Latka March2020 Digital

LATKA
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LATKA
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THESE ARE THE IPO PREDICTIONS
195
WILL FRESHWORKS,
DATASTAX, GITLAB
FLY OR FLOP?
P. 52
LARGEST PRIVATE B2B VENTURE DEBT

SAAS COMPANIES NEW WAY SAAS CEO’S
ARE KEEPING EQUITY,
P. 06 GETTING CASH
P. 16
$47M ON
$150M PRE?
DID $10M ARR FUNNEL.IO
RAISE TOO MUCH?
P. 28
G E T L A T K A . C O M
Funnel.io CEO, Fredrik Skantze
P. 34 P. 20 P. 42 P. 32
INTERNAL TOOL 6 CHARTS NO VC RAISED NOT SAASTR!
Turns Into $250k/mo SaaS Every SaaS Founder Should How Passive Founder Pays Top SaaS Conferences You
Company. Here’s how. Use (But Don’t!) Himself $25k/mo Can’t Miss
Subscribe: Nathanlatka.com/magazine
SAAS METRICS GUIDE TO SAAS FINANCIAL PERFORMANCE
RECURRING REVENUE EXAMPLE RECURRING REVENUE
SUBSCRIPTION REVENUE
1500
The amount of subscription revenue owned by a customer A two year subscription contract with a total
over a fixed time period, usually measured monthly (MRR), contract value (TCV) of $24K
1000
quarterly (QRR), or annually (ARR).
R $24K
recurring revenue = RR = ARR = $12K per year =
ARR = 12,000
MRR = 1,000
QRR = 3,000
ΔT 2 years 500
ARR = 12 x MRR = 4 x QRR

R = subscription revenue owed during time Δt $24K
MRR = $1,000 per month = TIME
Δt = amount of elapsed time 24 months 0 3 6 9 12 15 18 (MONTHS)
CHURN RATE (AKA ATTRITION) EXAMPLE 100
90
DECLINE IN CUSTOMERSFROM CHURN
CUSTOMER COUNT
80
Percentage rate of customer cancellations over time, Of 100 customers, 10 cancel in 6 months (0.5 yrs) 70 # CUSTOMERS REMAINING
usually on an annual basis. Also, the probability that a 60 - STARTING WITH 100 CUSTOMER
single customer will cancel during a specific time period. 50 -20 %CANCEL EACH YEAR
10 40
ΔC cancel monthly churn rate = 1.67% per month =
30
churn rate = A = 100 x 6
C x Δt 20
LIFETIME
10 10 5 YEARS
C = # of customers Δt = amount of elapsed time
annual churn rate = 20% per year = TIME
ΔC cancel = customers cancelling in time Δt 100 x 0.5 0 5 10 15 20 (YEARS)
AVERAGE RECURRING REVENUE (ARPU) EXAMPLE CUMULATIVE REVENUE WITH CHURN

35,000
The recurring revenue owed on AVERAGE per customer. Total Current Customers 2,000
Equal to the average sale price for the initial subscription, Total Current ARR $20,000,000 30,000
and then increases over time from upgrades and upsells. ARPU Current Customers $10,000 25,000
TRR 20,000
ARPU (Average revenue per user per month) = CUMULATIVE REVENUE
C 15,000
- ARR = $7,500
TRR - total recurring revenue monthly; C = # of customers 10,000 - CHURN RATE = 20%
# New Customers 400
5,000
Note: Annual Contract Value average (ACV) is ARPU x 12 Total New ARR $3,000,000
TIME
months) ARPU for New Customers $7,500 0 2 4 6 8 10 (YEARS)
CUSTOMER ACQUISTION (PER CUSTOMER) EXAMPLE COVERING CAC WITH ARR

20,000
The one-time cost of all marketing and sales activities plus # New Customers 780
all psychical infrastructure and systems required to Total New ARR $5,850,000
15,000
motivate a customer to purchase, including fully loaded
labor costs, usually quoted as an average unit cost per ARR per New Customer $7,500
new customer CAC per New Customer $2,500 CUMULATIVE ARR
10,000
ARR = $7500
marketing & sales expenses Marketing Staff $600,00 - CAC = $2500
CAC = Promotions/Website $300,00 PAYBACK IN 3 MONTHS
5,000
ΔC new Sales Staff $1,000,000
CAC $2500
ΔC new = new cutomers acquired from activities Sales Systems/T&E $50,000
TIME
associated with marketing & sales expenses
Total CAC $1,950,000 0 1 2 3 4 5 (YEARS)
AVERAGE COST OF SERVICE (PER CUSTOMER) EXAMPLE ACS REDUCTION FROM ECONOMIES-OF-SCALE
12,000
The recurring cost of all engineering, support, account # Current Customers 1,000 ACS PER CUSTOMER
management, customer service, and billing activities plus all Total Current ARR $10,000,000 - FIXED COST = $300,000
9,000
physical infrastructure and systems required to maintain a - VARIABLE COST = $3000
current customer, including fully loaded labor costs, usually ARR per Current Customer $10,000
quoted as an average unit cost per current cusomer. CAC per New Customer $4,875 6,000
ACS per Current Customer $3,200

recurring service expenses
ACS = Engineering & Support $1,800,000 3,000
C
Account Management & Billing $600,000
C = all current customers maintained by the associated recurring Hardware/Software $800,00
TOTAL
service expenses
0 100 200 300 400 # CUSTOMERS
Total recurring Cost of Service $3,200,000
CUSTOMER LIFETIME VALUE EXAMPLE DRAMATIC EFFECT OF CHURN ON CLTV

200,000
The economic value of a customer over its lifetime. Can be ARR $10,000 churn 10%
built up for increasing accuracy by components as follows: ACS $3,200 growth 20%
160,000
1. recurring revenue, 2. churn (a), 3. acquisition cost, 4. cost CAC $4,875 interest 20%
of service, 5. capital interest rate (i), and 6. viral growth (g). CUSTOMER LIFETIME VALUE
120,000
CLTV (simple) $100,000 (SIMPLE)
ARR
CTLV simple = expected lifetime revenue = CLTV (complete) $53,375 80,000
a
(”customer lifetime” is quoted as L=1/a so CLTV = ARR x L) 40,000
(”customer lifetime” L=1/10% per year = 10 years) ARR = $10,000

