Read this before investing in a SaaS startup

What SaaS means, what to look out for and why I would add it to my portfolio

3 min read
SaaS (Software as a service) investments have exploded in recent years taking the world by storm. As a result of the COVID-19 pandemic, according to Finances Online’s 2021 SaaS Industry Market Report, 30% of global companies spending experienced a drastic increase because of the coronavirus. The SaaS market continues to offer solutions to startups and enterprise businesses.

The SaaS market has experienced a rather diverse yet dominant growth. The current projection according to Gartner report shows that in 2020, the global SaaS market is expected to grow from $104.7billion in revenue to $140 billion in 2022, highlighting a consistent growth rate of 11.3% each year.

With the increasing demand, a validated business model and vast potential for growth, what better time than now to build wealth with SaaS investments?

Saas Defined

Software as a service (SaaS) is a cloud-based “on-demand model” of software distribution hosted on a cloud provider which is made available to end users over the internet and is licensed on a subscription basis.

SaaS applications run on a SaaS provider’s servers. The provider manages access to the application, maintains the data, infrastructure, software, and security.

This quote illustrates the SaaS model best:

"There was a time when every household, town, or village had its own water well. Today, shared public utilities give us access to clean water by simply turning on the tap. Cloud computing works a lot like our shared public utilities. However, instead of water coming from a tap, users access computing power from a pool of shared resources. Just like the tap in your kitchen, cloud computing services can be turned on or off as needed, and, when the tap isn’t on, not only can the water be used by someone else, but you aren’t paying for resources that you don’t use. " - Vivek Kundra, CIO US Government

Why you should add SaaS companies to your portfolio

SaaS brings simplification, access and affordability together so that businesses of all sizes can now have access to complicated software and IT infrastructural components easily and at lower costs.

Scalable revenue model

Due to being built on a predictable recurring revenue stream, the SaaS model enables startups scale with relatively low incremental cost and an established recurring customer base which means fewer risks for investors and high scalability potential. This is due to the SaaS subscription model which has high margins and recurring revenue as a result of increased customer retention, resulting in more sustainable, predictable revenue streams and cash flow.

With streamlined requirements and stable cash flow, SaaS companies can focus on providing the best software and support for continuous growth.


Industries are constantly searching for digital solutions for automation, collaboration and more. Expanding outside Finance, Technology or Cybersecurity. Industries such as Agriculture, Construction, Music and more are looking at SaaS solutions to solve some of their problems. The convenience, speed & scalability that comes with SaaS integrations, make them so sought after. E.g. An organization that initially had to manually pay all employees using individual ACH transfers previously, being able to integrate with a SaaS company that handles payroll automatically, saves an incredible amount of time and eradicates potential human error.

Low Operational Costs

Requires no physical management, manufacturing, packaging, storage space, or shipping. SaaS is deployed and distributed much faster than traditional software, significantly reducing the cost, time and manpower required. With the elimination of those costs, SaaS businesses launch with less capital and an increased profit margin.

SaaS decreases risk for investors due to its capability to run on smaller teams, keeping their cost low which allows the company to scale in direct accordance with company needs.

Getting started with SaaS investing

When it comes to assessing the viability of a business operating a SaaS model, prospective investors have the benefit of a set of largely universal KPIs. This allows for a more clear-cut decision-making process when deciding whether or not to invest. These KPIs include:
  1. Compound monthly growth rate - Monthly revenue growth over a set period of time
  2. Net dollar retention - What percentage of customers remain paying customers over a set period of time
  3. Customer acquisition cost payback period - Length of time taken to recover costs spent on acquiring a customer
Explore the most recent SaaS opportunity for your portfolio with Bongalow.

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