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THE SOCIAL+CAPITAL PARTNERSHIP
(Ad)Venture Capital:
What are we funding and why?
Mamoon Hamid, The Social+Capital Partnership
What we’re going to talk about
MRR
and
Churn
but first…
Source: Knowyourmeme.com
No, seriously…
MRR
and
Churn
but first…
Product
Engineering
Finance
HR & OpsMarketing
Sales
Support
Analytics & BI
Security & Control
Data Infrastructure
Enterprise: Our Investments
Productivity & Collaboration
InfrastructureEndUser
Our investing guideposts
We prioritize these signals based on our point of entry
Increasing Maturity
Pre-Revenue <$2M
ARR run-rate
$10M+
ARR run-rate
•  Stellar team
•  Strong conviction in
the target market
•  Stellar team
•  Strong conviction in
the target market
•  Early customer
validation indicating
strong product
market fit and best
in class product
•  Business is
compounding in a
rapidly growing
market
•  Best in class product
and world class
team
•  Clear path to being a
unicorn
Seed & Series A
Check Size: $1m-$5m
Series A & Series B
Check Size: $5m-$10m
Series B+
Check Size: $15m-$25m
When we first invested ($ARR)
Increasing Maturity
Pre-Revenue <$2M
ARR run-rate
$10M+
ARR run-rate
0
2
4
6
8
10
12
0 6 12 18 24 30 36
AnnualRecurringRevenue($M)
Months since launch
Enterprise Software growth in 2007…
39
Company A
launched in 2007
Source: The Social+Capital Partnership Internal Data
Invested
0
2
4
6
8
10
12
0 6 12 18 24 30 36
AnnualRecurringRevenue($M)
Months since launch
Enterprise Software growth in 2009…
3933
Company B
launched in 2009
Source: The Social+Capital Partnership Internal Data
Invested
0
2
4
6
8
10
12
0 6 12 18 24 30 36
AnnualRecurringRevenue($M)
Months since launch
Enterprise Software growth in 2014 !
393311
Company C
launched in 2014
Source: The Social+Capital Partnership Internal Data
Invested
0
2
4
6
8
10
12
0 6 12 18 24 30 36
AnnualRecurringRevenue($M)
Months since launch
And now for the unmasking…
3933
Source: The Social+Capital Partnership Internal Data
$0M
$1M
$2M
$3M
Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014
Lifecycle of a SaaS investment
Our prepared mind approach: we invest early and
monitor portfolio company growth to pre-empt future
rounds
Jason Lemkin
introduces us to
the opportunity
After observing 2
quarters of strong
MRR growth we
pre-empt the
Series A
We invest $1M in
the Seed - strong
conviction in team,
market and early
customer validation
Annual Recurring Revenue ($M)
Source: Company Financials
Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014
Lifecycle of a SaaS investment
We take notice when we hear about products
entrepreneurs love
Intercom
gets founded
and raises
seed round
Social+Capital
leads a $6M Series
A after hearing rave
reviews from early
customers
Intercom raises
Series B led by
Bessemer
Annual Recurring Revenue ($M)
Source: Company Financials
0K
100K
200K
300K
400K
Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014
Lifecycle of a SaaS investment
We use our pattern recognition to invest right before a
company is about to take off
Tiny Speck
rebrands as Slack;
beta launch of
enterprise product
Slack raises a
round led by
KPCB + Google
Ventures
Daily Active Users (K)
Social+Capital leads the first
VC round in Slack. Early data
shows off the charts
engagement compared to any
enterprise product ever
Source: Company Internal Metrics
Why did we pass on this investment?
