SaaS Capital Blog

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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The following article was originally posted on LinkedIn by Yoav Schwartz, the Co-Founder and CEO of our new portfolio company, Uberflip. It provides a clear example of how debt can be used strategically to fund the growth of a SaaS business.
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We recognize there are a few weeks remaining in 2016, however, it has already been a record year for SaaS Capital, so we thought we would get our update out a bit early.
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We were looking for a modest amount of capital to invest in additional product development and acceleration of customer acquisition, and the SaaS Capital line-of-credit provides the right amount of capital in a non-dilutive form.

Mark Rankovic

CEO, Certica Solutions

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