2017 Saas Outlook

2017 SaaS Outlook

Data provided by Credits & Contact PitchBook Data, Inc. JOHN GABBERT Founder, CEO ADLEY BOWDEN Vice President, Market Development & Analysis

Content

K&L Gates G. SCOTT GREENBURG Partner CHARLES P. CARTER Partner JONATHAN M. MINER Associate TONY L. YERRY Associate

PitchBook GARRETT JAMES BLACK Senior Analyst BRYAN HANSON Data Analyst Contents HENRY APFEL Data Analyst JENNIFER SAM Senior Graphic Designer

Introduction: What Is SaaS? 4-5 Q&A: The State of SaaS 6-8

COPYRIGHT © 2017 by PitchBook Data, Venture Activity in SaaS 9 Inc. All rights reserved. No part of this publication may be reproduced in any form or by any means—graphic, electronic, M&A Activity in SaaS 10 or mechanical, including photocopying, recording, taping, and information storage SaaS IPO Activity & Revenue and retrieval systems—without the express 11 written permission of PitchBook Data, Inc. Contents are based on information from Comparison sources believed to be reliable, but accuracy and completeness cannot be guaranteed. Select SaaS & Software Statistics 12-14 Nothing herein should be construed as any past, current or future recommendation to buy or sell any security or an offer to sell, or a solicitation of an offer to buy any security. This material does not purport to contain all of the information that a prospective investor may wish to consider and is not to be relied upon as such or used in substitution for the exercise of independent judgment.

2 K&L GATES & PITCHBOOK: 2017 SAAS OUTLOOK Whether you call it Software as a Service (SaaS), cloud computing, or web services, K&L Gates has extensive experience representing both the companies who provide these services and the investors who ﬁ nance those companies.

Our team understands how to organize your business, position it for investment, and negotiate venture capital and private equity transactions. We advise on data privacy and data security laws across the globe and provide counsel through liquidity events and beyond.

K&L Gates LLP. Global legal counsel across ﬁ ve continents. Learn more at klgates.com.

Anchorage Austin Beijing Berlin Boston Brisbane Brussels Charleston Charlotte Chicago Dallas Doha Dubai

Fort Worth Frankfurt Harrisburg Hong Kong Houston London Los Angeles Melbourne Miami Milan Munich Newark New York

Orange County Palo Alto Paris Perth Pittsburgh Portland Raleigh Research Triangle Park San Francisco São Paulo

Seattle Seoul Shanghai Singapore Sydney Taipei Tokyo Warsaw Washington,D.C. Wilmington What Is SaaS? Introduction

What is SaaS? Terms that develop into buzzwords get thrown around so often that finer shades of meaning are lost. The word SaaS itself is an acronym that stands for “software as a service”. Salesforce, an early pioneer in SaaS, defines it as “a way of delivering applications over the Internet as a service. Instead of installing and maintaining software, you simply access it via the Internet, freeing Look up a company. yourself from complex software and hardware management.” And its cap table. Salesforce’s definition of SaaS explicitly highlights the fundamental technology shift away from software that is downloaded and run on the user’s personal And its investors. computer or local network. The definition only makes passing reference, And its EBITDA however, to a shift in business model that accompanied the shift in access method. Traditionally, a software user purchased a perpetual license to use multiples. software in a transaction that mirrored the purchase of a physical good. The And its board version of the software licensed by the user may become outdated and no longer supported by the licensor, but the user has permanent access to it so long as the members. license terms are not violated. However, in SaaS, the user only has access to the software during the term of the license. In seconds.

To reflect this shift in the business model, we define SaaS ascentrally hosted software applications licensed on a subscription basis.

A few further notes on the definition: central hosting is not inherent in the SaaS The PitchBook Platform definition, as software licensed on a subscription basis could be hosted by the has the data you need user inside its firewall or “on premises”. However, in our view for a company’s to close your next deal. service to be considered SaaS, it must primarily be offered over the internet. This software can be hosted by the software provider or through a third party cloud Learn more at provider, like Amazon or Microsoft, even if it also offers a parallel product that runs behind the customer’s firewall. Application software is also not inherent pitchbook.com in the definition, but SaaS usually refers to the application layer of the cloud computing “stack”, i.e. the applications or programs with which the end user interacts. The other two layers of the stack are known as Platform as a Service (PaaS) and Infrastructure as a Service (IaaS). PaaS is a set of tools and services designed to make coding and deploying SaaS applications quick and efficient. IaaS is the hardware and software that powers SaaS and PaaS—e.g. servers, networks and operating systems.