ARR - ACS - (i + a) CAC CHURN RATE
CTLV complete = NPV profit = 0 10% 20% 30% 40% 50% (PER YEAR)
i + a -g
ARTICLES TOP 195
P. 16 P. 06
▶ HOW RIA'S ARE EARNING 12% ▶ THE 195 LARGEST PRIVATE B2B
FIXED INTEREST LOANING SAAS COMPANIES (BASED ON
REVENUE)
TO SAAS COMPANIES (AND
FOUNDERS LOVE KEEPING
EQUITY!)
P. 20
▶ 6 CHARTS CEO’S SHOULD USE
LIKE WEAPONS (BUT PROBABLY
DON’T)
GUEST POST
P. 28 P. 50
▶ FUNNEL.IO QUADRUPLES
REVENUE TO $10 MILLION, ▶ SIMPSON'S PARADOX IN
RAISES $47 MILLION MEASURING NET DOLLAR
RETENTION RATE
P. 34 P. 56
▶ INTERNAL TOOL TURNS INTO
$250K/MO SAAS COMPANY. ▶ INVESTOR SWEETENERS IN
HERE’S HOW. TERM SHEETS
P. 38 P. 58
▶ HOW LOGI ANALYTICS SCALED ▶ TEN QUESTIONS FOUNDER
TO $30M IN REVENUES, EXIT TO CEOS SHOULD ALWAYS BE ABLE
PE FIRM MARLIN IN 2017 TO ANSWER ABOUT THEIR
STARTUPS
P. 42 P. 62
▶ HOW PASSIVE FOUNDER
PAYS HIMSELF $25K/MO (NO VC ▶ TEN QUESTIONS FOUNDER
RAISED) CEOS SHOULD ALWAYS BE ABLE
TO ANSWER ABOUT THEIR
CONTENTS
STARTUPS
P. 46
▶ HOW REVELEER CARVED OUT
THE HEALTHCARE NICHE AND
SCALED TO $10.2M IN REVENUE
P. 52
▶ D.A DAVIDSON ANALYST
PREDICTS 2020 SAAS IPOS,
INVESTOR CONFIDENCE
GROWING
LETTER from THE EDITOR
Public Market
SaaS. IPO Boom?
As we move into Q2 of 2020, the economy Watch for IPO activity at Vista owned CVent
continues to boom. With macro-economics and Xactly. Look for employee revenue share
being healthy, and everyone not sure when the options from SMB marketing suite Madwire
party will end, I expect many companies are and customer success tool 247.ai. Lastly,
discussing IPO or late stage liquidity options as Gitlab passes $120m in ARR, CEO Sid
as we speak. has been public about his desire to IPO in
November this year. Big election time. Big
In March’s issue of the magazine, we rank IPO? Time will tell!
the largest private B2B SaaS companies by
revenue. In order to even consider an IPO Flip to page 4 to see 195 of the largest private
today, revenues need to be past $100m. That SaaS companies, all with revenues above
means at least $8.3m/mo in revenue. $10m.
On top of that, Rule of 40 metrics must be

in order, net revenue retention should be
120% or higher, and growth should still be
above 30% yoy. Other founders that have
bootstrapped to profitability and $50m+ in
revenue are looking at employee revenue
share programs or other means to distribute Nathan Latka
dividends to employees. nathan@nathanlatka.com
415-237-9869
Expect direct listings, IPO’s, and $100m Series
D-F debt and equity rounds to dominate
conversation and tech speculation circles over
the coming months. While many of these
companies are private equity backed, these
backers might be looking to take advantage of
a bull market to pull liquidity off the table.
2 MARCH 2020 LATKA

INSTANT WALL STREET JOURNAL NATIONAL BESTSELLER
20,000 COPIES SOLD! KING OF CABLE?
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NICHOLAS VERIFIED PURCHASE
NATHAN IS THE NEW TIM FERRISS
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TAPPING INTO THE NEW SHARING ECONOMY

ALEX SCRIABIN VERIFIED PURCHASE
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STREET
See my tax returns (pg6) at CapitalistBook.com

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most importantly, enjoyable.
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them for numbers. Great way to highlight companies and see how others are making money in the
industry. Very entertaining show.
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Most businesses podcast are filled with fluff, but not this one. Nathan gets down to business and
ask the questions other podcast hosts are afraid to ask. Everyone that goes on his show must
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reveal flaws that the founder may not see.
COMPANY RELEASE DATE CEO NAME ROLE PODCAST TITLE
Legasisservices 3/1/2020 Jaideep Kewalramani CEO Why This $5m Legal Compliance Software is Looking for a $5m Bridge Round
Trend 3/2/2020 Ramon Berrios CEO How He Helps Small Instagram Influencers Make Big Bucks from Major Brands
Miestro 3/3/2020 Justin Burns CEO Why He Used Affiliates To Get First $20k in MRR
Braze 3/4/2020 Bill Magnuson CEO With $60M in ARR, How Braze Drives Serious Expansion Revenue on Old Cohorts
Perfectcloud 3/5/2020 Mayukh Gon CEO Why Data CEO Turned Down $35M Offer, Would Never Work for Facebook
Gohighlevel 3/6/2020 Shaun Clark CEO How He Sold His First <$1m ARR Company
Brandzooka 3/7/2020 Aquiles LaGrave CEO
Render 3/8/2020 Marius Iatan CEO How He Leases Computing Power to Rendering Studios
Ikizmet 3/9/2020 Andres Moran CEO Why he Left MINDBODY To Build This Data Visualization Tech for SMB's
Cladwell 3/10/2020 Blake Smith CEO How He's Pivoting from $1m ARR SaaS To Consumer Data Play
Clientpoint 3/11/2020 Andrew Jedynak CEO Why This Company Rebranded with $950k Raised Helping Clients Customize Proposals
Goodunited 3/12/2020 Nick Black CEO How he Went From Soldier in Afgahnistan to Suriving 2 Failures To Help Non Profits Fundraise
Crowdcast 3/13/2020 Sai Hossain CEO How This 28 yo CEO Hit $70k in MRR with Patreon Partnership
Hq 3/14/2020 Florian Hendrickx CEO How He Used Video Ads To Get First 450 Customers, $1k in MRR
Angage 3/15/2020 Mike Rubini CEO He Used FB Groups to Get First $3k in MRR
Erxes 3/16/2020 Mend-Orshikh Ama- CEO Opensource Version of Hubspot Moves from Enterprise Service to SMB SaaS
Likvido 3/17/2020 rtaivan CEO He Used Linkedin Videos to Get First 350 Customers, $25k in MRR
Hover 3/18/2020 Maximilian Frimmer CEO "Wouldn't Be Surprise If We Hit $50M This Year" says 3d Home Modeling CEO
Zapier 3/19/2020 A.J. Altman CEO Zapier Hits 100k Customers, $50m in ARR, Eye on Doubling YoY with New Partnerships
Picbackman 3/20/2020 Wade Foster CEO How He Turned 50k Free Users into $12k in MRR
4 MARCH 2020 LATKA Podcast

