Notes from #SaaStrAnnual 16' — Day 2
Had a lot of fun yesterday, if you want to check day 1 summary, click here. Here’s my notes for Day 2.
Bubble? What Bubble? How It’s Different This Time. And How It Most Certainly Isn’t — Jason Lemkin & Mark Suster
Key insight: In SaaS? It’s time to cut costs, and focus on responsible growth. Not a good time to grow at all costs.
- There’s a lot of VC money out there and the majority of the money in VC is going to late stage;
- 55% of money in the system does not come from VC;
- VC’s are accumulating investments, but not having returns. M&A activity is not up. This is the first january in a decado with zero IPO’s;
- Median valuation went up 3X in 2 years, but seems to be corrected in Q4 (trend ??);
- 61% of VCs believe valuations are going down in 16';
- Companies are moving towards cost cutting, burn rate reduction and profitability;
- Not a lot of “FOMO” (fear of missing out) in Silicon Valley anymore. VC’s do not feel the rush to close, and the pace is slowing down. 70% of investors surveyed said their investments have slowed down. They’ll still invest… but not as quickly.
- Companies aren’t talking about it, but they’re cutting costs.
- ABR. Always. Be. Raising.
What’s Happening in the Markets: The Real Data — Danielle Morril
Key insights: Raise now OR cut burn and get profitable.
- In 10 years: 3x more startups getting funded, 6x more capital deployed;
- We started 15' at fastest pace of VC deployment in the last 10 years, in 16'things slowed down to 14' levels (23%);
- Private funding levels reacted strongly to public markets. Funding announcements lag 1–3 months. Raise now!
- Seed Stage companies: Medium deal is at U$1.8M now;
- Series A companies: Going up, right now around U$9.8M;
- Series A deals are getting done at decent prices, but there’s more competition than before;
- Series B rounds: Going up, right now at U$24m. Also getting more competitive;
- Early stage investors are doing inside rounds in their hottest companies.
- Cutting costs is a great Plan B right now;
- Keep calm, read Saastr, raise now!
The Insider’s Guide to Becoming a Pre-nicorn — Ben Uretsky, Eogahn McCabe, Tiago Paiva
Digital Ocean: Developer focused, easy to use cloud services
Key insight: Get organic penetration in the enterprise. CTO is not in charge anymore, developers are.
- Second company, got first one to U$6m arr, 20 employees;
- Started with the problem: How do you position, and differentiate a business;
- Focus on developers: The smaller the market segment that you attack, the greater your likelihood of success;
- Rackspace owned the “great support” message;
- At Digital Ocean, we focus on the developer and the best user experience;
- Digital Ocean is the simplest way to run your cloud. It lets you get your app running fast;
- It’s like stripe for cloud services, it’s just beautiful;
- Site is great, product is great, people just love it. Quoting Simon Sinek Start with a why;
- Getting to 9 digits revenues;
- 3 VC rounds ( 1st round U$3m from IA Ventures, 2nd round U$37m from AH, 3rd 83M from Access Industries);
- The VC’s that believe the vision and experience are the ones that invested;
- Started with a product that sold itself, always focusing in self service. It was getting on average 1000 new customers a day. Right now they are building the first sales team;
- Biggest challenge was evolving as a leader. Getting to 200 employees company;
Intercom: A360 view of the customer, marketing, support, crm solution.
Key insight: Product first companies are a new trend. Product is great. Leads are almost free;
- U$66M raised;
- 50% of customers are abroad;
- 30 days sales cycle;
- >50% of customers are touchless;
- Bringing 10’s of millions in ARR;
- 3k ACV;
- Super high volume, reps brings more than 15 deals per month. High activity;
- Timing: Zendesk and Marketo laid the path for companies like Intercom;
- Intercom was a better solution for real problems. The product itself was contrastant with the market solutions;
- Selling to developers and product people;
- In the new world, our customer approach sales people and says “I wanna buy”;
Talkdesk: Easy to use Call center technology
Key insight: Keep going upmarket, step by step. Lead SMB, go to Mid, lead Mid, go Enterprise.
