SaaS Funding Napkin 2023

Christoph Janz from Point Nine has been creating the popular SaaS funding Napkin since 2016 (except for 2020). It draws upon data from P9 portfolio companies and survey data collected from other SaaS investors.

The napkin shows what it takes to raise capital for a SaaS company in a particular year. An update for 2023 was recently presented at SaaStr.

Based on all published napkins, I wanted to analyze how the funding environment for SaaS companies has changed in recent years. Then I found out that someone has already done this for the period until 2022 (see here). So in the end, my analysis is "just" an update of this one.

ARR in $M

It is still possible to get money from investors with $0 ARR. However, as shown below, the traction required for startups to raise a Seed round (red area) has tended to increase in recent years. From $0-0.6M in 2021 to $0-1M in 2022 to now $0-1.5M.

This has led to an overlap between Seed and Series A (blue area). What some investors demand for a Series A is a Seed criterion for others.

Seems there was an exception last year where you could raise later rounds (Series A and Series B (green area)) with a lower ARR. That has now changed again.

Round Size in $M

Interestingly, the Series A round sizes in the 2020/21 hype phase seem less inflated than Seed and Series B. Seed rounds saw a slight drop between 2021 and 2022 ($2-5M to $1-4M) and are now back to 2021 levels ($2-5M).

Series A saw the opposite development – from $5-12M in 2021 to $6-18M in 2022 to $5-15M now.

Series B declined between 2021/22, but remained stable last year ($10-40M).

Valuation in $M

The valuations have developed similarly to the round sizes. While Seed ($5-15M to $8-20M) and Series B ($60-180M to $80-200M) have seen a rebound, Series A valuations have fallen ($25-75M to $20-60M).

Conclusion

Overall, it seems that valuations and round sizes are settling back to the pre-Covid trend (slightly increasing). However, you can also see that the ranges across all rounds are widening. The higher ARR requirements for all stages show that investors have become more cautious after 2020/21 and want to see more evidence of product-market fit.

What surprises me is that no matter how you look at the numbers, valuations still seem to be well above 10x ARR. Even when you get closer to a potential exit and/or IPO. Meanwhile, M&A multiples for private SaaS are currently at ~5x and multiples for public SaaS are at ~6x. Therefore, it seems advisable not to aim for the maximum valuation in the next round.