Throughout 2023, the SaaS industry has dominated all industries in terms of valuation metrics. The year 2023 started with a low valuation multiple, as the E-Spring SaaS Index was valued at 6.69x EV/Sales. Over the course of the year, it averaged between 7x and 7.5x the EV/Sales and ended the year at 8.19x. This sudden boost in valuation represents an almost 8% increase compared to November 2023 and an 8.5% increase since the last quarter. This trend is also evident in the broader market, with the S&P closing the year with nine consecutive weeks of gains, a scenario that last occurred in 2004. The Nasdaq also managed to grow an astonishing 55% over 2023. These impressive performances result from investors looking past geopolitical issues, potential recession, and interest rate hikes.1
Several notable shifts observed in 2023 will largely define the key trends of 2024, including the gradual start of AI adoption, the increase in cybersecurity requirements, and the democratization of PaaS platforms. SaaS M&A activity has shown resilience, even in challenging economic conditions. Despite a dip in fundraising volume in the European market, investments remained steady at approximately $4 billion to $5 billion per quarter. The valuation gap between public European and US SaaS companies stabilized in 2023, with a modest recovery in valuation multiples compared to the beginning of the year.2
Key trends in 2024
1. The Rise of AI-Assisted Tools
A prominent trend observed in 2023 was the widespread adoption of AI-enhanced tools. Most SaaS businesses embraced AI through applications like chatbots, AI shopping assistants, and AI-driven management processes, streamlining manual tasks and enhancing overall team efficiency.3 Reflecting this trend, AI startups are currently enjoying favourable conditions in the market. The most relevant example is Mistral AI, which managed to raise an astonishing €385 million in a very short seven-month period and is currently valued at around $2 billion. 2024 is expected to follow the same path, expanding the usage of AI tools in the SaaS industry, with the AI market offering widening daily with the development of niche AI products.4
2. Transition Towards PaaS
The second trend mirrors the previous year’s trend. Clients continue the transition towards Platform as a Service (PaaS). In last year’s report, we touched upon the complexification of software and the need to outsource IT infrastructure, leading to the use of external cloud services. This trend is still evolving as technology becomes increasingly sophisticated and complex, and the costs associated with hardware keep increasing. Due to these reasons, SaaS will continue to transition towards the PaaS model.3&5
3. Low-Code Platforms
A noteworthy development following the PaaS movement is the rise of low-code platforms. These platforms facilitate easy application design through drag-and-drop pre-coded blocks, enabling companies to create personalized applications swiftly and efficiently. This approach enhances flexibility and agility without incurring additional costs for in-house feature development.6
4. The Rise in Importance of Cybersecurity
Cybersecurity is reaching new standards as the SaaS industry handles very sensitive information regarding their customers and must adapt to new norms. As the industry has been following a fast-paced development, it needs to provide proper data security and privacy.7 To address these new challenges, SaaS providers will have to invest heavily in their IT security, employing complex encryption techniques, multifactor integration, and monitoring of network traffic. Furthermore, the democratization of teleworking emphasizes the necessity for strong access controls and secure remote protocols.8
Overall, 2023 was an interesting year for the SaaS industry, the E-Spring SaaS index recovered to a EV/Sales multiple of 8.19x, we witnessed resilience in the market where the difference between EU and US valuations stabilized, and overall valuation indices recovered from the beginning of 2023. Additionally, key trends are direct continuation of last year’s trends, notably the increase of AI implementation, the democratization of PaaS as a mean to reduce hardware and development costs, and finally, the increasing importance of cybersecurity.
Written by Francois Mathieu, Associate
References:
- Bloomberg, (29th December 2023). retrieved from: Stock Market Today: Dow, S&P Live Updates for December 29 – Bloomberg
- GP BullHound (December 2023). European SaaS report 2023. retrieved from: https://www.gpbullhound.com/articles/european-saas-resilience-through-tough-markets/
- Custify (2024). The Future of SaaS: Top trends and predictions in 2024 and Beyond. retrieved from: The Future of SaaS: Top Trends and Predictions in 2024 and Beyond – Custify Blog
- The Financial Times (8th December 2023), French AI start-up Mistral secures €2bn valuation. Retrieved from: French AI start-up Mistral secures €2bn valuation (ft.com)
- Aipxperts (18th December 2023). Top SaaS trends in 2024: 10 game-Changing SaaS trends. Retrieved from Top SaaS Trends in 2024: 10 Game-Changing SaaS Trends (aipxperts.com)
- Betty Blocks. (18th December 2023). Low-Code application Development. Retrieved from: Low-Code | Betty Blocks
- Devox Software. (12th December 2023). Top SaaS trends to watch in 2023 – 2024. Retrieved from: Top SaaS Trends To Watch in 2023-2024 | Devox Software
- Bombay Software. (22nd December 2023). Future of SaaS: Key predictions and trends for 2024. Retrieved from: Future of SaaS: Key Predictions and Trends for 2024 (bombaysoftwares.com)