Within our definition of SaaS, there are still many variables. SaaS can be delivered via a yearlong or multi-year contract, or on a month-to-month or “pay as you go” basis. In addition, many SaaS companies that operate on a fee-for- service model offer the service for free at the outset of the relationship, with the goal of converting the free user into a paying subscriber. This is known as a “freemium” model and Slack, Box and Dropbox are well-known firms that use this model. Incorporating the subscription aspect into the SaaS definition helps to understand how the term is used, particularly by venture capitalists and other

4 K&L GATES & PITCHBOOK: 2017 SAAS OUTLOOK What Is SaaS? Introduction, continued

investors who are evaluating the business model as much as the service itself. For example, both Facebook and Twitter provide continually updated software delivered over the internet. However, because they do not use subscription models and instead monetize through advertising, they are not commonly understood as SaaS businesses.

Benefits of SaaS

This report User experience benefits: sums up the 1. The user can more easily access continuously updated software from any device and location. big trends. 2. The SaaS application is more easily integrated and used with other software applications.

Dig into the 3. The SaaS subscription business model permits users to evaluate the utility details on the of the software without making a large upfront financial investment. PitchBook Business benefits: 1. Because of how it is accessed, it is more practical for a company to make Platform. available SaaS applications to a small group of its employees. 2. Since the software is easy for the application provider to deploy, it can be priced on an as-used basis (versus an upfront license fee) and scaled over time as the customer’s usage grows. This generally works better for the Find out more customer and makes the product more approachable. at pitchbook.com Investor benefits:

1. Compared to perpetual-license software businesses, and other internet- based businesses, the SaaS model tends to provide a more stable revenue stream. An investor can assess a SaaS business’ R&D costs, user acquisition costs, churn rate and the expected lifetime revenue per customer to build relatively predictable growth and profitability models.

2. SaaS companies often require significant upfront investment to develop the service and acquire customers, but once the product-market fit is established, SaaS businesses can scale quickly and profitably.

3. Customer loyalty to SaaS companies often runs deep. Because software purchase decisions within the enterprise are now often made at a departmental or even individual level, the fit between the service and user is often high, since the users are the ones deciding whether or not to obtain the service.

CHARLIE CARTER Partner K&L Gates

5 K&L GATES & PITCHBOOK: 2017 SAAS OUTLOOK Q&A: The State of SaaS An in-depth interview with K&L Gates on the current state of SaaS and how its evolution will continue going forward

continually maintained software suite, and not just buying software programs as individual products. There are a huge number of companies that have been able to jump into very specific specialties and niches, like rewards- as-a-service or employee benefits- as-a-service. The entire workspace has become defined by software that allows businesses to operate.

Charlie: The transition to the SaaS business model was caused by a fundamental change in how software is delivered, and that change has had a profound effect on how people work and play. Traditionally, software was installed on the customer’s computers and servers, with the vendor providing Charles P. Carter G. Scott Greenburg periodic updates and upgrades, as Partner, Emerging Growth & Venture Partner, Corporate/M&A well as maintenance and support. The Capital K&L Gates legacy business model fit this delivery K&L Gates +1.206.370.6797 +1.206.370.7633 method—a large up-front payment Mr. Greenburg is a partner with more than 25 for a perpetual software license, Charlie Carter focuses his practice on the years of experience in venture capital, public followed by annual maintenance and formation, financing and general corporate offerings, intellectual property and technology support payments equal to 10%-20% counseling of startup and growth-stage issues, mergers and acquisitions, complex of the up-front payment amount. companies. Charlie works extensively with commercial transactions and international Now, customers increasingly access technology companies, including in the product distribution. Mr. Greenburg has software via web browsers, including software, internet, media and mobile industries. completed more than 100 corporate from mobile devices. This change in His 20 years of experience includes seed transactions for companies such as: Starbucks how software is accessed also came and venture capital financings, mergers and Corporation; Aventail Corporation; Classmates with changes in payment methods— acquisitions, public offerings and intellectual Online, Inc.; Sambazon, Inc.; Maveron LLC; putting aside free models, software property transactions. VoiceStream Wireless Corporation; Westin accessed by the internet is typically Hotel Company; and Seattle SuperSonics (The paid for in recurring amounts over a Basketball Club of Seattle). fixed contract term, with a small upfront payment, or none at all. As the SaaS market has matured, another 1. What inspired your selection of software companies’ SaaS suite development we’ve seen is that the SaaS as the focus of this particular offerings, such as Microsoft’s Office software provider is typically not the publication? 365 or Adobe’s Creative Cloud, are same firm hosting the software. That now becoming rapidly adopted. Scott: In the last 10 years we have role has been assumed by large players Software has become something seen almost a complete switch from like Google, Amazon, HP, IBM and that is so ubiquitous and updated so “packaged software” as the primary Microsoft. This makes sense as they frequently that it has only made more consumer software product category can use economies of scale to reduce sense to shift to a model where people to “software-as-a-service” (SaaS) the costs of hosting. The customer are paying for a subscription to a as the primary category. Traditional can also scale their usage (and costs)

