Last year, New Breed took a look at the software companies on the Inc. 500 list, analyzing both their choice of delivery method (saas vs. on-premise) as well as funding pattern (funded or bootstrapped). With 2015 coming to a close and this year’s Inc. 500 list recently released, I think now is as good a time as any to look at what has changed or what patterns remain when we compare that analysis to the 2015 Inc. 500 “Class of SaaS.”
Before we dive into the analysis, we’ll provide a brief background on what this list means if you’re not familiar. The Inc. 500 is a compilation of the fastest-growing private companies in America. Applicants need to have generated at least $2 million in annual revenue the year prior to application (2013). You can view the list in its entirety here.
In 2014, 41 software companies placed on the Inc. 500. In 2015, the number of software companies have grown. Forty-five of these companies are now in the top 500. Seven companies that appeared in 2014 have made the list for a second time in 2015. However, those numbers alone don’t tell the whole story. The 2015 class has blown the doors off the class of 2014 with the median growing at an astounding 2,026 percent over the past three years, compared to 1,708 percent for the class of 2014. Not only this, but median revenue has also grown by 18.6 percent year-over-year to $7.1 million.
The interesting shift in this data is that though median employee count has also increased with these trends, the revenue/head has decreased by more than 22 percent. It suggests one of two phenomena taking place. The first is that the companies are potentially less profitable than last year’s class. The second is that these companies are requiring more resources to grow.
As the importance of MarTech continues to grow, the tools that teams are using to grow are becoming more important. In my last post on SaaScribe, I listed HubSpot as one of 13 tools used by SaaS marketers. Interestingly enough, after using Datanyze to segment which marketing automation platforms are being used by these companies, the numbers confirm HubSpot’s ascension to the top of the list. Three very interesting trends emerge.
- HubSpot use has grown by 93 percent
HubSpot users have grown from 15 percent to 29 percent of the companies landing on the Inc. 500 list. It is now the platform of choice for those using marketing automation. Marketo is second with 24 percent, a 10 percent year-over-year gain.
- Companies not using marketing automation has decreased by 23 percent
According to Gleanster, 84 percent of top-performing companies are “using” or “planning to use” marketing automation before the end of 2015. Though our SaaS class hasn’t reached that level of adoption, more companies making this year’s list are leveraging a marketing-automation platform. In 2015, only 35 percent of companies are not using marketing automation, compared to 46 percent last year.
- Eloqua has dropped off the map and Pardot usage has slipped
Unfortunately, it appears that Eloqua is the biggest loser in this year’s analysis. In 2014 Eloqua represented 7 percent of the companies using marketing automation, and Pardot 10 percent. This Year, Pardot accounts for 7 percent, and none are using Eloqua.
Last year we saw that 34 percent of the companies that made the cut had gotten there by bootstrapping* their businesses. This year that number has grown by nearly 29 percent, as 44 percent of these companies have no record of receiving funding.
*Bootstrapping defined as having no record of funding (angel, seed, series A, etc.) listed in Crunchbase.
Not only are more of these companies choosing not to receive funding, but they also are seeing success. They are breaking past the $20-million revenue market, which was not seen in 2014.
However, this does appear to be coming at the consequence of a slower three-year growth rate. No bootstrapped company has been able to break the barrier of a 5,000-percent growth in three years according to the 2014 and 2015 studies.
Let’s turn our analysis to those companies that have received funding. Tomasz Tunguz has noted that SaaS companies are becoming increasingly capital-efficient, meaning that less money is needed to reach the same objective. He’s illustrated this through analysis of return on invested capital (ROIC) at the IPO stage of public SaaS companies:
Photo Credit: Tomasz Tunguz
Of course, we don’t have access to the same data in this private company analysis before the IPOs. However, we can see that those businesses that did receive funding are raising more capital and using that money to grow faster and larger than the class of 2014. This can be broken down as follows:
The resulting increases are coming at a decreased capital-efficiency compared to the class of 2014. This is because total funding has grown faster than revenue growth, which could indicate longer term investments for these early-stage companies or other potential decreased efficiencies.
So What Does All This Mean?
Not only are software companies appearing in greater numbers and higher positions on the Inc. 500, but they are also growing at faster overall revenue-growth rates with higher top-line revenue and headcounts.
We can also see the increasing importance in investments in marketing automation. HubSpot and Marketo are the platforms of choice for companies on this year’s list as Pardot slips and Eloqua disappears.
Finally, we have also seen greater success out of this year’s bootstrapped cohort as more companies have chosen not to seek funding to scale. Of these businesses, we’ve seen a select few make more than $25 million in annual revenue. When looking at companies that did take funding, they are growing across the board more quickly than their predecessors, but are currently exhibiting a lower ROIC.
These companies are all clearly exceptional, and there’s much that we can learn from their success and the decisions that helped them along the way. What are the metrics that stand out to you? What questions do you feel are worthy of further analysis? Leave your thoughts in the comments below.