Evaluating SaaS Startups: The Investor's Perspective
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Learn about the investor's perspective for evaluating a SaaS startup.
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Evaluating SaaS Startups: The Investor's Perspective
- 2. #saasinvest What you’re going to learn 1 2 3 What investors look for in the due diligence process What signs indicate big opportunities to investors What are the high-level metrics that matter for measuring company performance
- 3. Where do you start when evaluating a SaaS company?
- 4. #saasinvest Three areas of focus Operational Metrics Departmental Maturity Stage of Evolution
- 5. What are the high-level operational metrics that matter?
- 6. #saasinvest Current Performance Snapshot of financial health and growth prospects Growth & Scalability Operational Efficiency
- 7. #saasinvest Helpful ratios ARR:CAC LTV:CAC Cash:Burn
- 8. What do you look for when evaluating individual departmental maturity?
- 10. Marketing
- 11. #saasinvest Marketing roles VP of Marketing / CMO Content Analytics Public Relations Tech
- 14. #saasinvest Marketing tech Data & Instrumentation Marketing Automation Lead Intel Creative
- 15. Sales
- 16. #saasinvest Sales roles VP of Sales / CRO OpsExecution
- 17. #saasinvest Sales metrics Lead to Oppy Oppy to Close Leads Opportunities MRR per Rep Avg Contract Size Customers
- 19. Customer Success
- 20. #saasinvest Customer success roles Account Managers VP Customer Success / CRO / Chief Customer Advocate
- 21. #saasinvest Customer success metrics Leads Opportunities Customers Churn Engagement Upsells & Revenue Expansion Gross Margin
- 22. #saasinvest Customer success tech Engagement Communication Helpdesk
- 25. #saasinvest Engineering & product roles VP Engineering / VP Product / CPO / CTO SpecialistsGeneralists
- 26. #saasinvest Engineering & product metrics Net Promoter Score Cost of R&D as % of Rev Customer Retention & Usage
- 27. #saasinvest Engineering & product tech Version Control Unit & Integration Testing Security Testing Monitoring & Alerting
- 29. #saasinvest General operations roles Finance Facilities Recruiting Administrative HR
- 31. Thank you for joining us!
Editor's Notes
- Operational Metrics: Growth indicators financial health unit economics Departmental maturity (team, instrumentation, technology): Sales Marketing Customer Success Engineering & Product General Operations (finance, recruiting, admin, etc.)
- Let’s start with the big one - Company Performance.
- A small set of metrics is able to sum up a lot about the financial health and growth prospects of a SaaS company. (They can be broken out into three buckets.) Current Performance: Annual Recurring Revenue (ARR) Number of Customers Average Contract Value (ACV) Growth & Scalability: Yearly/monthly growth rates Customer Acquisition Cost Net Promoter Score (NPS) Customer Lifetime Value (CLV or LTV) Operational Efficiency: Burn rate Revenue per employee Cash on hand
- ARR:CAC (payback period) LTV:CAC (profitability on customer) Cash:Burn (runway)
- We’ve covered company performance and the high-level operational metrics that matter, now let’s shift into the other main area that investors focus on, which is departmental maturity.
- What you see here are the general departments that define the organizational structure of most SaaS companies, and the ones that we’ll be focussing on today. You can break down what investors look for when it comes to departmental maturity into three main buckets: key roles key metrics technology being used Let’s jump right in and start with Marketing...
- Who is in charge? VP of Marketing, CMO Where do they specialize? Content, analytics, public relations How do they manage tech? engineering is increasingly important in marketing, how do they manage marketing automation and CRM? Are they building internal tools to stay ahead of the curve?
- Marketing is always trying to measure the funnel. Of course you’ll want to know how many leads are coming in, are they turning into opportunities, and down the line. You’ll also want to look at things like: CAC ARR/CAC Lead volume by channel Diversity of lead sources
- Actually measuring all of this stuff can be fairly time consuming. RJMetrics is an analytics platform that joins all of your disparate data sources into one place, making it easy to regularly track these types of numbers. Something that we’ve found really helpful here at RJMetrics is setting up goal vs. actual dashboards for our core marketing metrics. At the highest level, our marketing team is responsible for Sales Qualified Opportunities, then we further decompose this metric into leads sourced from inbound and outbound and on down the line. This gives the team (and company) a lot of insight into how we’re making progress toward our goals and makes it easy to identify what’s driving the increases or decreases in overall volume.
- Data & instrumentation: GA, RJMetrics Marketing automation: Act-on, Pardot Lead Intel: Builtwith, Alexa, Data.com, Rapleaf Creative: Adobe
- Leadership: VP of Sales or CRO Sales Execution, which can include: Sales Development Rep (SDR, aka ADR, BDR): initial meetings Account Executive (AE, aka ISR): closing deals Sales Engineers Onboarding Specialists Sales Ops: Technology deployment Lead qualification
- Lead to oppy, oppy to close Other: sales pipeline, MRR per rep (fully-loaded cost of sale) Average contract size
- Show these categories in labeled columns with the logos underneath CRM: Salesforce, others: sugar, etc. Motivation & Morale: Hoopla, show picture of sales leaderboard on the wall upstairs Sales enablement: Join.me, docsend, clearslide, guru Contract management: docusign, hellosign Billing management: Zuora, braintree, recurly
- Titles and roles are more diverse in this area.
- Churn: discretionary vs. structural churn consider annual contracts against “classical” churn definition Engagement (shared w/ Product Team): Active users Use of specific features Virality (introduction of new users within the client org) Upsells and revenue expansion Efficiency: how much does CS eat into gross margin? Helpful ratios and calculations: LTV LTV:CAC ratio - including sales, marketing, % of customer success
- Technology being used: Engagement: Preact, NPS survey Communication: Wootric, Intercom Helpdesk: Zendesk, Desk.com
- Tracking metrics like churn and engagement is necessary, the next level for us was being able to predict who was at risk of churning long before it happened . Our growth engineers built our customer success team a fairly simple interface that runs off the RJMetrics API. The interface ranks clients on a variety of factors using data pulled from Preact, Salesforce, and Zendesk. What they get is an easy way to find clients at risk of churning as well as identifying the factors driving clients’ dissatisfaction or satisfaction.
- Leadership: VP Engineering, VP Product, CPO, CTO Generalist Talent Product Managers Engineers, Junior and Senior Healthy pipeline and robust recruiting process Specialist Talent: Product strategy/competitive intel Security Infrastructure Domain-specific expertise (i.e., Big Data)
- Net Promoter Score Customer retention and usage over time (cohort analysis) Employee satisfaction and retention Predictability in deliverables Cost of R&D as a percent of revenue
- Technology being used: Version control: git, github Unit and integration testing: circleCI, Jenkins Security testing: 3rd party vendors, PCI, auditors Monitoring & alerting: New Relic, PagerDuty, Trello
- Overall productivity of the organization High-leverage use of executive time No environmental growth inhibitors