Frankly Speaking 9.3.19

by Frank Wang
A weekly(-ish) newsletter on random thoughts in tech and research. I am an investor at Dell Technologies Capital and a recovering academic. I am interested in security, blockchain, and cloud infrastructure.

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I took a short break from the newsletter last week because 1. it was Burning Man week, so I thought people rather enjoy that than read my newsletter and 2. I wanted to spend time enjoying usually crowded restaurants and bars in SF because everyone was away at Burning Man.

Big news on my side. My partner Deepak and I finally announced our series A investment into Remediant*, a bootstrapped privileged access management (PAM) company. They have a fresh, new approach to PAM, and I'm excited to work with the founders, Tim and Paul. You can read more about why we made the investment in my LinkedIn post. tl;dr: The PAM problem is getting worse, and Remediant has an innovative way of solving it.

Stay tuned for more announcements from my deal-filled summer!


What is SaaS? It's a term that's been thrown around, but what is SaaS and what's not SaaS? What does it mean to be "software-as-a-service"? Well, one thing that investors know is that SaaS companies receive high revenue multiples, assuming they achieve "SaaS metrics." As a technical person, I think there's a lot of misconceptions of what SaaS is and isn't. I want to clarify what a SaaS company is, and it's simple: Does the company run the software on its own infrastructure? That is the main test for a SaaS product/company. 

What does that mean? It means that a customer typically has a basic client, e.g. browser, desktop app, etc., to access the SaaS product, but almost all of the software is being run on the SaaS company's infrastructure, which could be AWS or their own private cloud. That means the SaaS company manages storage, handles analytics, etc. The customer usually occurs very minimal infrastructure costs.

So, let's give some concrete examples of what is a SaaS product (forget about whether it is a "good" SaaS product or meets "SaaS metrics"). Zoom, Gusto, Gmail, and Dropbox are all SaaS products. What is not a SaaS product? Windows is not a SaaS product. Sure, you might get updates from Microsoft, but most of the software is running locally on a customer's machine and consuming the customer's infrastructure. 

Let's use security products as an example. If a company provides an appliance with software installed on it and provides updates from its cloud, this company does NOT provide a SaaS product. However, if the appliance just provides a thin client and most of the analytics and "work" to find threats are done in the cloud of the company. I would argue that this is probably a SaaS company. 

Is Office 365 a SaaS product? I would say that's a grayer area. A lot of the "heavy lifting" is done on the customer's computer. It is a subscription service, but some of it runs locally on a laptop. I would say that if there's a lot of analytics being done or users are using OneDrive to store the resulting data, then it's more SaaS than not. 

I understand that investors are trying to frame their companies as SaaS companies so that they can get higher revenue multiples on the public market and thus higher valuations. That's great, but really there is a technical definition for SaaS. We shouldn't bastardize it and try to "confuse" non-technical people. It's possible for a non-SaaS company to have SaaS-like metrics and have an ARR business. It's really how the technology operates that makes it a SaaS company. The reason it's important to focus on the technology because the SaaS benefits come from a customer not having to worry about the infrastructure required to run a particular piece of software. It's important for investors to see a product for what it really, or they might be paying the wrong multiples! 

Anyway, if anyone ever has confusion on whether something is a SaaS product or not, feel free to ping. If you disagree with my opinion, feel free to offer your counterpoints through email!

Yeah, we totally don't have any jobs like that in Silicon Valley.... 

For more, follow me on Twitter, LinkedIn, and Medium.


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Disclaimer: * indicates a Dell Technologies Capital portfolio company or company that I have economic interest in. I am an employee of DELL and own stock directly in AAPL, GOOGL, and WMT. All opinions within are my own and do not reflect those of my employer or any people or groups with whom I am affiliated.

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