What is SaaS in Private Equity?

Q: What is SaaS in Private Equity?

Software as a service. SaaS means "software as a service" — instead of buying a program once and installing it on your computer, you pay a recurring subscription to use software that lives online, like Netflix but for business tools (think Google Docs or Spotify). Investors get excited about SaaS because that steady monthly or yearly payment is predictable and tends to repeat, and once the software is built, serving one more customer costs very little. That mix of reliable, recurring revenue and low extra cost is why SaaS businesses are often valued highly.

SaaS

Private Equity glossary · Valuation, Diligence, & Value Creation

Definition

Software as a service.

SaaS in plain English

SaaS means "software as a service" — instead of buying a program once and installing it on your computer, you pay a recurring subscription to use software that lives online, like Netflix but for business tools (think Google Docs or Spotify). Investors get excited about SaaS because that steady monthly or yearly payment is predictable and tends to repeat, and once the software is built, serving one more customer costs very little. That mix of reliable, recurring revenue and low extra cost is why SaaS businesses are often valued highly.

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