$0K
$100K
$200K
$300K
$400K
$500K
Q2 2012 Q4 2012 Q2 2013 Q4 2013 Q2 2014 Q4 2014
MonthlyRecurringRevenue($K)
Net New MRR ($K)
Beginning MRR ($K)
Nice looking growth, but doesn’t tell the whole picture
Source: The Social+Capital Partnership Internal Data
-5%
0%
5%
10%
15%
20%
25%
Q4 2012 Q2 2013 Q4 2013 Q2 2014 Q4 2014
MonthlyChurn%
Gross MRR Churn (%)
Crazy Gross Churn
We look for monthly
Gross MRR Churn << 3%
Source: The Social+Capital Partnership Internal Data
-5%
0%
5%
10%
15%
20%
25%
Q4 2012 Q2 2013 Q4 2013 Q2 2014 Q4 2014
MonthlyChurn(%)
Gross & Net MRR Churn (%)
Gross MRR Churn Net MRR Churn
Net Churn better, but still high
…And monthly Net MRR
Churn << 0%
Source: The Social+Capital Partnership Internal Data
Our reaction…Crazy Gross!
Source: Memegenerator.net
-$40K
-$20K
$0K
$20K
$40K
$60K
Q2 2012 Q4 2012 Q2 2013 Q4 2013 Q2 2014 Q4 2014
MonthlyRecurringRevenue($K)
Cancelled MRR ($K)
New MRR Added ($K)
New MRR barely outpacing Cancelled
MRR
Source: The Social+Capital Partnership Internal Data
Only expansion MRR allowed it to grow
-$40K
-$20K
$0K
$20K
$40K
$60K
Q2 2012 Q4 2012 Q2 2013 Q4 2013 Q2 2014 Q4 2014
MonthlyRecurringRevenue($K)
Cancelled MRR ($K)
Expansion MRR ($K)
New MRR Added ($K)
Source: The Social+Capital Partnership Internal Data
1 4 7 10 13 16 19 22 25 28 31 34
Month
Cancelled MRR
Expansion MRR
New MRR
1 5 9 13 17 21 25 29 33 37 41
Month
Cancelled MRR
Contraction MRR
Expansion MRR
New MRR
1 3 5 7 9 11 13 15
Month
Cancelled MRR
Expansion MRR
New MRR
The SaaS Quick Ratio – Added MRR/Lost MRR
Two companies we invested in and two we passed on
Company A Portfolio Company 1
Company B Portfolio Company 2
Source: The Social+Capital Partnership Internal Data
1 3 5 7 9 11
Month
Cancelled MRR
Contraction MRR
Expansion MRR
New MRR
1 4 7 10 13 16 19 22 25 28 31 34
Month
Cancelled MRR
Expansion MRR
New MRR
1 5 9 13 17 21 25 29 33 37 41
Month
Cancelled MRR
Contraction MRR
Expansion MRR
New MRR
1 3 5 7 9 11 13 15
Month
Cancelled MRR
Expansion MRR
New MRR
Company A Portfolio Company 1
Company B Portfolio Company 2
Source: The Social+Capital Partnership Internal Data
1 3 5 7 9 11
Month
Cancelled MRR
Contraction MRR
Expansion MRR
New MRR
$126 New + Expansion
$32 Cancelled
= 4.0x
$76 New + Expansion
$17 Cancelled + Contraction
= 4.5x
$304 New + Expansion
$188 Cancelled + Contraction
= 1.6x
$77 New + Expansion
$22 Cancelled
= 3.5x
The SaaS Quick Ratio – Added MRR/Lost MRR
Two companies we invested in and two we passed on
Recap – what’s good, what’s bad
‣  What you want
‣  Get to $1M ARR ~12 months after launch
‣  Net New MRR keeps increasing quarter over quarter
‣  Maintain a Quick Ratio > 4
‣  What to watch out for
‣  A Quick Ratio < 2 – churn is too high /new sales aren’t working
‣  Net New MRR is flat or down quarter over quarter
‣  As a result takes 18+ months to get to $1M ARR
Take churn seriously…for IPO’s sake
The penalty for a ~5-point change in Net Churn is
extreme - $500M ARR lost by year 8 !
$500M+ARR!
$0M
$150M
$300M
$450M
$600M
$750M
$900M
0 12 24 36 48 60 72 84 96
AnnualRecurringRevenue($M)
Months since launch
0.75% Gross MRR
Churn / (-3% Net Churn)
1% Gross MRR Churn /
(-2% Net Churn)
2% Gross MRR Churn /
(0% Net Churn)
3% Gross MRR Churn /
(2% Net Churn)
And remember…
Source: Reddit
APPENDIX:
SaaS metrics on sample company Moonware Inc.