- Growing 20% MoM;
- Bringing 10’s of millions in ARR;
- From 15 to 200 employees in 1 year;
- Last year was at U$4m arr;
- 1y paid upfront brings cash advantages and small dilutions;
- Got to U$1m arr on a U$500k investment;
- Biggest change in last 18 months: Transitioning from SMB to mid market & enterprise;
- Sales now at 45 headcount;
- Expecting 125 in 12 months;
- Our SMB customers took us upmarket. They grow and keep adding people. We have to adapt to serve them;
- Great integrations and ease of use were the differentials to win modern buyers;
- Drove price point up, 4–5X in 2 years, by adding more functionality. Competitors were complex and expensive, as they closed their feature gaps, they could leverage “new features” to upsell and go upmarket;
The Real Story Behind Mergers, Acquisitions & Corporate VC — John Somorjai
Key insight: Salesforce is both #1 VC and acquirer in SaaS.
- SF started investing strategically in partners in the SF app ecosystem in 2009;
- 6 people team;
- Sample great investments: Docusign, Hubspot;
- Every investment requires a executive sponsor from a business unit.Make financial sense;
- 3 people in investment comitee. We’re fast;
- 50% investment pipeline split between ventures team / business unit sponsor;
- Lots of intros from VC community;
- Doing 10–15 investments per quarter (new investments & follow ons combined);
- 150 active companies in portfolio. 50% are A rounds, 30% are B rounds;
- SF does not take board seats;
- SF Ventures is a good fit is SF brand and customer base are potential assets for you. Ventures goal is to help companies navigate SF ecosystem;
- Invests of the balance sheet, so everything is disclosed;
- Ask for notification rights. You have to disclose to SF before selling;
- Encouraging companies to get burn rates down and get on the path to profitability;
- But if you have low churn, there is no reason not to invest in sales growth;
- Does not invest before U$3M in ARR. If you just got into the app store, it’s too early.
M&A at Salesforce
- 8 people team;
- You have to date before getting married;
- You have to have an exit strategy. Most good companies will end in M&A.
- Executive relations are crucial for getting shot at being acquired;
- There are 1000 cool companies @SalesForce could buy for every 1 that it does.
Big Arse Companies: Why They Buy from Startups — The Real Stories — Jonathan Lehr, Tom Carroll, Joyce Shen, Scarlett Sieber
Key insight: Yes, big cos buy from startups. Be pragmatic, understand their priorities, and go straight to the point.
- Startups are more nimble and give big cos an opportunity to be at cutting edge in tech;
- Corporate buy from startups by getting close to accelerators, meet ups, being part of ecosystem;
- As as startup sales rep, keep it to the point, give context, make a relevant approach and understand the industry;
- Be specific. State how you can help, how you differentiate. Figure out early who should you talk to and tailor your message. 3 sentences email. Don’t start with with a 6 paragraph email. Do not send a template email;
- Do not assume early that they will be a distribution center before helping them. Do your homework before showing up, do not show up like an idiot.
- Connect on Linkedin & Twitter. Social works on the enterprise too;
- We’re not interested in knowing what big data is. Show me the value chain!
- Have an evangelist. Ask what’s going on. Understand the decision chain. Ask for help;
- They look for product, customer proofs/testimonials.
Benchmarking Your Startup — Tomasz Tunguz, Connie Loizos
Key insight: Only 2% of software is in the cloud. We’re still in the SaaS early days. But just being SaaS, staying in the cloud is not enough anymore;
- Redpoint focuses on A rounds;
- 3.8B managed, 400+ active investments;
- Successes include: Stripe, Zendesk, Expensify, Twilio, Heroku;
- Tom analyzed 60 SaaS companies and brought some benchmarks for SaaS startups for their A rounds;
- Average A size round: U$9.3M in 15', growing from U$8.5M in 14' ;
- Average A round MRR: U$163K, but 27% of Series As Generate $0MRR;
- 16' is a year of change. Markets have changed.
- Seed investors have grown 5X in 5 years;
- Public investors value SaaS in revenue multiples. Right now the average is 3.3X revenues;
- Content marketing and email retargeting keep growing fast and proving themselves as cost effective acquisition strategies;
- Channel partnerships are becoming an effective SaaS distribution strategy;
- 2 Big forces in SaaS will bring a new SaaS wave: Machine learning, conversational, chat interfaces;
- Mobile brings a new distribution paradigm. Expensify cracked mobile distribution, people download the app and get their financial team to switch platforms. This has being a really powerful tool for growth. You get social proof in the organization. Unlike SEO, expensive and competitive, you can still get app installs for cheap;
Driving SaaS Success Using Key Metrics — David Skok, Alex Konrad
Key insight: The thing that surprises many investors and boards of directors about the SaaS model is that, even with perfect execution, an acceleration of growth will often be accompanied by a squeeze on profitability and cash flow. — Ron Gill, Netsuite CFO
- SaaS is a machine. Several levers, metrics that you should care and want to optimize.