6 K&L GATES & PITCHBOOK: 2017 SAAS OUTLOOK to fit their needs. The outsourcing of the product over the course of time company was founded in 2006, and hosting and corresponding reduction with continual upgrades. Typically, according to its public filing it is now a in capital costs associated with the upgrades include improvements rapidly growing, $200 million revenue launching a software business has to the user interface for ease of use, business valued at nearly $2 billion. sparked the development of innovative additional functionality and more It shows the increasing demand for software applications from an ever robust processing to improve the software developers to connect their growing number of vendors. So, Marc customer experience. SaaS models software products and services to Andreessen was correct in 2011 when allow businesses to harness new other software products and services. he said software was eating the world. visual and audio tools to make their 3. What’s the role of cybersecurity offerings more compelling. In the SaaS 2. Before we delve into the niches playing into the robustness of the world you can continually build and you mentioned, where would you say SaaS suites vendors are offering? improve a product. It can deliver a very we stand now? You’ve spoken of the targeted, specific experience for the Charlie: Most application providers evolution of the model, so what is the user. are more than willing to make their current state of SaaS? software available wherever the Charlie: Scott and I spend much of Scott: Historically startups were customer wants it—public cloud, our time representing startups. Most creating standalone software private cloud, or behind the customer’s of our software clients are using products—just like Microsoft did firewall. Software providers are, after SaaS as a business model—and are originally—and they were distributing delivering their solutions via the copies and building a huge business internet. However, we recognize SaaS is a much around that distribution method. that the penetration of SaaS into The internet came along and made broader category of many businesses—including large distribution largely electronic and enterprises, family-owned businesses products that can also enabled a different model for and others—is far from complete. revenue. As lawyers, we helped raise give you an answer. For large enterprises in particular, a lot of money for companies that switching to the cloud presents wanted to develop software and sell numerous challenges, including all, like any other solution or service (license) copies. Nobody comes in cost and execution. In addition, provider—they must respond to anymore and wants to raise money many businesses operating in highly market demands. In addition to being to create copies of software and regulated industries still prefer to flexible as to where their applications license it. What they want is to create maintain their data on their own are run, SaaS vendors are also being servers or third party servers increasingly vigilant in making sure exclusively dedicated to their business their services are built to the highest SaaS expedites (i.e. a “private” cloud). Furthermore, security standards. continual improvement. many businesses in regulated Scott: SaaS gives you the ability to industries take a hybrid approach, have very secure and insecure data in maintaining their most sensitive data the same product. For example, a SaaS a particular service or application on their own servers or a private cloud, service may allow any user to have a enabled by software and sold online. and using public cloud providers like storefront to sell any type of product, It’s an adjustment and the software Microsoft, Amazon and Google for say coffee mugs. Now, the user wants and lawyer communities have to adapt other data. I believe that over time absolute availability for anybody to to a world driven by the use of open- we will continue to see migration to come visit the storefront, to stroll source software, mobile technologies the cloud and SaaS models, even through the storefront, and view and instant communications. In the in regulated industries, because whatever products they wish. But then original model of licensing copies, if enterprises will conclude that cloud you have secure parts like payment you try to use open-source in your vendors are better at data security processing, or where they can upload product and license it, then you have than they are. But, that’s a debate for and customize images, where you violated the open-source agreement. another day. don’t want to know to whom they However, under open-source rules, The forthcoming IPO of MuleSoft shipped or what they designed. SaaS rather than licensing the software is a good proxy for the state of offers the ability to have all of that in you can sell the monthly use. This SaaS. MuleSoft is a software service secure environments in the cloud or change in the business model allows that allows developers to connect behind a firewall. A great example is a a company to raise capital, build a applications across any device. The company I worked with for years that product and then continuously sell