Source: Reddit
The engine of SaaS is Net New MRR
$0K
$100K
$200K
$300K
$400K
$500K
$600K
0 2 4 6 8 10 12 14 16 18 20 22 24
CommittedMonthlyRecurringRevenue($K)
Months Since Launch
Net New MRR
Beginning CMRR
$0K
$100K
$200K
$300K
$400K
$500K
$600K
0 2 4 6 8 10 12 14 16 18 20 22 24
CommittedMonthlyRecurringRevenue($K)
Months Since Launch
Net New MRR
Beginning CMRR
Take for example Moonware, Inc.
$80K CMRR
at year 1
$500K
CMRR at
year 2
This is a sample company growing from 0 to $500K CMRR by year 2
-$10K
-$5K
$0K
$5K
$10K
$15K
$20K
0 2 4 6 8 10 12
MRRAdded/Lost
Months Since Launch
New MRR
Cancelled MRR
Let’s decompose Net New MRR…
This is monthly New MRR added and Cancelled MRR lost plotted on the same axis
for the first 12 months of the company’s lifespan
New MRR is
added…
…and some early
customers start
to churn
-$20K
$0K
$20K
$40K
$60K
$80K
0 2 4 6 8 10 12 14 16 18 20 22 24
MRRAdded/Lost
Months Since Launch
Expansion MRR
New MRR
Contraction MRR
Cancelled MRR
Net New MRR decomposed, Year 2
Expansion
typically hits
after year 1
Contraction also
occurs in year 2
In year 2, you start to see expansion and contraction enter the picture as annual
customers come up for renewal and decide to upgrade / downgrade.
$0K
$100K
$200K
$300K
$400K
$500K
$600K
0 2 4 6 8 10 12 14 16 18 20 22 24
CommittedMonthlyRecurringRevenue($K)
Months Since Launch
Net New MRR
Beginning CMRR
Zooming in on Net New MRR
Let’s look at a single month to see how Net New MRR is calculated
+50 +45
+20
-10
-5
-20
-10
0
10
20
30
40
50
60
70
Month 23 Month 23
Net New MRR Zoomed In
Net New MRR Breakdown
+ New MRR (new logos)
+ Expansion MRR (upgrades)
- Contraction MRR (downgrades)
- Cancelled MRR (existing logos)
= Net New MRR
Net New MRR has 4 components: New, Expansion, Contraction, Cancellation MRR
+50 +45
+20
-10
-5
-20
-10
0
10
20
30
40
50
60
70
Month 23 Month 23
Net New MRR Zoomed In
+ 45 New
+ 20 Expansion
- 5 Contraction
- 10 Cancelled
= +50 Net New MRR
Net New MRR Breakdown
Net New MRR has 4 components: New, Expansion, Contraction, Cancellation MRR
Cancellations and Gross MRR Churn
Churn is lost revenue from customers who cancelled,
expressed as a % of the prior period CMRR
0.0%
1.0%
2.0%
3.0%
2 4 6 8 10 12 14 16 18 20 22 24
Month
Gross MRR Churn
-12
-10
-8
-6
-4
-2
0
0 2 4 6 8 10 12 14 16 18 20 22 24
Month
Cancelled MRR
Cancellations and Gross MRR Churn
Churn is lost revenue from customers who cancelled,
expressed as a % of the prior period CMRR
0.0%
1.0%
2.0%
3.0%
2 4 6 8 10 12 14 16 18 20 22 24
Month
Gross MRR Churn
-12
-10
-8
-6
-4
-2
0
0 2 4 6 8 10 12 14 16 18 20 22 24
Month
Cancelled MRR
Cancelled MRR
Beginning CMRR
Cancellations and Gross MRR Churn
Churn is lost revenue from customers who cancelled,
expressed as a % of the prior period CMRR
0.0%
1.0%
2.0%
3.0%
2 4 6 8 10 12 14 16 18 20 22 24
Month
Gross MRR Churn
-12
-10
-8
-6
-4
-2
0
0 2 4 6 8 10 12 14 16 18 20 22 24
Month
Cancelled MRR
1% Gross MRR Churn
is really good !
