Roughly … maybe 5% of your revenues if you are relatively “compute-lite”, and probably around 8-10% on average. Most SaaS companies aim for 80% gross margins, and at least come close. I.e., they try to spend < 20% total of all revenues on providing the service itself, including all hosting, support, an allocated portion of tech ops, and almost/all call center and similar support costs.
The 20% of costs here typically are taking up by (x) direct costs for hosting and infrastructure and (y) the human and software costs to provide support and maintain infrastructure, including salaries, benefits, bonuses and options.
The salaries and other costs in support & ops typically take up 10%+, with 5%-10% for hosting and direct infra costs.
If you are spending more than 20% of each $$ that comes in on compute even in a very compute-heavy app … your prices are simply
$3m-$4m a month.
In a large round, everyone is going to get nervous if it can’t (x) in practice last 24 months and (y) in theory, last forever. Everyone in a large round wants to believe the company, worse case, won’t have to raise again pre-IPO.
$3m-$4m a month for now, with the potential to slowly ratchet that down in a year if the plan comes up a bit short, gives you a lot of runway with $100m.
Some will spend much less, and hold onto it for a warchart. A handful will spend more ($5m+) and go for broke. It’s not uncommon for a start-up at this phase to burn $50m or even $100m a year before IPO’ing (although then, of course, you need to raise more than $100m!).
But a late stage round should last 24+ months, with a chance to stretch out far long worst-case, to Continue reading "How much of a $100 million investment would the VC expect the startup to be spending each month?"
The quickest hack I did was open up a remote phone bank / set of agents just to answer trial users’ questions.
There are many product-level things you can do. Add Intercom if you haven’t. Improve your messaging. Futz with the time period for the trial. Talk for hours about “personas”.
But the simplest thing I did that moved the needle, that I don’t see most folks do, is set up 10 agents quickly to answer the phone for free users during trials and just talk to them and answer their questions.
Most SaaS companies steer away from phone support in general, and especially for lower-end and trial prospects/customers. They think it is too much work, and too expensive. At scale it can be expensive, no doubt.
But especially if you do it outside of the Bay Area, and especially in the earlier-days, in the early days it isn’t that Continue reading "Which is your best hack to increase trial conversion in SaaS?"
The deal seems to echo the reason CEO’s do a lot of deals in changing times:
They want a quick fix to at least part of their existential problems; and
They want to buy something with scale.
Pepsi appears to be facing two large headwinds: (1) classic sugary drinks are no longer growing and (2) environmental awareness is giving a big marketing boost to less-wasteful products.
SodaStream is extremely expensive at $3.2 billion for a company with less than $200m in revenues, growing ~30% a year.
But it’s far faster, and probably better, than starting from zero. Almost overnight they’ll acquired a market-leader in lower and zero calorie, somewhat greener drinks.
Is $200m in new product revenues a total fix for Pepsi’s problems? Of course not. That’s a drop in the bucket overall for Pepsi — today. But at least it is big enough to have scale, and Continue reading "Why would PepsiCo want to buy SodaStream for $3.2 billion?"
As a founder, the biggest thing that always surprised me was the limits of due diligence.
In my first start-up, we had a very exotic, complex technology. None of the investors ever understood it.
At EchoSign, the vast majority of investors that I met with understood what we were doing at the time — but not why it was changing/creating a market.
Now I understand. It is hard, especially in today’s hyper-compressed time frames, to really understand an early or early-ish stage product and even the market.
But the VCs weren’t lazy. They did a great job on team diligence, prospect diligence, and customer diligence. It’s just going an extra layer deeper on diligence was what I expected before getting a seven-figure check. But in the reality — not so much.
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I want to spend a lot of time in the coming year on SaaStr on Customer Marketing. While the concept may sound old hat to those that have been in the software business for a long time, in SaaS in particular, very little tools, processes, and software are applied to marketing to customers after they are closed.
Over the last 5 years, we’ve all started to turn Customer Success into a science and a key discipline in SaaS. But Customer Success in many ways has been defined as an extension of Sales. Sales closes, and hands off to CS. While that’s chronologically accurate in most cases, really CS’s cousin should be Customer Marketing. If you do it right, you can keep your customers for 10+ years. Or even longer. And like retention, a marketing journey should also begin again once a customer closes.
Customer Continue reading "How to Invest in Customer Marketing: The 10+10 Framework"
For me, so far, it’s been 2.
Two deals I thought I really wanted to do, that were just about at term sheet stage, but then as we dug deep in diligence, enough flags came up that were inconsistent with what we thought that the deal didn’t work out. Not just one flag, but a bunch.
Looking back, though, both these starts-up are doing/did really well! One was already acquired for nine figures, the other is at $50m+ ARR today.
Let me compare that to the top 2 deals I’ve made/done that simply didn’t really work out. In those cases, the due diligence was fine. The customers loved the product, the CEO strongly referenced, technology checked out, etc. All boxes checked. But what happened there was I lowered the quality bar a smidge. Not a ton, but a smidge. In one case, I stretched the definition of recurring Continue reading "How many startup investments are not made due to due diligence results?"
As we gear up for the 5th SaaStr Annual, with an expected 12,000+ attendees, 100+ top tier sponsors, and 3+ days of content across 5+1 stages (phew!), I was looking back for our team meeting and trying to assemble what we’ve learned, and found this first tweet from almost exactly 4 years ago:
Waaay back in 2014, the type of content at SaaStr.com, on Quora, and at our events was still novel. Fast forward to day, and there is an amazing amount of B2B-centric content out there, and many others have put together amazing events around the hard-learned lessons of scaling revenue and scaling SaaS companies. But all this was pretty novel back in 2014. No one in the “next generation” had IPO’d yet (Aaron Levie came to the first SaaStr Annual a little more than a week after Box’s IPO), Unicorn rounds were