The SaaS Valuation Environment in Mid-2019


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Every six months or so, I take a look at how the public markets are valuing next-generation software companies. There’s been quite a bit of volatility over the last five years, and this update is no exception. As of mid-June, the public markets value software companies at all-time highs.

The chart above shows the total enterprise value (TEV)/forward revenue multiple for the basket of public software companies. Just a quick reminder on these metrics. Enterprise value equals market capitalization plus debt minus cash and short-term equivalents. Forward revenue is the sum of the projected revenues over the next 12 months.

The blue line the chart is the median over the period which is approximately 5.7x. The red line shows the median across the stocks in that particular month. In 2014, the median touched 7.7x forward before falling by about 60% to 3.3x two years later. Since then,

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Mattermost’s $50M Series B


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Just a few months ago, we partnered with Mattermost and led the Series A. We believe that open source applications will be an important part of the future of software because of their security, lower costs of customer acquisition and the flexibility they offer customers.

Today, Mattermost is announcing a $50M Series A from Y Combinator Continuity and Battery. I’m thrilled to partner with Ali Rowghani from YCombinator and Neeraj Agarwal from Battery for the next leg of the journey. They both share the same vision of open source application software changing the enterprise landscape.

Customer after customer connects Mattermost to their most important systems. Often, these systems invisible to the Internet. Security operations teams create air-gapped networks for incident response, operations teams developing workflows to fetch logs from different systems to remediate outages, and IT teams developing powerful workflows to automate inbound support tickets from their users – all Continue reading “Mattermost’s $50M Series B”

Redpoint SaaS Startup Key Metrics Template


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Over the last decade or so, I’ve compiled a metrics sheet to summarise a SaaS business. While no living document like this is ever perfect, this is currently the best board-level summary of the overall health of a business I have found. I’m sharing it so that others may benefit and improve it. If you have suggestions, please email me.

Redpoint SaaS Metrics Template

The template is broken into six sections: People, Bookings & Revenue, Cash, Sales, Marketing, Customer Success.

People is the first section because people are a startup’s most important element. This section covers employee satisfaction, headcount, and recruiting metrics. Indicators of challenges include a spike of non-regretted attrition or a decreasing employee satisfaction score.

Bookings and Revenue illuminates the company’s performance in closing new business (bookings) and recurring revenue. These are pretty straightforward. The company eating plan or

Cash works through the cash balance, burn and implied Continue reading “Redpoint SaaS Startup Key Metrics Template”

Office Hours with Guillaume Cabane on June 27


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Next week, on the 27th of June, Redpoint will host Office Hours with Guillaume Cabane. Guillaume is an exceptional marketer. He built the highly successful growth practices at Segment and Drift. He stands out because of his persistence at the cutting edge. I remember when he told me of how he used the Clearbit Reveal API to change the content of conversations in Drift pop-ups to meaningfully improve conversion. He’s always at the vanguard of using technology to drive awareness and demand for SaaS products.

Typically, Office Hours are hour long fireside chats with a speaker. We host them at our office in San Francisco and we gather questions from a small audience of about 30-40 people in a closed door format.

This time, we’re trying a new format. Over the course of two hours, we’ll invite four startups to conduct one-on-one office hours for 30 minutes with Guillaume and Continue reading “Office Hours with Guillaume Cabane on June 27”

Setting the Salesforce/Tableau Acquisition in Context


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Yesterday, Salesforce announced it would acquire Tableau for $15.7B. Tableau sells data visualization software and the team has built an incredible business. We analyzed the S-1 in 2014. The company has grown since its public offering to generate about $1.1B in revenue, growing at 29%. Let’s put this acquisition in context.

First, it’s the third business intelligence related acquisition in the past month. Google announced the Looker acquisition last week. SiSense acquired Periscope Data. And now Salesforce is merging with Tableau. This wave of consolidation in the BI world suggests this is a key area of competition amongst the biggest software companies in the world over the next decade. Collectively, these acquirers have spent $18.4B on these three businesses.

Second, the Salesforce/Tableau acquisition is the third largest software acquisition since 2012, second to Microsoft acquiring LinkedIn and IBM purchasing RedHat.