3% Gross MRR Churn
is getting dangerously
high L
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
2 4 6 8 10 12 14 16 18 20 22 24
Month
Net Expansion
Expansion and Contraction
Expansion is customers upgrading from existing plans,
while contraction is customers downgrading. Net
Expansion is the difference between the two.
-10
-5
0
5
10
15
20
25
2 4 6 8 10 12 14 16 18 20 22 24
Month
Expansion & Contraction MRR
Expansion and Contraction
Expansion is customers upgrading from existing plans,
while contraction is customers downgrading. Net
Expansion is the difference between the two.
-10
-5
0
5
10
15
20
25
2 4 6 8 10 12 14 16 18 20 22 24
Month
Expansion & Contraction MRR
Expansion
(Upgrades)
Contraction
(Downgrades) Expansion – Contraction
Beginning CMRR
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
2 4 6 8 10 12 14 16 18 20 22 24
Month
Net Expansion
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
2 4 6 8 10 12 14 16 18 20 22 24
Month
Gross MRR Churn and Net Expansion
Net Churn
Negative churn is the result of Net Expansion outpacing
Gross MRR Churn
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
2 4 6 8 10 12 14 16 18 20 22 24
Month
Gross MRR Churn and Net Expansion
Net Churn
Negative churn is the result of Net Expansion outpacing
Gross MRR Churn
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
2 4 6 8 10 12 14 16 18 20 22 24
Month
Gross MRR Churn and Net Expansion
Net Churn
Negative churn is the result of Net Expansion outpacing
Gross MRR Churn
When Net Expansion exceeds
Gross MRR Churn...
-2.0%
-1.0%
0.0%
1.0%
2.0%
3.0%
2 4 6 8 10 12 14 16 18 20 22 24
Month
Net Churn
Negative Net Churn
In other words – existing customers are upgrading faster
than customers that are cancelling or downgrading
You get negative Net Churn J
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
2 4 6 8 10 12 14 16 18 20 22 24
Month
Gross MRR Churn and Net Expansion
Thank You!
mamoon@s23p.com
andy@s23p.com

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Software-as-a-Service (SaaS) Secrets to Raising Venture Capital

  • 1. THE SOCIAL+CAPITAL PARTNERSHIP (Ad)Venture Capital: What are we funding and why? Mamoon Hamid, The Social+Capital Partnership
  • 2. What we’re going to talk about MRR and Churn but first… Source: Knowyourmeme.com
  • 4. Product Engineering Finance HR & OpsMarketing Sales Support Analytics & BI Security & Control Data Infrastructure Enterprise: Our Investments Productivity & Collaboration InfrastructureEndUser
  • 5. Our investing guideposts We prioritize these signals based on our point of entry Increasing Maturity Pre-Revenue <$2M ARR run-rate $10M+ ARR run-rate •  Stellar team •  Strong conviction in the target market •  Stellar team •  Strong conviction in the target market •  Early customer validation indicating strong product market fit and best in class product •  Business is compounding in a rapidly growing market •  Best in class product and world class team •  Clear path to being a unicorn Seed & Series A Check Size: $1m-$5m Series A & Series B Check Size: $5m-$10m Series B+ Check Size: $15m-$25m
  • 6. When we first invested ($ARR) Increasing Maturity Pre-Revenue <$2M ARR run-rate $10M+ ARR run-rate
  • 7. 0 2 4 6 8 10 12 0 6 12 18 24 30 36 AnnualRecurringRevenue($M) Months since launch Enterprise Software growth in 2007… 39 Company A launched in 2007 Source: The Social+Capital Partnership Internal Data Invested
