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— Capital at risk. T&Cs Apply. Nothing in this article constitutes investment advice. —

We recently announced our partnership with B2B SaaS experts and venture fund, Oxx. So, we felt it was time to dispel the myth that B2B SaaS is the vanilla of tech. In fact, B2B SaaS is sexy. In this blog post we offer a crash course on what B2B SaaS is, how it has evolved over the last few decades, and why it is an exciting space for investors.

B2B SaaS means Business-to-Business Software-as-a-Service

What is it?

A business model where a company provides software solutions to other businesses on a subscription basis. The B2B SaaS company hosts and maintains the software, and the customers access the software through the internet. B2B SaaS companies provide a wide range of software solutions such as customer relationship management (CRM), project management, accounting, human resources (HR), and more.

Some of the most successful examples of B2B SaaS companies include:

Salesforce – Salesforce is a cloud-based CRM platform that helps businesses manage customer relationships, sales, marketing, and more. It was founded in 1999 and has since become one of the most successful B2B SaaS companies with a market capitalisation of over $200 billion.
Slack – Slack is a messaging platform designed for teams and businesses to communicate and collaborate. It was founded in 2013 and quickly became popular with over 12 million daily active users. In 2019, Slack went public with a market capitalization of over $23 billion.
Zoom – Zoom is a video conferencing platform that has gained immense popularity in recent years due to the shift towards remote work. It was founded in 2011 and went public in 2019 with a market capitalization of over $16 billion.
HubSpot – HubSpot is an inbound marketing and sales platform that helps businesses attract, engage, and delight customers. It was founded in 2006 and has since become one of the most successful B2B SaaS companies with a market capitalization of over $20 billion.
DocuSign – DocuSign is a digital signature platform that helps businesses sign, send, and manage documents securely. It was founded in 2003 and went public in 2018 with a market capitalisation of over $6 billion.

In the early days of the industry, SaaS solutions were seen as new, untested, and generic technology, and many businesses were hesitant to adopt them, but we’ve seen a shift in this in the last 10-15 years as the technology has matured. Today, businesses are more comfortable with the idea of using cloud-based software solutions.

The early-adopters:
Large enterprise companies (those with thousands of employees) were among the first to adopt B2B SaaS solutions. Why? These companies have the resources to invest in the necessary infrastructure and support to ensure that the software is integrated into their existing systems. Enterprise companies are also more likely to have complex workflows and specialised needs that can be addressed by customised software solutions. This has resulted in a faster adoption of B2B SaaS solutions by large companies.

What about SMEs?
On the other hand, SMEs have been slower to adopt B2B SaaS solutions. This is partly because many SMEs historically lacked the resources to invest in the necessary infrastructure and support. Typically, SMEs are often more focused on day-to-day operations and are unlikely to have the time or resources to invest in the implementation of new software solutions.

However, as the B2B SaaS industry has matured, the adoption rate among SMEs has increased. Many B2B SaaS solutions are now designed to be easy to use and require minimal setup time. On the cost front, many B2B SaaS companies offer free trials or low-cost subscriptions that make it easier for SMEs to try out the software before committing to a larger investment.

Impact of remote work:
In the wake of the COVID-19 pandemic, many businesses have had to quickly adopt remote work practices and SaaS solutions have played a critical role in enabling businesses to work remotely by providing cloud-based software that can be accessed from anywhere.

Why is B2B SaaS a popular choice for investors?

Predictable Revenue Streams
B2B SaaS customers pay a recurring subscription fee, enabling companies to forecast their revenue with a higher degree of accuracy. This allows investors to have a better understanding of the potential return on their investment. Predictable revenue streams also make it easier for companies to manage their cash flow, which is an important consideration for investors.

Low Customer Acquisition Cost
Since the software is delivered over the internet, B2B SaaS companies can reach a global audience without the need for a physical presence in every market. This allows B2B SaaS companies to scale their customer base more quickly and efficiently.

Scalability
B2B SaaS companies can grow rapidly without incurring significant additional costs. This is because the software can be easily replicated and distributed to a large number of customers making it highly scalable. As the customer base grows, the cost per customer decreases, which allows the company to achieve economies of scale.

High Gross Margins
B2B SaaS companies typically have high gross margins due to the replicability and scalability of the product. The cost of delivering the software is therefore relatively low compared to the revenue generated from the subscription fees. High gross margins are attractive to investors because they indicate that the company has the potential to generate significant profits.

Customer Retention
Customers are paying a recurring subscription fee for a product that they rely on to run their business. As long as the software continues to provide value to the customer, they are likely to continue paying the subscription fee. This high level of customer retention reduces the risk of the investment and ensures a stable revenue stream for the company.

— Capital at risk. T&Cs Apply. Nothing in this article constitutes investment advice. —