Average Contract Value is (“ACV”) is a vanity metric that should be looked at as part of a group of ratios that include number of qualified leads, close ratio, sales cycle, and other critical sales metrics. It shouldn’t be put on a pedestal. Here is why: The world’s biggest and best software…
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It turns out SaaS isn’t immune to market conditions: of the 77 SaaS companies we follow, the average public SaaS business is trading at 8.07x revenue while the median is 6.66x. The average and median are down from 8.91x and 8.29x in November, respectively. The drop in the median is significant in our view and…
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When a company files to go public, they do so by submitting a document called an S1 to the SEC. An S1 is like a prospectus, and sometimes it’s loaded with really interesting industry information. Sonos, which recently went public, is a great example of such an S1. Below are some facts and trends about…
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You probably won’t be a success from day 1. You’re going to struggle and may even come close to failure (more than once). The good news: there are plenty of examples of companies that had setbacks and bumps along the way, but were still a great success. Docusign is one such success story. Docusign…
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One SaaS metric we monitor closely is net dollar retention. It measures what percent of revenue you retained from the prior year after accounting for upgrades, downgrades, and churn. Formulaically it’s beginning of period revenue + upgrades – downgrades – churn all divided by beginning of period revenue. If that formula yields a number greater…
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Are startups a young man’s/woman’s game? No. We have 19 portfolio companies today of which 4 of them have CEO’s who are over 45 and has a family. To me, that’s enough proof to indicate you don’t have to be fresh out of college to launch a startup. That said, being young is definitely an…
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Do big companies benefit from economies of scale? While the default answer may seem like ‘yes’, we wanted to see if that was really true. We looked at the sales and marketing spend of SaaS companies at the time they went public and compared that figure to revenue growth. Formulaicly, it’s revenue growth / sales…
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One of the most important metrics for B2C companies is customer acquisition cost or “CAC”. One debate is whether the cost rises or falls over time. The argument for rising CAC is the next marginal customer is generally harder to acquire than your last customer. The argument for falling/stable CAC is that as companies get…
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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. Recently, we managed to sell that intellectual property (“IP”). Here is what we learned. Set expectations. The value of IP is a small fraction of what…
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Contribution margin is one of the most important metrics in SaaS. It’s revenue from a certain set of customers (a cohort) less the cost of acquiring and servicing the customers over time. Customers are generally grouped into annual cohorts – in other words, customers acquired in 2011 are the 2011 cohort, those acquired in 2012…
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