The software industry is booming: UK private equity software deals eclipsed the next largest sector area, business support services, by a factor of 5 to 1 in 2020.
This was no doubt accentuated by the impact of lockdown restrictions on other sectors of the economy, but is unlikely to be a one-off disparity as remote working habits adjust to a higher baseline post-pandemic and accelerate greater software adoption.
Investors will continue to value software businesses’ typically high degree of cash generation, the SaaS recurring revenue model, and customer ‘stickiness’ in certain sectors. However, delays on new IT spending decisions by customers in a weaker economic environment, and a higher number of business failures and customer churn (for software companies targeting SMEs) mean management teams and shareholders should not expect an easy ride for their software businesses over the next couple of years.
Fairgrove believes there are several key strategic considerations for software business owners and prospective investors. It is important to quantify the total potential market opportunity, which in nascent fields might be expanding rapidly as software solutions displace existing methods of operation. Determining the level of sales and marketing investment, designing the go-to-market strategy (freemium, pilot, sandbox, etc.) and building a robust measure of customer acquisition cost for every £1 of new ARR are all critical to profitable growth. There is also no ‘correct’ commercial model: not all solutions suit a subscription model, and contract lengths can and should vary by sector and application. Indeed in certain applications single-tenant architecture as opposed to multi-tenant, single-instance ‘true SaaS’ may still be preferable to customers.
Our relationships with venture and growth capital organisations and other leading technology investors mean we are fortunate enough to work alongside pioneering software businesses across a wide variety of sectors and applications.
Examples of sub-sectors where Fairgrove has experience within Software & SaaS include:
- Asset Finance
- Cyber security
- Health and Safety
- Market Research
- Project Management
- Rewards & Recognition
- Repair and Maintenance
- Social Housing
- Waste Management
- Vertical-Specific ERPs
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