Capital expenditures
KAP-eks
Spending on long-term assets that are depreciated over time. Servers, office buildouts, acquired patents. Rare in pure SaaS companies.
CapEx is money spent on assets with a useful life beyond one year. Buy a server: CapEx. Build out an office: CapEx. Acquire a patent: CapEx. The cost is not expensed immediately. It is capitalized on the balance sheet and depreciated over the asset's useful life.
Pure SaaS companies have minimal CapEx because they rent almost everything. Cloud hosting is OpEx. Software is OpEx. Office space is usually a lease (which has its own accounting treatment). The main CapEx for a SaaS company might be office furniture and leasehold improvements. This is one reason SaaS burn rate is almost entirely operating expenses.
CapEx becomes relevant when SaaS companies start building their own infrastructure. Companies like Snowflake and Databricks run on cloud infrastructure (OpEx), but some AI companies are buying GPUs and building data centers (CapEx). The AI infrastructure boom is shifting some SaaS companies toward CapEx-heavy models. The distinction also matters for EBITDA calculations, which exclude depreciation of capital assets.
Examples
A SaaS company with minimal CapEx.
A 200-person SaaS company runs entirely on AWS and rents office space. Annual CapEx: $200k (office furniture, monitors, standing desks). Annual OpEx: $30M. CapEx is less than 1% of total spending. This is typical for a pure SaaS business.
An AI company with significant CapEx.
An AI startup buys $10M in NVIDIA H100 GPUs to train proprietary models. This is CapEx, depreciated over 3-5 years. On paper, the P&L shows $2-3M in depreciation expense per year instead of $10M in one quarter. The cash outflow is $10M, but the accounting expense is spread out.
CapEx versus OpEx for infrastructure.
A company runs 500 GPU servers. Buying: $25M CapEx, $2M/year maintenance. Renting from AWS: $8M/year OpEx. Buying is cheaper over 3 years ($31M vs $24M) but requires $25M upfront and locks you into specific hardware. The CFO chooses renting for flexibility.
In practice
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Frequently asked questions
Do SaaS companies have CapEx?
Very little. Pure SaaS companies typically have CapEx under 5% of total spending. The main items are office buildouts and equipment. Companies that build AI infrastructure or own data centers have much higher CapEx. The trend toward AI is increasing CapEx across the tech industry.
Why does CapEx versus OpEx matter?
It affects financial statements, taxes, and cash flow. CapEx is depreciated over time, spreading the expense across multiple years. OpEx is fully expensed when incurred. CapEx requires large upfront cash outlays. OpEx spreads payments over time. For cash-constrained startups, OpEx is almost always preferable.
Related terms
The day-to-day costs of running your business. Salaries, rent, marketing, cloud hosting. Everything that is not a capital expenditure.
Earnings before interest, taxes, depreciation, and amortization. A proxy for operating cash flow that strips out accounting and financing effects.
How fast a startup spends cash each month. Gross burn is total spending. Net burn subtracts revenue. The clock on your runway.
The actual movement of cash in and out of your business. Different from revenue because it includes timing of payments, not just accrual accounting.
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