Unveiling the Data Behind Effective Scaling
- 1. Christine Edmonds Partner & Head of Analytics ICONIQ Growth @Edmonds_C Unveiling the Data Behind Effective Scaling Doug Pepper General Partner ICONIQ Growth @dougpepper 1
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- 3. 3 ANALYTICS & INSIGHTS EMPOWERING OUR PORTFOLIO WITH PROPRIETARY ANALYTICS AND INSIGHTS ACROSS BUSINESS OPERATIONS AND STRATEGY Bespoke Analytics & Advisory Signal Identification & Sourcing Intelligence In-Depth Research & Studies Comprehensive, topical reports leveraging proprietary data to form an evolving view of ‘best- in-class’ performance Bespoke analytics, one- on-one advisory, and custom tools to address high-impact questions across portfolio operations and strategy Innovative approaches, data partnerships, and intelligence layer applied to signal identification and sourcing
- 4. 4 What does best in class growth and efficiency look like? 2022 Insights
- 5. 5 Methodology Our analyses leverage quarterly operating and financial data from 92 enterprise SaaS companies. Most companies included represent ICONIQ Growth investments, and other public companies were selected based on IPO performance. Notes: As of August 2022; Trademarks are the property of their respective owners. None of the companies illustrated have endorsed or recommended the services of ICONIQ; Full list of ICONIQ investments can be found here Sources: Financial and operating data from select ICONIQ Growth enterprise SaaS investments and public data from SaaS IPOs through 2H 2013 – 2021 via Factset and quarterly earnings ICONIQ Growth Portfolio Companies Select Public Companies Private Public or Acquired
- 6. 6 Topics we’ll cover today: • How quickly and consistently should ARR be growing as you scale from $10M ARR? • What are the key drivers of growth? • What matters more - growth or efficiency? • What does best in class efficiency look like, and does it come at the cost of productivity and growth? • What does best in class performance look like in the context of 2022? • What are companies doing to mitigate growth deceleration and reorient themselves toward an efficiency-focused mindset?
- 8. Topline Growth We have consistently seen companies with top-quartile growth double ARR in each of the first 2-3 years as they scale from the $10M ARR threshold. After $100M, top performers maintain meaningful double- digit growth. 8 Net New and Ending ARR from $10M, in Years Net New ARR Ending ARR ~2.5x ~2.2x ~1.8x ~1.5x ~1.5x Pre-IPO YoY Growth Notes: Information provided accurate as of August 2022 Sources: Financial and operating data from select ICONIQ Growth enterprise SaaS investments and public data from SaaS IPOs through 2H 2013 – 2021 via Factset and quarterly earnings Top Quartile $16M $30M $44M $54M $76M $101M $10M $26M $56M $100M $154M $230M 0 1 2 3 4 5
- 9. Contributions to Growth As healthy enterprise companies scale, they can increasingly rely on existing logos to generate new ARR opportunities through upsell or expansion. Downsell / logo churn mix stays relatively consistent as companies scale. 9 Gross New ARR Distribution Gross Churn Distribution 70% 65% 54% 51% 30% 35% 46% 49% <$25M $25-$50M $50-$100M $100M to IPO Expansion New Logo Average Notes: Information provided accurate as of August 2022 Sources: Financial and operating data from select ICONIQ Growth enterprise SaaS investments and public data from SaaS IPOs through 2H 2013 – 2021 via Factset and quarterly earnings 59% 63% 56% 56% 41% 37% 44% 44% <$25M $25-$50M $50-$100M $100M to IPO Downsell Logo Churn
- 10. Net Dollar Retention We consistently see companies with top- quartile NDR achieving 120%+ even at scale. These companies have exceptional NDR from very early stages, underlying the importance of growing the existing customer base at any stage. 10 Gross and Net Dollar Retention, Years after $10M 98% 95% 94% 94% 93% 96% 128% 130% 124% 126% 120% 123% 0 1 2 3 4 5 Net Dollar Retention Gross Dollar Retention Notes: Information provided accurate as of August 2022 Sources: Financial and operating data from select ICONIQ Growth enterprise SaaS investments and public data from SaaS IPOs through 2H 2013 – 2021 via Factset and quarterly earnings Top Quartile
