Bill.com recently went public. Their software automates complex back-office financial operations for small and midsize businesses (SMBs). One of the charts in their prospectus shows the revenue growth and contribution margin of customers acquired in 2017; it’s a very nice illustration of the first three years of a SaaS customer in a healthy SaaS business….
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Net dollar retention is the most important metric in SaaS. We find that companies with great net dollar retention (100%+) grow quickly and are more cash efficient than those with mediocre or poor net dollar retention. They’re also far more attractive to acquirers and VC. Sprout Social, which provides software for managing social media and…
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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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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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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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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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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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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 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 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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