Virtual Coffee with SEG: Private Equity in the Current SaaS Market

Coffee with Fred Sturgis, Managing Director of Resurgens Technology Partners

Private capital markets have been operating with historically high efficiency and strength for the past few years. While the total impact of this epidemic is not clear, SEG has spoken with several private equity firms to get their thoughts on the matter. If you would like to know how 50 private equity firms are responding, we talked with them and detailed our insights in one of our most recent blogs: What’s Happening in Today’s Private Capital Market? Software Equity Group’s (SEG) Managing Partner, Allen Cinzori, had an opportunity to have coffee with Fred Sturgis, Managing Director of Resurgens Technology Partners, to discuss this very topic. 

Resurgens Technology Partners is a private equity firm focused on partnering with software and technology-enabled businesses.  

Click to Watch Virtual Coffee with SEG

Questions Asked: 

What’s changed in the private equity community now vs. where we were late March? 

First off, everybody was very focused on their portfolio, due to the uncertainty of the circumstances surrounding the virus. There were several factors to worry about, due to lack of information and what the implications of the virus might be. The Resurgens portfolio consists of businesses with 90% of revenue recurring, and recession resistant verticals within the portfolio. The overall impact has been surprisingly less than anticipated. Retention has been remaining relatively strong. While bookings have taken a hit, we do not expect it to fall to the 50% mark.   

What would you tell a SaaS executive or owner that was thinking about running a process pre-Covid-19? What advice would you give that person now? 

Consider a more targeted type of outreach. Make more time to create a stronger connection with a smaller amount of people, assuming that it will be a slow kind of recovery back to normalcy. It would be a smart strategy to plan to meet with a smaller number of potential investors and buyers. There are certain buyers or investors that if they like the type of dynamic for your company, they would be willing to move forward in this time. Although, you must reassess if it’s better to sell in the future than it is on the margin today.  

One of the challenges is not being able to sit down across the table from a prospective seller. We’ve tried to address that by having more virtual meetings with our clients and and prospective buyers. What else have you seen in that regard?  

There has been a methodical way of investing now that has gotten scripted over time. Right now, we can take advantage of being virtual, and can be more methodical in our analysis of prospective companies. There are ways to compensate for not meeting in person, such as doing better diligence, and really taking a deeper dive into the company.  

What are the top 3-4 things you look for in prospective SaaS investments?  

While things have changed, it hasn’t been too dramatically different. Some of the biggest factors we are looking for in top prospects is their durability, retention rate, profitability on the margin, and scalability. The most important one right now would be growth. However, is the most difficult thing to forecast at the moment. Things are not as uncertain as many people fear it is. There are great opportunities in front of us. For instance, right now is a great time to do add-on acquisitions 

What about 2020 projections, what are your expectations? 

One company that we recently met with showed a pre & post COVID forecast. They were projecting to get to the level of scale next year that they originally had hoped they might get to this year. An interesting way to think about this is: what is the cost of waiting a year, or if there is some sort of discount rate applied to the company as a framework for valuation.  

What do you expect as far as a recovery? 

I feel like there will be a strong move back to where we were. I think it will be a steady and gradual transition back to normalcy, although we cannot anticipate when that will occur.  

“Virtual Coffee with SEG” are conversations with industry experts, providing real-time insights into the current market and self-help advice to SaaS CEOs and operators. 

Please reach out if you’d like to discuss how current events may impact your software company’s near and long-term plans.