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Why Tech Investors Love the SaaS Model

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Why Tech Investors Love the SaaS Business 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.

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Charted: The Jobs Most Impacted by AI

We visualized the results of an analysis by the World Economic Forum, which uncovered the jobs most impacted by AI.

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Charted: The Jobs Most Impacted by AI

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.

Large language models (LLMs) and other generative AI tools haven’t been around for very long, but they’re expected to have far-reaching impacts on the way people do their jobs. With this in mind, researchers have already begun studying the potential impacts of this transformative technology.

In this graphic, we’ve visualized the results of a World Economic Forum report, which estimated how different job departments will be exposed to AI disruption.

Data and Methodology

To identify the job departments most impacted by AI, researchers assessed over 19,000 occupational tasks (e.g. reading documents) to determine if they relied on language. If a task was deemed language-based, it was then determined how much human involvement was needed to complete that task.

With this analysis, researchers were then able to estimate how AI would impact different occupational groups.

DepartmentLarge impact (%)Small impact (%)No impact (%)
IT73261
Finance70219
Customer Sales671617
Operations651817
HR57412
Marketing56413
Legal46504
Supply Chain431839

In our graphic, large impact refers to tasks that will be fully automated or significantly altered by AI technologies. Small impact refers to tasks that have a lesser potential for disruption.

Where AI will make the biggest impact

Jobs in information technology (IT) and finance have the highest share of tasks expected to be largely impacted by AI.

Within IT, tasks that are expected to be automated include software quality assurance and customer support. On the finance side, researchers believe that AI could be significantly useful for bookkeeping, accounting, and auditing.

Still interested in AI? Check out this graphic which ranked the most commonly used AI tools in 2023.

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