- 11. Growth vs. Efficiency – what matters more? 11 Correlation (R2) of Forward Revenue Multiple Over Time Rule of 40 (Revenue Growth + FCF %) Revenue Growth Revenue Growth surpasses Rule of 40 for largest weighting in multiple correlation Initial convergence of growth and profitability in driving multiples, as the weight of FCF increases Notes: Information provided accurate as of July 2022 Sources: Public data from SaaS IPOs through 2H 2013 – 2021 via Factset and quarterly earnings 0.46 0.30 0.45 0.42 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2³ 2019 2020 2021 2022 Median
- 13. Per FTE Efficiency and Productivity Productivity and efficiency are not mutually exclusive – we have seen multiple examples of companies that have meaningfully increased FTE productivity while maintaining FTE efficiency. 13 ARR and Annualized OpEx per FTE, Years after $10M $97K $128K $163K $177K $199K $230K $207K $215K $192K $196K $198K $205K 0 1 2 3 4 5 Annualized OpEx per FTE ARR per FTE ~$100M ARR Notes: Information provided accurate as of August 2022 Sources: Financial and operating data from select ICONIQ Growth enterprise SaaS investments and public data from SaaS IPOs through 2H 2013 – 2021 via Factset and quarterly earnings Median
- 14. 0 1 2 3 4 5 237% 175% 146% 119% 103% 94% Efficiency by Function Over time, revenue should outpace operational spend. R&D tends to make up an increasingly smaller proportion of overall spend as leverage is achieved while S&M increases in share as companies scale and fuel their GTM engine. 14 G&A R&D S&M Notes: Information provided accurate as of August 2022 Sources: Financial and operating data from select ICONIQ Growth enterprise SaaS investments and public data from SaaS IPOs through 2H 2013 – 2021 via Factset and quarterly earnings OpEx as a % of Revenue by Function, Years after $10M Average
- 15. Burn Multiple For every dollar that goes into my organization, how many dollars in revenue am I generating? We typically recommend companies have a burn multiple under 2x while scaling. On average, companies break-even in Year 6 after reaching ~$10M 15 Burn Multiple Net New ARR FCF Notes: Information provided accurate as of August 2022 Sources: Financial and operating data from select ICONIQ Growth enterprise SaaS investments and public data from SaaS IPOs through 2H 2013 – 2021 via Factset and quarterly earnings Burn Multiple: FCF / Net New ARR, Years after $10M Average -$19M -$20M -$26M -$39M -$50M $10M $14M $21M $37M $51M 1.9x 1.4x 1.2x 1.1x 1.0x 0 1 2 3 4 Non-profitable companies
- 16. GROWTH & EFFICIENCY IN 2022 16
- 17. 97% 100% 99% 3% Q1 Impact While shift in public and private markets became very real in Q1, most companies analyzed were able to maintain strong performance with a median of 99% attainment of incremental topline, coupled with healthy balance sheets coming out of 2021 (median 29 months runway). 17 Net Incremental Bookings: Median Attainment vs Plan Attainment defined as actuals as % of annual plan of net incremental bookings 2021 Q1 2021 Q1 2022 Q2 2022 1% 3% Notes: Information provided accurate as of August 2022 Sources: Financial and operating data from select ICONIQ Growth enterprise SaaS investments and public data from SaaS IPOs through 2H 2013 – 2021 via Factset and quarterly earnings
- 18. Q2 Impact The acceleration of impact was seen through Q2, with median topline attainment of 87%. In fact, recent months seem to be reflecting accelerated impact with a greater number of June / Aug quarter-end companies missing plan. 18 2021 Q1 2021 Q1 2022 Attainment defined as actuals as % of annual plan of net incremental bookings Q2 2022 97% 100% 99% 87% 3% 13% 1% 3% Notes: Information provided accurate as of August 2022 Sources: Financial and operating data from select ICONIQ Growth enterprise SaaS investments and public data from SaaS IPOs through 2H 2013 – 2021 via Factset and quarterly earnings Net Incremental Bookings: Median Attainment vs Plan
