenue). While the conclusions weren’t groundbreaking, I learned that the average company in the data set had 90% annual revenue growth, was spending nearly 80% of its revenue on sales and marketing, and had an operating income of -72% (of revenue). All of the companies had received venture capital funding and were using it to fuel aggressive sales and marketing spend. The average company in the set had raised $16 million prior to its $15 – 25 million revenue year, and $35 million before IPO. All took at least two rounds of funding, and on average, had more than three institutional investors.

Bruce Cleveland, a partner at InterWest, looked at an even larger set of public SaaS companies last year and found that the average amount raised prior to IPO was $43.5 million (median was $39.5 million). You can read his post here: www.interwest.com/software-as-a-service/investment/the-capital-needed-to-create-a-saas-company/

So there is definitely correlation between SaaS IPOs and raising venture capital, but as everyone knows, correlation does not imply causation.