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Phil’s Monthly European SaaS Musings

Welcome to the inaugural edition of my Monthly European SaaS Musings!

I’ll be (trying to) publish this within the first week of each month, and will cover some of the game-changing need-to-know’s in the European SaaS world. You can expect opinionated commentary & data on the public markets, macroeconomics, the most interesting, notable & exciting VC rounds (to me) in European SaaS, and finally some of the top things we’ve been reading or seeing IRL.

This is completely brand new this month – so any and all feedback on content, format etc gratefully received! To receive next month's European SaaS Musings in your inbox, subscribe to the Oxx newsletter (the subscription form can be found in the footer at the bottom of the page).

1) What’s going on in the public markets?

“It’s brutal out here” (Olivia Rodrigo, 2021)

There’s no getting away from the persistent downward pressure and ongoing volatility in public SaaS valuations. The basket of SaaS stocks included within the BVP Nasdaq Emerging Cloud Index (EMCLOUD) is down >50% over the last year, and >35% over the past 6 months. September specifically has been volatile, maintaining a downward trend since early August, testing lows not seen since April of 2020.

Much of the decrease in valuations has been driven by precipitous drops in valuation multiples of revenue. Overall multiples measured by enterprise value to annual recurring revenue (EV / ARR) for public SaaS companies now stand at a 6.4x median multiple, which is 5% up vs last quarter, but over 50% down vs a year ago.

Underpinning this softening in investor sentiment is the notion that the public markets are now valuing efficient growth, rather than growth at all costs, which characterized the phenomenal expansion of SaaS businesses (and fundraisings) in the post-Covid boom times.

There’s a rule of thumb for later stage SaaS businesses that their revenue growth rate plus its net margin should equal 40% – which is creatively named the Rule of 40. In the last week of September, the R^2 correlation coefficient between valuation multiples and revenue growth was 0.25 and the corresponding figure vs the Rule of 40 was 0.47. These correlations have reversed compared against the figures from 2021, indicating the public markets are increasingly prioritizing more efficient growth than raw growth.

Performance of public SaaS companies may also be starting to slip vs expectations. Per Altimeter, 88% of public SaaS companies beat consensus performance estimates in Q2. But looking at the expected forward-looking Q3 numbers, just 54% are guiding towards beating consensus. This is a really significant and unusual drop – and investors will be watching these reports on actual Q3 performance closely as they come in, to see if public SaaS businesses are starting to experience more significant growth headwinds.

Unsurprisingly against this backdrop – IPO activity remains muted. There have now been ~160 US IPO’s in 2022 YTD (across all sectors), which is ~80% less than the same period last year.

Some huge M&A news though in the month with Adobe’s acquisition of Figma, at a ~50x ARR multiple, in the biggest ever buyout of a private SaaS business. Adobe paid the equivalent of 11% of its market cap for less than 3% in additional ARR to acquire the deep collaboration design platform, in a move that appears to have been considered a strategic necessity by Adobe. The market however reacted harshly to the news – with the stock dropping 18% in a day, ironically losing more market cap than the entire purchase price within 24 hours.

This reaction is likely not a great harbinger that bumper M&A’s/IPO’s will quickly return for late-stage fast-growth SaaS; price sensitivity appears to be riding high. But with the news in the month that Thoma Bravo has opened a London office, perhaps we’ll see a pickup in growth buyout activity in the coming months? Or maybe some heightened take private activity if some of the crossovers and growth funds believe the public markets have been over-sold? Interest rate volatility (see below) is clearly an impediment here for leveraged financing, so we will keep a close eye on the macro for any forthcoming expected easing here.

2) Macro had a completely insane month

Well, September was intense on the macro front.

With inflation rampant, central banks are responding with rate increases across the board (50bps from the Bank of England, 75 bps from the ECB and 75 bps from the Fed); as well as hawkish guidance on future rate increases. As headline CPI in the UK remains stubbornly high at 9.9% in August, the markets are pricing in potential BoE rate hikes up to nearly 6%(!) in early 2023.

This month, it's hard not to deep-dive on the UK market in particular, which has had one of the most tumultuous months in recent history.

On the fiscal side, late in the month was the UK’s mini-budget, where the new Chancellor announced the largest tax cuts in 50 years. Immediately, sterling depreciated aggressively against the dollar, falling to $1.037 – even lower than the nadir in the mid 1980’s - with widespread talk about prospects for GBPUSD parity. Notable also that the dollar is the only real global currency of strength – USD denominated currency lines and European net exporters may stand to benefit, but this could well be clutching at straws.

There has been some damning condemnation of the UK’s announced fiscal plan within the last few days, most notably a scathing critique from the IMF, and further insult from pre-eminent macroeconomists and financiers, including Ray Dalio saying the UK was “operating like the government of an emerging country”; Larry Summers calling the policy “utterly irresponsible”; and Jason Furman “I can’t remember a more uniformly negative reaction to any policy announcement by both economists and financial markets”. Wow...

3) Slower than normal activity, but (perhaps) green shoots in European private markets?

We generally review about 30 scale-up stage B2B SaaS rounds happening each month on average across Europe and Israel ($5-30m equity rounds in B2B SaaS businesses that are Series A – C stage). This results in a narrowly defined European scale-up stage SaaS market of ~$5bn a year across ~350 rounds (roughly one deal per day).

This month, we counted 32 transactions. This is a touch higher than the historical average, but feels a bit lower than expected for the month of September, which is traditionally a very busy month both for deals being done & deals being announced post-summer.

Below are my top dozen favourite European SaaS deals that were announced in September. Awesome to see 2 of the Oxx portfolio in this (totally unbiased) list of brilliant companies & raises we saw announced during the month. If there are any other companies & rounds you think I should have included, LMK!

Whilst the last few months have mostly been characterized by private scale-up SaaS companies closing internal equity rounds with existing investors; raising venture debt; convertible loan notes etc, we’re starting to see green shoots of recovery, with a number of great businesses coming out to market for equity fundraising.

It’s too early to tell if this is a turning point, or simply seasonal, but debate rages on in both Europe and the US regarding when the, frankly, huge wall of VC/PE dry powder (i.e. funds raised but not deployed) will bite, and both supply and demand for venture deals will bounce back. Of course, some funds are facing a significant ongoing follow-on financing requirement in their own portfolios, which muddies the waters further on when funds will start to be deployed with impetus in net new transactions.

4) Great things I read or saw this month

Some high quality, thought-provoking content was published/presented in September. I particularly enjoyed the below:

5) Thanks for making it this far!

I hope you enjoyed reading this first instalment of my Musings! If you have any feedback, please do reach out (; all comments or recommendations are welcome. If you want to receive next month's European SaaS Musings in your inbox, subscribe to the Oxx newsletter by filling in the subscription form in the footer.

PS – the Oxx team will be attending SaaStock in Dublin on the 17th – 19th October. If you’re around, let us know.


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