COMPANY RELEASE DATE CEO NAME ROLE PODCAST TITLE
Keatext 3/21/2020 Vaibhav Domkundwar She's About to Pass $1m in ARR in AI Text Analytics Feedback
Textrecruit 3/22/2020 Narjes Boufaden CEO How He Grew $4m to $14m ARR Over Last 12 Months in HR Tech Space
Sellution 3/23/2020 Erik Kostelnik CEO Would You Ever Put $1m Of Your Own Money In Before Turning on Revenue?
Castos 3/24/2020 Scott Snyder CEO How he Cheated Growth With $5k Acquisition on Day 1
Summitsync 3/25/2020 Craig Hewitt CEO You're telling me your MRR is $7.5m with 35 Employees?
Smilevirtual 3/26/2020 John Corrigan CEO This Dentist Built Software, Now $40k/mo
Cropin 3/27/2020 Brian Harris CEO Crop Optimization Software Hits $2.4m in ARR, $12m Raised
Bepretty 3/28/2020 Krishna Kumar CEO 3500 LatAm Salons Pay Him $3.2m in ARR for Customers
Thebettersoftware 3/29/2020 Alvaro Noain CEO Investors put in $10m, He Left, Bought Back Company for Pennies on Dollar, How?
Farmraiser, LLC 3/30/2020 Steve Cody CEO Is this a better way for schools to fundraise?
Crowdcontrolhq 3/31/2020 Mark Abbott CEO Hitting $3m ARR on $2m Raised in Social Marketing Niche
Raaft 4/1/2020 James Leavesley CEO How he got his first 12 customers
Pepperi 4/2/2020 Luke Chambers CEO Wholesales B2B Commerce Platform Breaks $10m ARR, sights on $30m ARR
Zakipoint Health 4/3/2020 Ofer Yourvexel CEO He Broke $1m in ARR By Lowering Employers Healthcare Costs
Sevenrooms 4/4/2020 Ramesh Kumar CEO Restaurant Data Play hits $6m in ARR, 1000+ Locations
Plusthis 4/5/2020 Kinesh Patel CEO Infusionsoft Employee #8 Launches New Venture, Passes $175k in MRR, 2500 SMB Cust.
Appocalypsis 4/6/2020 Dave Lee CEO Greece Agency Launches MarTech SaaS, Gets first 40 customers
Billyapp 4/7/2020 Vicky Dallas CEO He's Selling a $7k MRR Company for $500k?! Crazy.
Ubersmith 4/8/2020 Joshua Waldman CEO How Subsidary Hit $420k MRR helping Subscription Companies Scale
Xero 4/9/2020 Kurt Daniel CEO How $450m ARR Xero Finds New Growth Channels, ARPU Expansion via Acquisitions
Appsurify 4/10/2020 Steve Vamos CEO Just married, moving across world, SaaS startup, how's he do it?!
Actito 4/11/2020 James Farrier CEO How He Got $10m+ Without Taking Dilution, Hit $12m ARR Run Rate
Seotify 4/12/2020 Benoit De CEO He Spends $140 on Quora Ads for New $70/mo Customers
Runcloud 4/13/2020 Cem Akbulut CEO How He Converts 50% Free to Paid for Quick Server Setup, $45k in MRR
Pitchly 4/14/2020 Arif Tukiman CEO Got First 30 Customers via Linkedin Sponsored Ads, $240 for qualified lead who pays $1k/mo
Everyware 4/15/2020 Ryan Gerhardy CEO Text Upselling Company Hits $22m Topline on $850k Raised
E-Days Absence 4/16/2020 Larry CEO How He Raised $10m From PE To Buy Out 80% Cofounders
Management 4/17/2020 Steve Arnold CEO Why Is He "Waiting" To Drive Sales?
Synchrotab 4/18/2020 David Talbot CEO They're Raising $5m Right Now on $3.6m in ARR
Styla 4/19/2020 Franz Riedl CEO How He Hit $3.5m in ARR Selling HR Interview Tool
Shineinterview 4/20/2020 David Copple CEO Smarter to Buy vs Build, He bought Company for $10m, Now doing $20m in ARR 3 years later
Awarenesstech. 4/21/2020 Brad Miller CEO He'll Never Win Unless He Shuts Down Agency
Referagig 4/22/2020 Scott Weiss CEO He Wants Enterprise Customer to Churn to Tackle Massive Technical Debt Issue
Codelingo 4/23/2020 Jesse Meek CEO How He Got First Enterprise Customers to Pay $120k ACV's
Podcast LATKA MARCH 2020 5
195
These Are the
In this list we look at 190 of the largest
private B2B SaaS companies. They’ve all
passed $10m in revenues, with Cvent
sitting at the top with $500m+ in reve-
nues. As CEO Reggie Agarwal shared on
the Latka podcast: “We’ll collect over half
a billion in cash this year”, referring to
2019. I expect to see Cvent continue to
be acquisitive as its backer, Vista Equity,
looks to responsibly deploy its latest $14b
fund.
The father son team behind Madwire is

actively considering IPO options and/or
Largest Private B2B SaaS employee revenue sharing. They’ve man-

aged to hit $100m in ARR in the SMB
space virtually bootstrapped. Same with
Companies (Based on PV at 247.ai with $350m+ in ARR with
just $20m raised (but still sitting in bank).
Revenue) Look for PV to test the IPO waters in Q3/

