Technology
Why Tech Investors Love the SaaS Model
Why Tech Investors Love the SaaS Business Model
Investors love businesses that have a reputation for minting cash.
And as far as tech companies go, the Software as a Service (SaaS) model is as good as it gets. It provides predictable, quantifiable, and fast-growing revenue for any company that can execute correctly – and everyone from venture capitalists (like Marc Andreessen) to asset managers (like Blackrock) love investing in companies with these traits.
Today’s infographic from TIMIA Capital explains why this is the case.
What is SaaS?
Unlike in years past when software was bought in a physical form at a store, much of today’s software runs right off the cloud.
This is made possible by ubiquitous broadband access and powerful computers – and SaaS allows users to consume software in a different way:
- Customers connect to the software online
- Customers are charged on an ongoing subscription basis for access
- The latest version of the software is automatically provided to the user
SaaS has immeasurable benefits over traditional software distribution models.
- It can be used everywhere, including on mobile
- It has easy integration with plug-ins or add-ons
- There is no overhead, packaging, or distribution costs
- It limits piracy
- It has a flexible and clear licensing model
- Software is always up-to-date
- User data can be collected and new features can be tested easily
While the benefits of SaaS to the end user are plenty, it has even more interesting properties as an investment.
SaaS Economics
Instead of relying on one-time transactions or upfront fees, SaaS is built around smaller, subscription-based transactions that recur each month or year.
Recurring revenue makes SaaS extremely predictable, measurable, and built to scale.
Unlike some other types of startups, measuring performance in SaaS is heavily focused on growing important metrics like LTV (lifetime value) or MRR (monthly recurring revenue), while minimizing CAC (customer acquisition costs) and churn (the rate at which customers stop buying the product).
As a result of the inherent attributes of the SaaS model, the industry has been exploding with growth. The BVP Cloud Index, which tracks 56 publicly traded cloud companies, is up 396% since 2011. That easily beats out benchmarks like the Nasdaq, S&P 500, and DJIA by triple digits.
Other Reasons to Love SaaS
Aside from performance, here are a few last reasons that elite investors love SaaS:
Costs go down: As SaaS businesses scale, the cost of servicing each customer goes down. In the long run, this helps lead to a growing, predictable cash flow.
Buyouts: It’s common for SaaS businesses to get gobbled up by the bigger fish in the pond, which often offers investors a premium on the current stock price.
Low Barriers: The SaaS model has erased barriers to entry for software, allowing new entrepreneurs to enter the fold in almost every niche possible. This creates a wide array of new opportunities for investors, as well.
Technology
All of the Grants Given by the U.S. CHIPS Act
Intel, TSMC, and more have received billions in subsidies from the U.S. CHIPS Act in 2024.
All of the Grants Given by the U.S. CHIPS Act
This was originally posted on our Voronoi app. Download the app for free on iOS or Android and discover incredible data-driven charts from a variety of trusted sources.
This visualization shows which companies are receiving grants from the U.S. CHIPS Act, as of April 25, 2024. The CHIPS Act is a federal statute signed into law by President Joe Biden that authorizes $280 billion in new funding to boost domestic research and manufacturing of semiconductors.
The grant amounts visualized in this graphic are intended to accelerate the production of semiconductor fabrication plants (fabs) across the United States.
Data and Company Highlights
The figures we used to create this graphic were collected from a variety of public news sources. The Semiconductor Industry Association (SIA) also maintains a tracker for CHIPS Act recipients, though at the time of writing it does not have the latest details for Micron.
Company | Federal Grant Amount | Anticipated Investment From Company |
---|---|---|
🇺🇸 Intel | $8,500,000,000 | $100,000,000,000 |
🇹🇼 TSMC | $6,600,000,000 | $65,000,000,000 |
🇰🇷 Samsung | $6,400,000,000 | $45,000,000,000 |
🇺🇸 Micron | $6,100,000,000 | $50,000,000,000 |
🇺🇸 GlobalFoundries | $1,500,000,000 | $12,000,000,000 |
🇺🇸 Microchip | $162,000,000 | N/A |
🇬🇧 BAE Systems | $35,000,000 | N/A |
BAE Systems was not included in the graphic due to size limitations
Intel’s Massive Plans
Intel is receiving the largest share of the pie, with $8.5 billion in grants (plus an additional $11 billion in government loans). This grant accounts for 22% of the CHIPS Act’s total subsidies for chip production.
From Intel’s side, the company is expected to invest $100 billion to construct new fabs in Arizona and Ohio, while modernizing and/or expanding existing fabs in Oregon and New Mexico. Intel could also claim another $25 billion in credits through the U.S. Treasury Department’s Investment Tax Credit.
TSMC Expands its U.S. Presence
TSMC, the world’s largest semiconductor foundry company, is receiving a hefty $6.6 billion to construct a new chip plant with three fabs in Arizona. The Taiwanese chipmaker is expected to invest $65 billion into the project.
The plant’s first fab will be up and running in the first half of 2025, leveraging 4 nm (nanometer) technology. According to TrendForce, the other fabs will produce chips on more advanced 3 nm and 2 nm processes.
The Latest Grant Goes to Micron
Micron, the only U.S.-based manufacturer of memory chips, is set to receive $6.1 billion in grants to support its plans of investing $50 billion through 2030. This investment will be used to construct new fabs in Idaho and New York.
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