Looks like AT&T decided to acquire DirecTV after all. I’ve sold my shares and am currently looking at opportunities in the U.S. enterprise SaaS sector. I think there’s tremendous potential here for the astute investor to pick the right long term winners. Unlike the great social networks, the enterprise SaaS space is less well known and isn’t suffering from being in a crowded market as many B2C plays are. Businesses that exhibit highly scalable, recurring revenue business models with large target markets and limited competition are always high up on my radar as potential investments. Many SaaS companies have these characteristics.
In general, what might you want to be looking for in a good enterprise software company?
In addition to the above, I think some of these things might be a good place to start.
1. A great product that customers love, which usually leads to referrals. The product being mission-critical is also a huge plus, and helps with maintaining pricing power.
2. A large and diverse customer base that represents many industries.
3. Relatively low churn; this is key as churn is a key business driver in any SaaS business.
4. A sizable market opportunity.
5. A great company culture. I think this is more important than what most people give credit for. If you have a shitty company culture, you wont attract the best engineers, which means your product will likely suffer. In such a human capital intensive business model, company culture is critical…
Many “old school” value investors might automatically write-off hot SaaS companies as potential investments because of an unfamiliarity with the technology side of the business, and valuation concerns. I don’t think there’s a SaaS bubble at all, and that many great SaaS businesses add a ton of value to their customers, which will only grow over time. Some of the top VCs in Silicon Valley with great long-term track records are piling on tons of money into the enterprise software space, and as more of these startups go public the key to making money will be to investing in the right ones.