Q4 2020.
Other IPO’s to watch out for: Gitlab in

November, Freshworks in Q4, Datastax,
and Expensify. Flip the page to view the
other 185 largest private b2b SaaS com-
panies.
6 MARCH 2020 LATKA The 195 Largest private b2b saas companies based on revenue
Data
Company Name CEO Revenue Founded Employees Customers
Captured On
1 Cvent Reggie Aggarwal $500M 1999 4K 25K 11/27/2018
2 247 PV Kannan $350M 2000 800 150 7/25/2019
3 Discoverorg Henry Schuck $325M 2007 4500 11/7/2018
4 Xactlycorp Chris Cabrera $288M 2005 694 1600 7/9/2019
5 Bullhorn Art Papas $199.9M 1999 1K 10K 7/29/2019
6 Centro Shawn Riegsecker $142.8M 2001 700 1700 7/10/2019
7 Numerator Dennis Moore $130M 2014 1500 2K 11/14/2018
8 Gitlab Sid Sijbrandij $120M 2012 900 10K 9/24/2019
9 Expensify David Barrett $108M 2008 110 25K 3/12/2018
10 Madwire JB Kellogg $105M 2009 600 10K 8/29/2018
11 Moj Kenny Hawk $102M 2012 90 850K 2/6/2019
12 Alfresco Bernadette Nixon $100M 2005 350 1370 10/3/2018
13 Datastax Billy Bosworth $100M 2011 450 500 1/16/2018
14 Freshworks Girish Mathrubootham $100M 2010 1500 150K 9/13/2018
15 Hotschedules Mike Arenth $100M 2000 600 160K 6/18/2018
16 Kaminario Dani Golan $100M 2008 250 1K 9/2/2018
17 Swiftpage John Oechsle $96.1M 2001 200 89K 5/23/2019
18 Adswerve Clint Tasset $96M 2009 160 800 5/23/2019
19 BounceX Ryan Urban $96M 2012 400 1K 9/26/2019
20 Sumo Logic Ramin Sayar $96M 2010 250 1300 9/3/2018
21 Act John Oechsle $90M 2001 170 85K 1/15/2018
22 Coveo Louis TÃªtu $90M 2008 350 1K 8/6/2018
23 Printful Davis Siksnans $84M 2013 500 100K 7/9/2019
24 Shipmonk Jan Bednar $84M 2014 450 1K 8/26/2019
25 Bill Rene Lacerte $80M 2008 225 66K 9/2/2018
26 Conga Matthew Schiltz $80M 2006 500 11K 7/12/2018
The 195 Largest private b2b saas companies based on revenue LATKA MARCH 2020 7
Data
Captured On
27 Greenhouse Daniel Chait $73.5M 2012 380 3500 8/21/2019
28 Prosperworks Jon Lee $72M 2011 220 100K 5/21/2018
29 Redislabs Ofer Bengal $72M 2011 200 8500 7/30/2018
30 Rokt Bruce Buchanan $72M 2012 225 2K 1/9/2018
31 Branch Mada Seghete $71.3M 2014 300 900 6/19/2019
32 Outreach Manny Medina $70M 2014 315 3100 3/19/2019
33 Usertesting Andy MacMillan $70M 2008 250 3K 9/3/2018
34 Gainsight Nick Mehta $67.2M 2012 700 700 7/18/2019
35 Clickfunnels Dave Woodward $66M 2015 130 55K 12/31/2017
36 Lob Leore Avidar $64.8M 2013 82 600 7/9/2019
37 Semrush Eugene Levin $64.8M 2008 500 30K 5/8/2018
38 Bloomreach Raj De $62.5M 2011 250 250 2/11/2018
39 Moz Sarah Bird $61.2M 2004 180 34K 7/17/2019
40 Appdirect Daniel Saks $60M 2011 650 1M 5/15/2018
41 Braze Bill Magnuson $60M 2011 300 600 12/12/2018
42 DialPad Craig Walker $60M 2011 500 5K 10/9/2019
43 Donuts Bruce Jaffe $60M 2010 100 3M 12/11/2017
44 Getresponse Simon Grabowski $60M 1998 300 100K 1/7/2018
45 Jellyvision Amanda Lannert $60M 2002 400 1400 11/7/2018
46 Servicechannel Tom Buiocchi $60M 1999 200 500 7/17/2019
47 Mailupgroup Nazzareno Gorni $59.4M 2002 240 22K 10/9/2019
48 Freshbooks Mike McDerment $55M 2004 300 305K 6/12/2018
49 Lotame Andrew Monfried $54M 2006 150 300 4/23/2019
50 Silverlinecrm Gireesh Sonnad $54M 2009 325 200 5/6/2019
51 RedSeal Ray Rothrock $51M 2004 160 250 9/19/2019
52 Salesloft Kyle Porter $50.4M 2011 400 2K 7/25/2019
Data
Captured On
53 Airpr Sharam Fouladgar-Mercer $50M 2010 1K 1/16/2018
54 Brandwatch Giles Palmer $50M 2007 420 1500 2/21/2018
55 Cloudhealthtech Tom Axbey $50M 2012 300 3500 9/13/2018
56 Thousandeyes Mohit Lad $50M 2010 250 500 11/14/2018
57 Zapier Wade Foster $50M 2011 200 100K 1/7/2019
58 Bynder Chris Hall $48M 2013 350 1600 11/7/2018
59 Lucidworks Will Hayes $48M 2008 250 400 7/17/2019
60 Sailthru Neil Lustig $48M 2008 200 400 6/11/2018
61 Soloseo Michael Jensen $48M 2005 12 200K 2/22/2018
62 Benevity Bryan de $45M 2008 500 450 11/19/2018
63 Algolia Nicolas Dessaigne $40M 2012 300 6K 11/14/2018
64 Clickdimensions Mike Dickerson $40M 2010 190 3600 9/3/2018
65 Movableink Vivek Sharma $40M 2010 250 500 8/29/2018
66 Percolate Randy Wootton $40M 2011 230 200 8/29/2018
67 Radius Joel Carusone $40M 2012 75 100 11/12/2018
68 Zenefits Jay Fulcher $40M 2013 500 10K 6/11/2018
69 G2 Godard Abel $40M 2012 2K 10/3/2019
70 Wistia Chris Savage $39M 2006 115 50K 12/17/2019
71 Myhippo Assaf Wand $38.4M 150 160K 8/21/2019
72 Yotpo Tomer Tagrin $38.4M 2011 340 4K 5/30/2019
73 Highspot Robert Wahbe $36M 2012 300 300 7/25/2019
74 Mparticle Michael Katz $36M 2013 110 150 11/7/2018
75 Gomodus Orrin Broberg $33.6M 2015 24 80K 2/12/2018
76 Mesosphere Florian Leibert $33.6M 2013 390 140 7/18/2019
77 Animoto Jason Hsiao $31.2M 2007 100 130K 10/23/2019
78 Odoo Sa Fabien Pinckaers $31.2M 2005 580 11K 12/3/2018
Data
Captured On
79 Backblaze Gleb Budman $30M 2007 70 500K 5/8/2018
80 Condecosoftware Paul Statham $30M 2005 400 1200 12/5/2018
81 Infoscoutinc Jared Schrieber $30M 2014 145 184 1/15/2018
82 Localytics Raj Aggarwal $30M 2009 150 600 1/16/2018
83 Logianalytics Steven Schneider $30M 2003 140 1K 10/8/2018
84 Salecycle Dominic Edmunds $30M 2010 180 500 2/11/2018
85 Servoy Jan Aleman $30M 2001 100 1K 11/19/2018
86 Showpad Louis Jonckheere $30M 2011 280 1K 2/21/2018
87 Simpli Frost Prioleau $30M 2010 250 400 8/21/2018
88 Summitsync John Corrigan $30M 2015 35 9K 1/9/2019
89 Workable Nikos Moraitakis $30M 2012 300 20K 9/26/2019
90 Workato Vijay Tella $30M 2012 80 1K 1/30/2018
91 Yello Jason Weingarten $30M 2008 209 600 2/13/2019
92 Astea David Giannetto $29M 1980 200 400 2/4/2019
93 Printingforless Andrew Field $28.8M 1996 330 300 10/29/2018
94 Wrike Andrew Filev $28.8M 2006 600 18K 11/14/2018
95 Rantandrave Nigel Shanahan $28.5M 2006 105 285 12/17/2017
96 Docebo Claudio Erba $28M 2005 250 1400 7/24/2018
97 Ecrs Pete Catoe $27M 1989 150 4K 9/26/2018
