In case you missed the VC panel at Software2008, here's the second part of my debrief.

When asked: "How do you evaluate SaaS companies?"

Sanjay from Storm Ventures responded: "robust, reliability, scalability." While Glenn from Granite Global cited that metrics such as renewal rates and conversion rates from trial to paid were important. The panel agreed that low cost of customer acquisition was of paramount importance since M&A exit values are much lower than in the past.

This raised the question about the exit environment. All the VCs agreed that the amount of capitalization required to get a company to exit was down significantly.  Gone are the days of $50M+ which is causing entrepreneurs to do more with less—$20M - $30M. In fact, Navin went so far as to say that the VC model is broken and rather than exiting through strategic M&A, the buyout market has become very active. VCs have learned to become very patient as they face 5-7 year exit horizons versus 3-4 years.

To sum it up, VCs have been large proponents of bring SaaS to bear and as the economic environment continues to look grim, expect to see more companies that sell into opex rather then capex while reducing TCO for the enterprise customer.