Bessemer 5 Cs of SaaS Finance

Bessemer’s 5Cs of SaaS Finance Winter 2009

Agenda ,[object Object],[object Object],[object Object],[object Object]

NO, NO, I WAS QUOTED OUT OF CONTEXT. WHAT I REALLY SAID WAS “I DON’T BELIEVE IN SAAS-QUATCH!” A Prediction….

Bessemer Venture Partners Snapshot ,[object Object],[object Object],[object Object],[object Object],[object Object]

BVP Software and SaaS Practice ,[object Object],Software and SaaS is the largest investment area for Bessemer New SaaS/Software investments 2008 exits

2007: Life was fun… ,[object Object],EV/2007 Revenue Multiple for SaaS 13 Index* High growth rate Distribution of 07/08 growth rate for the SaaS 13 index * Excluding NetSuite and SuccessFactors, not public at that time ,[object Object],[object Object],[object Object],[object Object],2.5-3.0 48% Avg.

Lehman Bank employees stage a protest by blockading the entrance to the Bank's Headquarters

Things have changed: SaaS valuation plummeted… The SaaS 13 Index Base 100 = Jan 1st 2008 -60%

Growth and Cash Flows are not enough to support valuation… Revenue Growth USD million LTM Cash Flows from operations: $60m Omniture Inc. (Nasdaq: OMTR) YTD stock performance: -69% (vs. -38% for NASDAQ) Trading at 2.2x EV/2008 Rev. Base 100 = Jan 1st 2008

…and no one has been spared! 60% < Loss 40% < Loss < 59% Loss <39% -51% -71% -69% -40% -35% -61% -60% -35% -56% -78% -54% -47% -80%

Root Causes Over aggressive marketing and securitization of mortgages Foreclosures Home Prices fall Consumer spend falls Bank assets write off and bankruptcy Access to credit vanishes Business spend decreases Lay offs Recession? Depression? Home Equity Lines decrease

How long will it last? Dow Jones evolution since 1929 Linear scale 1929 Crisis: 25 years to recover Dow fell from 350pts in 1929 to 40pts in 1932 (-89%). Recovers 1929 level in 1954 1987 Crisis: 2 years to recover Dow fell from 2,600pts to 1940 pts (-25%). Recovers 1987 level in 1989 2000 Crisis: 6 years to recover Dow fell from 11,500pts to 7,600 pts (-34%). Recovers 2000 level in 2006 2008 Crisis: Plan for multi-year recovery Dow fell from 14,000pts to 8,175 pts (-41%). How bad is it really? 1973 Crisis: 9 years to recover Dow fell from 1,050pts to 580 pts (-45%) in 1974. Recovers 1973 level in 1982

Brace for a tough 2009 ,[object Object],[object Object],We believe demand for application software is deteriorating rapidly and "in real time"-and do not anticipate it will "bounce right back“ A 14% 2009 growth rate keeps Omniture solidly as one of the highest growers among the companies in our coverage universe Goldman Sachs Global Investment Research […] the recent slump in raw-material prices and the decline in shipping costs indicate just how far-reaching the consequences of the global financial crisis will be for the real economy […] a recession is occurring, and that many companies could struggle over the next few quarters Wedbush Securities

The 5 Cs of SaaS Finance ,[object Object],[object Object],[object Object],[object Object],[object Object]

CMRR – Committed Monthly Recurring Revenue remains the key metric for growth From bookings and opacity… EXPENSES BOOKINGS ,[object Object],[object Object],[object Object],[object Object],… to CMRR and transparency! ,[object Object],[object Object],[object Object],[object Object],[object Object],CMRR New Accounts Upsell & Expansion less churn Existing Contracts Renewals EXPENSES Cash burn rate

Cash – Time to get your cost and revenue line crossing Expense Plan MRR Expected breakeven point Actual Expenses Lines are still not crossing! Time to get the lines to cross – even at the expense of growth

Churn – Key lever in a tough economy ,[object Object],[object Object],[object Object],Effect of 20 % churn on MRR base ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],Start of year 1 End of Year 1 End of Year 2 End of Year 3 50% MRR loss in 3 years

CAC – Target a 1-year payback on your Customer Acquisition Cost CAC ratio: defining your S&M spend ,[object Object],[object Object],CAC benchmark Salesforce.com CAC ratio and refined CAC ratio since IPO (based on public data) Public Benchmark SaaS 13 Index, Q2 2008 ,[object Object],[object Object],[object Object],* Excluding ULTI, SUMT, SLRY which had negative ratios (GM loss) during the period

CLTV – Adjust Your G&A and R&D Costs Towards a positive Customer LifeTime Value CLTV: defining your profitability CLTV > 0 = Profit! Example : 1 customer generating $1 of ARR Time for a >0 CLTV: use this analysis to adjust your G&A, account management and R&D costs ,[object Object],[object Object],[object Object],[object Object],CLTV example Salesforce.com CLTV estimates (based on public data)

Some ideas for Year 2009 Planning (1/2) ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],Strategic Manage Carefully Your Internal Communication!

Some ideas for Year 2009 Planning (2/2) ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],Tactical

Bonus Tip ,[object Object],[object Object],[object Object],[object Object]

Thank You! More Info: www.bvp.com/saas

Bessemer 5 Cs of SaaS Finance

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Bessemer 5 Cs of SaaS Finance