Beyond the $10M ARR Mark: A Framework and Benchmarks To Assess Revenue Quality with Speedinvest
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1) The document introduces the Speedinvest Revenue Quality Framework for assessing the health and quality of a SaaS company's revenue beyond just the dollar amount. 2) It breaks revenue quality down into qualitative factors like customer types, contract terms, and sector concentration, as well as quantitative metrics like growth rates, retention, margins, and sales productivity. 3) No company will excel on all factors, but taking a broad view using this framework gives investors and founders a more comprehensive overview of a company's revenue health than any single metric.
Beyond the $10M ARR Mark: A Framework and Benchmarks To Assess Revenue Quality with Speedinvest
- 1. Looking Beyond the $10M ARR Mark
- 2. Looking Beyond the $10M ARR Mark: A Framework To Assess Revenue Quality
- 3. Speedinvest - who we are We are a leading European seed investor since 2011 Offices in Vienna, London, Berlin, Paris & Munich Writing initial cheque sizes of €200k - 2M Pan-European Seed Investor spread across six sector- focused teams: 40 investment pros - Marketplaces & Consumer - SaaS - Fintech - Digital Health - Industrial Tech - Deep Tech in our portfolio, spread across 30 countries Supported by our Platform+ team of growth, business development and HR experts. 250+ companies
- 4. <<<<<< <<<<<< <<<<<< <<<<<< <<<<<< We love SaaS At Speedinvest, we have invested in over 60 SaaS companies, a small excerpt below. Application Layer API Layer Software Infrastructure Security Developer tools
- 5. 2023 has been a tough year for fundraising Global quarterly VC Investment ($) US$m $ 50B $ 100B $ 150B $ 200B $ 250B 2016 Q1 2017 Q1 2018 Q1 2019 Q1 2020 Q1 2021 Q1 2022 Q1 2023 Q1
- 6. Good fundamentals matter again!
- 7. SaaS public market multiples have sharply declined Public market multiples have declined last year and the trend will likely continue 0 2 4 6 8 10 12 14 16 18 2017 Q2 2018 Q2 2019 Q2 2020 Q2 2021 Q2 2022 Q2 15.2x 7.1x
- 8. The most common reasons to pass from Series B onwards remain unchanged High monthly gross churn Low YoY revenue growth Slow CAC Payback Poor gross margins 1 2 3 4
- 9. So what are investors really looking for in 2023?
- 10. Introducing the Speedinvest Revenue Quality Framework
- 11. The Qualitative – not all revenue is created equal Stage of customer – early vs late-stage companies Departments – innovation departments or business unit / P&L function Sector – especially sector concentration and sector risk Strategic interest – long-term incompatibility of interests Recurrence – recurring as opposed to one-off revenue Duration – yearly, monthly or even multi-year contracts Pilot – POCs connected to milestones may be discounted Delivery model – How big is the service component and the onboarding Customer Types Contract Terms
- 12. Active Users – number of users who achieve a certain product goal DAU/MAU or DAU/WAU – percentage of active users who log in per day / week Power Users – users who log in X times per period Y or similar definition Stats 101 – descriptive statistics of your customer base Revenue Concentration Gross margin – commonly revenue minus Cost of Goods Sold Distribution– how many customer make up what percentage of revenue Customer Engagement Margin Structure
- 13. Ratios & efficiencies – benchmarking yourself Growth – The one metric that matters most. Growth is the primary indicator of product-market fit Net revenue retention –NRR measures the revenue generated accounting for churn, contraction, and expansion. Sales productivity – Many ways to measure but ultimate goal understanding new ARR per dollar spent on sales Burn multiple – ratio of burn and net new ARR as indicator of burn per incremental dollar value Hype ratio – wildcard one. Capital raised divided by ARR 1 2 3 4 5
- 14. So what does good look like?
- 16. Key Takeaways § Good VCs will use a broad lens to access a business and so should you as a founder § Our framework splits revenue into qualitative and quantitative factors § You probably won’t excel in every metric § A lot of these measures are interlinked and should be looked at jointly § In combination they give a good overview over revenue health
- 17. Thank You