Benchmarking SaaS Companies

Benchmarking SaaS Companies Tomasz Tunguz Redpoint Ventures tomtunguz.com
$250k - $40M in Seed, Series A, B, Growth Menlo Park, China, Brazil Lots of *aaS
tomtunguz.com
Environment
SaaS Benchmarks
Methodology • Basket of 41 publicly traded SaaS companies • Measure progress from years since founding • Segment by ACV
Revenue
Payback Period = Gross Margin ÷ CAC
Revenue per Employee
Department Spend
Sales to Engineering Ratio Year Since Founding 1 2 3 4 5 6 7 Median Revenue in $M 3 4 11 25 55 70 98 Sales : Eng Ratio 1.5 3.5 2.0 1.7 1.9 2.4 2.1 Sample Size 1 1 5 9 12 16 18
Capitalization
Evolution of SaaS Fund Raising IPO Cohort Median VC$ Raised Median # of Rounds Median Round Size $M Median IPO Size 1998 42 2.5 17 97 2002 71 3.0 24 86 2006 66 4.0 16 122 2010 101 4.5 22 137
Sales
Sales Efficiency in Year Five Ticker Gross Profit in $M Sales Efficiency ACV VEEV 72.5 3.3 780,000 XERO 2.6 1.9 195 WDAY 40.5 1.7 512,615 DWRE 5.9 1.7 122,294 ZEN 25.0 1.4 1,800
How to Construct Quota Deal Velocity per Month 1 2 3 4 5 6 7 8 1 12 24 36 48 60 72 84 96 5 60 120 180 240 300 360 420 480 ACV in $K 10 120 240 360 480 600 720 840 960 20 240 480 720 960 1,200 1,440 1,680 1,920 50 600 1,200 1,800 2,400 3,000 3,600 4,200 4,800 100 1,200 2,400 3,600 4,800 6,000 7,200 8,400 9,600
Quotas Inside Sales 250k 500k 750k Outside Sales 750k 1.2M 2.0M
Lead to Close Conversion Rates Freemium 2% 3% 4% Inside Sales 15% 20% 30%
Customer Success Maximizing your negative churn
3,000,000 2,250,000 1,500,000 750,000 0 Churn’s Impact on Revenue Growth 4% 2% 0% -2% -4% 1 8 15 22 MRR in $ Months
Sales and Marketing Spend Required to Double 8.5 5.8 Revenue 3.8 2.2 0.9 4% 2% 0% -2% -4%
$ 2-and-Out Customer 0 15 24 36 months in customer life MRR Cost of Customer Acquisition + Cost to Serve Contribution
$ Renewed Customer, with Customer Success Investment 0 15 24 36 months in customer life MRR Cost of Customer Acquisition + Cost to Serve CS Contri-bution Contribution 21
$ Churned Customer, Despite Customer Success Efforts 0 15 24 36 months in customer life MRR Cost of Customer Acquisition + Cost to Serve CS Contri-bution 21
How much? Expected Value = Save Rate x Value of Extension EV = 30% * 12 months * 83 = $298 About 30% of ACV An existing customer is much less expensive to retain than to acquire a new customer
Thank you Tomasz Tunguz Redpoint Ventures tomtunguz.com

Remarques

Let me give you a little bit of background on red point.

We invest in every part of technology stack, from consumer applications like secret to enterprise software like zuora and mapr, to developer services like stripe and twilio, and infrastructure companies like pure storage

We have 11 partners and most of them are based in California. We have a team in China that is invested in some of the largest companies there. And we have a team in the fund in Brazil who cover South America for us.

We also have the notable distinction of being the only venture capital firm in the world with two former ATMs on staff, Jamie Davidson (YouTube and I)

Blog extensively at tomtunguz.com
Data driven analysis

Let’s first set some context about the environment
It’s a bull market

B of USD entering the venture market
black line is the post dot com median
2014 will be the fourth largest in 14 years

In terms of dollars deployed, invested into companies, 2014 is on track to exceed $40B, making it the second largest year since the dot com era

This dollars have been raised by many new firms, particularly institutional seed stage

All that capital is increasing the amount of capital deployed per investment in the US. Median across A, B, C.

Meanwhile in the publlic markets, there’s a bit of a different story.
NTM revenue to market

2.2B market cap - 3x in 2004 and 6X in 2005

Split it by high growth WorkDay, Splunk, ZenDesk, DemandWare, LinkedIn
tale of two markets
relative stability of the standard markets, much greater variance in the high growth companies, still trading at 12x, which is similar to private market multiples, particularly in the growth stage.

Median publicly traded SaaS company achieves $11M by third year, reaching about $64M in year six, the year before IPO. After that, growth tends to slow.

Looking at the data at a bit more granular level. Each point represents a year for a SaaS company.
At the beginning, SaaS companies are growing close to 200% per year, and that number begins to taper reaching about 100% by year five and then 50% by year seven.

Let’s break this out by segment: SMB is < $10k acv; mid market is < $100k ACV;

http://tomtunguz.com/segmenting-saas-growth/

http://tomtunguz.com/fundraising-history-saas-publics/

Median is 70M
The number of rounds of financing each company raises before IPO has nearly doubled from 2.5 to 4.5, i.e. Series B/C to Series D/E. These figures exclude seeds, which I’ve defined as rounds less than $1.5M.

Inflation adjusted in 2014 dollars
$32M on the balance sheet at IPO time, spent $69 during the seven years

This is list of publicly traded saaS companies by acv at time of IPO
Huge range
Median is $30k

Amazingly, sales efficiency isn't actually tied to ACV. These are the top five most efficient sales organizations.

Huge variance in sales efficiency

Here’s the data broken down by segment and shown over time.

Monotonically decreasing
No statistically significant difference among the companies
Early on, sales efficiency should be close to one and then ideally plateau to 0.8, which is the median
The median SaaS company selling a $1M product declines from a sales efficiency of 1.7 to 0.9 in about 6 years, a 47% drop. In contrast, the $50k ACV median falls 9%.

Quotas
What sizes of quotas do we typically see
Function of acv and deal velocity; we’ll get into that in a second

Benchmarking SaaS Companies

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Benchmarking SaaS Companies

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