SaaS Shift to Predictable Recurring Revenue
Ani Banerjee, co-founder of Andromeda Group, on secondary diligence and companies staying private
This shift made software investable like an annuity instead of a project business. Early enterprise software often depended on one time licenses, big implementation work, or discretionary IT budgets that could freeze in a downturn. SaaS changed that by charging monthly or annual contracts, then measuring churn and net revenue retention so investors could see whether customers stayed, expanded, or quietly left. That made revenue easier to forecast and turned software from a lumpy sale into a compounding customer base.
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The operating change was concrete. Instead of selling a big perpetual license and hoping to win the next upgrade cycle, SaaS vendors billed every month or year, watched logo churn and expansion, and built sales motions around renewals. That is why metrics like subscription mix, CAC, LTV, and revenue retention became core diligence tools.
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Predictable did not mean purely seat based. Infrastructure style companies like Snowflake, Datadog, Stripe, and Twilio showed that usage pricing could still be recurring if customers used the product every day. The bill moved with data, API calls, or payments volume, but the relationship remained sticky and often expanded faster than fixed subscriptions.
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The practical result was lower perceived cyclicality and higher valuation multiples. When a company can show low churn, strong expansion, and a product embedded in daily workflows, investors can underwrite several years of revenue with more confidence than they can for software tied to one off deployments or services heavy projects.
The next step is not a return to volatile software spending, but a broader definition of recurring revenue. AI and cloud infrastructure are pushing SaaS toward hybrids of subscription, usage, and outcome based pricing. The winners will still be the companies whose products become a habit inside the customer workflow, because habitual usage is what keeps revenue durable even when pricing models evolve.