Recurring revenue growth is key to weathering economic headwinds – TechCrunch

A report of over 400 SaaS companies found that “best-in-class” startups continue to grow

That’s a fact that startups, regardless of industry, face more hurdles today than a year ago. Driven by inflation, the war in Ukraine and other economic headwinds, fears of recession have strained sources of funding that were previously readily available.

The consequence? Drastic reduction in costs: until the end of June, 22,000 workers in the United States technology sector have been laid off this year, according to a Crunchbase news count.

But not all startups lack capital. In a new report, Cap-huntinga provider of non-dilutive financing tools, analyzed more than 400 private software-as-a-service (SaaS) companies generating between $1 million and $15 million in annual recurring revenue (ARR).

TechCrunch+ is hosting an Independence Day sale! Save 50% on an annual subscription here. (More info on TechCrunch+ here if you need it!)

After comparing their performance to 42 SaaS unicorns made public in 2020 and 2021, the company concluded that “best-in-class” SaaS startups continue to grow and unit economics is a reliable predictor of future success. .

“With current burn multiples, with current cash levels, SaaS companies of all sizes will struggle to raise towers at the end of their runway,” said Capchase CEO and co-founder Miguel Fernández. to TechCrunch in an email interview. “[But] the outlook for SaaS is still incredibly strong, and those who can weather this storm will come out stronger on the other side.

“Net retention rate can have a similar impact on combustion as growth and is generally much more efficient.” CEO and co-founder of Capchase, Miguel Fernández

According to the Capchase report, the best SaaS companies easily beat the “rule of 40,” a maxim that suggests that the sum of a company’s ARR growth percentage and net margin percentage (i.e., the profit is generated as a percentage of revenue) should total at least 40%. Capchase suggests that successful companies reach at least 80% and soar to over 110% during the growth phase and maintain around 55% even after their IPO.