What s different about SaaS financials and how metrics drive action, profitability, and valuation

Transcription

1 Decision Making in a SaaS Business What s different about SaaS financials and how metrics drive action, profitability, and valuation Ted Marks 4/21/16 Ted.Marks@Numerify.com 1

2 NUMERIFY SaaS Analytics Platform and Application on ServiceNow, Contact Center, others Founded 2012 first revenue 2014 $37M C round in 2015 Lightspeed, Sequoia, Tenaya 2

3 IF ONLY. 3

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5 TOPICS SaaS, What and Why SaaS Financials SaaS Metrics and Unit Economics SaaS Resources 5

6 SAAS, WHAT AND WHY Software as a Service XaaS Infrastructure Platform Software Renting rather than buying Lots of flavors o Target audience: B2C B2B o Term: monthly annual multi-year o Cost: $/month $M/year o Cost factor: time usage hybrid o Hosting: internally IaaS provider 6

7 SAAS, WHAT AND WHY Advantages Disadvantages Customer Frequent, easy updates Smaller commitment / risk Flexibility (real or imagined) Lower asset base Possibility of paying more over time Ongoing dependence on vendors Vendor Predictable cash flows (Somewhat) Less pressure to close deals at Q-end Potentially faster sales cycle Potentially lower R&D costs Deep insight into customer usage Healthy valuations Deferred revenue recognition Extended period of negative cash flow Risk of churn Potentially higher cost customer success team 7

8 TOPICS SaaS, What and Why SaaS Financials SaaS Metrics and Unit Economics SaaS Resources 8

9 SAAS FINANCIALS TWO LOCAL COMPANIES WITH ~$6.5B+ REVENUE $k Fiscal Year Ended : 1/31/ /31/2015 Revenues: Subscription and support; or License 6,206 2,720 Professional services and other 462 3,927 Other - (76) Total revenues 6,667 6,571 Cost of revenues Subscription and support; or License 1, Professional services and other Total cost of revenues 1,655 1,018 Gross margin % 5,013 5,553 Gross margin % 75% 85% Operating expenses Research and development 946 1,300 Marketing and sales 3,240 2,267 General and administrative Other (37) 23 Total operating expenses 4,898 4,356 Income from operations 115 1,197 Income from operations, % 2% 18% Cash Flow Operating 1,613 1,899 Total What type of businesses? What s different / similar about their Financials? Which is worth more? Why? SFDC = $51B (on left) VMW = $22B (on right) 9

10 SAAS FINANCIALS OPEX SAAS VS SOFTWARE 75% of Revenue Relative scale disadvantage 43% of Revenue Source: Intaact 10

11 SAAS FINANCIALS COGS, SOME DATAPOINTS Source: Intaact 11

12 SAAS METRICS AND UNIT ECONOMICS What s WDAY worth? $7.7B after October 2012 IPO and $14.7 today Scott Kupor and Preethi Kasireddy Andreesen Horowitz

13 SAAS FINANCIALS SOME TOP VALUATIONS Posted on TechCrunch Aug 29, 2015 by Neeraj Agrawal Logan Bartlett 13

14 TOPICS SaaS, What and Why SaaS vs Software SaaS Metrics and Unit Economics SaaS Resources 14

15 SAAS METRICS AND UNIT ECONOMICS KEY PERFORMANCE METRICS Not GAAP Measuring Bookings: ACV ARR or MRR Expansion vs Churn Unit Economics Life time value (LTV) Cost of Customer Acquisition (CAC) CAC / LTV 15

16 SAAS METRICS AND UNIT ECONOMICS ANNUAL CONTRACT VALUE OR MRR Source: David Skok

17 SAAS METRICS AND UNIT ECONOMICS MRR BUILDUP What s suboptimal here? Ideally Net New MRR > New MRR Source: David Skok

18 SAAS METRICS AND UNIT ECONOMICS IS THE BUSINESS GOING TO BE PROFITABLE? LTV LifeTime Value of a customer CAC Cost to Acquire a Customer If ARPA = $1 M with 50% gross margin and 10% churn rate Then LTV = $5M If Sales and Marketing costs in a quarter = $3M and 2 customers are won. Then CAC = $1.5M LTV / CAC = 3.3 Months to recover CAC = ($1.5M / $0.5M per year) x 12 months per year = 36 months Source: David Skok

19 SAAS METRICS AND UNIT ECONOMICS CASH VS TIME TO RECOVER CAC Decisions - customer segments - lead sources - GTM All typical Marketing metrics apply (e.g. leads, opportunies) Source: David Skok

20 SAAS METRICS AND UNIT ECONOMICS CAC EXAMPLE 1 OF 2 What looks like a problem? CAC is increasing y/y Scott Kupor and Preethi Kasireddy Andreesen Horowitz

21 SAAS METRICS AND UNIT ECONOMICS CAC EXAMPLE 2 OF 2 Increasing CAC ok if other factors trend to the positive (e.g. ARPA, churn) Scott Kupor and Preethi Kasireddy Andreesen Horowitz -- with modifications 21

22 SAAS METRICS AND UNIT ECONOMICS CHURN IMPACT Each customer starts with $6k/month and grows or shrinks as noted 3x Bookings in positive churn example Source: David Skok

23 SAAS METRICS AND UNIT ECONOMICS DESIRED TRENDS SHOWN Source: David Skok

24 SAAS METRICS AND UNIT ECONOMICS CASH FLOW SINGLE CUSTOMER Source: David Skok

25 SAAS METRICS AND UNIT ECONOMICS CASH FLOW MULTIPLE CUSTOMER SCENARIOS Maximize long term, while satisfying short term constraints Expand now or later: Sufficient cash? Market readiness? Business model readiness? Source: David Skok

26 SAAS METRICS AND UNIT ECONOMICS CASH FLOW DOUBLING DOWN Source: David Skok

27 TOPICS SaaS, What and Why SaaS vs Software SaaS Metrics and Unit Economics SaaS Resources 27

28 SAAS SOURCES Tom Tunguz Redpoint Capital David Skok Matrix Partners Jason Lemkin SaaStr Pacific Crest Bessemer 28