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We just published a new piece entitled "Recurring Revenue: The Rise of an Asset Class" highlighting the work that @HarryHurst & the @Pipe team are doing. https://medium.com/@John_Street_Capital/recurring-revenue-the-rise-of-an-asset-class-eff0c4be9fa0
1/ With the re-rating of Cloud / SaaS stocks YTD we've seen the market bifurcate within the sector between those companies with high NDR & lower NDR; valuing the predictability of those revenue streams at even higher multiples.
2/ This isn't limited to Cloud / SaaS stocks but notable in multiple expansion for companies that have seen their business model mix / shift transition to a higher propensity of recurring revenue (e.g., $AAPL / $ADBE).
3/ @BrianFeroldi recently called Recurring Revenue the gift that keeps on giving, highlighting industry leaders such as $MCO $V $TWLo $NOW $FSLY $NFLX $ETSY $ILMN across a variety of end-markets. https://twitter.com/BrianFeroldi/status/1300893943639416833?s=20
4/ Bob Smith famously said, "Software contracts are better than first-lien debt. You realize a company will not pay the interest payment on their first lien until after they pay their software maintenance or subscription fee."
5/ @pipe took this idea and ran with it creating a marketplace that treats recurring revenue contracts as assets in it of themselves allowing investors to bid on these contracts for their annual value.
6/ This is a HUGE value unlock for SaaS companies and far & away the cheapest cost of capital versus equity, venture debt, or traditional revenue based financing.
7/ As opposed to discounting their ACV in an attempt to shorten sales cycles / get clients to pay upfront they can provide more flexible payment terms, receive 100% of ACV and therefore a higher Enterprise Value keeping the EV/S multiple constant.
8/ @pipe directly integrates with a company’s banking, payment processing and accounting systems to “rate” their business instantly, without disrupting any existing workflows or customer relationships.
9/ For buyside participants the asset class makes sense for the largest institutional investors such as Pensions, Endowments, Foundations & Sovereign Wealth Funds as an uncorrelated asset with both greater yield & security than traditional fixed income instruments
10/ @pipe has a number of initiatives they are rolling out over the next 6-12 months to augment the product offering for both the buyside & sellside that will make it an even more critical part of the ecosytem.
11/ Importantly what they are building isn't applicable just to SaaS companies but is just as relevant for wireless telco providers, ISP's, OTT providers, and connected fitness companies alike; any business model that has recurring revenue. Think $NFLX $V $T $VZ $PTON $CMCSA etc.
12/ In a zero interest rate world, where tech & non-tech companies alike are pivoting their business models to more subscription-based, it’s time for these assets to be treated & traded as such, unbundled from the rest of the capital structure; and that’s where @pipe comes in.
13/ @harryhurst & the rest of the @pipe team are thought leaders in the space & moving fast. If you're a SaaS company or any business with a subscription based revenue model give them a follow / reach out & be on the forefront of the creation of a new asset class.