  • 8. 0 2 4 6 8 10 12 0 6 12 18 24 30 36 AnnualRecurringRevenue($M) Months since launch Enterprise Software growth in 2009… 3933 Company B launched in 2009 Source: The Social+Capital Partnership Internal Data Invested
  • 9. 0 2 4 6 8 10 12 0 6 12 18 24 30 36 AnnualRecurringRevenue($M) Months since launch Enterprise Software growth in 2014 ! 393311 Company C launched in 2014 Source: The Social+Capital Partnership Internal Data Invested
  • 10. 0 2 4 6 8 10 12 0 6 12 18 24 30 36 AnnualRecurringRevenue($M) Months since launch And now for the unmasking… 3933 Source: The Social+Capital Partnership Internal Data
  • 11. $0M $1M $2M $3M Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014 Lifecycle of a SaaS investment Our prepared mind approach: we invest early and monitor portfolio company growth to pre-empt future rounds Jason Lemkin introduces us to the opportunity After observing 2 quarters of strong MRR growth we pre-empt the Series A We invest $1M in the Seed - strong conviction in team, market and early customer validation Annual Recurring Revenue ($M) Source: Company Financials
  • 12. Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014 Lifecycle of a SaaS investment We take notice when we hear about products entrepreneurs love Intercom gets founded and raises seed round Social+Capital leads a $6M Series A after hearing rave reviews from early customers Intercom raises Series B led by Bessemer Annual Recurring Revenue ($M) Source: Company Financials
  • 13. 0K 100K 200K 300K 400K Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014 Lifecycle of a SaaS investment We use our pattern recognition to invest right before a company is about to take off Tiny Speck rebrands as Slack; beta launch of enterprise product Slack raises a round led by KPCB + Google Ventures Daily Active Users (K) Social+Capital leads the first VC round in Slack. Early data shows off the charts engagement compared to any enterprise product ever Source: Company Internal Metrics
  • 14. Why did we pass on this investment? $0K $100K $200K $300K $400K $500K Q2 2012 Q4 2012 Q2 2013 Q4 2013 Q2 2014 Q4 2014 MonthlyRecurringRevenue($K) Net New MRR ($K) Beginning MRR ($K) Nice looking growth, but doesn’t tell the whole picture Source: The Social+Capital Partnership Internal Data
  • 15. -5% 0% 5% 10% 15% 20% 25% Q4 2012 Q2 2013 Q4 2013 Q2 2014 Q4 2014 MonthlyChurn% Gross MRR Churn (%) Crazy Gross Churn We look for monthly Gross MRR Churn << 3% Source: The Social+Capital Partnership Internal Data
  • 16. -5% 0% 5% 10% 15% 20% 25% Q4 2012 Q2 2013 Q4 2013 Q2 2014 Q4 2014 MonthlyChurn(%) Gross & Net MRR Churn (%) Gross MRR Churn Net MRR Churn Net Churn better, but still high …And monthly Net MRR Churn << 0% Source: The Social+Capital Partnership Internal Data
  • 18. -$40K -$20K $0K $20K $40K $60K Q2 2012 Q4 2012 Q2 2013 Q4 2013 Q2 2014 Q4 2014 MonthlyRecurringRevenue($K) Cancelled MRR ($K) New MRR Added ($K) New MRR barely outpacing Cancelled MRR Source: The Social+Capital Partnership Internal Data
  • 19. Only expansion MRR allowed it to grow -$40K -$20K $0K $20K $40K $60K Q2 2012 Q4 2012 Q2 2013 Q4 2013 Q2 2014 Q4 2014 MonthlyRecurringRevenue($K) Cancelled MRR ($K) Expansion MRR ($K) New MRR Added ($K) Source: The Social+Capital Partnership Internal Data
