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The SaaS Report 2021 The UK’s high-growth Software-as-a-Service businesses Contents and methodology Foreword 1 Executive summary 2 SaaS business demography 3 Map of UK SaaS businesses 4 Map of SaaS sectors and sub-sectors 5 Top 10 SaaS businesses by investment raised 6 Top 10 SaaS businesses by turnover growth 7 Top 10 SaaS businesses by headcount growth 8 Investment into SaaS businesses 9 Top investors into SaaS businesses 10 Diversity of SaaS business founders 11 Outlook: the future of early-stage SaaS businesses 12 About the contributors 13 Beauhurst identifies ambitious businesses using eight triggers (outlined at the bottom of this page) that we believe suggests a company has high- growth potential. More detail on Beauhurst’s tracking triggers is available via it’s website. equity investment To be included in our analysis, any investment must be: • Some form of equity investment • Secured by a non-listed UK company • Issued between 1 January 2011 and 31 December 2020 announced and unannounced fundraisings An unannounced fundraising is an investment made into a private company that is completed without press coverage or a statement from the recipient company or funds that made the investment. These transactions are an integral part of the UK’s high-growth economy, accounting for around 70% of all equity transactions. HigH-growtH triggers Equity investment Scaleups Accelerator attendance MBO/MBI Venture debt Academic spinouts High-growth lists Major grant recipients 1 When people think of the success of the British tech ecosystem in recent years—they usually point to the big names: Monzo, Deliveroo, Bulb, Wise. All great businesses and huge British success stories. Software- as-a-Service (SaaS) businesses are rarely mentioned. And yet, the sector encompasses 9.3% of the 34,815 high-growth businesses in the UK, meaning that the average startup is SaaS based. Between 2011 and 2021, the number of SaaS companies in the high-growth ecosystem has increased by 282%, signalling an increasing demand for the products being created. Creativity in the sector multiplies upon itself as companies challenge traditional methods of working and develop software that creates efficiencies for businesses, consumers and the public sector. SaaS has been at the forefront of investors’ attention since last March, when the need for urgent solutions to the novel environment created by Covid-19 highlighted the potential in this industry. Of the 3,189 SaaS companies tracked by Beauhurst, almost 40% have benefitted from a potentially positive pandemic experience. This is most likely due to the sector’s ability to adjust—and thrive—in response to the changing circumstances. Despite the easing of lockdown measures naturally inspiring a return to the office, the concept of flexible working has been written into our lives. This has provided the SaaS industry with the space to innovate accordingly. Running parallel to this, the movement of businesses and the public sectors towards a cloud- first strategy continues to stimulate significant growth in this area. Cloud-based approaches have proven that they have the necessary flexibility, scalability and data security to smoothen the transition between home and office working. The potential of the industry has captured the attention of investors. This is evident from a recent survey of ours which found that 52% of VC investors are focusing on SaaS startups. At Coadec, we work with startups across verticals to engage Government and improve policy outcomes. And we work with a huge range of startups in the SaaS space doing incredible things —and yet despite the major role played in our economy by the SaaS industry, they are rarely given the attention they deserve by Government and regulators. There are a number of reasons for this but one of the biggest comes in categorisation of SaaS companies. Since these businesses often operate within existing sectors, SaaS itself has struggled to define its own space. As a result of this, aggregate stats fail to provide comprehensive insights into the intricacies and individualities of SaaS. Because of SaaS’s spread and distribution across the economy —it’s rare the spotlight is firmly on these businesses. We’d like to change that—and at Coadec we’re building new streams of work to champion the success of SaaS in the UK, and to encourage the Government to tackle challenges in procurement, competition policy and beyond that British SaaS startups face. That’s why we’re excited to partner on this report with Beauhurst and kickstart a conversation about the future of SaaS in the UK. Foreword Dom Hallas, Executive Director at COADEC “We’re building new streams of work to champion the success of SaaS in the UK, and to encourage the