98 Srax Christopher Miglino $26M 2010 140 500 3/19/2019
99 Waveapps Kirk Simpson $25.2M 2011 200 10K 7/23/2018
100 Securityscorecard Alex Yampolskiy $25M 2014 130 450 5/15/2018
101 Venasolutions Shawn Cadeau $25M 2011 220 500 7/23/2018
102 Adcellerant Brock Berry $24M 2013 55 250 6/11/2019
103 Cheq Guy Tytunovich $24M 2015 100 100 8/6/2019
104 Smartcat Ivan Smolnikov $24M 2015 65 300 12/17/2017
Data
Captured On
105 Weebly David Rusenko $24M 2006 250K 3/7/2018
106 Drchrono Michael Nusimo $23M 2009 103 6K 11/7/2018
107 Junglescout Greg Mercer $22.7M 2015 120 63K 6/19/2019
108 Singular Gadi Eliashiv $22.5M 2014 150 150 2/11/2019
109 Everyware Larry $22M 2016 15 200 1/14/2019
110 6Sense Jason Zintak $21.6M 2014 150 150 8/26/2019
111 Contently Joe Coleman $21.6M 2010 110 300 4/16/2018
112 Leadspace Doug Bewsher $20.4M 2010 100 200 8/13/2019
113 Perfectcloud Mayukh Gon $20.4M 2015 35 850 12/12/2018
114 Konghq Augusto Marietti $20.3M 2017 140 130 6/12/2019
115 Cloudability Mat Ellis $20M 2011 130 1K 5/16/2018
116 Connectandsell Chris Beall $20M 2014 28 400 2/27/2019
117 Disqus Daniel Ha $20M 2007 100 25 12/10/2017
118 Linkfluence Guillaume Decugis $20M 2006 220 500 10/8/2018
119 Plivo Venky Balasubramanian $20M 2011 200 70K 7/10/2018
120 Qasymphony David Keil $20M 2011 160 648 8/7/2018
121 Socialtables Dan Berger $20M 2011 100 5K 2/6/2019
122 QuestionPro Vivek Bhaskaran $20M 2005 140 4800 9/24/2019
123 Sendinblue Armand Thiberge $19.8M 2013 180 30K 11/12/2018
124 LeadCrunch Olin Hyde $19.7M 2013 72 400 8/26/2019
125 Typeform David Okuniev $19.2M 2013 190 40K 6/13/2018
126 MediaFly Carson Conant $18.7M 2006 120 260 9/26/2019
127 Pixelandtonic Brandon Kelly $18.7M 2010 10 6K 2/11/2018
128 PandaDoc Mikita Mikado $18.5M 2011 220 14K 9/19/2019
129 Freightos Zvi Schreiber $18M 2012 300 1500 9/26/2019
130 Jobscience Ted Elliot $18M 1999 60 500 1/9/2018
Data
Captured On
131 Pixlee Kyle Wong $18M 2014 50 500 7/17/2019
132 Quizlet Matthew Glotzbach $18M 2006 100 1M 7/12/2018
133 Skubana Chad Rubin $18M 2015 27 1K 2/22/2018
134 Tapclicks Babak Hedayati $18M 2010 250 5K 4/19/2019
135 Vwo Sparsh Gupta $18M 2010 200 5K 12/18/2017
136 Nuorder Heath Wells $17M 2011 100 1K 12/5/2018
137 Case Bahar Ansari $16.9M 2016 300 3K 7/10/2019
138 Forcemanager Oscar Macia $16.8M 2011 100 700 12/17/2017
139 Oomnitza Arthur Lozinski $16.8M 2012 50 200 6/19/2019
140 Uberflip Randy Frisch $16.5M 2011 140 500 7/29/2019
141 24Sevenoffice Stian Rustad $15.8M 1996 7 40K 6/10/2019
142 Paloalto Sabrina Parsons $15.6M 1987 80 100K 12/5/2018
143 Quanticmind Brian Bird $15.6M 2011 75 65 7/17/2019
144 Helpscout Nick Francis $15.1M 2011 80 9K 7/24/2018
145 Loginextsolutions Dhruvil Sanghvi $15M 2014 100 50 11/7/2018
146 Reviewpro RJ Friedlander $15M 2008 110 45K 11/19/2018
147 Cloudcheckr Aaron Newman $14.4M 2011 150 600 5/7/2018
148 Olark Ben Congleton $14.4M 2007 35 12K 10/8/2018
149 Pegex Eric Apfelbach $14.4M 2018 42 2K 6/18/2019
150 Pendo Todd Olson $14.4M 2013 166 400 12/17/2017
151 Teikametrics Alasdair McLean-Foreman $14.4M 2015 85 2K 5/30/2019
152 Vainu Pietari Suvanto $14.4M 160 2K 5/22/2019
153 Webflow Vlad Magdalin $14.4M 2013 65 30K 7/23/2018
154 Inbenta Jordi Torras $14.2M 2010 165 300 2/11/2019
155 Textrecruit Erik Kostelnik $14M 66 1062 1/7/2019
156 Glympse Chris Ruff $13.5M 2008 30 30 2/6/2019
Data
Captured On
157 Formstack Chris Byers $13.4M 2006 115 16K 5/22/2018
158 Iadvize Nicolas de $13M 2010 250 1500 11/25/2018
159 Oleeo Jeanette Maister $13M 1995 120 400 12/9/2018
160 Suzy Matt Britton $13M 2011 65 200 8/13/2019
161 Rocketrip Dan Ruch $12.6M 2013 70 70 5/6/2019
162 Acemetrix Peter Daboll $12.5M 2010 45 95 12/14/2017
163 Actito Benoit De $12.5M 2002 100 250 1/14/2019
164 Customerville Max Israel $12.5M 2003 40 50 9/18/2018
165 Brandfolder Luke Beatty $12M 2012 25 4K 12/11/2017
166 Cirrus Insight Brandon Bruce $12M 2011 58 150K 12/10/2017
167 Cirrus Insights Ryan Niemann $12M 2011 70 125K 9/3/2018
168 Dialsource Joshua Tillman $12M 2005 40 20K 1/29/2018
169 Gomercatus Haresh Patel $12M 2012 45 24 2/20/2019
170 Intronetworks Mark Sylvester $12M 2003 50 2/22/2018
171 Jelli Mike Dougherty $12M 2012 45 2300 1/16/2018
172 Marketfactory Darren Jer $12M 2008 36 30 9/13/2018
173 Neoreach Jesse Leimgruber $12M 2015 30 100 12/9/2018
174 Omie Marcelo Lombardo $12M 2013 200 12K 1/30/2019
175 Seva Nathan Barry $12M 2013 37 19370 7/8/2018
176 Smartassistant Markus Linder $12M 2006 100 100 5/16/2018
177 Supermetrics Mikael Thuneberg $12M 2010 50 10K 5/23/2019
178 Yoast B Joost de $12M 2013 100 200K 1/16/2019
179 Zinrelo Jai Rawat $12M 2009 30 500 3/8/2018
180 Zuberance Rob Fuggetta $12M 2008 25 100 4/4/2018
181 Productsup Johannis Hatt $12M 2014 100 270 2/13/2019
182 Surefirelocal Chris Marentis $11.8M 2013 56 2K 2/11/2019
Data
Captured On
183 Wayin Richard Jones $11.5M 2011 72 152 9/18/2018
184 Brightpearl Derek O'Carroll $11.3M 2008 84 913 7/10/2018
185 Kimbleapps Sean Hoban $11M 2010 110 220 3/19/2019
186 Assembla Paul Lynch $10.8M 2005 45 3500 4/24/2018
187 Atrium Chris Heineken $10.8M 2018 85 30 8/26/2019
188 Bizzabo Eran Ben-Shushan $10.8M 2012 120 600 5/6/2019
189 Grow Rob Nelson $10.5M 2014 100 1300 1/16/2018
190 Encompasscorporation Wayne Johnson $10.5M 2012 70 250 6/11/2018
191 LeadGenius Prayag Narula $10.5M 2011 60 250 9/19/2019
192 Processmaker Brian Reale $10.5M 2008 140 350 2/11/2018
193 Pipelinersales Nikolaus Kimla $10.5M 2012 1200 6/12/2018
194 Revtrax Jonathan Treiber $10.2M 2008 35 100 5/22/2019
195 Ripl Clay McDaniel $10.1M 2013 30 70K 1/8/2020
Funnel.io Team
$47m on $150m Pre? Did $10m ARR
Funnel.io Raise Too Much?
P. 26
391 of the biggest SaaS CEO’s and Investors
are talking in a private slack group
Don’t miss out. Join the waitlist at

