Saas Startup Funding Falls - Crunchbase News

Software as a service — long a favored sector among startup investors — has seen cooling interest in recent quarters even as overall U.S. venture funding has rebounded a bit.

So far this year, SaaS and enterprise software companies have raised $4.7 billion in seed- through growth-stage financing, per Crunchbase data. That puts 2024 on track to come in far below last year’s $17.4 billion annual tally — which was itself the lowest total in years.

For perspective, we charted out funding and deal counts from 2019 through 2024.

A tough week for enterprise software stocks

Startup funding declines come amid what is shaping up as a challenging period for publicly traded SaaS and enterprise software companies.

On Thursday, Salesforce 1 shares were down more than 20% after the company lowered guidance for the current quarter, citing cooling demand from customers who were taking more time to complete orders.

At the same time, shares of process automation software provider UiPath dropped by around 30% following a disappointing earnings report and downwardly revised quarterly forecast.

More broadly, it’s been a tough month for enterprise software. The Bessemer Cloud Index, which includes many of the most prominent public SaaS businesses, has sharply underperformed the Nasdaq and S&P 500 and is now in negative territory for 2024. The Bessemer index saw a particularly steep decline beginning in late May.

Some big startup rounds are still closing

Even amid a tougher fundraising environment, we are still seeing some large financings for SaaS and enterprise software this year.

The biggest by far is cloud security provider Wiz’s $1 billion Series E earlier this month, co-led by Andreessen Horowitz, Lightspeed Venture Partners and Thrive Capital. The round set a $12 billion valuation for the 4-year-old company, which was founded in Israel and is headquartered in New York.

Another large financing went to Silicon Valley-based Glean, which markets AI-powered work assistants to enterprise customers. The company raised $200 million in a February Series D.

In the food service market, meanwhile, Irvine, California-based Restaurant365 landed $175 million in an early May financing led by Iconiq Growth. The company sells software to restaurant operators for managing and optimizing finances and staffing.

Not like it used to be

While funding hasn’t evaporated, we’re seeing far fewer megadeals in SaaS and enterprise software than a few years ago.

Over the past 12 months, 21 deals of $100 million or more have closed, per Crunchbase data. By comparison, during the peak year for deal-making — 2021 — there were 147 such financings.

For 2024, year-over-year investment totals are also quite a bit lower due to a single large 2023 round: the $6.5 billion Series I for fintech unicorn Stripe. That’s the largest financing in the space ever, per Crunchbase data, and thus obviously a tough comp to match.

Going forward, we’ll be looking to public markets to see if earnings outlooks improve for SaaS heavyweights and if investors regain their enthusiasm for the space. In private markets, meanwhile, investment remains subdued, albeit with a steady flow of deals still getting done.