7 K&L GATES & PITCHBOOK: 2017 SAAS OUTLOOK had an anti-money laundering product. cloud that allows you to book trips, is a SaaS company whose primary It operated on the internet, but all but the cost of developing a rewards product monitors the performance of the data generated through it for any program for Expedia was huge. What software applications. Cisco decided it analytics were behind the licensing if you could purchase an off-the-shelf was critical for them to own a solution banks’ firewall. So the data was all rewards program for $50 a month? On that monitors the performance of stored, manipulated and analyzed any website, what if you allow users to software applications because its large behind a firewall, but the software to book any appointment time or service enterprise customers are rapidly filling process it in a secure environment was (classes, tours, court times, etc.). out their digital infrastructure with an outside the firewall. Very interesting One example is PlaceFull, which is a increasing number of interconnected dichotomy, but the state of software “bookings” button SaaS application software applications. Cisco’s nowadays allows you to cover all those that allows online appointments. Those willingness to pay a 50% premium to bases. The secret to it all is to have types of services allow once very the projected IPO value is a strong very intelligent tools that allow you to expensive and customized features to statement about the importance of understand what can be public and be used as low cost tools anywhere— software applications to the enterprise, what can (or must) be private. Public- that’s where ubiquity becomes the and those applications are, as we key encryption has been around for a norm. Dispersion of technology noted, increasingly using the SaaS while and is very robust and secure. becomes possible. Yes, the offering model. The future remains unknown, must be easy—simplicity and elegance but I do believe we’ll see the strong 4. Moving on, from the perspective of of software are what contribute to its balance sheet tech giants like Google, the companies you work with, where use. Apple, Amazon, Microsoft, Facebook, do you see the rate of penetration of Oracle, Cisco, Intel and IBM make SaaS occurring more quickly now than increasingly large acquisitions of SaaS it was before? Low-cost, broadly businesses to complement their efforts Charlie: Workplace productivity— applicable products to homegrow new software services. I including collaboration, file sharing, in SaaS are really hope to see a next generation of great e-signatures and file storage, is an companies challenge the incumbents. area where SaaS has made a big winning today. But, a combination of the often long impact. Not only do companies like timeline to grow recurring revenue in Box, DocuSign, and Smartsheet 5. Given where we are at in the SaaS the SaaS business (due to payments offer great standalone services, adoption cycle, where are we now being spread out over the lifetime of but they are even more powerful seeing consolidation in the SaaS the contract), the high regulatory and when used as integrated offerings. industry? market barriers to entry to become Another area seeing real innovation Charlie: With some notable exceptions, a viable public company today, the is human resources & human capital like Zillow’s acquisition of Trulio, I venture fund lifecycle and the massive management, where SaaS players don’t think we are yet seeing real scale of the incumbents, means are attacking the traditional human consolidation in SaaS. I do believe only the most exceptional of new resources ERP (enterprise resource consolidation will come, and the companies will pose a challenge. planning) vendors. The SaaS original and still biggest pure SaaS Scott: The current targets seem to players include well-known public company, Salesforce.com, will likely be be companies with not only a great companies like Workday, emerging an active buyer. There are emerging service, but combine that with great but established players like Zen Payroll SaaS businesses growing quickly data and analytics. Take PitchBook—it and Limeade, as well as younger, within Salesforce’s market area, and as shows how you can aggregate data dynamic companies like Tango Card, they mature, even to the unicorn level over time for more and more purposes which offers rewards as a service, and and beyond, it would not surprise me and extract what people are willing to Bonusly, a peer-to-peer employee to see Salesforce attempt to acquire pay for. As opposed to ubiquity and recognition platform. Bonusly is a them to add to its service suite. What low costs, PitchBook targets scarcity. great example of a company taking full we are seeing now is the traditional If you combine data that others don’t advantage of the reduction in capital tech heavyweights acquire SaaS have with robust, powerful analysis costs associated with the cloud-based businesses. Microsoft made a large tools then you can charge higher business model. purchase when it bought LinkedIn (a amounts and limit access based on Scott: Software became ubiquitous “freemium” SaaS business) last year. those amounts. That model of SaaS is when key and core products were Perhaps more interesting is Cisco’s where there is huge value. made affordable—Microsoft grew up recent purchase of AppDynamics in that model. Expedia is a tool in the right before its IPO. AppDynamics