Government to tackle challenges in procurement, competition policy and beyond that British SaaS startups face.” 2 Analysing Software-as-a-Service (SaaS) businesses as a group is an interesting exercise: it makes sense as a sector in of itself, but is also understandable as a technology and/or commercial model used in a variety of other sectors. Examining this sector is in this way doubly rewarding, and so we are even more grateful to Coadec for commissioning this research to better showcase and understand the UK’s SaaS sector and its role in the economy. With over 4,000 SaaS businesses getting going in the UK since 2011— and many success stories among them (see below and passim)— it’s heartening to see so many SaaS businesses at every stage of development. Although over 500 have died since 2011, nearly 500 have exited and the rest are either starting up, starting to scale, or scaling in earnest. Most encouragingly nearly 40% are at the seed-stage, promising a strong pipeline of not only opportunities for investors, but also innovative services for private sector and public sector customers. It is never a surprise when London dominates in our analyses—and reasons for it are well documented. It is a welcome tonic, however, to see other, prominent clusters developing outside the UK. In the North West, for example, the cluster of 198 SaaS businesses there—driven by the activity in Manchester—have received over £1b in equity investment. By comparison, SaaS businesses in the East of England, the next highest region, have raised £475m. When looking at the sectors SaaS businesses themselves operate in, some of the usual suspects crop up. Fintech, digital security/cybersecurity, and edtech feature prominently. But labels mask some of the variety that sits underneath those sectors. Cybersecurity SaaS business is a grouping that includes, for example, both Onfido, which develops software designed to verify a customer’s identity by assessing the legitimacy of their government ID and facial recognition technology, and Ripjar which develops software to analyse data that are collected for clients about what is being said in the news and social media about the organisation’s brand or reputation. Some of the other sectors which overlap with SaaS can be thought of as technologies in of themselves, in particular Artificial Intelligence (AI). It is now almost expected that a SaaS platform will be using at least some machine learning (ML). SaaS AI businesses raised just over a £1b in 2020 and have already raised £1.06b in 2021 (as of September). That number includes some very big deals, such as the $300m raised by Patsnap in March. Like the rest of the UK’s startups and scaleups, SaaS businesses are seeing megadeals as a regular occurrence. Given the war chests of capital that some SaaS businesses end up with after investment, it’s more important than ever to see diversity in the founders, managers and owners of these businesses. Looking at just one metric, it’s clear that the sector has a long way to go; 83.3% of the founding teams of the UK’s SaaS startups and scaleups are all-male, compared with the rate across all sectors of 75%. The picture is improving (80.9% of founding teams in the past 12 months were all-male), but too slowly. Diversity is important at SaaS startups for the same reason that it’s important that these companies have access to the right (and enough) capital. The products they sell (or will go on to sell) to businesses, charities and the government will improve services, increase productivity, and ultimately better lives. Executive summary Henry Whorwood, Head of Research and Consultancy at Beauhurst “With over 4,000 SaaS businesses getting going in the UK since 2011—and many success stories among them—it’s heartening to see so many SaaS businesses at every stage of development.” 3 The SaaS Report Software-as-a-Service (SaaS) is a busy and rapidly growing sector, with 3,237 active ambitious UK companies currently operating in the space. Continual interest and innovation in this industry is demonstrated by the number of young high- potential companies launching all the time; 61.4% of the current population are at seed or venture stage compared to 13.5% at growth or established stage. Beyond this, 409 SaaS companies have gone on to exit either by IPO or acquisition. The sector has also had intense interest from investors. A significant portion of presently active SaaS companies that have neither exited or died have secured equity—2,573 out of 3,237. Overall, SaaS businesses have taken a staggering £11.8b of equity investment in the decade between 2011 and 2020, and 2021 is on track to be the biggest year by investment volume yet. Startups in the space have also highlighted strong innovation and growth potential by attending competitive