Third, Salesforce paid 8.4x trailing (or

Continue reading “Setting the Salesforce/Tableau Acquisition in Context”

Why Product Innovation Slows After the Series A


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You’ve found product market fit. You’ve hired a team, including some managers. Your initial, small customer base is very happy. You’ve discovered an initial channel of customer acquisition that’s working. You’ve raised a meaningful round of capital. And then, right then, product innovation decelerates to zero.

The fast pace that characterized the past 12-18 months, when you would germinate an idea and write the code in less than a few days, has evaporated. Suddenly, the product and engineering teams are bogged down. Every innovation requires a Herculean effort to achieve.

Why? Why does this fact pattern evolve in many software companies? Here are the most common reasons I’ve seen.

First, technical debt. The freewheeling, hedonistic days of idea to instantiation in an instant are over. They’ve left you with the hangover of technical debt.

Architectural issues arise that the team didn’t anticipate when you were building features for a single Continue reading “Why Product Innovation Slows After the Series A”

Looker Joins Google Cloud


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Today, Looker is announcing they are joining Google Cloud. During the past seven years, Looker has evolved to become the business intelligence platform for the modern business, that sits atop the next-generation data warehouses like BigQuery, Snowflake and RedShift.

Throughout the journey, the long term vision has always remained the same: to become the single data layer across an enterprise. And over the last seven years, Looker has taken the first big steps to seeing it through by working with hundreds of customers to empower them with data.

More than building an enduring business, Looker is a company with a big heart. The culture that Lloyd and Frank imbued into the business sets it apart, and it’s an inspiration to see how they’ve built Looker into an enduring business starting with strong values.

The combination of Looker and Google’s Cloud Platform is another important step to fulfilling Looker’s vision and Continue reading “Looker Joins Google Cloud”

As Your Sales Team Scales, Focus on Your Middle


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Imagine a hypothetical startup with 10 account executives that is growing quickly. This startup has two AEs that outperform meaningfully, six that are at typical quota attainment, and two that are underperforming. Where should your sales enablement team focus their time?

This is the team’s performance last year. They generated 8.6M in bookings on 10M in quota capacity (which is really good). Most teams aim for 70-75% attainment.

If the sales enablement teams had focus on the top quartile AEs and improve their performance by 20%, the company would have booked $9.3M. The distribution looks like this.

The two top reps jump from $3.5m to $4.2m in bookings. Nice result. How does it compare to an alternative of improving the middle two quartiles’ performance by 20%?

In this case, bookings grows to $9.5M, a 10% improvement over the baseline and a more modest 2% improvement Continue reading “As Your Sales Team Scales, Focus on Your Middle”

The Benefits of and Questions Facing Remote and Distributed Startups


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In 2013, Scott Berkun authored a book called The Year Without Pants. Scott shared his experience working remotely for WordPress. After I read the book, I wrote:

In the coming years, video conferencing and online meetings will become much more prevalent as stories like the ones Scott shares are told and retold. If you’re looking to understand how a fully distributed team used chat and video conferencing to build a world changing product, reading The Year Without Pants is a great way to answer those questions.

Six years later, it’s become a norm with a few different flavors.

There are examples of fully distributed companies. WordPress was among the earliest. Invision, Buffer and Gitlab are three others. This is a corporate structure where team members rarely come into the office and work through the internet.

There are examples of semi-distributed companies. Hashicorp and Mattermost staff their GTM functions in Continue reading “The Benefits of and Questions Facing Remote and Distributed Startups”

Before You Raise a Round of Funding, Ask Yourself This Question


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Before you raise your next round, ask yourself this question. Are there any key people you need to hire? Essential executives, critical engineers, important managers or anyone else? Your common stock value, or 409a valuation will increase the second you receive a term sheet. And the strike price of any new options will increase with the 409a valuation.

Let’s take a step back. When you hire someone, you’ll grant them a salary and options. An option is the right to buy shares of the business at some future point in time. The strike price of the option is equal to the value of the common stock, which is set by the company’s board periodically, based on a report by an independent appraiser, the 409a valuation.

