Saas likely to “materially outperform” average vertical: Pitchbook

Companies in the software-as-a-service vertical are clear, positive standouts, says Pitchbook, but climate tech companies have seen the most improvement in terms of expected relative success rates and returns over the past few years.

Data firm Pitchbook on Thursday 29 February 2024 published a . The report features analysis on 10 tech verticals: agtech, artificial intelligence, climate tech, cybersecurity, fintech, foodtech, gaming, internet of things, mobility tech and software-as-a-service (Saas).

Here are a few takeaways from the report.

Software-as-a-service “clear positive standout”

When looking at expected exit rates and returns, the software-as-a-service vertical is “a clear positive standout,” said Pitchbook. Early-stage Saas companies are expected to successfully exit at a 78.2% rate (75.0% through M&A, 3.2% by public listing). This is more than 13 percentage points higher than the expected rate for the second most successful vertical, cybersecurity (64.6%).

And in Luxembourg?

Using their VC exit predictor, a machine learning model, the Pitchbook team also provided Delano with the probability for several Luxembourg-headquartered startups to ultimately be acquired, go public or not exit. The global trends are reflected in the grand duchy, with companies in the software industry amongst the top contenders. Here’s a selection of three of the startups with the highest exit probabilities.

Annualised expected returns highest for Saas

Pitchbook analysis also suggested that “early-stage Saas companies are likely to materially outperform the average vertical” by a net 5.5% on an annualised basis. The cross-vertical average of 23.1% is a historical baseline value derived from the average of deal-level return value from 2000 to 2021, the data firm added.

Software-as-a-service companies have seen high relative return outlooks over the last several years. Climate tech showed the biggest improvement, moving from the worst-ranked vertical at the end of 2017 to the sixth-ranked vertical (out of 10) at the end of 2023. Expectations for companies in the internet of things and mobility tech verticals have worsened.

Pre-money valuation: climate tech climbs

Besides a significant improvement in expected returns, the climate tech vertical also saw the largest increase in median-early stage pre-money valuation relative to the cross-vertical average: +28.9%.

Highest deal values seen in AI & ML and software-as-a-service

Deal value declined across all verticals in 2022, noted Pitchbook. That being said, the artificial intelligence & machine learning and software-as-a-service verticals showed the highest early-stage VC deal value in the past few years. Fintech, climate tech and foodtech follow in third, fourth and fifth place.

On the other hand, the gaming vertical experienced a particularly sharp decrease in deal value.

One-third of patents filed in AI & ML vertical

The artificial intelligence & machine learning vertical saw 34.7% of patents filed. But this figure is “relatively unchanged year over year,” noted Pitchbook.

In terms of the net change of share of patents, the software-as-a-service vertical saw the biggest decrease, while climate tech saw the biggest increase. “Their net share increased a net 1.0% to 11.5%, which is the highest share since 2019,” said Pitchbook.

Find Pitchbook’s full Emerging Tech VC Opportunities report .