When I first heard about the Lifetime Value (LTV) to Customer Acquisition Cost (CAC) metric many years ago, the economics major in me got very excited. I was already well into the software-as-a-service (SaaS) financing business at the time, and this ratio seemed like the most elegant way to express how the business model really worked. It is the unit economic driver of value and profits that is obscured by normal GAAP financials.
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While predicting the start of the next recession is impossible, we know there will eventually be one. To enhance our understanding of the SaaS business model and better prepare ourselves and our portfolio companies for an eventual economic downturn, we wanted to learn how software-as-a-service companies performed through the previous recession.
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Revenue growth is the most important metric for valuing a SaaS company, yet it’s hard to find good benchmarking data for a relevant peer group. Comparisons to multi-billion-dollar public companies are not helpful, and neither are the anecdotal data points from angel investors or VCs. To provide some better context on this question, we surveyed over 900 private SaaS companies regarding their 2017 revenue growth.
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A couple weeks ago Todd and I had the pleasure of attending the inaugural Kinetic Indiana conference, put on by venture capital firm Elevate Ventures. The conference served as a great reminder that entrepreneurship is prevalent across the entire country including the Midwest.
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In just the last few weeks, we have seen Marketing Evolution raise $20.6 million in Series B funding, Uberflip raise $32 million in Series A funding, and Pusher raise $8 million in Series A funding. These deals are just part of a larger trend of SaaS Capital portfolio companies either raising equity or being acquired.
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Ok, well, “magical” might be a little strong, but there are circumstances where this structure does have specific benefits that are very valuable. In the short post below, we describe how to quantify those benefits to your stakeholders.
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Rob and I just returned from our annual pilgrimage to San Francisco for SaaStr Annual, and here are our observations from the conference this year.
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Last December we sent out a quick year-end recap email and blog post that was very well received, so here it is for 2017.
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Last month I had the pleasure of presenting at the KCSaaS event in Kansas City, MO. KCSaaS is a grassroots industry group spearheaded by longtime SaaS sales executive Mike Poledna. He started the group about a year ago after not finding many SaaS networking and knowledge share opportunities in Kansas City.
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We recently hosted a webinar on ASC 606 with SaaSOptics and CPA Steve Sehy. This blog post is meant to summarize some key points from the presentation relative to timing and magnitude.
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In a recent article in Forbes, Max Williams, the CEO of Pusher Ltd, is interviewed about the pros and cons of raising venture capital from an entrepreneur’s perspective. For most of our portfolio companies, raising a VC round is a viable option, and in the full article here, the author and Max do a pretty good job discussing the merits.
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Insurance may seem like a pretty boring topic compared with, say What is my SaaS Valuation? but as you may remember from school, it’s a negatively correlated asset – when everything else goes against you, it pays out. So, it’s an important part of life and business, and your needs can change over time as you grow, pivot product and target market, or raise capital, so it’s good to keep in mind and revisit now and again.
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Last month my partner Rob and I attended two events focused on customer success (CS) and wanted to post our takeaways. The first event was a half-day summit we held for our own SaaS Capital portfolio companies. The other event was the Pulse Conference.
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The Rule of 40 postulates that the growth-rate-plus-profitability-margin of a healthy growth stage SaaS company should be at least 40%. It captures both valuation drivers of a SaaS business: growth and profit, and trades them off dollar for dollar. While this is a compelling and fascinating ‘rule,’ it is by no means the cut-off line between healthy and unhealthy.
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Over the years, we have analyzed thousands of SaaS companies and we firmly believe the best metric for benchmarking churn is gross revenue retention which should be benchmarked against companies with similar annual contract values or revenue values per customer.
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The better a SaaS business is at keeping customers, the faster it will grow. This is not a surprise; however, it’s an assertion that is not typically backed up by real data. The graphs below are based on data obtained from our recently completed survey of over 700 private, B2B SaaS companies and give objective, real-world underpinnings to the relationship between retention and growth.
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We have encountered a recent spike of interest in junior debt for SaaS businesses, and since we provide both senior and junior loans (although mostly senior), we thought we would share our perspective on the types of scenarios where subordinated debt makes the most sense.
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Accounting rules are very specific on some things, and surprisingly unhelpful in other areas. There are no Generally Accepted Accounting Principles (GAAP) rules on the type of costs that are included in Cost of Goods Sold (COGS). This is unfortunate because the gross margins of SaaS businesses are very important to the overall performance, profitability, and valuation.
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Two weeks ago, Todd Gardner and I attended the SaaStr Annual conference in San Francisco. This is the SaaS-business-model-specific conference put on by serial SaaS entrepreneur and VC Jason Lemkin. This was the third year of the event and we’ve gone every year. Below are our takeaways from it...
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We recently published an analysis of SaaS company departmental spending segmented by revenue level, growth rate and annual contract value (ACV). Among the interesting results, we found that high ACV products (annual contract value over $150,000) have higher cost of goods than lower priced products, and that medium ACV products ($5,000 to $150,000) appear to be the most expensive overall to deliver and support.
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