During the early stages of a company, the board typically ratifies an updated 409a valuation annually. As the company grows and approaches an IPO, the Continue reading “Before You Raise a Round of Funding, Ask Yourself This Question”

Define the What But Delegate the How


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As we grow in our careers, we first become individual contributors, then managers of individuals, and then managers of managers. That transition is a tough one, and one that comes very quickly in startups. A bit flips and a leader must begin to delegate. Delegation is the only way a leader of a team or company develops leverage in the organization.

A good friend told me about a Vanity Fair interview with former President Obama.

When asked about the stress of his days, he replied:

But if you happen to be president just now, what you are faced with, mainly, is not a public-relations problem but an endless string of decisions. Putting it the way George W. Bush did sounded silly but he was right: the president is a decider.

Many if not most of his decisions are thrust upon the president, out of the blue, by events beyond his Continue reading “Define the What But Delegate the How”

The Fundraising Environment in 2019 – Three Major Shifts


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In a recent meeting, a founder asked me what I thought of the fundraising environment. My answer was: it’s become incredibly sophisticated along three dimensions: diversity of product offering, pricing sophistication, and efficiency of investment processes.

If you read eBoys or Done Deals or Creative Capital, you’ll get a sense of the early days of the venture industry. It started out with six men at a famous restaurant in San Francisco hearing pitches over lunch. None of them could afford to lead the entire round, so they would syndicate and take turns on the board. That was the “industry.”

Today, we’re a far cry from a Sancerre and oysters lunch. Last year, startups raised the most capital in history, even adjusting for inflation.

Founders have at least five flavors of seed: friends & family, angel, pre-seed, seed, and post-seed. Founders can go it alone or partner with incubators and Continue reading “The Fundraising Environment in 2019 – Three Major Shifts”

How to Develop Best in Class Sales Efficiency


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A public market investors asked me if there are any patterns in the list of recent software IPOs with the best sales efficiencies. As I looked through the list, I noticed one.

All of these businesses sell bottom up with small initial ACVs that grow dramatically. Atlassian, Zoom, Twilio, Slack, New Relic, Elastic. All of them target small groups of users within larger organization who introduce the vendor. Over time, usage grows, accounts expand. Some acquire through open source, others through virality (Zoom).

And since expanding an existing customer costs significantly less than acquiring a new one, these expansion dollars require far fewer (and potentially zero) sales and marketing investment. If a majority of bookings come from expansion, then the business develops an incredible sales efficiency.

Let’s walk through an example. Imagine a $100M ARR business growing at 50% annually. Suppose the business generates 130% in net dollar retention (NDR).

Continue reading “How to Develop Best in Class Sales Efficiency”

What a Valuation Implies About a Business


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As I looked through the list of public SaaS companies this morning, I read their forward multiples. ZScaler: 23.1x; Okta: 21.8x; Veeva: 18.8x; Coupa: 18.6x; Shopify: 17.0x. Those multiples are calculated by dividing the projected future revenue of the company by its enterprise value today. But what do they mean? What do they imply?

First, we need to set some context. There are two kinds of companies: those valued on growth and those valued on profits. All of the companies mentioned above and the vast majority of startups are valued on growth. That’s because most of the value creation of the business is yet to occur. Companies valued on profits typically grow at rates of -15% to 15% annually are likely to be valued on profits, typically EBITDA.

Since high growth companies are valued for their future potential rather that current profits, growth rate is Continue reading “What a Valuation Implies About a Business”

Benchmarking Slack’s S-1: How 7 Key Metrics Stack Up


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Slack has transformed the way we work. By replacing email with beautiful and simple internal chat, Slack has productized productivity. Founded as a gaming company called Tiny Speck in 2009, the company’s initial product, Glitch, didn’t catch on as expected. So the business pivoted to commercialize an internal tool – a Searchable Log of All Conversation and Knowledge, Slack. Since those early days, the company has grown to employ 1500 employees according to their S-1. The company filed to trade under the ticker SK.

Let’s examine this remarkable company and compare it to Zoom, another recent IPO in enterprise collaboration. Also, we’ll compare metrics to a peer group with similar ACVs.