NathanLatka.com/slack
Slack LATKA MARCH 2020 15

How RIA's Are Earning 12% As RIA’s hunt for more fixed income
opportunities, many are turning to the
hot world of software. Chasing venture
Fixed Interest Loaning to SaaS returns are too risky but many debt funds
are paying out 12% interest every quarter
Companies (and founders love as they take first lien position lending
to SaaS companies and their lucrative
keeping equity!) customer recurring contracts. Here’s how

founders think about debt today.
30%+ Equity
Convertible Note (SAFE)
25-30% SEAL
Cost
20-35% Revenue-Based Financing
12-20% Term Loands (First Position)
3-7% Senior Debt
$100K $10M $20M
Company Revenue (ARR)
There are only 2 ways to raise capital for 1. Traditional Equity 2. Convertible Notes or
your software company to drive growth. SAFE’s
Equity is what you’re most familiar with.
You can raise debt, or you can raise equity. These allow you to raise capital today with
Over the past 10 years, investors (equity) This is when you raise a Seed round from
an interest rate, usually 6-8%, a valuation
and lenders (debt) have standardized dif- angels who buy a % of your company.
cap, and sometimes a discount (usually
ferent mixes of the two to give more free- You might raise $2 million on an $8 mil- 20%).
dom to entrepreneurs. lion pre money valuation which means
This isn’t really debt though. Investors us-
Today, there are 6 main combinations of you sold investors 20% of your business.
ing a note or SAFE are not going to ask
debt and equity that SaaS founders can This scales all the way up to a $80 million you to pay it back.
raise on. revenue company raising a $100 million
They want you to grow and then convert
In this article, we’ll focus on each of the 6 Series D, 12-18 months before their IPO.
them to equity. This is a fast and cheap
options and then run a scenario compar- Examples: Battery, a16z, FirstRound, method to approximate equity value ahead
ing the options for a company doing $2 Founders Fund, Kleiner, TCV of an anticipated equity round.
million in revenue that wants to raise $1
million.
16 MARCH 2020 LATKA 50+ Venture Debt Options for Anti-VC SaaS Founders
Examples: Any early stage VC Fund like you could raise up to $500k (1/2 your tatives, increase ad spend, and hire 2 engi-
ActiveCapital, or angel investors ARR), and pay back 1.5x, or $750k, over neers to accelerate product development.
4 years by paying 3-10% of your gross
3. “Shared Earnings” and monthly sales every month. For us to calculate cost of capital, lets as-
SEAL’s sume you use this $1m to grow the busi-
Examples: LighterCapital, TIMIA ness 4x over 4 years to $8m in revenues.
These come in a variety of flavors with the
basic idea being if the founders generate 5. Mezzanine Debt Equity Example:
profit, investors get paid a 3-5x return over
For B2B SaaS companies, there are many To raise $1m, you’d sell about 10% of your
some period of time, and still have ability
lenders who take first lien on your busi- business. I’m assuming a 10m valuation, a
to participate in equity.
ness (Senior Debt) who will offer up to 6x 5x valuation multiple, on $2m in ARR. If
Earnest, TinySeed, and IndieVC are the your MRR at mezz like returns (16-25% your company grows to $8m in ARR in 4
players here. Remember to put this in con- interest rates). years, your company is worth about $40m
text. This is a very new concept with less assuming the 5x multiple doesn’t change.
These lenders typically take 0.1-0.2% war-
than $20m being deployed from all 3 of
rants and also ask for financial covenants. That 10% you sold 4 years ago for $1m is
these investors combined over the past 3
now worth $4m.
years. Examples: SaaSCapital, Espresso Capital,
BigFoot Capital You “paid” $4m to 4x your business over
This is Earnest Capital’s term sheet. As
4 years.
founders pay themselves salaries, you pay 6. Senior Debt
back Earnest 2-5x their investment. Un- Convertible Note Example:
like Indie.VC there is no “repurchase start This debt is the cheapest because there’s
date”. If founders don’t pay themselves “less risk” to the lender. Founders pay this You would raise $1m on a note at a cap of
salaries, and their is no net income, you’d back at a flat 4-7% interest rate, usually $10m, interest rate of 8%, and discount of
owe Earnest nothing. Obviously this isn’t paid out monthly. You have to be building 20%.
reasonable because founders have living a SaaS company that is “de-risked” to get
this kind of debt. Lets say you used this $1m to grow and
expenses and will eventually take some then raised a $10m Series A 4 years later at
salary. “De-risked” could mean that you’ve raised a $40m pre money valuation.
Even if you pay Earnest back, they retain traditional VC so there is a “backstop” for
the senior debt. It could mean that you’re Convertible note investors would end up
whats called an “Equity basis” which acts with 13.2% worth about $5.2m. In this
like a SAFE and enables them to convert growing at a healthy rate without burning
a ton of capital. example, this is “more expensive” than
their investment to equity. raising $1m in straight equity at the start
This is Indie.VC’s term sheet, sweet spot Generally, once you’re bigger than $10m because of the discount rate and interest
$300k investment in exchange for ~10% in revenues, Senior Debt lenders become found in most convertible notes.
equity. After a period of time (repurchase an option for you.
The upside for founders is added flexibil-
start date) if you don’t sell or raise tradi- Examples: SVB, CIBC, Hercules ity.
tional equity, you must start paying back
this $300k as a % of your gross revenue Now that you have a high-level under- You “paid” $5.2m to 4x your business over
each month until you pay back $900k (3x standing of the 6 different ways you can 4 years.
cap). As you do this, you “buy back” up to use debt and equity to raise money for
9% of the 10% equity IndieVC took. your SaaS company, lets explore a real life
scenario.
TinySeed terms are listed here. They’ll in-
vest $120k for 8-15% of the business. They For a company with $2m in revenue that
set salary cap with the founder. If company wants to raise $1m, whats cheaper?
generates profits, TinySeed gets dividends
on pro-rata basis. TinySeed has right to Debt or Equity?
participate in next round of equity financ- 6 Ways For a Company Doing
ing and their investment converts.
$2 Million to Raise $1 Million
4. Revenue Based Financing Lets say that you’re a bootstrapped found-
(RBF’s) er with $2m in revenue (ARR) and you
If you know you can put $1 in your SaaS want to raise $1m to grow faster.
“sales machine” to get $2 in new annual You have a good idea about your customer
recurring revenue, you might use revenue acquisition cost (CAC), and you’re grow-
based financing (RBF’s). ing 50% yoy.
If you’re doing $1m per year in revenue, You want $1m to hire some sales represen-
50+ Venture Debt Options for Anti-VC SaaS Founders LATKA MARCH 2020 17
Shared Earnings Income (6% of $217k) to pay back the debt. Instead, you raised $1m in capital, paid
Agreement (SEAL) Example: back $1.5m and grew your business 4x.
Let us continue with the growth story, 18
To raise $1m, you’d sell about 10% of your months in and you’re killing it. Now you’re Mezzanine Debt:
business but you’d have the ability to buy up to $300k/mo adding $30k in new MRR
every month. The 6% you’re paying back To raise $1m here you’d pay a straight
back up to 9% of that equity for $3m.
monthly grows quickly. Now you’re paying interest rate. Of all the term sheets I’ve
That 9% you sold 4 years ago for $1m is back $18k/mo (6% of $300k/mo). looked at, they typically fall in the 17-22%
now worth $3.6m but you had to pay $3m on a 4-6 year term.
(3x the initial $1m you raised) to get the If you continue this kind of growth, you’ll
pay your loan back way before its 4 year Lets assume a $1m raise at 18% on a 4 year
9% back.
term ends. This would make your cost of term. Your monthly payments would be
When the dust settles, investors own 1% capital much higher. $29,375 consistently each month. (See fig-
of your $40m valuation business (worth ure 1.4)
$400k), and you paid $3m in cash to get Let us assume though that you grew reve-
nue at exactly the rate you needed to pay- Sometimes these lenders will give you an
back your other 9%. In total, you paid out
off the loan in line with the 4 year term. interest only period of 6-12 months which
$3.4m over 4 years to get that initial $1m.
is nice. This enables you to start driving
I’m oversimplifying in the chart below. Even in this perfect (cheapest) scenario, some growth with the $1m you raised be-
Payments are not actually equal every you’re paying an interest rate of 22%. (See fore you have to start paying back princi-
month. (See figure 1.1) figure 1.3) pal.
With these assumptions, effective interest The good news is you grew your MRR Sometimes these lenders will also have
rate on $1m in and $3.4m out over 4 years from $167k to something well north of warrant coverage equal to the value of 5%-
is about 81%. $525k. I calculated that by taking the pay- 20% of what they loan (so $50k-$200k of
ment in month 48 of $31,506 and dividing warrants on a $1m loan). At a $10m valu-
You could also wait for more than 4 years by 6% (the monthly money you owe on the ation, those warrants effectively equal .5-
to buy back the 9% which would drive in- loan). 2% of the company.
terest rate down from 81%.
(RBF’s can get very expen- Most friendly lenders here will not require
However, even if you waited 8 years to pay warrant coverage or strict financial cove-
sive)
back $3.4m on the $1m, you’re looking at nants like “keep 6 months of burn in cash
an interest rate of 41% (some would say If you grew faster, you’d pay off the loan at all times”.
expensive!). (See figure 1.2) faster since its tied to 6% of your monthly
revenue, and this would drive your inter- In total, you raised $1m in capital, paid
The upside of this model is the entrepre- back $1.4m and grew your business 4x.
est rate up.
neur decides whether to pay back the cap-
ital or not. If the company does well, you If you grew way slower, you’d have to pay Senior Debt:
can pay it back from cashflow. If the com- back a big chunk of principle at the end
pany doesn’t do so well, you let the inves- of the 4 year term. This is cash you’re This would be pretty straightforward. A
tors keep 10%. not likely to have sitting in your bank to bank like SVB would give you a credit line
actually payoff. of $1m and you’d owe 5% interest on how-
You paid back $3.4m and grew your busi- ever much of the $1m you’ve used (lets as-
ness 4x over 4 years. You’d likely try and renegotiate with the sume you use all of it).
debt provider, but since they have most
Revenue based financing of the leverage, you’ll end up with an even They’d take 20-50bps (.2-.5%) in warrants.
(RBF’s): higher interest rate and other bad terms 0.5% of a $10m company is $50k.
you don’t want. This sort of facility is only available to
To raise $1m, you’d sell no equity but you’d
have to pay back $1.5m over the next 4 Its notoriously hard to model the true cost those founders with VC backers, loads of
years (repayment cap). of capital on an RBF. I’m giving you exam- cash in the bank, or otherwise very low
ples so you can understand relationships risk.
At a $2m run rate, you’re doing $167k/mo
between the key terms then make up your 4 years later when you grow to $40m val-
when you raise this $1m. You’ll pay this
own mind. uation using the $1m line of credit, those
loan back using 6% of your monthly gross
receipts, or $10,020/mo ($167k*.06). If you used the $1m loan to grow revenue warrants are worth $200k and you’ve paid
from $2m a year to $8m+/year, assuming the bank $105k in interest on the $1m you
Lets say every 6 months you increase MRR took from them.
the valuation multiple of 5x didn’t change,
by about $50k because you intelligently in-
the 10% you saved from not selling equi- You paid $305k to 4x your business.
vested the $1m you raised.
ty (and using RBF instead) is now worth
6 months after the raise, you’re doing something like $4m. Merchant Cash Advances:
$217k/mo in revenue paying $13,020/mo
Merchant cash advances are tricky to di-
rectly compare to everything else because
18 MARCH 2020 LATKA 50+ Venture Debt Options for Anti-VC SaaS Founders
Figure 1.1 its a very different facility. These advances
are usually very expensive and are a multi-
ple of your monthly revenue.
A new breed of lenders are popping up in
this space like Stripe Capital, ClearBanc,
Paybal, AMEX, and others.
The cost of capital is usually marketed as
a “fee” versus an interest rate. You should
try to calculate the cost of capital by un-
derstanding how long you have to pay it
back (interest depends on time it takes to
Figure 1.2 pay back).
For example, you’re selling $250k per
month in product, maybe you get a mer-
chant cash advance of $500k and pay it
back over 6 months with 15% interest (so
30% effective APR).
Summarizing Your Options

