“Cloud Offers an Economic Model, Not New Technology” – SaaSMAX CEO Quoted on Valuations

by Samantha Henry (The Daily Transcript – San Diego, 9/30/2013)

“The cloud isn’t introducing new technology — it creates a new way for consumers to use technology and a new model for those who run and operate it.

Technology professionals discussed cloud computing at a recent roundtable discussion hosted by The Daily Transcript and sponsored by Squar Milner.

The cloud is more of an economic model than a technology model, said Tim Caulfield, operational adviser at Seaport Capital and former CEO of American Internet Services.

“The technology model exists whether you’re in a cloud or not,” Caulfield said. “The cloud is attractive because of the change in the economics, or the way people buy and the way they consume the cloud — whether you’re talking about infrastructure and the service or the software as a service. But underneath, the technology still has to exist somewhere.”

Computers are still needed to run it, and there’s still network connectivity, software and applications, Caulfield said. The difference is in who is going to run it, who is operating it, how people buy it and how people consume it.

“It’s a model that’s changing much more so than the technology side of it,” he said. “The technology continues to innovate but it’s really how everyone engages with that technology.”

Jeb Spencer, managing partner at TVC Capital LLC, said that while there is no huge technical or logical change, the valuations of companies in this space have increased over the past five years. A software company used to sell for two-and-a-half times its trailing revenue. Now, because of a new model with guaranteed subscription revenue, the multiple was 4.2 times as of the last quarter, Spencer said.

“And you look at some of the valuations of the public companies — it’s just incredible where you’re seeing regular valuations of 7-8 times trailing revenue, despite the fact that there’s really not this tremendous change,” Spencer said.

He said TVC Capital is spending a lot of its time on the vertical side, with one investment controlling 70 percent of a market in a small niche, and another investment controlling 35 percent of the market.

Dina Moskowitz, CEO of SaasMAX, Inc., said the valuations are also higher because the potential margins on those companies are more efficient and more profitable. Where some of her larger customers would take 10 people to set up a webinar, Moskowitz said new customers with similar types of software are also offering a quality solution with less overhead and fewer people to get things done.

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