Slack generated $105m in revenue in 2017, $221m in 2018 and $401m in 2019. Note these years are fiscal years, not calendar years. Slack, like many others, uses a fiscal year that ends

Continue reading “Benchmarking Slack’s S-1: How 7 Key Metrics Stack Up”

A Random Walk Down Sand Hill Road


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Bernie Munger is famous for championing the idea of mental models. Mental models help us think about the world by simplifying very complex topics into more digestible and tractable ideas. The challenge with mental models is first learning about them and second figuring out which model applies when.

We use mental models in our daily lives. The 8020 rule is the Pareto Principle. Focus on the stuff that will yield 80% of the result with 20% of the work.

Scott Page’s The Model Thinker is a deeper dive into the theory of mental models and the math behind them. Page is a professor at the University of Michigan, and his book explores mental models in a wonderful way. Two of those explanations have stuck with me.

The first is about random walks. Imagine ten startups (or venture firms) competing. Assume they have an identical journey and equal odds

Continue reading “A Random Walk Down Sand Hill Road”

Office Hours with Travis Bryant


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It’s time to start SaaS Office Hours again! Starting on May 14, I’ll be hosting a monthly event from the Redpoint San Francisco offices called SaaS Office Hours. During these two hours, we will discuss the tactical issues and questions facing seed and Series A SaaS companies in a small group. That’s why we call them Office Hours. We’ve done them in the past and they’ve been a great success.

Rather than deliver presentations, SaaS Office Hours are meant to be casual, tactical and collaborative. Sometimes, we’ll invite guests for off-the-cuff conversations and Q&A focused on focused questions like how should I build my startup’s marketing team? How can I evangelize my product to developers? How do I create the right kind of recruiting process?

In the past, we’ve welcomed guests Pete Koomen (founder of Optimizely), Kenny van Zant (architect of the flywheel GTM), Bill Macaitis (CMO at Zendesk and Continue reading “Office Hours with Travis Bryant”

The Four Strategic Questions Facing AI Agencies


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Since writing The AI Agency: A Novel GTM for Machine Learning Startups, I’ve been meeting many companies who operate this way. These startups use machine learning to disrupt an industry traditionally dominated by agencies: law, accounting, recruiting, translation, debt collection, marketing…the list is long. I will publish a landscape soon on the area. If you’re operating an AI Agency, I’d love to hear from you.

In meeting many of these innovative businesses, I’ve observed they face four strategic questions.

First, to sell to the agency or to be the agency? This is an early strategic question, perhaps the first strategic question an AI Agency will face. Many startups start out selling to agencies and then run into a wall.

Classic agencies don’t value the software enough to engender pricing power, develop fast sales cycles, or change the operations of their business to maximize the value of the ML innovation. Continue reading “The Four Strategic Questions Facing AI Agencies”

Hustle As Strategy


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In a world where there are no secrets, where innovations are quickly imitated or become obsolete, the theory of competitive advantage may have had its day. Realistically, ask yourself, If all your competitors gave their strategic plans to each other, would it really make a difference?

In 1986, Amar Bhide wrote “Hustle as Strategy” for the Harvard Business Review. At the time, he was an assistant professor at HBS. He examined the dynamics within the financial services market. Why was Goldman Sachs earning so much in profits relative to its peers? It’s not a powerful new strategy that a new leader infuses into the organization. Instead, it’s about focus and hustle.

Opportunities to gain lasting advantage through blockbuster strategic moves are rare in any business. What mostly counts are vigor and nimbleness.

Finance, like many other industries, and many software segments, sells a commodity. What differentiates the best Continue reading “Hustle As Strategy”

Viewing Valuation as a Discount of Future Value


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Why does growth rate matter so much? Why does growth rate influence valuation so much? I was reading a book recently written by a hedge fund manager who discussed valuation frameworks. His explanation was one of the best I’ve come across.

If your business is growing at 100% next year, then 90% the year after, and then about 80% the year after, the business will have grown by 3.4x. That’s the way I’ve always looked at company.

But this hedge fund investor said it a different way: 85% of the value of the business will be created in the next 3 years. At 10% growth, the company’s value today is 77% of the value in three years. The value won’t change that much. It’s already the most of the size it will be.

Same cup, same water, just a different perspective.

The chart above shows how this changes with Continue reading “Viewing Valuation as a Discount of Future Value”