Yancey Spruill, the Chief Financial Officer (CFO) of recently public email distribution service provider SendGrid, recently spoke to Barron’s in an interview regarding his high-growth email business and the market’s larger appetite for “software-as-a-service” companies.
At the helm of the SaaS space stands market pioneers such as Salesforce.com and Workday, who themselves are doubling down on the enterprise software industry with heightened M&A and venture deals.
Spruill, who earlier in his career worked as a tech banker, told Barron’s reporter Tiernan Ray that company valuations are growing because investors are particularly drawn to the growth that the SaaS industry offers.
Over the past few years, non-traditional investors began doubling down on software companies in the private markets, hoping for better returns than public sphere was providing. As a result, valuations skyrocketed, leading many to deem SaaS startups as overvalued, especially considering a large portion have not been able to turn a profit.
However, the CFO argues that higher valuations are justified, highlighting the fact that every SaaS company beat their numbers in the most recent fourth quarter, “and there is a real sense that the changes in the economy are being driven by tech.”
In an economy that is growing 50 basis points faster than the same period last year, but not as fast as it once was, Spruill suggests that investors are “craving out-performance” and finding it in SaaS companies who all posted beat and raise results.
“The multiples have really moved the last two weeks. People were nervous last month, and for multiples to expand one and a half clicks is just amazing,” stated SendGrid’s CFO in the interview published on March 9th. As for his Denver, CO-based firm, which raised $81 million in venture financing and about $148 million for its IPO, he indicates that it is in a new league of companies that employ “self-serve operations,” as opposed to that of “big old enterprise companies.”
“Everyone is on a monthly plan for everything. That creates real contrast from the recurring bookings of those annual contracts that leave that gap from bookings and revenue… So we don't need to obsess over, are you going to hit the quarter,” explained Spruill. He has no doubt that SendGrid will grow its revenues from $112 billion in 2017 to become a billion-dollar business.