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;
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
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.
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%.
What sizes of quotas do we typically see
Function of acv and deal velocity; we’ll get into that in a second