accelerator programmes and being large grant recipients. SaaS business demography A company normally over 15 years old or 5-15 years with a 3 year consecutive profit over £5m or turnover over £20m, and likely to be a household name. Established 6.2% 261 companies A young company with a small team, low valuation and a low amount of funding for its sector. Seed 37.8% 1,586 companies A company that is a few years old and has significant traction, technology or regulatory approval progression. Its funding rounds and valuation are usually more than £1m. Venture 23.6% 991 companies The company has definitively ceased all activity or its top parent company has been dissolved. Dead 13.1% 551 companies A company normally over five years old, with multiple oices, substantial revenue and valuable technology. Growth 7.3% 305 companies The company is in administration/liquidation, or its website and social media presence have been neglected. Zombie 2.2% 94 companies A company that undergone an IPO or exit. Exited 9.7% 409 companies High-growth SaaS companies by stage of evolution (2021) High-growth SaaS companies top figures active high-growth SaaS companies (2021) 3,237 2,573 active high-growth SaaS companies with equity investment (2021) 1,117 active high-growth SaaS companies with accelerator attendance (2021) 51% active high-growth SaaS companies headquartered in London (2021) 7,698 total equity deals secured by SaaS companies (2011-2020) 416 active high-growth SaaS companies are large innovation grant recipients (2021) 4,197 lifetime total high- growth SaaS companies (2011-2021) £11.8b value of equity deals secured by SaaS companies (2011-2020) 91 active high-growth SaaS companies are academic spinouts (2021) 4 The SaaS Report Software-as-a-Service companies can be found across the UK. The country’s centre for the sector is London, home to 51%. Similarly to other types of technology business, Westminster, the City of London, Camden, Hackney and Islington dominate as the most popular local authorities to base a SaaS business. London-headquartered SaaS companies may benefit from easier access to capital, and are also more likely to have attended an accelerator programme. Nevertheless, there is a huge amount of SaaS activity outside the capital, with Edinburgh, Manchester and Bristol also hubs for the sector, each ranking within the top ten for all UK local authorities by number of companies. Regional investors such as Scottish Enterprise and the Development Bank of Wales play an important role in facilitating healthy SaaS ecosystems outside of England. Map of high-growth Software-as-a-Service businesses High-growth SaaS companies by region and London local authorities (2021) 115 108 82 167 374 165 76 198 56 1,655 173 65 1 400+ 277 194 178 209 260 92 87 47 51 47 Camden Westminster Islington Hackney Tower Hamlets City of London Lambeth Southwark Hammersmith and Fulham Kensington and Chelsea London Scotland Northern Ireland North East North West Yorkshire and the Humber West Midlands Wales East Midlands South West South East East of England Number of SaaS Companies 5 The SaaS Report Though all working via a Software-as-a-Service model, the cohort of companies in this report span a wide realm of product types and industries. SaaS companies are serving the needs of businesses in a range of ways, building tools for analytics, developing business banking and financial services, and offering products for marketing. Innovative Software-as-a-Service businesses have also situated themselves at the forefront of major emerging technologies. FinTech giants Checkout. com, Zepz (WorldRemit) and Quantexa operate using SaaS, and have achieved the status of some of the most valuable high-growth companies in the UK. Digital security is another rapidly developing industry, worked on by firms such as OneTrust, Onfido and Snyk. Other top new technology areas that are intersecting with SaaS include Artificial Intelligence, Big Data, EdTech and eHealth. Map of SaaS sectors and sub-sectors Security services 204 Recruitment agencies 102 Payment processing 111 Mobile apps 436 Marketing services 215 Legal services 96 IT consultancy services 97 Information services 117 FinTech 457 eHealth 121 Educational services 151 EdTech 153 Digital security 189 Consumer banking and financial services 94 Collaboration tools 208 Business banking and financial services 323 Big data 152 Artificial Intelligence 510 Analytics, insight, tools 970 AdTech 114 Technology Business and professional services Personal services Emerging technology sectors Top sectors for active SaaS companies (2021) 6 The SaaS Report Funding for FinTechs has absolutely exploded in recent years, and this is evident in the top SaaS recipients of equity over the last decade. Six of the ten companies with the highest