- 19. Q2 Impact: Public Markets 19 Beat and Raise for Public SaaS Companies 95% 3.5% 91% 3.2% 78% 1.2% Q1 EARNINGS N = 96 Q2 EARNINGS N = 63 Beat against Consensus (Median Analyst Estimates) Beat against Management Guidance Raised Full-Year Estimate % of Companies Median Beat / Raise 89% 2.5% 87% 2.1% 50% 0.2% % of Companies Median Beat / Raise Median Notes: Information provided accurate as of August 2022; Q2 n-size lower due to not all companies having reported earnings yet Sources: Public data from SaaS IPOs through 2H 2013 – 2021 via Factset and quarterly earnings
- 20. Managing Efficiency Most companies fall into one of two camps of efficiency: 1. A strong Q2 driven by beats across both top and bottom line. Notably, companies in this group have an average scale ~3x that of other buckets. 2. A miss on topline plan in Q2 partially made up by a better burn rate than originally planned. 20 Attainment: Topline vs Bottomline as of Q2 Beat topline plan with more burn than anticipated Beat topline plan with less burn than anticipated Missed topline with more burn than anticipated Missed topline with less burn than anticipated Scale (2021 ARR or Revenue) Topline Attainment Bottomline Attainment Median Notes: Information provided accurate as of August 2022 Sources: Financial and operating data from select ICONIQ Growth enterprise SaaS investments and public data from SaaS IPOs through 2H 2013 – 2021 via Factset and quarterly earnings 0% 20% 40% 60% 80% 100% 120% 140% 160% 180% 200% 0% 50% 100% 150% 200%
- 21. Strategies to Navigate the Current Environment 21 While macro factors like sector headwinds and buyer impact have certainly played into quarterly performance, companies who have been able to beat topline and bottomline plan have also taken certain strategic actions to achieve their results. Notes: Information provided accurate as of August 2022 Sources: Financial and operating data from select ICONIQ Growth enterprise SaaS investments and public data from SaaS IPOs through 2H 2013 – 2021 via Factset and quarterly earnings SPEND REDUCTIONS REFORECASTING / ADJUSTMENTS TO PLAN HIRING SLOWDOWN / FREEZE CHANGES TO GTM STRATEGY REDUCTIONS IN FORCE (RIF) LEVERAGE OFFSHORE RESOURCES Most Common Less Common
- 22. Key Takeaways (1 of 2) 22 Productivity and efficiency are not mutually exclusive – in fact, increasing productivity and efficiency is critical to getting to scale. Notes: Information provided accurate as of August 2022 Sources: Financial and operating data from select ICONIQ Growth enterprise SaaS investments and public data from SaaS IPOs through 2H 2013 – 2021 via Factset and quarterly earnings We have consistently seen companies with top-quartile growth double ARR in each of the first 2–3 years as they scale from ~$10M. Growth from existing logos becomes increasingly important as companies scale. The tides have started to shift from a historical model prioritizing growth above all else – requiring more founders to put an emphasis on efficiency earlier in their growth journey.
- 23. Key Takeaways (2 of 2) 23 Nevertheless, there continue to be examples of companies that are meeting growth plans while preserving efficiency. Common strengths include a laser focus on customer success, product investments, forecasting rigor, and proactive planning. Notes: Information provided accurate as of August 2022 Sources: Financial and operating data from select ICONIQ Growth enterprise SaaS investments and public data from SaaS IPOs through 2H 2013 – 2021 via Factset and quarterly earnings The impact of the macro environment accelerated throughout Q2, with only a handful of companies analyzed meeting topline plan. Similarly, public SaaS companies are also navigating uncertainty in the current environment with the percentage of companies beating and raising down since Q1.
- 24. Additional Insights and Studies from ICONIQ Growth 24 Find this content and more at iconiqcapital.com/growth/insights Topline Growth & Operational Efficiency 2022 Refresh Future of Work Series Go-to-Market Series The Path to IPO Series Engineering Efficiency
- 26. How to Get in Touch Follow ICONIQ Growth @ICONIQGrowth Christine Edmonds @Edmonds_C cedmonds@iconiqcapital.com Doug Pepper @dougpepper doug@iconiqcapital.com
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