Fresh Insights

Analyses, Musings & Observations

The new rule of thumb in SaaS margins

The general rule of thumb for spending in SaaS is 40/40/20. In other words, 40% of operating expense should be on R&D, 40% should be on sales and marketing, and 20% should be on G&A. 19 SaaS companies have gone public in 2018 and 2019, so we wanted to see what their ratios are. Perhaps…
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Nonrecurring revenue is valuable

VC love recurring revenue and many VC won’t ascribe any value to non-recurring revenue streams. That said, do not forsake non-recurring revenue streams. If you do, you’re ignoring free financing and a way to make the product stickier. Non-recurring revenue streams like onboarding fees and installation fees are a fantastic source of cash, which means…
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How SaaS does in a recession

SaaS Capital, a lender to software businesses, put out an excellent research piece which examined the performance of publicly traded SaaS businesses during the recession.  The 3 page research report is well worth the read, and we decided to summarize some of the findings. Below is the data and under that are observations.    …
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2019 observations from 100+ SaaS companies

If you haven’t subscribed to SaaS Capital’s emails, you should.  They put out fantastic data on the SaaS market.  The latest release came from Managing Director Rob Belcher.  In it, he shares some observations from the past year.  The below is verbatim from Rob.   “SaaS is about to enter its third decade, and technical…
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Product & Dev Spend at 86 SaaS co’s

Building out, maintaining, and upgrading a technology stack requires a constant commitment to developers and engineers, so what is an appropriate level of development or R&D expense for a successful SaaS business? We looked at 86 publicly traded SaaS businesses at the time of IPO and 2 years prior to get a sense for how…
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Negotiate with Investors – part 2

Below is a continuation of a recent blog post about a book called Never Split the Difference by Chris Voss. Chris was one of the premiere FBI Hostage Negotiators in the world, and his tactics could be useful for negotiating with customers, vendors, and of course your VC. The original blog we wrote highlighted some…
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‘Perfect is the enemy of good’ and other startup advice

Over the Thanksgiving holiday, I read “Chaos Monkeys, Obscene Fortune and Random Failure in Silicon Valley.” The book is a 2015 vintage, but a lot of the lessons and take-aways are relevant today. It’s a great read that I would highly recommend; key excerpts are below.   FB’s data isn’t that valuable. “The miserable conclusion…
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Negotiate with your VC

I just read a book called Never Split the Difference by Chris Voss. Chris was one of the premiere FBI Hostage Negotiators in the world, and his tactics could be useful for negotiating with customers, vendors, and of course your VC. Excerpts from the book are below.   Create warmth by using first names. “I’m…
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Tech founder ownership levels

Snapchat cofounders Evan Spiegel and Robert Murphy owned a combined 44% of Snapchat before it went public. Mark Zuckerberg owned 31% of Facebook, Sergey Brin and Larry Page owned 31% of Google, the founders of Eventbrite owned 35%, and Reed Hastings owned 24% of NetFlix. These are remarkable levels of CEO ownership upon going public/exit,…
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The acceptable level of SaaS burn

Of the 62 SaaS businesses that have gone public which we follow, 51 of them were not profitable at the time they went public; that’s 82%. Clearly a certain level of burn is ok so long as you’re growing, but what is that level? Can you lose $1 for every $1 of revenue? Can you…
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