Fresh Insights

Analyses, Musings & Observations

Why social media matters to your business

Recently, Sprout Social, which provides software for managing social media, went public. Their prospectus highlighted a number of trends in social that directly impact businesses. We thought those trends were important, so we share them below verbatim. We have invested in the space ourselves via our portfolio company Soci (www.meetsoci.com), who we view as best…
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S&M spend doesnt scale in SaaS

Does the Sales & Marketing function at big software companies scale? The data says no. We looked at new revenue divided by sales and marketing spend of SaaS companies at the time they went public. We then compared that figure to the same calculation the year prior to going public. In other words, if in…
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The state of software M&A

I met with a banker yesterday and got his take on the state of the software M&A market. The banker’s observations on the state of the SaaS M&A market are as follows: Private equity is leading the way. Most deals this firm has completed have been majority recaps with private equity groups. PE is paying multiples…
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Average years from founding to exit

We looked at how long it took 167 publicly traded tech companies to exit. Specifically, we used their S1’s — a securities filing a company makes before IPO — to find out the year each company was founded and compared it to the last year financials were released as a private company. The data is below. Time depends on…
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Revenue per head in SaaS

Two metrics we use to compare software businesses are revenue per employee and operating expense (opex) per employee. In our view it’s a great measure of operational efficiency. What is a reasonable amount of rev/head and opex/head in SaaS? The data from the last 19 SaaS IPOs is below.   Headcount. The median headcount of…
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Tech CEO salaries at IPO

We’ve seen a wide range of CEO salaries in our portfolio, from as low as $35k annually to as much as $325k (plus bonus). While there is no dataset explicitly outlining salary levels at early stage companies, we can use the salaries from tech companies at their IPO to get a sense for what the…
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Selling code from a dead investment

Selling code from a dead investment In 2017, we had a death in the portfolio. Once all the employees left, the only remaining assets were some patents, servers, domains, and a lot of code. Eventually we managed to sell that intellectual property (“IP”). Here is what we learned. Set expectations. The value of IP is…
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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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