volume of equity secured operate in the FinTech space, disrupting the financial services industry through a range of innovative offerings from payment processing services, to business banking platforms, to online branchless challenger banks. Another major area for investment has been cybersecurity. The need for protection of digitally stored sensitive information is only going to expand, thus innovation in the field will continue to become more sophisticated as well. Onfido uses Artificial Intelligence as the basis for its technology, which assesses the legitimacy of government IDs against facial biometrics. As with many sub-sectors of the tech industry, London is the centre of the biggest firms, with seven of the top ten equity recipients headquartered in the city. Synk, Radius Payment Solutions, and Dext, from Reading, Cheshire, and Greater Manchester respectively, represent SaaS firms raising major investment volumes outside the capital. Top 10 SaaS businesses by investment Top active SaaS companies by volume of equity investment received (2011–2020) £546m £354m £298m £281m £175m £150m £124m £124m £122m OneTrust Snyk Checkout.com Zepz Onfido Radius Payment Solutions Sonovate Currencycloud Allica Bank £113m Dext equity deals worth at least £1m secured by SaaS companies (2011-2020) 1,789 equity deals worth at least £10m secured by SaaS companies (2011-2020) 194 7 The SaaS Report These 10 SaaS businesses are ranked by their compound annual growth rate (CAGR) in turnover over the last three years. To be eligible, companies need to file annual accounts disclosing turnover in their base year (four years ago) and in their most recent financial year. Top ranked company Modulr develops web-based payment processing APIs, designed to simplify how companies send and receive payments. Based in London’s White City, the company grew sales from £41k in 2016 to £6.3m in 2019. It has raised more than £50m to date from investors including Blenheim Chalcot, Paypal Ventures and Fidelity Information Services. Among the 10, Tyntec is notable for its high turnover in its most recent financial year, making its rapid growth even more impressive. The City of London headquartered firm offers messaging applications and network provision services for businesses. It grew turnover from £7.4m in 2017 to £60.8m in 2020. Top 10 SaaS businesses by turnover growth Top active SaaS companies by three-year compound annual growth rate in turnover (latest accounts 2019–2021) 435% 220% 218% 160% 132% 102% 91% 90% 87% 79% turnover: £6.3m (Dec 2019) turnover: £6.8m (Dec 2019) turnover: £21.7m (Nov 2020) turnover: £2.8m (Mar 2020) turnover: £16.1m (Dec 2019) turnover: £60.8m (Mar 2020) turnover: £2.7m (Nov 2020) turnover: £4.4m (Dec 2019) turnover: £17.1m (Dec 2020) turnover: £313k (Jun 2020) Modulr Perspectum babble Reactive Technologies Matillion Tyntec Physitrack WhereIsMyTransport Takumi Twig World mean CAGR among the top 10 161% £13.8m mean latest turnover among the top 10 8 The SaaS Report These 10 SaaS businesses are ranked by their compound annual growth rate (CAGR) in employee headcount over the last three years. To be eligible, companies need to file annual accounts disclosing headcount in their base year (four years ago) and in their most recent financial year, as well as having at least five employees in their base year. Top ranked OneTrust develops software designed to help users manage their security, privacy and third-party risk. Backed by nearly £700m in equity investment, the Islington company has grown headcount from five in 2016 to 252 in 2019. Second on the list is cybersecurity firm Snyk. The Wokingham-based firm develops tools that identify and help fix security vulnerabilities in open-source coding. It has grown from six employees in 2016 to 143 in 2019. A $300m (£218m) fundraising in September 2021 saw participation from Accel, Baillie Gifford and BlackRock, and valued the firm at a reported $8.5b. Top 10 SaaS businesses by headcount growth Top active SaaS companies by three-year compound annual growth rate in headcount (latest accounts 2019–2021)* OneTrust Snyk Tessian Quantexa Parkopedia ScreenCloud CUBE Hackajob Form3 F2X Group 230% 188% 184% 168% 156% 144% 141% 139% 132% 132% headcount: 252 (Dec 2019) headcount: 143 (Dec 2019) headcount: 138 (Mar 2020) headcount: 211 (Mar 2020) headcount: 134 (Jul 2020) headcount: 87 (Sep 2020) headcount: 84 (Mar 2020) headcount: 75 (Mar 2020) headcount: 75 (Dec 2019) headcount: 68 (Oct 2019) mean CAGR among the top 10 161% 127 mean latest headcount among the top 10 *Companies must have at least 5 employees in their base year to be included. 