Software as a Service (SaaS) comprises applications hosted by a third-party provider which are accessed by users over the internet. Alongside PaaS (Platform as a Service) and IaaS (Infrastructure as a Service), it is one of the central components of cloud computing.

Think of hugely well-known services such as Salesforce, Oracle, Dropbox and Google Docs, and you will immediately understand the issues that SaaS companies solve. In short, they have completely transformed collaborative working and – given that they are generally purchased by companies on a subscription basis – have often saved corporations huge amounts of money by reducing the need for expensive custom solutions.


Why invest in SaaS?

2017 has seen the return of the tech IPO, yet it is not just social media behemoths such as Snap Inc causing waves among investors. Cloud-computing firms such as MuleSoft and Okta floated in the first half of 2017 on the New York Stock Exchange and NASDAQ respectively. With exits for early-stage investors becoming an increasing possibility for some of the more mature SaaS companies – there is also talk of a Dropbox IPO this year - there is clearly a lot of excitement among investors.

Additionally, the Software as a Service market continues to expand, with estimates from Gartner projecting a possible growth of over 20 per cent in 2017 to a valuation of $46.3 billion. Whilst it is showing some signs of slowing down, mostly due to a maturing market, the same research shows that SaaS will remain the second most important segment in the global cloud services market.

Early-stage SaaS companies have generally benefitted from venture capital and private equity investment from angel investors to get the product off the ground. They have also benefitted from an increasing demand for services; with huge numbers of users in B2B roles such as accountancy, HR and CRM.


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