8 K&L GATES & PITCHBOOK: 2017 SAAS OUTLOOK Decline from recent peaks Venture capital activity in SaaS

With many of the key benefits of SaaS backed many startups that sought SaaS financings are down, but SaaS models enumerated, it is unsurprising low-hanging fruit in SaaS. Now, with penetration continues to deepen. that after the early success of much of the low-hanging fruit picked, companies such as Salesforce.com VCs flocked to fund businesses tackling various segments and applications SaaS venture financing has followed general trends in the venture industry in recent years. Venture funding of Global VC activity in SaaS SaaS startups neared $28 billion in total value in 2016, and although that Deal Value ($B) Deal Count 3,659 3,435 represents a decline from the heights 3,390 of 2015, dollars invested remained 2,721 robust when viewed across a longer Source: PitchBook 2,633 timeframe. To take a bird’s-eye view, *As of 3/20/2017 such a pattern makes sense not 1,966 only in light of the recent overall VC investment slowdown, but also when 1,365 considering typical new business model adoption cycles. Flush with 1,056 952 1,032 commitments from limited partners 663 looking to expand or at the least 374

maintain allocations to alternative 1 2 4 4 0 8 4 6 6 5 6 1 1 1 2 3 2 4 $ $ $ $ $ asset classes, venture firm partners $ $ $ $ $ $ $ 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017*

Dollars invested took longer to decline than overall volume, but eventually followed suit Global VC activity in SaaS

$12.0 1200 Deal Value ($B) Deal Count $10.0 1000 Source: PitchBook *As of 3/20/2017 $8.0 800

570 $6.0 600

$4.0 374 400

$2.0 200

$0.0 0 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q* 2010 2011 2012 2013 2014 2015 2016 ‘17

9 K&L GATES & PITCHBOOK: 2017 SAAS OUTLOOK M&A activityM&A in SaaS suggests amaturing market Rise in aggregate deal value Global M&A activity in SaaS in activity M&A Global Steady downturn in activity throughout 2016, even as value stayed robust SaaS in activity M&A Global start to aslower off is volume deal 2017 while 2016, dominated size in Outliers $ $ $ $ $ $ $ $ $ 1 2 3 4 5 6 $ 7 8 9 2 0 0 0 0 0 0 0 0 0 0 6 ...... 1 0 0 0 0 0 0 0 0 0 0 $35 3 D 4 e 3 a 1 $37 l Q

V 3 a 4 2 l 2 u 2 Q $34 e 0 Source: PitchBook Source:

