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Benchmarking SaaS Companies

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Benchmarking SaaS Companies

  1. Benchmarking SaaS Companies Tomasz Tunguz Redpoint Ventures tomtunguz.com
  2. $250k - $40M in Seed, Series A, B, Growth Menlo Park, China, Brazil Lots of *aaS
  3. tomtunguz.com
  4. Environment
  5. SaaS Benchmarks
  6. Methodology • Basket of 41 publicly traded SaaS companies • Measure progress from years since founding • Segment by ACV
  7. Revenue
  8. Payback Period = Gross Margin ÷ CAC
  9. Revenue per Employee
  10. Department Spend
  11. Sales to Engineering Ratio Year Since Founding 1 2 3 4 5 6 7 Median Revenue in $M 3 4 11 25 55 70 98 Sales : Eng Ratio 1.5 3.5 2.0 1.7 1.9 2.4 2.1 Sample Size 1 1 5 9 12 16 18
  12. Capitalization
  13. Evolution of SaaS Fund Raising IPO Cohort Median VC$ Raised Median # of Rounds Median Round Size $M Median IPO Size 1998 42 2.5 17 97 2002 71 3.0 24 86 2006 66 4.0 16 122 2010 101 4.5 22 137
  14. Sales
  15. Sales Efficiency in Year Five Ticker Gross Profit in $M Sales Efficiency ACV VEEV 72.5 3.3 780,000 XERO 2.6 1.9 195 WDAY 40.5 1.7 512,615 DWRE 5.9 1.7 122,294 ZEN 25.0 1.4 1,800
  16. How to Construct Quota Deal Velocity per Month 1 2 3 4 5 6 7 8 1 12 24 36 48 60 72 84 96 5 60 120 180 240 300 360 420 480 ACV in $K 10 120 240 360 480 600 720 840 960 20 240 480 720 960 1,200 1,440 1,680 1,920 50 600 1,200 1,800 2,400 3,000 3,600 4,200 4,800 100 1,200 2,400 3,600 4,800 6,000 7,200 8,400 9,600
  17. Quotas Inside Sales 250k 500k 750k Outside Sales 750k 1.2M 2.0M
  18. Lead to Close Conversion Rates Freemium 2% 3% 4% Inside Sales 15% 20% 30%
  19. Customer Success Maximizing your negative churn
  20. 3,000,000 2,250,000 1,500,000 750,000 0 Churn’s Impact on Revenue Growth 4% 2% 0% -2% -4% 1 8 15 22 MRR in $ Months
  21. Sales and Marketing Spend Required to Double 8.5 5.8 Revenue 3.8 2.2 0.9 4% 2% 0% -2% -4%
  22. $ 2-and-Out Customer 0 15 24 36 months in customer life MRR Cost of Customer Acquisition + Cost to Serve Contribution
  23. $ Renewed Customer, with Customer Success Investment 0 15 24 36 months in customer life MRR Cost of Customer Acquisition + Cost to Serve CS Contri-bution Contribution 21
  24. $ Churned Customer, Despite Customer Success Efforts 0 15 24 36 months in customer life MRR Cost of Customer Acquisition + Cost to Serve CS Contri-bution 21
  25. How much? Expected Value = Save Rate x Value of Extension EV = 30% * 12 months * 83 = $298 About 30% of ACV An existing customer is much less expensive to retain than to acquire a new customer
  26. Thank you Tomasz Tunguz Redpoint Ventures tomtunguz.com

Editor's Notes

  • Let me give you a little bit of background on red point.

    We invest in every part of technology stack, from consumer applications like secret to enterprise software like zuora and mapr, to developer services like stripe and twilio, and infrastructure companies like pure storage

    We have 11 partners and most of them are based in California. We have a team in China that is invested in some of the largest companies there. And we have a team in the fund in Brazil who cover South America for us.

    We also have the notable distinction of being the only venture capital firm in the world with two former ATMs on staff, Jamie Davidson (YouTube and I)
  • Blog extensively at tomtunguz.com
    Data driven analysis
  • Let’s first set some context about the environment
    It’s a bull market
  • B of USD entering the venture market
    black line is the post dot com median
    2014 will be the fourth largest in 14 years
  • In terms of dollars deployed, invested into companies, 2014 is on track to exceed $40B, making it the second largest year since the dot com era
  • This dollars have been raised by many new firms, particularly institutional seed stage
  • All that capital is increasing the amount of capital deployed per investment in the US. Median across A, B, C.
  • Meanwhile in the publlic markets, there’s a bit of a different story.
    NTM revenue to market

    2.2B market cap - 3x in 2004 and 6X in 2005
  • Split it by high growth WorkDay, Splunk, ZenDesk, DemandWare, LinkedIn
    tale of two markets
    relative stability of the standard markets, much greater variance in the high growth companies, still trading at 12x, which is similar to private market multiples, particularly in the growth stage.
  • Median publicly traded SaaS company achieves $11M by third year, reaching about $64M in year six, the year before IPO. After that, growth tends to slow.
  • Looking at the data at a bit more granular level. Each point represents a year for a SaaS company.
    At the beginning, SaaS companies are growing close to 200% per year, and that number begins to taper reaching about 100% by year five and then 50% by year seven.
  • Let’s break this out by segment: SMB is < $10k acv; mid market is < $100k ACV;

    http://tomtunguz.com/segmenting-saas-growth/
  • http://tomtunguz.com/fundraising-history-saas-publics/

    Median is 70M
    The number of rounds of financing each company raises before IPO has nearly doubled from 2.5 to 4.5, i.e. Series B/C to Series D/E. These figures exclude seeds, which I’ve defined as rounds less than $1.5M.
  • Inflation adjusted in 2014 dollars
    $32M on the balance sheet at IPO time, spent $69 during the seven years
  • This is list of publicly traded saaS companies by acv at time of IPO
    Huge range
    Median is $30k
  • Amazingly, sales efficiency isn't actually tied to ACV. These are the top five most efficient sales organizations.

    Huge variance in sales efficiency
  • Here’s the data broken down by segment and shown over time.

    Monotonically decreasing
    No statistically significant difference among the companies
    Early on, sales efficiency should be close to one and then ideally plateau to 0.8, which is the median
    The median SaaS company selling a $1M product declines from a sales efficiency of 1.7 to 0.9 in about 6 years, a 47% drop. In contrast, the $50k ACV median falls 9%.
  • Quotas
    What sizes of quotas do we typically see
    Function of acv and deal velocity; we’ll get into that in a second

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