Pre-IPO Profits

What to Look for in a Software as a Service Company

What to Look for in a Software as a Service Company
By Adam Sharp
Date August 13, 2019

Welcome to the latest edition of Pre-IPO Profits. One reminder before we get started today – we’re sending you our second Angel Investing Master Class video this week. It should arrive in your inbox on Thursday. You can also check out our first video here if you’d like a refresher on the basics.

Today we’re going to cover one of my favorite areas to invest in: SaaS (software as a service). This business category sells software products to other companies on a recurring basis. Nearly all SaaS today is delivered via cloud-based solutions.

The most well-known SaaS company in the U.S. is Salesforce. Salesforce sells a CRM (customer relationship management) SaaS product. CRM helps companies sell their own products more efficiently and keep track of customers’ activity. Salesforce IPO’d in 2004 at around $4. Today it trades around $141, with an impressive $125 billion market cap.

SaaS is a broad category today and now includes giants such as Microsoft and Adobe. Microsoft and Adobe switched over to a SaaS model over the last decade because of its high profit margins, recurring revenue and high customer satisfaction.

SaaS is one of the hottest private investment areas today, and for good reason. Software is changing the way businesses in every industry operate. The companies that build and use good software are simply more efficient and productive than their competitors.

As legendary venture capitalist Marc Andreessen is fond of saying, “Software is eating the world.”

What to Look For in SaaS Companies

Newer SaaS standouts include Twilio, Slack and Zoom. Let’s take a brief look at each so that we get an idea of what a great SaaS company looks like.

Twilio is a customer communication company. It helps companies connect with their customers via text message, phone or other means. Twilio makes it very easy for its clients to communicate, track and customize their communication experience. The company was founded in 2008 and went public in 2016. Today it’s valued around $18 billion.

Zoom is another SaaS success story. Zoom is a video conferencing company that is somehow beating Google Hangouts and Microsoft’s Skype. How? By providing a premium product that users absolutely love.

Zoom is an important example because it shows that a small, dedicated team can compete with and beat giants like Google and Microsoft.

The reason why is simple. Zoom is a team dedicated to one thing: video conferencing.

Meanwhile, Google is competing in hundreds of different markets, and the small team working on its Hangouts video conferencing product doesn’t have any real incentive to make a breakthrough product. It won’t be richly rewarded if Google Hangouts wins the competition because it is expected to win. Hangouts is a tiny part of a huge conglomerate.

Meanwhile, the Zoom team was incentivized with shares in its small but growing company. The Zoom team knew if it won, the rewards would be extremely rich. And today its hard work has paid off. Zoom recently IPO’d and is now worth $25 billion. And it seems to be on its way to dominating the video conferencing market, despite the massive competition.

Lastly, let’s look at Slack. This standout company offers an instant-messaging SaaS product used by hundreds of thousands of companies around the world. Slack took an old idea – instant messaging – and tailored it to a modern business’s needs. Since it launched in 2009, Slack has been so successful that, in many companies, it’s actually replacing email.

Think about that for a second… replacing email. Anytime you see somebody tackling an idea that bold, and it looks like they may actually succeed… it’s probably worth an investment.

These three SaaS superstars have one primary trait in common. All made software that was delightful for their customers to use, made their jobs easier and provided an excellent return on investment.

In SaaS, I look for companies that are changing the way their customers do business, improving workers’ jobs and helping their customers make more money.

Finding Late-Stage (Pre-IPO) SaaS Opportunities

Successful SaaS startups can be among the most competitive deals in Silicon Valley. Every good venture capitalist loves their SaaS companies. So it can be hard to find great SaaS opportunities in the early stages (seed and Series A rounds of funding). They come along from time to time but are somewhat rare.

However, there are dozens of great SaaS opportunities every year for late-stage online investors. The MicroVentures Pre-IPO Premier Fund will certainly be targeting choice SaaS deals.

The primary places I look for pre-IPO SaaS deals are…

If you’ve already invested in the Pre-IPO Premier Fund, you have a MicroVentures account. As part of this, you’ll begin receiving deal notifications in your email. So if you want to start investing in deals outside of the Pre-IPO Premier Fund, I would pay close attention to these announcements. Watch for promising deals, because the best opportunities are likely to fill up fast.

If you don’t already have accounts at Forge and EquityZen, you can sign up for free at the links above. We’ve thoroughly vetted these sites and have confidence in the leadership at each.

I recommend getting your accounts set up at each of these three sites right away. You never know when an excellent deal will come along (and you won’t know at all if you don’t sign up!). Note: As a reminder, we have no financial interest in any of these investment platforms. We don’t accept any form of compensation from them, and our research is 100% independent.

Over the coming weeks, we’re going to review some of the hottest pre-IPO SaaS companies in the country. Because in the near future, you’ll get the opportunity to invest in some of them.

Until next week,


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