The Real Data on What it Takes to Go Big and Eventually IPO with Meritech Capital

Want to know what it really takes to go public today? Let’s dive into the fascinating data and insights from Meritech Capital’s Alex Clayton and Cathy Choi, who have helped guide dozens of companies through successful IPOs over the past 25 years.

First, let’s address a common misconception: while many founders dream of going public, the reality is that only about 20 SaaS companies manage to IPO each year. That’s a pretty exclusive club! But what makes these companies special enough to make the cut?

The Bar is Higher Than Ever – Here’s What You Need

If you’re thinking about an IPO in 2025/2026, you’ll need some serious metrics. The days of going public with $50-100M in ARR are long gone. Today’s successful IPO candidates typically show up with:

• At least $400M in ARR – that’s right, nearly half a billion in recurring revenue

• Growth of 30% or higher year-over-year (though 50-60% is even better)

• A valuation between $3-5B

• Net revenue retention of 110-120% (and trending up)

• Strong SaaS gross margins

• A clear path to profitability (though you don’t need to be FCF positive yet)

But here’s what’s really interesting – the time from founding to IPO hasn’t changed much.

It still takes about 10 years on average to build a company ready for public markets. What has changed dramatically is the scale required.

The Truth About Multiples and Valuations

Let’s talk about a crucial reality check: no matter what your private market valuation might be, public market investors aren’t likely to value you at more than 8-12x ARR in today’s interest rate environment. This is a hard pill to swallow for some founders, but it’s the new normal.

Recent successful IPOs tell the story. Take Cavo, which went public last September at a $7.6B valuation and trades at 10x ARR. Or look at Rubrik, with its April IPO at $5.6B, trading at 7x ARR. Different growth profiles, similar multiple ranges.

The Secret to Long-Term Success: It’s Not What You Think

Here’s where it gets really interesting. After analyzing 139 software companies, Meritech found something surprising: there’s almost no correlation between company size and valuation multiples (R-squared of just 0.09). What really matters? Durable growth.

The data shows a strong correlation (R-squared of 0.74) between share price appreciation and revenue growth from IPO to present. But here’s the kicker – it’s not about growing as fast as possible. It’s about consistent, predictable growth that compounds over time.

Take two contrasting examples:

1. CrowdStrike: Went public in 2019 with $500M ARR, growing at nearly 100%. They’ve maintained 50% growth and are now approaching $4B ARR. Result? 8x return since IPO.

2. SPS Commerce: Went public in 2010 with just $50M ARR and has grown at a steady 20% CAGR for 15 years. The result? A remarkable 17x return.

The Predictability Premium

Here’s something that might surprise you: about 80% of successful public SaaS companies consistently beat and raise their quarterly guidance. This isn’t just about good numbers – it’s about being predictable enough that public market investors can trust your forecasts.

How to Build Durable Growth

The most successful public companies have found ways to maintain growth through:

1. Multi-product expansion (like HubSpot growing from $100M to $2.5B ARR)

2. Increasing wallet share with existing customers

3. Strong net dollar retention that improves over time

The Bottom Line

If you’re thinking about going public, focus on building a business that can grow predictably for years, not just quarters. The math is simple: durable growth + strong unit economics + predictability = public market success.

Remember, a down-round IPO isn’t the end of the world. Companies like SPS Commerce prove that consistent execution over time matters far more than your initial public market valuation.

And always keep in mind – the public markets can only absorb about 20 new SaaS companies each year. Make sure you have a compelling reason why investors should choose your stock over the 100+ other great SaaS companies already trading.

Recent Examples:

1. Klaviyo (September 2023)

   • $7.6B valuation

   • 10x ARR multiple

   • Only $16M burned pre-IPO

   • Strong unit economics

2. Rubrik (April 2024)

   • $5.6B valuation

   • 7x ARR multiple

   • $700M+ burned pre-IPO

   • Enterprise-focused model

3. OneStream

   • $4.6B valuation

   • 11x ARR multiple

   • Strong financial operations focus

The Science Behind Long-Term Success: What Really Matters

Meritech’s analysis of 139 software companies revealed several surprising insights:

Company Size Impact:

• R-squared value of 0.09 between valuation multiples and company size

• Size alone doesn’t drive valuations

• Market opportunity and execution matter more

Growth Correlation:

• R-squared value of 0.74 between share price appreciation and revenue growth

• Strong correlation indicates growth sustainability is key

• Consistent growth beats sporadic high growth

Case Studies in Durable Growth

1. HubSpot’s Evolution:

• Started: $100M ARR (2014)

• Current: $2.5B+ ARR

• Initial Valuation: $900M

• Current Valuation: $26B+

• Key Strategy: Multi-product expansion

2. CrowdStrike’s Journey:

• IPO ARR: $500M (2019)

• Current ARR: Approaching $4B

• Growth Rate: Maintained 50%+ since IPO

• Return: 8x since IPO

• Key Strategy: Market leadership in expanding category

3. SPS Commerce’s Long Game:

• IPO ARR: $50M (2010)

• Growth: 20% CAGR for 15 years

• Return: 17x since IPO

• Key Strategy: Consistent execution in steady market

The Predictability Premium: Why It Matters More Than Ever

Public market success requires exceptional predictability:

• 80% of successful public SaaS companies consistently beat quarterly guidance

• Forward-looking guidance accuracy is crucial

• Market rewards companies that can forecast accurately

• Operational excellence becomes paramount

Building for Long-Term Success: The Playbook

Multi-Product Strategy:

• Start with core product excellence

• Expand into adjacent markets

• Increase wallet share systematically

• Build strong cross-sell motion

Customer Economics:

• Focus on net dollar retention improvement

• Build enterprise-grade customer success

• Invest in customer expansion programs

• Monitor and optimize unit economics

Operational Excellence:

• Implement robust forecasting systems

• Build redundancy in critical processes

• Invest in compliance and controls early

• Develop public company ready reporting

The Final Checklist: Are You Really Ready?

Before considering an IPO, ensure you have:

1. Clear market leadership position

2. Predictable revenue model

3. Strong management team

4. Enterprise-grade systems and processes

5. Compelling growth story

6. Efficient capital structure

7. Clear use of proceeds

8. Strong board and governance

Looking Ahead: The Future of SaaS and Cloud IPOs

While the bar for going public remains high, companies that focus on building durable, predictable businesses will continue to find success. The key is not just reaching the metrics required for IPO, but building a business that can sustain and grow in the public markets for decades to come.

The most successful public SaaS companies share a common trait: they don’t just focus on getting public, they build for long-term success. Whether you’re growing at 50% like CrowdStrike or 20% like SPS Commerce, what matters most is the durability and predictability of that growth.

Remember, a down-round IPO isn’t fatal – many of today’s most successful public companies started trading below their private valuations. What matters is what you build from there.