Home Investment SaaS Is Great – But It Ain’t For Everyone

SaaS Is Great – But It Ain’t For Everyone

SHARE:
Tolman Geffs, managing director, BrightTower

Tolman Geffs, managing director of BrightTower, will be speaking at Programmatic I/O, taking place in New York City from October 17-18. Click here to register.

Major acquirers love software-as-a-service (SaaS) companies. Recurring, predictable revenue makes their ears prick up.

“SaaS companies typically work on annual contracts with high renewal rates, which means their net revenue retention (NRR) is over 100%,” said Tolman Geffs, managing director of investment bank BrightTower. “You can scale cashflow a lot faster, because you start every year in January knowing you’ve already got last year’s revenue in the bag.”

Landing an enterprise business customer can be a long and expensive process. (You’ve got to pay your salespeople, after all.) But once that revenue is on the books, “the incremental cost to fulfill is modest,” Geffs said.

“There are obviously costs around deployment, training and staffing a support team, but that’s 20% of revenue, maybe,” he said. “The cost of actually provisioning software is pennies, which means most new revenue drops right to the bottom line.”

So, why doesn’t every business, ad tech or otherwise, go down the SaaS route?

Because adopting a SaaS-driven business model “would be a disaster” for some companies, Geffs said.

“You don’t have to pound every square application into a SaaS-shaped round hole,” he said. “Not every problem and use case is suitable for SaaS. Many are better served through a hybrid model with services.”

AdExchanger: Is ad tech a good candidate for SaaS?

TOLMAN GEFFS: SaaS is a good category for any business that uses technology to get leverage in their operations to make people smarter, improve performance and improve margins.

The goal is to run a business your customers love so they’ll renew and grow with you year after year. Whether that’s pure SaaS or whether that’s services with a good degree of technology under the hood depends on the use case and problem the customer is trying to solve.

So, there’s no magic SaaS button then.

Many services businesses talk about transitioning to SaaS. A minority actually try, and a minority of those – a small subset – actually succeed.

We sold a company recently called Integrate, which was one of the ones that succeeded, but even they wound up with a mix of pure SaaS and services.

So, it can be done, but it’s hard, and you have to be realistic.

I just talked to a CEO of a business which I can’t name that’s going through this right now. They’re a services business doing, ballpark, $70 million of revenue, of which less than 2% is software licensing revenue. His goal is to get to 30% SaaS in two years, which is a reasonable goal. He’s a veteran software CEO, so he’s got a better-than-average chance of succeeding, but even then it’s going to be hard.

Stepping back, there was, like, a hot minute last year when Wall Street seemed to be back in love with ad tech. Is that love affair over?

I wouldn’t say so, no. The reality is that there has been growth in digital advertising and the data that flows into it. This creates a huge amount of data exhaust and it has to be well managed. I’m amazed by how many companies I meet that have built sustainable, profitable, recurring businesses in ad tech that, to be honest, I didn’t know existed until somebody introduced me.

There’s a lot of room for big businesses out there, and we’ll continue to see aggressive investment from strategics and smart investors in the space.

By the same token, many ad tech companies that went public over the past couple of years – AppLovin, Magnite, Innovid, Taboola, Outbrain and Zeta, to name a few – have seen their values drop way below IPO prices. Why is that?

It’s about the fact that many of those IPOs were badly priced rather than saying all of those are bad businesses. Most of the ones you just mentioned are fundamentally good businesses and serve an important role in the value stream.

Wall Street goes through cycles, and this was yet another period where these things were overpriced. I mean, we sold Connexity to Taboola for $800 million cash, thank you very much, just after Taboola went public. Taboola is now trading under $800 million total market value, but Taboola still has a great business. It’s a cash machine, and that’s not a bad place to be at all.

What can an ad tech business do to maintain a good valuation when the economy is shaky?

When you’re sitting around your board table and your VCs are debating about size, growth and profitability, that’s when you turn the discussion to what you can do to optimize net revenue retention.

Ask: What’s our NRR goal and how do we get there? Through the process of figuring that out you can answer the age-old chicken-and-egg growth-versus-profitability question.

This interview has been edited and condensed.

For more articles featuring Tolman Geffs, click here.

Must Read

Kamran Asghar, Global CEO & Co-founder, Crossmedia

POSSIBLE 2026: Industry Experts Dish On AI – And Other Trends To Watch

At POSSIBLE 2026 in Miami, the ad industry was over the hype around AI.  Industry experts got real about how agentic AI is actually changing advertising workflows today. And they called out the pie-in-the-sky use cases that could be longer-term possibilities for AI, but that aren’t currently – pardon the pun – possible. In conversations […]

Will OpenAI’s New Measurement Tools And Ads Manager Prove Its Worth As An Ad Channel?

OpenAI announced a CAPI, along with the public launch of its self-serve ads manager, as the latest features of its rapidly evolving ads business.

Scales and hands touching the bowls with index fingers from opposite sides. Arguments, evidence and tricks in trial. Concept of judging, trial and justice

The FTC Bars Kochava From Selling Sensitive Data Without Consent

It’s been nearly four years since the Federal Trade Commission first accused Kochava of selling highly sensitive location data. Now, the two have finally reached a settlement.

Privacy! Commerce! Connected TV! Read all about it. Subscribe to AdExchanger Newsletters

Paramount’s WBD Deal Nears The Finish Line As Streaming Revenue Climbs

Paramount Skydance’s planned acquisition of Warner Bros. Discovery is proceeding apace. It expects to finalize the deal by the end of Q3.

Comic: CTV Tracking

Upfronts Advertisers Say They Want Outcomes – And Amazon Licks Its Chops

Amazon has packaged a handful of upgrades to its ads measurement solutions, obviously catered to TV and streaming media advertisers.

AdExchanger Senior Editors Anthony Vargas and Alyssa Boyle.

POSSIBLE 2026: AdExchanger's Hot Takes

AdExchanger Senior Editors Alyssa Boyle and Anthony Vargas share their takeaways from three days chatting about agentic AI at POSSIBLE.