With Cloud Software and SaaS set to dominate 70% of the market by 2025, Notion Capital’s Cloud Challengers report highlights the boom in Cloud and SaaS adoption, and the extent of the war for talent

●      Cloud is larger than ever. In 2015, Cloud represented just 12 % of the global software industry. In 2021, its share was 37 %. Notion predicts this will be 70% by 2025.

●      There is a war for talent in Europe, and this is causing salaries to grow. The ratio of payroll to revenue for a SaaS business tends to be 80% meaning that, for every unit of sales, 80% of it is invested back into payroll. The average for other industries is 30%.

●      Cloud software saw a boom due to the rise in remote working during the global pandemic. Notion's view is that while the market may be overheated, there is no going back from the accelerated adoption of cloud software.

●      Europe is growing faster than any other region, and by the end of 2021, around $100bn had been invested into tech start-ups in the continent - more than double the previous record year - and there were 100 new unicorns.

●      The report also includes the “Cloud Challenger 100”, a list of the leading 100 Saas and Cloud  companies in Europe, ranked by founders and team, fundraising journey and social proof. The top five were: Slite, Wonder, Forest Admin, Sana Labs, and Demodesk.

●      Only 11% of founders in the Cloud Challenger 100 are female, however companies with a female co-founder raise 50% more than their male counterparts. Also, only 10% are ‘serial’ founders, but serial founders raised nearly 2x more capital than first-time founders.

LONDON - Thursday 3rd February 2022

Founders of early-stage software companies are fighting a war for talent, and Europe is a force to be reckoned with, but more diversity is needed among founders. These are some of the trends identified in the first “Notion Cloud Challengers Report”, published today by leading European B2B SaaS investor, Notion Capital.

Conducted by independent research company Rare Consulting on behalf of Notion Capital, the study was designed to identify the top 100 early-stage Cloud companies across Europe, and the challenges and opportunities they face.^[1]

Jos White, General Partner of Notion Capital, says, “In 2015, Cloud represented just 12% of the global software industry. In 2021, its share was 37%. Notion Capital believes that Cloud will become the dominant form factor in the sector and will cross the 50% threshold of the total market next year, progressing to 70% by 2025.”

He adds, “We believe the companies in our list are an excellent proxy for where the market is heading, and we expect many to break out as category leaders and shape the future of the European Cloud market. We think the emerging stage receives far less of the coverage than it deserves – and that instructive insight can be gained. We have therefore taken the opportunity to dive into this stage in more detail.”

The Cloud Challenger 100

The report also includes the “Cloud Challenger 100”, a list of the leading 100 SaaS and Cloud companies in Europe, ranked by founders and team, fundraising journey and social proof. The report also dives into the backgrounds of the founders of these companies, and its key findings include the following:

●      Only 11% of founders and co-founders are female. However, companies with a female co-founder raise on average 50% more than their all-male counterparts.

●      The UK, France, and DACH regions dominate the list in producing leading founders. Southern Europe and the CEE region are in a more emerging phase.

●      More than 95% of first-time founders have experience of working either in tech or in an industry relevant to their industry prior to founding their business.

●      Only 10% of the founders on the list are “serial” founders, but they were able to raise nearly 2x more capital than first-time founders.

Three Key Trends

In addition, the report identified three trends affecting the cloud/SaaS sector:

The war for talent

Many of the founders Notion spoke with highlighted the pace of hiring as their primary constraint to growth. Within Notion’s own portfolio, vacancies in November 2021 were almost double what they were pre-pandemic and are seven times higher than in April 2020.

This excludes executive roles, which saw exceptional rises in demand – at the senior level, global searches for some key roles are up 130% and they are taking on average 13% longer to fill, quarter over quarter. At the same time, salaries rose over 5% and tech resignations increased by 4.5%. Essentially, employees are leaving at a faster pace than they can be replaced, and their replacements are costlier to acquire.

There is a war for talent in Europe, and this is causing salaries to grow. The ratio of payroll to revenue for a SaaS business tends to be 80% meaning that, for every unit of sales, 80% of it is invested back into payroll. The average for other industries is 30%.

According to Michelle Cheng, Notion Capital’s Head of Talent, “One area of the research that stood out for us was the inexhaustible need for exceptional talent, and the consequent challenges in finding it. Indeed, this is the number one challenge facing the founders Notion spoke to, and a major driver for startups in this space trying to solve the problem with innovation.”

Remote working and the Covid bounce

COVID-19 forced businesses and their teams into the cloud and acted as an adoption catalyst at a scale no-one could have anticipated.

Jos White comments, “Notion’s view is that the “Covid bounce” is not sustainable and that the market is overheated. However, the underlying drivers behind the Cloud’s phenomenal growth have real staying power. We believe there is no going back from the accelerated adoption we saw during worldwide lockdown so, while there is definitely froth in the market, we don’t see an underlying weakness.”

The arrival of Europe

By many metrics, the European region is growing faster than any other and is one of the leading regions in the world. By the end of 2021, around $100bn had been invested into tech start-ups - more than double the previous record year - and there were 100 new unicorns.

Jos White comments, “No longer is Europe aspiring to be like other regions but instead it is forging its own path and leveraging its own distinctive qualities. You can see many of the companies in our report leaning into this trend as they invest more into digital tools and enter new markets with confidence.”

He adds, “the report shows that not only is the European SaaS/Cloud sector in very good health, but that the companies discussed within it have an exciting future ahead of them. The companies in this Top 100 list represent the future of the European Cloud market. Of course, a great deal depends on the founders and the broader team. Ambition, intelligence, fearlessness and being mission-driven are all attributes that we look for. But the first few dots have been connected - they are tracking on the right trajectory. It will be interesting to see how many of these companies emerge from challenger to leader status and make a lasting impact on their markets. We wish them all every success for the future.”