Assessing the State of the SaaS Capital Markets and Our Predictions for 2024 (Sapphire Ventures)

Summary

• The first half of 2024 saw $147 billion in venture capital funding invested, on pace for 5% YoY growth but 2% lower than 1H 2023.§2
• Flat and down rounds increased to 41% in Q2 from 34% of all Series B+ enterprise software financings in Q1, the second highest level since 2010.§2
• VC investment dollars in GenAI grew by 31% compared to 1H 23, with growth of +70% YoY in the application layer and +256% YoY in the platform layer.§2
• Growth is now about 1.8x more important than FCF margin for revenue multiples, compared with 2.0x – 2.5x throughout much of 2023.§3
• The first half of 2024 saw $121 billion of announced enterprise software M&A transactions (+21% YoY), including the $35 billion bid by Synopsys for Ansys.§3
• 219 deals (96% of all deals) totaling $40 billion (33% of total capital) were announced at prices under $3 billion.§3
• 44% of announced enterprise software M&A deals were between private companies, up from 42% in 2023.§3

Key insights

1. Sapphire's report offers proprietary definitions and perspectives on both private and public SaaS markets.§1
2. Q2 2024 showed sequential improvement in VC funding for the first time since Q4 2021.§2
3. Mega-round financings have been rising as a percentage of all venture activity.§2
4. Many secondary market transactions still trade well below their last private round valuation.§2
5. High-profile shake-ups at Inflection, Adept and Stability may signal investors are unwilling to fund increasingly competitive GenAI categories.§2
6. Investor preference shifted further toward the Rule of 40 rather than pure growth in Q2 24.§3
7. IBM's ~$6 billion deal for HashiCorp was among the large enterprise software deals in the first half of 2024.§3
8. Hyperscalers remain on the sidelines of enterprise software M&A.§3