  • 20. 1 4 7 10 13 16 19 22 25 28 31 34 Month Cancelled MRR Expansion MRR New MRR 1 5 9 13 17 21 25 29 33 37 41 Month Cancelled MRR Contraction MRR Expansion MRR New MRR 1 3 5 7 9 11 13 15 Month Cancelled MRR Expansion MRR New MRR The SaaS Quick Ratio – Added MRR/Lost MRR Two companies we invested in and two we passed on Company A Portfolio Company 1 Company B Portfolio Company 2 Source: The Social+Capital Partnership Internal Data 1 3 5 7 9 11 Month Cancelled MRR Contraction MRR Expansion MRR New MRR
  • 21. 1 4 7 10 13 16 19 22 25 28 31 34 Month Cancelled MRR Expansion MRR New MRR 1 5 9 13 17 21 25 29 33 37 41 Month Cancelled MRR Contraction MRR Expansion MRR New MRR 1 3 5 7 9 11 13 15 Month Cancelled MRR Expansion MRR New MRR Company A Portfolio Company 1 Company B Portfolio Company 2 Source: The Social+Capital Partnership Internal Data 1 3 5 7 9 11 Month Cancelled MRR Contraction MRR Expansion MRR New MRR $126 New + Expansion $32 Cancelled = 4.0x $76 New + Expansion $17 Cancelled + Contraction = 4.5x $304 New + Expansion $188 Cancelled + Contraction = 1.6x $77 New + Expansion $22 Cancelled = 3.5x The SaaS Quick Ratio – Added MRR/Lost MRR Two companies we invested in and two we passed on
  • 22. Recap – what’s good, what’s bad ‣  What you want ‣  Get to $1M ARR ~12 months after launch ‣  Net New MRR keeps increasing quarter over quarter ‣  Maintain a Quick Ratio > 4 ‣  What to watch out for ‣  A Quick Ratio < 2 – churn is too high /new sales aren’t working ‣  Net New MRR is flat or down quarter over quarter ‣  As a result takes 18+ months to get to $1M ARR
  • 23. Take churn seriously…for IPO’s sake The penalty for a ~5-point change in Net Churn is extreme - $500M ARR lost by year 8 ! $500M+ARR! $0M $150M $300M $450M $600M $750M $900M 0 12 24 36 48 60 72 84 96 AnnualRecurringRevenue($M) Months since launch 0.75% Gross MRR Churn / (-3% Net Churn) 1% Gross MRR Churn / (-2% Net Churn) 2% Gross MRR Churn / (0% Net Churn) 3% Gross MRR Churn / (2% Net Churn)
  • 25. APPENDIX: SaaS metrics on sample company Moonware Inc. Source: Reddit
  • 26. The engine of SaaS is Net New MRR $0K $100K $200K $300K $400K $500K $600K 0 2 4 6 8 10 12 14 16 18 20 22 24 CommittedMonthlyRecurringRevenue($K) Months Since Launch Net New MRR Beginning CMRR
  • 27. $0K $100K $200K $300K $400K $500K $600K 0 2 4 6 8 10 12 14 16 18 20 22 24 CommittedMonthlyRecurringRevenue($K) Months Since Launch Net New MRR Beginning CMRR Take for example Moonware, Inc. $80K CMRR at year 1 $500K CMRR at year 2 This is a sample company growing from 0 to $500K CMRR by year 2
  • 28. -$10K -$5K $0K $5K $10K $15K $20K 0 2 4 6 8 10 12 MRRAdded/Lost Months Since Launch New MRR Cancelled MRR Let’s decompose Net New MRR… This is monthly New MRR added and Cancelled MRR lost plotted on the same axis for the first 12 months of the company’s lifespan New MRR is added… …and some early customers start to churn
  • 29. -$20K $0K $20K $40K $60K $80K 0 2 4 6 8 10 12 14 16 18 20 22 24 MRRAdded/Lost Months Since Launch Expansion MRR New MRR Contraction MRR Cancelled MRR Net New MRR decomposed, Year 2 Expansion typically hits after year 1 Contraction also occurs in year 2 In year 2, you start to see expansion and contraction enter the picture as annual customers come up for renewal and decide to upgrade / downgrade.
