The wonders of the SaaS business model is even more clear in these tough times as capex budgets are tight and forward revenue visibility is critical. David Cowan pioneered Bessemer effort in recurring revenue businesses and led investments in 18 companies such as Postini, PSI-Net, Trigo, Hotjobs, Eality, Valicert, Register.com, Verisign, which he co-founded and where he served as CFO and Chairman, Keynote, Telocity, Counterpane, Netli, Qualys, Cyota, and more recently Lifelock, LinkedIn, Goodmail and Perimeter eSecurity. Philippe Botteri has been working with SaaS and technology companies for more than a decade at McKinsey&Co and Bessemer. He wrote several white papers on SaaS finance and has been involved with the firm's investments in half a dozen recurring revenue businesses. This slideshow presents a new perspective on the finance of SaaS and highlight the metrics that really matter most in the current environment. It also presents a benchmark of these metrics for a select set of private and public companies

1. Perspective on SaaS Financials February 25 th 2009, Palo Alto Hills Proprietary and Confidential Bessemer CEO Summit on SaaS David Cowan Philippe Botteri

5. Unfortunately, this is not reflected in recent public market performance… SaaS 13 Index SaaS companies valuation have been more impacted by the downturn than the software and technology sector Base 100 = Jan 1st 2008 Since 1/1/08 -62% 2008 Performance of key US Indexes Percent decline in 2008

6. … and SaaS multiples are now very close to their Enterprise Software peers EV/2009 Revenue multiple Multiple 1.1-1.7x Is the SaaS fundamentally more valuable than Enterprise Software?

9. …and a key driver of cash consumption and future cash flows! CMRR growth is directly correlated to burn rate… Cash flow over 5 years for a $2m CMRR SaaS company 60% CAGR 15% CAGR -$10m +$20m Cash flow on year 6 @ 15% growth rate 60% CAGR 15% CAGR +$9m +$46m … and value creation!

10. SaaS companies at scale have started to generate positive cash flows as growth slows down Growth vs. Free Cash Flows % of GAAP Revenues Private companies Public companies 07/08 Growth rate 2008 FCF

12. Our sample of private companies shows an annual payment mix around 50% Annual Payment Mix % of total sales Semi Annual Annual Quarterly Monthly Other

15. 4. CAC ratio: very difficult to scale with less than 1-year payback CAC = 1 for new CMRR Resulting P&L for company growing at 60% p.a. CAC = 0.5 for new CMRR Resulting P&L for company growing at 60% p.a. GAAP Revenue S&M Costs Cash Flows Total cash burn: $10m Total cash burn: $257m Critical metric

16. Average CAC ratio for our sample averaged 0.6 CAC ratio Q3/Q4 2008 Private companies Public companies

23. Thank You! More on SaaS Finance at: www.bvp.com/saas www.cracking-the-code.blogspot.com