3 1 ( 3 *As of 3/20/2017 *As of $ 4 0 Q B 0

$15 ) 4 4 Q 6 Source: PitchBook Source: 7 *As of 3/20/2017 *As of

1 $30 D Q 4 e 2 a 0 2 l

2 V Q $47 0 a 6 D 1 l 7 u 3 1 e 5 e Q a

$42 l (

$ 8 C 4 B 7 o Q ) 3 u n

K&L GATES & PITCHBOOK: 2017 SAAS OUTLOOK $68 1 1 t , Q 4 0 3 2

2 $90 Q 0 1 1 , 3 6 2 Q $107 0 5 D 4 1 Q e , 1 a 7

l $142 1

3 C Q 1 o 9 u 2 0 n $14 2 Q t 0 1 10 10 3 3 Q Median global M&A transaction size ($M) transaction M&A global Median higher values much at are transactions closed but down, is volume Deal $ $ $ $ $ $ $ $ $ 4 1 1 2 2 3 $ 3 $ 4 4 5 0 5 0 5 0 0 5 5 0 5 0 Q ...... 0 0 0 0 0 0 0 0 0 0 0 1 Q 2 0 2 0 2 Q 6 0 2 1 3 0 4 0 Q 7 2 4 0 Q 0 8 1 2 Q 0 0 9 2 2 Q 2 0 0 1 1 3 0 5 Q 2 0 1 4 1 Q 2 0 1 1 Q 2 2 2 0 2 Q 1 0 Median 3 1 3 2 6 0 Q 1 4 2 4 2 1 Q Source: PitchBook Source: 0 9 *As of 3/20/2017 *As of 1 1 1 5 ‘1 Q* $ 9 7 2 3 0 0 6 1 . 0 6 5 4 4 3 3 2 2 1 0 5 1 2 $ 0 0 5 0 5 0 5 0 5 0 0 3 1 6 0 0 0 0 0 0 0 0 0 7 . 1 * As IPO window cracks open, M&A door stays wider SaaS IPO activity & global SaaS versus software revenues

The initial public offering (IPO) window invest the cash reserves built up over will likely be contingent upon a much may be opening up in 2017, but up until many years to catch the next waves of longer period of public market stability recently simply hasn’t been welcoming technology. What’s harder to assess and some intrepid businesses debuting for some time now. Due to market is if the IPO market will revive—that to favorable receptions. volatility, the relatively more attractive allure of M&A by a strategic buyer and the widespread expectation that public market investors will prioritize Global SaaS IPO activity short-term profitability over long-term Capital Raised ($B) growth, businesses have focused on 61 building out their core offerings and IPO Count improving their market and fiscal Source: PitchBook positions before embarking on IPO *As of 3/20/2017 roadshows. 42

For those companies poised for liquidity, the current prices available 38 25 36 in the M&A market are undeniably 23 23 22 attractive—not many publicly traded businesses can command revenue multiples as high as that of, say, 11 19 AppDynamics and Mobileye. Because 7 5 . 7 7 1 4 0 4 4 9 3 0 ...... 7 1

demand for new technologies and . 0 4 0 3 3 3 7 5 4 0 1

1 0 $ $ $ $ $ $ $ $ $ $ $ services on the part of incumbent $ technology companies is high, that 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017* form of liquidity is attractive to SaaS startups and their investors. As others Median global revenue of software versus SaaS businesses ($M) such as Tomasz Tunguz have observed, SaaS valuations are likely to tighten $25.0 $22.5 further or stay tight given where we are at in the current cycle. Many of SaaS So�ware the best-known SaaS companies are $20.0 simply observing their growth rates slowing, as a natural occurrence of becoming larger, more mature $15.0 businesses. However, SaaS valuations $10.5 are still likely to outpace the general software market, given the steady $10.0 $10.2 disparity in median revenues over the past few years and especially in 2017 $7.2 thus far. Accordingly, M&A of SaaS $5.0 companies will still proceed apace, for Source: PitchBook the foreseeable future, as the large *As of 3/20/2017. Note: These revenues are of both public and private companies. technology companies continue to $0.0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017*

11 K&L GATES & PITCHBOOK: 2017 SAAS OUTLOOK Select SaaS & Software Statistics

Four of the top 10 biggest software companies are primarily SaaS players Top 10 software companies by market capitalization*

Market Total 3-year 5-year 10-year Company capitalization revenue revenue revenue revenue Industry SaaS? City ($M) ($M) growth growth growth

Alphabet $588,399 $90,272 17.6% 19.0% 23.9% Internet software Mountain View, CA

Operating Microsoft $499,353 $85,688 0.9% 3.5% 6.4% Redmond, WA systems software

Facebook $391,188 $27,638 52.0% 49.4% N/A Social software Menlo Park, CA

Oracle $176,237 $37,236 -0.3% 0.3% 8.8% Internet software Redwood City

Baidu $64,054 $10,838 32.8% 41.4% 62.3% Internet software Beijing

Workflow Adobe Systems $58,711 $5,854 13.0% 6.8% 8.6% ✔ San Jose, CA software

Salesforce.com $57,179 $7,908 28.1% 30.5% 33.4% Business software ✔ San Francisco

