What VCs look for in your SaaS unit economics and financial model
We’re currently publishing a series which aims to shine some light on the process of meeting VCs, including what goes on behind closed doors and how we evaluate companies. And separately we’re also in the process of updating the info pack which we send to new companies we meet — with a bit of background on our fund, how we work, and what we look for.
An important part of our evaluation of a company is digging into their financials and economics. However, we often find there is very little consistency in how financial data, cohorts and metrics are recorded and tracked, and in how companies use these to forecast growth.
We therefore pulled together the template below in the hope that it can be used as a guide for what we look for when evaluating a company, and also be a useful tool for management teams to help in their own forecasting and cohort analysis.
👉👉👉 Find the link to download the template here👈👈👈
This template walks you through what we want to see and how management teams should calculate their unit economics. It includes:
1. Output
Three main outputs we expect to see:
- 🔬Historical P&L —this should be a monthly P&L, essentially a version of your management accounts, for the last year (or however long you have). Note: Companies should split out salaries by function so they can accurately bucket them into COGS, CAC & Overhead people cost.
- 🚀Forecast P&L —all teams should have a forecast model for how they plan to grow. The core principle here is that companies should make ambitious, but realistic, estimates for revenue and cost growth based on what they’ve been able to achieve historically.
- 💰Unit Economics — most companies we meet have done some unit economics calculations, but there are often inconsistencies and discrepancies. Unit economics should be calculated based on monthly cohorts and provide you with lifetime value, CAC payback and other metrics. My colleague Joe has written previously about why LTV:CAC and CAC Payback are the two most important metrics to measure in any SaaS business.
2. Underlying Analysis
The workings behind the unit economics
- 👨👨👧👧Cohorts — monthly cohorts showing 1) number of customers over time and 2) revenue retention over time. In this sheet we’ve included example calculations on how to model customer lifetime and estimate CAC payback using these elements — which drive the unit economics above.
3. Support
- 🧪Benchmarks — contains benchmarks used in estimation of overhead spend
This model is not intended to be a comprehensive budgeting tool — but will hopefully be of some use in helping teams to use their cohort data to calculate unit economics and build a high-level forecast.
We also hope it can reduce the amount of debate and back-and-forth between investors and companies over how to track and calculate their core metrics, and as a result save everyone some time.
Please let me know if you have any questions or comments!
There is a wealth of useful resources out there for those building business plans, analysing cohorts and tracking metrics. I’ve put links to a few of them here:
- ‘The SaaS CFO’ financial plan — https://www.thesaascfo.com/saas-financial-plan/
Note: there are a variety of useful resources on this blog, and is worth a look for anyone looking to track any SaaS (or related) metrics
- Lightspeed — SaaS Operating Model — https://medium.com/lightspeed-venture-partners/introducing-the-lightspeed-saas-operating-model-69d455a968bb
- Christoph Janz — Cohort Analysis and Template — http://christophjanz.blogspot.com/2013/10/excel-template-for-cohort-analyses-in.html
- Christoph Janz — SaaS Financial Plan- http://christophjanz.blogspot.com/2016/03/saas-financial-plan-20.html
Note: again, Christoph Janz’s blog has a bunch of useful content on SaaS metrics and content
