Braze is a software company focused on cross channel marketing with first party data. They went public in 2021. Below are some of the highlights and learnings from their latest earnings call as well as their original S1 prospectus. We learn a lot from reading these documents about how big SaaS companies operate and what they’re seeing. Many statements below are verbatim. Side note, we’re invested in Braze’s competitor (Cordial.com) who frequently kicks their ass.
Q3 earnings call
Strong YOY growth, led by enterprise customers. “We delivered a strong third quarter, generating $93.1 million in revenue, up 46% versus the prior year.” Those customers generating at least $500,000 in ARR increased 53% year-over-year and contribute 56% of ARR. There are 1715 customers total. 96% of revenue is recurring. Net dollar retention is 126%. International is 43% of revenue. Operating loss was $17mm, versus $5mm in Q2. The company has plenty of cash with $478mm.
Sales cycle is blowing out, deal scrutiny is up, contract length is down. “we did continue to see some of the macroeconomic headwinds reported by many of our software peers, including elongated deal cycles and increased scrutiny on software investments, particularly with new business.” Customers are signing fewer multiyear contracts. “One thing that we haven’t seen as robust in Q2 and Q3 as we have prior year periods are those people who signed a 12-month deal upfront, more of them are opting to continue on a 12-month deal just because of environment.” Upsells however were strong and the pipeline looks good.
More customer personas are getting involved in the sale, to improve spend efficiency. “we’re seeing technology leaders getting involved in a lot of the kind of marketing decisions as well and helping to rationalize the footprint of products that are out there.”
Customers also want to see faster ROI. “Those are also aspects of the macro environment right now, where investments are being made and investment decisions are being made with a return expected on a shorter time horizon and with lower volatility in it.” To get around this, Braze offers smaller initial implementations, perhaps a single team or channel, and allows the account to grow.
Account executives have been retrained for this environment. “We rolled out a new 6-week intensive boot camp inclusive of in training and doing role playing with managers, new certifications and a number of other initiatives that have been really impactful in terms of bringing our account executives up to speed more quickly.” They have switched to in-person training.
It’s a great time to hire R&D talent. “we’ve experienced one of the most robust R&D hiring environments that we’ve ever seen in our history….we’re still looking to selectively take advantage of this great hiring market to bring in really good talent into the company”
Personnel turnover at the client also hurts. “I would say one of the things that we’re seeing that’s impacting the downside is that there are still — there’s a lot of turnover happening within teams as layoffs are happening in other parts of the economy, a lot of M&A type disruption activity.”
Braze’s industry is new, which helps drive growth. “Many of the job titles and teams that rely on Braze today were not around when we were founded in 2011 and their continued rise in prominence is an important indicator”
Customer onboarding includes intense retention checks. “Let’s make sure that things like 7-day and 14-day retention remain high, so that you don’t have people immediately bouncing off of a product after you spent dearly to acquire them.”
Don’t sell by territory, sell by account. “we switched from the traditional hunter farmer model across all of our account territories. We actually shifted more of them over to the named account model because of the confidence that we have in our ability to land and expand. There were more cases prior to that, where the hunters were incentivized to land a bigger deal. Now we’ve made sure that our sales team is incentivized just get started because we know that we can grow customers more effectively over time.”
In this environment, sell value instead of discounting. “do we see the pricing sensitivity out there in the market? Absolutely. But we continue to work with the salespeople and continue to train them to talk about the high ROI that the product delivers and the value sell into the customer.”
Another growth lever is selling new products and use cases into the same customers. “Often, we can consolidate out other vendors as they’re working to find spend efficiency. there’s an entire category of just taking a step back, looking at their entire marketing spend and helping them optimize that in order for them to be able to maintain or, in many cases, in those situations still increase their Braze investment.”
S-1 Prospectus from 2021
Long contracts, complex pricing. “The terms of our subscription agreements are primarily annual with a dollar weighted-average contract length of 24 months as of July 31, 2021. Our subscription fees are principally based on an upfront commitment by our customers for a specific number of monthly active users, on a cost-per-message basis for volume of email and/or SMS messages sent, platform access and/or support and certain add-on products.”
Big customers move the needle. “82, 71 and 45 of our customers had annual recurring revenue, or ARR, of $500,000 or more (inclusive of customers with ARR of $1.0 million or more, described below) as of July 31, 2021, January 31, 2021 and January 31, 2020, respectively, accounting for approximately 50%, 50% and 41% of our ARR, respectively. Further, as of July 31, 2021, we had 41 customers with ARR of $1.0 million or more, up from 31 and 18 customers as of January 31, 2021 and 2020, respectively, accounting for approximately 37%, 33% and 25% of our ARR, respectively.”
But no customer concentration. “As of July 31, 2021, January 31, 2021 and January 31, 2020, no single customer represented more than 5% of our ARR.”
Land and expand. “We expand our reach within existing customers when our customers add new channels, purchase additional subscription products such as Braze Currents, implement new engagement strategies, or onboard new business units and geographies. We also grow as our customers grow because our pricing is based in large part on the number of consumers that our customers reach and the volume of messages our customers send.”
Very nice net dollar retention. “We believe our successful land-and-expand strategy is evidenced by our dollar-based net retention rate, which for the trailing 12 months ended July 31, 2021, January 31, 2021 and January 31, 2020 was 125%, 123% and 126%, respectively, for all our customers, and 135%, 133% and 127%, respectively, for our customers with ARR of $500,000 or more.”
And cohort performance. “Each cohort in the chart below represents customers that made their initial purchase from us in a given fiscal year. For example, the 2016 cohort includes all customers that had their initial purchase within the fiscal year 2016. This cohort increased their ARR from $6.4 million as of January 31, 2016 to $20.1 million as of January 31, 2021, representing a multiple of approximately 3.2x since fiscal year 2016.”
Not profitable. “We have grown significantly in recent periods. We generated revenue of $150.2 million and $96.4 million in fiscal year 2021 and fiscal year 2020, respectively, representing year-over-year growth of 56%. We had net losses of $32.0 million, $31.8 million in fiscal year 2021, fiscal year 2020”
International expansion is critical. “For each of the fiscal year ended January 31, 2021 and the six months ended July 31, 2021, approximately 40% of our revenue was generated outside of the United States”
Customers drive the roadmap. “We believe our market-driven product development approach maximizes the return on new feature development and channel expansion. Our customers consistently volunteer to participate in the testing of new products, which indicates their appetite for new and innovative functionality.”
Shameless plug. We have a portfolio company called Cordial.com which beats Braze constantly for new clients. Consider Cordial if you’re looking for a better solution.
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