as a SaaS Founder:
Use this chart to get a snapshot of your op-
tions but please remember the details of each
option.
* Equity, Notes, and SEALs are not meant
to be debt facilities (See figure 1.5)
Figure 1.3 It would be a mistake to only look at APR’s

to compare Equity vs. Debt (you don’t ac-
tually have to pay out cash/interest on Eq-
uity rounds).
The real upside to debt over equity is that
it allows you to keep all of your equity, but
you must pay back cash.
The real upside to equity is that it allows
you to bring on smart people who are
motivated to help you go build a massive
company.
Figure 1.4
Your job is to not run out of
cash
In conclusion, a CEO’s top priority is not
running out of cash.
As you think about your options, consider
this question:
If you take money and fail to grow the
business, is debt or equity more likely to
kill you? L
Figure 1.5
50+ Venture Debt Options for Anti-VC SaaS Founders LATKA MARCH 2020 19
6 Charts CEO’s Should Use Like
Weapons (But Probably Don’t)
When building a SaaS com- Figure 1.1
pany its easy to overwhelm
yourself with Google Data Is your churn high or low relative to your price point?
Studio charts, Mixpanel usage Annual contract values on left side, gross revenue churn annually across bottom
metrics, or Google Analytics
conversion metrics.
When I analyze a SaaS com-
pany before I interview them 500K
for my podcast The Top En-
trepreneurs, I always try and
plot where they are in terms 100K
((ACV)
CV)
of these 6 charts. I think CEO’s 50K

lue (A V
will find these useful as well as

Value
quick indicators of company

10K
health:
Average Annual Contract Va
V
5K
1K
500
100
50
0% 1% 5% 10% 50% 100% 500%

Gross Annual Revenue Churn
Most founders give up on try- Figure 1.2

ing to improve churn saying
something like: “It’s just be- Do you have a shot at $100m ARR at current price points?
cause our customers are small ACV vs Customer Count
and they go out of business!”
Use the chart below to see if
your churn is in range of oth- $50m+ ARR $10m-$50m ARR $1m-$10m ARR $1-$1m ARR
ers serving those same sized Pre Revenue
customers, measured by how
much they pay you.
Price point won’t kill you but
100K
((ACV)
CV)
it can drastically increase your

V
shot at building a $100m reve-

lue (A
nue (ARR) company.

Value
Average Annual Contract Va
10K
V
It’s a helpful exercise on Day

1 to ask yourself: “Can I get
enough customers are our
initial price point to build to 1K
$100m in revenue?”
Those companies in dotted
square below are stuck. They 100
either need to increase price
drastically or decrease price
and 100x the shear number of
customers they serve. 10
1 10 100 1K 10K 100K 1M 10M

# of Customers
20 MARCH 2020 LATKA 6 Charts CEO’s Should Use Like Weapons (But Probably Don’t)
Figure 1.3 It is possible to overfund your
company, despite how tempt-
How to raised next round of funding, if growth behind targets ing that next TechCrunch
Funding raised vs ARR headline is. Most companies
raise capital ahead of revenue
growth so you’ll constantly
80M be trying to get revenue up
BAD SPOT:
$5M ARR
Companies in this slice to drive a higher valuation on
have raised more than 2x
$55M Raised
their current ARR. your next round, avoiding a
70M down round and serious dilu-
Worse:
"OK" SPOT:
tion.
Companies in this slice
60M Less ARR than
have raised 1-2x their
To always maintain leverage as
current ARR.
funding
a founder, I recommend nev-
50M er raising more than 3x your
current ARR after you’re past
$1m in ARR (obviously rule
Funding
40M doesn’t work smaller than this