9 The SaaS Report The volume of equity investment secured by Software-as-a-Service companies has climbed every year since 2011, peaking at £3.16b in 2020— 27% of all investment in the decade. The top recipient in 2020 was Artificial Intelligence-based security service OneTrust, raising £162m in September and £224m in December. The number of deals made over this period consistently climbed until 2019, when it reached 1,184 and then remained relatively stable at 1,159 in 2020. While investment in many sectors in 2020 was affected by the COVID-19 pandemic, SaaS appears to have maintained the interest and faith of funders. The future looks bright for investment in the SaaS sector. The first half of 2021 has already matched 2020 by hitting £3.15b, making it clear that this year will be the biggest yet. An enormous £358m was secured by payment processing and point-of-sale technology developer SaltPay from backers Hedosophia and Tiger Global Management. As the largest equity deal secured by a UK SaaS company on record, this is a huge feat, particularly as SaltPay only incorporated in October 2019 and the deal was the company’s second investment round. Investment into SaaS businesses Equity investment into SaaS businesses (2011–2020) 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 £3.16b£2.89b£1.70b£1.48b£150m£842m£443m£241m£227m£658m790 596 177 969 275 1,076 1,099 1,184 373 1,159 Number of deals Amount raised (£) £1.68b£1.47b269 347 Q1 2021 Q2 2021 total equity deals secured by SaaS companies (2011-2020) 7,698 £11.8b value of equity deals secured by SaaS companies (2011-2020) 10 The SaaS Report With 199 deals raised via Seedrs and 68 deals associated with Crowdcube, placing first and third on a ranking of top investors, crowdfunding is a hugely popular method of fundraising for SaaS companies. Crowdfunding allows larger numbers of investors to participate on a smaller scale which minimises risk, and thus is more often used by young companies. SaaS companies are no different; 96% of SaaS companies securing equity via crowdfunding were in seed or venture stage at the time of raising. Another major investor is the Development Bank of Wales, primarily through its fund Technology Venture Investments. A total of 74 equity deals have helped to build a local SaaS ecosystem in Wales. Top recipients include AdTech venture Novatiq as well as analytics technology provider Clinithink. Top investors into SaaS businesses Top investors into SaaS companies by number of equity deals (2011–2020) 119 74 68 44 43 42 38 36 35 31 Seedrs Technology Venture Investments Crowdcube Entrepreneur First Notion Capital Seedcamp London Co-Investment Fund (LCIF) Scottish Enterprise SyndicateRoom Ascension number of funds participating in equity deals into SaaS companies (2011-2020) 1,305 16.0% average stake taken in equity investment deals into SaaS companies (2011-2020) 11 The SaaS Report With only 16.7% of founding teams including at least one woman, a lot more is needed to be done to achieve equal representation in the SaaS sector. Women continue to be affected by pervasive bias in the tech industry, making it a greater challenge to access capital for their startups and to build an essential network of investment and partnership contacts. There are already initiatives underway to improve gender representation amongst business leaders in the tech industry, such as accelerator programmes to support business growth and help with making vital connections. More women are also taking on roles in venture capital, which may be vital to female-founded businesses being able to access more funding. Change can be seen when examining seed-stage businesses; a slightly higher proportion are female- founded. Women are also increasingly taking on senior management positions in SaaS companies, regardless of the gender of the founders. Looking at international founders of active high-growth SaaS businesses, the majority of the top nationalities are either European or English-speaking. Unsurprisingly, geographical proximity or the common language make it more likely to launch a company in the UK ecosystem. Ireland, the top ranking nationality, has both features. Diversity of SaaS business founders SaaS companies by founding team genders (2021) All female 6.2% 177 Majority female 0.4% 11 Equal split 7.5% 212 All male 83.3% 2,360 Majority male 2.6% 74 Top nationalities of SaaS founders, excluding UK (2021) SaaS companies by managment team genders (2021) All female 2.5% 79 Majority female 2.0% 63 Equal split 6.0% 190 Majority male 36.6% 1,160 All male 53.0% 1,681 108 105 95 80 73 70 48 35 33 30 Ireland United States France Italy Germany India Australia Poland Greece Netherlands 12 The SaaS Report Outlook: the future of early-stage SaaS businesses As this report demonstrates, the scaleability, predictability of revenues, and resilience offered by Software-as- a-Service companies has driven record investment into the sector. Successful exits and IPOs by