Fresh Insights

Analyses, Musings & Observations

SaaS companies spend 23% of revenue on R&D

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 74 publicly traded SaaS businesses at the time of IPO and 2 years prior to get a sense for how…
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Becoming an investor

This weekend I met someone that asked the following: “I have $5,000.  How should I invest it?” He’s an electrician with a young family, some savings, and he’s new to investing.  He probably expected me to steer him towards angel investing or venture capital, but those are completely wrong for a new investor.  If you’ve…
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Strategic investors can hurt you

Often we hear founders get excited about strategic investors – corporations making venture investments – because the founders think the strategic investor will assist with the product roadmap, become a customer, intro the company to new customers, add credibility, and potentially acquire the company at some point.  However, strategic investors have not been a benefit…
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Venture capital may be wrong for you

A good friend of mine just exited the business he founded for $25mm.  Since he built the business on so little outside investment, he owned 52% at exit and took home $13mm.  This type of exit brings up an important point: too many founders take a typical venture approach which is to focus on the…
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Cash efficiency is critical to exit

Cash efficiency is as important as growth, especially when you’re a fast growing, cash burning startup with limited capital.  One measure of cash efficiency is revenue/total capital invested.  When you’re in early revenue the metric will look abysmal, but as the business grows and realizes economies of scale (generally $2mm+ of revenue), the measure improves. …
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The amount of cash tech companies burn through to exit

What’s the level of investment needed to build a tech company that goes public?  The data and observations from 127 tech IPOs are below.       Software businesses needed $113mm of equity.  On median, publicly traded software companies raised through their Series D before going public, raising $113mm of equity to get there.  Note…
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Most companies exit by their Series D

How many rounds has it historically taken tech companies to go public?  Based on the data from 124 IPO’s, the answer varies depending on industry.  The data and observations are below.     Software businesses need 4 rounds.  On median, publicly traded software companies raised through their Series D before going public.  Note however that…
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Measuring the health of your B2C business

For any B2C business, cohort performance is critical.  A cohort is a set of customers acquired during a certain time period – for instance the January 2018 cohort is all customers acquired in January 2018.  Specifically, key metrics in evaluating cohort performance include looking at the marketing spend it took to acquire the cohort, the…
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How fast startups exit

How many years will it take you to exit? 10 years is the generic answer, but that’s wrong.  The data says depending on what industry you’re in, it might take as long as 11 years (hardware) or as few as 4 years (payments).  We looked at 129 tech companies in various industries that have IPO’d…
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