- What we care about the most? 3 fundamentals are: 1) Growth, 2) Profitability, 3) Cash;
- First, make sure we understand the SaaS cash flow. (more here: http://www.forentrepreneurs.com/saas-metrics-2/ );
- Then understand unit economics (see previous article);
- The golden LTV > 3xCAC formula is alive and still applies 7 years later;
- Use variable, multi axis pricing. Axis 1: Product tiers (basic, pro, enterprise). Axis 2: Users (per seat, per storage, per leads, etc…). Don’’ panic about it too early.
- For cash, always think about “months to recover CAC”. Drive this number down to build a great SaaS business. Months to recover CAC must be less than 12 months;
- More on CAC: Understand Sales Complexity, and model acordingly. CAC growth by model is not linear, it’s logaritmic. Remove complexity. Adding humans is umbelievably expensive.
- Primary unit of growth is adding salespeople. Understand a “salesperson” cash flow and its unit economics. The average salesperson takes 23 months in ramping and costs up to U$110k to become profitable.
- Interesting benchmark: According to Skok OTE (on target earnings) should be around 5X quota (I don’t see this close to being a reallity in brazil);
PS: If you’’e from Brazil (just like me), some time ago I translated SaaS Metrics 2.0 to portuguese => http://webholic.com.br/traducao-metricas-saas-2-0-o-guia-definitivo/
10 Laws of Building a Unicorn — Byron Deeter, Alex Konrad
Key insight: Follow the 1–1–1 rule. Less than 1X new ARR in burn, Less than 1% churn, Less than a year to recover CAC;
- Law #10: Be on Demand. Everything is on Demand these days. People expect on demand;
- Law #9: Grow or Die. Every 10% more in growth, 1x more in multiple;
- Law #8: Sales efficiency is oxygen. You can live some days without water or food. Oxygen, 8 minutes means you’re braind dead. Sales efficiency reduces dilution;
- Law #7: Customer Success is key. 1% improvement in churn means way better revenues and valuations;
- Law $6: Control your destiny. Cash is King. Cost of capital is rising right now;
- Law #5: know the 5c’s of cloud. CARR, CAC PAYBACK, CHURN, CLTV, lost the last 1 (am i doomed?).
- Law #4: The best product is starting to win;
- Law #3: Developers are becoming the customer and decision maker. There are 20M developers in the world. Use API’s to accelerate the business;
- Law #2: Inspire. Have a vision. Hire great people, that believe in a true north;
- Law #1: Mobile is eating the world (wide web). 85% of your customers are on a smarthone. More than 50% of web usage is mobile;
Presentation can be downloaded here:
Building a Killer Company in a Nonobvious Market — Andy Wilson, Scot Chisholm, Daniel Chait, Aileen Lee
Key insight: You don’t need to be super sexy. You need to match a real demand and you’re gonna get great growth, even if it’s a nonobvious market.
- If you’re niche, it’s not easy to raise money early. The first dollar raised is the hardest.
- HR is somewhat easier. A lot of people think what we’re doing is meaningful and they actually care. You have several ways to differentiate;
- Traction is your best friend if you’re raising;
- Thought leadership is a key to succeed if you’re not mainstream. Come with a complete new concept and tell people;
Building — And Monetizing — A Partner Ecosystem — Neeracha Taychakhoonavudh, Narinder Singh, April Underwood, Ilya Fushman
Key insight: Be big enough. People will come to you.
- 20% of slack’s team works in platform;
- Platform is not to everyone;
- You need either data, or API’s to make developer’s life easy;
- Sometimes you need a service, not a platform. You can provide it as an API, and maybe not a platform;
- A platform is a huge commitment;
- You’re distribution, but they increase your adoption;
- Aim to solve a big problem. That’s the foundation;
- Bringing big partners early accelerates everything;
- Keep the partner bar high. People trust and will ask the platform;
- If the end goal of what you’re working on is just to make a specific platform better, think broader.
That’s it for today guys, see ya tomorrow for day 3. Also, if you have any idea on how to make this better, feel free to tweet at me at @dttg.