  • 30. $0K $100K $200K $300K $400K $500K $600K 0 2 4 6 8 10 12 14 16 18 20 22 24 CommittedMonthlyRecurringRevenue($K) Months Since Launch Net New MRR Beginning CMRR Zooming in on Net New MRR Let’s look at a single month to see how Net New MRR is calculated
  • 31. +50 +45 +20 -10 -5 -20 -10 0 10 20 30 40 50 60 70 Month 23 Month 23 Net New MRR Zoomed In Net New MRR Breakdown + New MRR (new logos) + Expansion MRR (upgrades) - Contraction MRR (downgrades) - Cancelled MRR (existing logos) = Net New MRR Net New MRR has 4 components: New, Expansion, Contraction, Cancellation MRR
  • 32. +50 +45 +20 -10 -5 -20 -10 0 10 20 30 40 50 60 70 Month 23 Month 23 Net New MRR Zoomed In + 45 New + 20 Expansion - 5 Contraction - 10 Cancelled = +50 Net New MRR Net New MRR Breakdown Net New MRR has 4 components: New, Expansion, Contraction, Cancellation MRR
  • 33. Cancellations and Gross MRR Churn Churn is lost revenue from customers who cancelled, expressed as a % of the prior period CMRR 0.0% 1.0% 2.0% 3.0% 2 4 6 8 10 12 14 16 18 20 22 24 Month Gross MRR Churn -12 -10 -8 -6 -4 -2 0 0 2 4 6 8 10 12 14 16 18 20 22 24 Month Cancelled MRR
  • 34. Cancellations and Gross MRR Churn Churn is lost revenue from customers who cancelled, expressed as a % of the prior period CMRR 0.0% 1.0% 2.0% 3.0% 2 4 6 8 10 12 14 16 18 20 22 24 Month Gross MRR Churn -12 -10 -8 -6 -4 -2 0 0 2 4 6 8 10 12 14 16 18 20 22 24 Month Cancelled MRR Cancelled MRR Beginning CMRR
  • 35. Cancellations and Gross MRR Churn Churn is lost revenue from customers who cancelled, expressed as a % of the prior period CMRR 0.0% 1.0% 2.0% 3.0% 2 4 6 8 10 12 14 16 18 20 22 24 Month Gross MRR Churn -12 -10 -8 -6 -4 -2 0 0 2 4 6 8 10 12 14 16 18 20 22 24 Month Cancelled MRR 1% Gross MRR Churn is really good ! 3% Gross MRR Churn is getting dangerously high L
  • 36. 0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 2 4 6 8 10 12 14 16 18 20 22 24 Month Net Expansion Expansion and Contraction Expansion is customers upgrading from existing plans, while contraction is customers downgrading. Net Expansion is the difference between the two. -10 -5 0 5 10 15 20 25 2 4 6 8 10 12 14 16 18 20 22 24 Month Expansion & Contraction MRR
  • 37. Expansion and Contraction Expansion is customers upgrading from existing plans, while contraction is customers downgrading. Net Expansion is the difference between the two. -10 -5 0 5 10 15 20 25 2 4 6 8 10 12 14 16 18 20 22 24 Month Expansion & Contraction MRR Expansion (Upgrades) Contraction (Downgrades) Expansion – Contraction Beginning CMRR 0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 2 4 6 8 10 12 14 16 18 20 22 24 Month Net Expansion
  • 38. 0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 2 4 6 8 10 12 14 16 18 20 22 24 Month Gross MRR Churn and Net Expansion Net Churn Negative churn is the result of Net Expansion outpacing Gross MRR Churn
  • 39. 0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 2 4 6 8 10 12 14 16 18 20 22 24 Month Gross MRR Churn and Net Expansion Net Churn Negative churn is the result of Net Expansion outpacing Gross MRR Churn
  • 40. 0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 2 4 6 8 10 12 14 16 18 20 22 24 Month Gross MRR Churn and Net Expansion Net Churn Negative churn is the result of Net Expansion outpacing Gross MRR Churn When Net Expansion exceeds Gross MRR Churn...
  • 41. -2.0% -1.0% 0.0% 1.0% 2.0% 3.0% 2 4 6 8 10 12 14 16 18 20 22 24 Month Net Churn Negative Net Churn In other words – existing customers are upgrading faster than customers that are cancelling or downgrading You get negative Net Churn J 0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 2 4 6 8 10 12 14 16 18 20 22 24 Month Gross MRR Churn and Net Expansion