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"Stranded" Software: Great Opportunity or a Fool's Bargain?
There is a sale on for VC-backed SaaS. Here’s a checklist to determine which ones are worth salvaging
Pavel Prokofiev
November 07, 2024
Disclaimer: Views expressed here are the author's own and based on public sources. The article is intended for informational purposes only. This is not financial advice. Please consult a professional for investment decisions.
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We’ve all heard of SaaS companies marked to market at 10-15x ARR.
Well, meet Keap (formerly Infusionsoft): small business and CRM automation software. Keap had raised $200M+ in VC funding, built up to $85M in revenue... and then sold for just $80M.
That's right – a measly 1x multiple.
10 years ago, Keap was reportedly valued at $500M.
At least their offices feature a cool (American) football field! Source: Keap website
Not a typo. Not a fire sale. Just the harsh reality of what we call "stranded software" – a VC’s worst hangover. And Keap isn't alone. For every celebratory LinkedIn post about a SaaS exit at 15x ARR, there are dozens of quiet deals happening at 1-2x.
Why? Because some software companies are like quicksand – the more money you pour in, the deeper you sink.
Below, we share our thoughts on spotting stranded software from looking at hundreds of deals and we break down:
Why these companies end up "stranded"
The telltale signs of a future 1x multiple
Why even sophisticated VCs keep falling into this trap
Quick checklist for spotting (and avoiding) these companies before it's too late