Vertical market Paypal $51,359 $10,842 17.2% N/A N/A San Jose, CA software

Hewlett Packard Enterprise $41,054 $50,123 -4.4% N/A N/A Other software Palo Alto

VMware $37,054 $6,928 11.4% 14.4% 27.5% Business software ✔ Palo Alto

Source: PitchBook *As of 2/20/2017

When looking at younger companies, some of the best-known are SaaS, particularly when it comes to enterprise Top 10 software companies that went public in last five years by market capitalization*

Market 3-year 5-year Total revenue Company capitalization revenue revenue IPO date Industry SaaS? City ($M) ($M) growth growth

Facebook $391,187.87 $27,638.00 52% 49% 5/17/2012 Internet software Menlo Park, CA

Workday $17,726.19 $1,456.16 53% N/A 10/12/2012 Business software ✔ Pleasanton, CA

ServiceNow $15,379.90 $1,290.50 51% N/A 6/29/2012 Database software ✔ Santa Clara, CA

First Data $14,867.26 $11,605.00 3% 2% 10/14/2015 Financial software Atlanta

Network Palo Alto Networks $14,004.19 $1,479.40 50% N/A 7/20/2012 management Santa Clara, CA software

Twitter $11,459.89 $2,522.89 68% N/A 11/7/2013 Social software San Francisco

Network Sina Weibo $10,373.35 $592.08 72% N/A 4/17/2014 management Beijing software Network Splunk $8,804.38 $863.52 48% 54% 4/18/2012 management ✔ San Francisco software

LINE $7,098.54 $1,274.28 N/A N/A 7/14/2016 Application software Tokyo

WorldPay $6,687.26 N/A N/A N/A 10/13/2015 Financial software London

Source: PitchBook *As of 2/20/2017 12 K&L GATES & PITCHBOOK: 2017 SAAS OUTLOOK Moreover, the top five venture financings in 2016 are all of businesses with SaaS applications Top five venture financings in 2016

Close Deal size Deal Company Investors Industry City date ($M) type China Development Bank, China Life Insurance, China Post Group, Primavera Ant Financial 4/26 $4,500.0 Series B Capital Group, China Investment Consumer finance Hangzhou, China Corporation, China Construction Bank, New China Life Insurance Company Nima Capital, Aeon Funds, Dover Madison Capital Management, TJNS Capital, FJ Palantir Labs, IT Ventures, Rising Tide Fund, 1/29 $880.0 Series K Database software Palo Alto Technologies Tamares Group, VSL Partners, Pokora Capital, Founders Equity Partners, Nautilus Ventures Software GE Ventures, Ford, Microsoft, EMC, Pivotal Software 5/9 $653.0 Series C development San Francisco VMware applications

Global Fashion Early Kinnevik, Access Industries, Rocket Senningerberg, 7/22 $365.1 Internet retail Group stage Internet Luxembourg Accel Partners, Social Capital, Index Ventures, Spark Capital, Thrive Capital, Communication Slack Technologies 4/1 $200.0 Series F San Francisco GGV Capital, Comcast Ventures, Sherpa software Capital, Virgin.com Source: PitchBook

Both corporate and PE buyers have focused on SaaS take-privates, signifying its further pervasion of the market Top 10 software companies companies taken private from 2014 through 2017*

Deal size Valuation/ Company Deal type Select Buyer(s) SaaS? City ($M) revenue China Renaissance Capital Qihoo 360 Technology $9,300 Take-private 5.15x Beijing Investment

Solera Holdings $6,500 Take-private Vista Equity Partners 5.42x ✔ Westlake, TX

King Digital Entertainment $5,900 M&A Activision Blizzard 2.93x Dublin

Secondary Informatica $5,300 Permira Advisors, CPPIB 4.97x ✔ Redwood City, CA buyout