SaaS business such as the recent Darktrace listing in April will drive further activity. This is a business model that is not going away any time soon. But what does the future hold for early-stage SaaS businesses? The world is facing unprecedented challenges to which software will undoubtedly be part of the solution. At its core, software offers productivity gains that make it an inherently valuable tool. Software entrepreneurs that employ a service model find it easier to achieve the stability needed to provide value to customers over the long term. Beauhurst data shows that the SaaS model is being applied to more niche and specialised areas than ever before. Surrey-based Lilli is helping to facilitate independent living for the elderly and vulnerable by monitoring patterns of life within the home such as the use of appliances to improve quality of life. Caregivers can access insights via Lilli’s software. The company has raised over £10m via four rounds, including a £4.5m round in March this year. Technology like Lilli’s may help governments around the world to alleviate the costs of a growing population. Leicestershire-based Previsico provides real-time flood forecasting via its visualisation platform. Insurers, businesses and government clients use the platform to mitigate flood damage, build resilience and reduce disruption. It raised £1.8m in September from investors including the Midlands Engine Investment Fund. As the climate becomes more unpredictable, technology like Previsico’s will help public and private sector organisations to manage the risk of natural disasters. Another trend that is apparent in the early-stage software companies raising money is a push towards integration. For decades, pundits have been proclaiming that “data is the new oil” but it is relatively recently that organisations have been able to access the value afforded by data at scale. As more organisations generate, collect and acquire data, software will play an important role in extracting insights, managing permissions and bringing together disparate systems in a secure manner. In October 2020, Public Health England lost around 16,000 coronavirus records because it was using an old version of Microsoft Excel. Incidents like this show how robust solutions for managing data could help to streamline and improve the work of governments everywhere. An example of an upcoming company that may be able to tackle these sorts of problems is the data-licensing platform Shoji. Appropriately headquartered in Westminster, it is working on privacy- first technology to allow organisations to share data securely. Founded this year by researchers from Imperial College London, the company has already raised £1.6m. As the data and examples in this report show, the future of SaaS for early-stage businesses looks bright. Unprecedented interest and investment in the sector will help to ensure that a new generation of UK SaaS companies receive funding. While some of the low hanging fruit has already been plucked by earlier waves of software entrepreneurs, the world is not short of challenges that software can help us to overcome. The SaaS model can provide entrepreneurs with some stability while building more specialised and integrated solutions to ever thornier problems. “For decades, pundits have been proclaiming that ‘data is the new oil’ but it is relatively recently that organisations have been able to access the value afforded by data at scale.” 13 About the contributors contact 5th Floor, Piano House 9 Brighton Terrace London SW9 8DJ www.beauhurst.com T: +44 (0)20 7062 0060 E: consultancy@beauhurst.com contact 1 Clere Street London EC1Y www.coadec.com We work with digital startups and policymakers to create better policy for the digital economy. Founded by tech entrepreneurs, The Coalition for a Digital Economy (Coadec) is a non-profit that campaigns for policies to support digital startups in the UK. We conduct research, host events, and run campaigns on behalf of the UK’s startup community. Beauhurst is a searchable database of the UK’s high-growth companies. Our platform is trusted by thousands of business professionals to help them find, research and monitor the most ambitious businesses in the UK. We collect data on every company that meets our unique criteria of high-growth; from equity-backed startups to accelerator attendees, academic spinouts and fast-growing scaleups. Our data is also used by journalists and researchers who seek to understand the high-growth economy, and powering studies by major organisations— including the British Business Bank, HM Treasury and Innovate UK—to help them develop effective policy. For more information and a free demonstration, visit beauhurst.com Editor Henry Whorwood Production Dan Robinson, Freya Hyde © Beauhurst 2021