Solarwinds $4,500 Take-private Silver Lake Partners 9.26x ✔ Austin

TIBCO Software $4,300 Take-private Vista Equity Partners 4.00x ✔ Palo Alto

Dealertrack Technologies $4,000 M&A Cox Automotive 4.03x ✔ New Hyde Park, NY

HomeAway $3,900 M&A Expedia 8.04x Austin

Secondary Thoma Bravo, HarbourVest Riverbed Technology $3,681 3.68x ✔ San Francisco buyout Partners Secondary Qlik Technologies $3,000 Thoma Bravo 4.51x ✔ Radnor, PA buyout Source: PitchBook *As of 2/20/2017

13 K&L GATES & PITCHBOOK: 2017 SAAS OUTLOOK Although founded relatively recently, a few companies like Tanium & AppDynamics have quickly ascended the charts Top 10 highest-valued privately held SaaS companies*

Most recent Company Select investors City valuation ($M)

Golden Gate Capital, Kleiner Perkins Caufield & Byers, Koch Equity Infor $10,000 Development, Parallax Capital Partners, Salesforce Ventures, Summit New York Partners, Symphony Technology Group

Baring Private Equity Asia, Koch Equity Development, L Capital Solera Holdings $6,500 Westlake, TX (Lancer Group), The Goldman Sachs Group, Vista Equity Partners AlpInvest Partners, Canada Pension Plan Investment Board, L Capital Informatica $5,300 (Lancer Group), Microsoft, Permira, Salesforce Ventures, SVG Capital, Redwood City, CA Two Six Capital

Solarwinds $4,500 HarbourVest Partners, Silver Lake Management, Thoma Bravo Austin, TX

TIBCO Software $4,300 eLab Ventures, Virgo Capital, Vista Equity Partners Palo Alto

Banneker Partners, Corporate Capital Trust, Hellman & Friedman, L Genesys $3,800 Daly City, CA Capital (Lancer Group), Permira, Technology Crossover Ventures Andreessen Horowitz, Bullpen Capital, Citi Ventures, EP Executive Tanium $3,708 Press, FS Investors, Geodesic Capital, IVP, T. Rowe Price, TPG Capital, Emeryville, CA TPG Growth Adage Capital Management, Altimeter Capital Management, Asheem Chandna, Battery Ventures, ClearBridge, Cross Creek Advisors, AppDynamics $3,700 General Atlantic, Greylock Partners, Industry Ventures, IVP, Kleiner San Francisco Perkins Caufield & Byers, Lightspeed Venture Partners, Sands Capital Ventures, SharesPost, Silicon Valley Bank, The Goldman Sachs Group

Riverbed Technology $3,681 HarbourVest Partners, Ontario Teachers' Pension Plan, Thoma Bravo San Francisco

Ellucian Company $3,500 Leonard Green & Partners, TPG Capital Fairfax, VA

Source: PitchBook *As of 3/16/2017

What makes a law ﬁ rm different?

Legal acumen? Global reach? Industry depth? Yes, but that’s not all.

What truly differentiates a law ﬁ rm is how it serves its clients. When our clients tell us that the quality of our work and the experience of working with us are equally satisfying—that is true distinction. Let us show you what a fully integrated global practice and an unwavering commitment to unsurpassed client service can mean for you and your business.

K&L Gates LLP. Global legal counsel across ﬁ ve continents. GLOBAL LEGAL COUNSEL ACROSS FIVE CONTINENTS

K&L Gates Paris Claude Armingaud | [email protected] SaaS Team Nicola Di Giovanni | [email protected] Etienne Drouard | [email protected] Boston Julia B. Jacobson | [email protected] Pittsburgh Mark L. Johnson | [email protected] Susan P. Altman | [email protected] Oded Green | [email protected] London David J. Lehman | [email protected] Tom R. Wallace | [email protected] Portland Melbourne Brendan McDonnell | [email protected] Cameron Abbott | [email protected] San Francisco Orange County Lars E. Johansson | [email protected] Michael A. Hedge | [email protected] Seattle Shoshannah D. Katz | [email protected] Charles P. Carter | [email protected] Palo Alto Claire S. White | [email protected] Mark H. Wittow | [email protected] Stan Lewandowski | [email protected] Jerrold F. Petruzzelli | [email protected] Sydney Linda Zhou | [email protected] Daniel Atkin | [email protected] We do pre-money valuations, cap tables, series terms, custom search, growth metrics.

You invest in the next big thing.

See how the PitchBook Platform can help VCs invest smarter. [email protected]