– totally find for companies to
30M raise $200k seed pre-revenue
to build MVP).
20M Strongest companies in this
CEO's avoid
SWEET down rounds
SPOT: chart are in the bottom right.
Companiesby
and dilution in keeping
this slice
theirhave
ARRraised
moreless than total
than their
10M current ARR.
Funding raised
0
0 5M 10M 15M 20M 25M 30M 35M 40M 45M 50M
ARR
Figure 1.4 Averages are dangerous here

but they still provide good
Are you spending too much or too little to acquire customers? guidance. Trend here is what
CAC vs. ARR/Funding buckets you’d expect, companies with
more raised (dark blue line)
Bootstrapped
$100m+R aised
<$1m Raised $1m-$10m Raised $10m-$100mR aised
spend more to get customers
1.2 than their bootstrapped com-
$1.18
petitors.
$1.06
Companies that have raised $1.03
$10m-$100m with more than $10m $1
1 in ARR spend $1.03 on average for
$1 new dollar ofo ARR
$0.88
RR
NewAARR
$0.79
0.8 $0.77
or $1 New
$0.71
$0.64
$0.61
ent For
0.6 $0.54
SpentF
$0.5
$0.47
$0.46
Dollars Sp
S
$0.41
$0.39
0.4
$0.18
0.2
0
$1-$1m ARR $1m-$10m ARR $10m-$50m ARR $50m+A RR
6 Charts CEO’s Should Use Like Weapons (But Probably Don’t) LATKA MARCH 2020 21
Figure 1.5 Things like outsourced dev teams, location
How much ARR should you make from each of your employees based of roles?
reliant salaries, and nature of competitive
ARR vs Team Size
hiring markets drastically effect the targets
below, but generally speaking, if you’re
making more than $150k – thats revenue/
ARR – per employee, you’re more profit-
able than your competitors.
Less than $150K in

ARR per employee?
Slow down hiring.
Last week I was talking to an entrepreneur
and he asked what valuation I thought the
market would bear for his startup’s next
round of funding. I asked for the business
state of the union and standard financial
metrics like recurring revenue, growth
rate, gross margin, burn rate, cost to ac-
quire a customer, renewal rate, and net
dollar retention.
After hearing the metrics, I shared that
they’re below the Rule of 40 or better.
Confused, he asked what that meant. The
Rule of 40 is the growth rate, as a number,
plus the burn or profitability percentage,
as a positive (profits!) or negative (losses)
number, added together.
If the business is growing 100% year-over-
year, and is burning the cash equivalent to
40% of revenue, it would be 100 + (-40) =
60, which is 40 or better.
Figure 1.6 If the business is growing 50% year-over-
year, and is burning the cash equivalent to
How much money should you be burning at $1m ARR, $10m, $50m, and $100m
Free Cash Flow vs. ARR Growth Rate
30% of revenue, it would be 50 + (-30) =
20, which is below 40, and not as good.
Let’s look at a more specific example:
• $10 million of revenue
E40 LINE
200%
• 50% year-over-year growth rate
Burning Cash Profitable
180% High Growth High Growth
• $1 million in trailing twelve months
160% burn (burn is 10% of revenue)
140%
Here, the Rule of 40 calculation would be
120% 50 + (-10) = 40. So, they’re in good shape
2018 ARR Growth
100%
and are right at the Rule of 40.
80% Another way to think about the Rule of 40
is that if the startup has a high burn rate
60% relative to revenue, it needs to have a high
40% growth rate. If the startup has a low growth
rate, it needs to be profitable.
20%
0% Burning Cash Profitable

If some extreme cases like dramatic user
No Growth No Growth growth (e.g. Facebook in the early days)
-20% and amazing net dollar retention (existing
-60% -40% -20% 0% 20% 40% 60%
customers buy significantly more product
2018 EBITDA Margin
every year and outweigh the customers
that leave), the Rule of 40 is less applicable.
For most startups, it’s very relevant.
The Rule of 40 is a great way to assess how
a startup is performing in an objective
manner and should be a regular topic of
conversation for entrepreneurs. L
This post originally appeared on david-
cummings.org
22 MARCH 2020 LATKA 6 Charts CEO’s Should Use Like Weapons (But Probably Don’t)
1500
1000
R $24K
ARR = 12,000
MRR = 1,000
QRR = 3,000
ΔT 2 years 500

90
CUSTOMER COUNT
80
10 40
30
C x Δt 20
LIFETIME
10 10 5 YEARS

35,000
TRR 20,000
C 15,000
- ARR = $7,500
# New Customers 400
5,000
TIME

20,000
15,000
10,000
ARR = $7500
5,000
CAC $2500
TIME
Total CAC $1,950,000 0 1 2 3 4 5 (YEARS)
12,000
9,000

C
TOTAL
service expenses
0 100 200 300 400 # CUSTOMERS

200,000
160,000
120,000
ARR
a

i + a -g


Wall #3!
stree t
Funnel.io Quadruples Revenue to $10
Million, Raises $47 Million
Figure 1.1
Funnel.io Revenue Over Time

$10M
$8M $8M
GETLATKA.COM
$6M
REVENUE
$4M
$2M $2.1M
$700K
0
2014 2015 2016 2017 2018 2019 2020
TIME IN YEARS Funnel.io Team
26 MARCH 2020 LATKA Funnel.io Quadruples Revenue to $10 Million, Raises $47 Million
• Funnel.io more than 4x’ed their an- Spreadsheets Are a Trillion help spreadsheet readers gather the right
nual revenue since 2017 to $10 mil- Dollar Problem insight:
lion
The need to communicate marketing data • Custom dimensions. This feature
• They just closed a $47 million Series across the organization is as strong as ever. allows you to quickly regroup and
B round A survey of 2,000 employees from the US restructure your data into easily read-
and the UK revealed that roughly 80% of able formats.Funnel.io feature #1
• The platform serves as an alternative
to marketing spreadsheets the workforce either “agree” or “strongly • Custom metrics. A feature to normal-
agree” that managers should share more ize metrics across data from different
• Funnel.io has 700 customers paying information about the organization’s per- platforms, add fees and margins to
$900 per month formance. The vast majority of employees your cost data and quickly calculate
said knowing how their company is doing ROAS/ROI.Funnel.io feature #2
Funnel.io is a marketing data platform, as
makes them more focused, more motivat-
the CEO Fredrik Skantze put it. It helps • Currency converter. Automates all
ed, more creative and less stressed.
companies like Skyscanner, Samsung and things related to currency in your
Ubisoft pool their marketing numbers Only 32% of respondents get to see com- multi-market spreadsheets, so that
into one place so that it’s easy for anyone pany data more than once a week, while you don’t have to do it yourself.Fun-
concerned to see the trends and generate 17% say they have no clue how their com- nel.io feature #3
reports. pany is doing. And, when the information
Traditionally, companies stockpile their
is shared, it’s either via meeting, email or Funnel.io Average Customer
spreadsheet. Value Doubles In 2 Years,
marketing data from advertising plat-
forms and Google Analytics into unread- In the UK, spreadsheet-based financial de- Customers Pay $900 Per Month
able spreadsheets. This leads to all kinds of cisions govern major market forces, F1F9
inefficiencies. The last time Skantze came onto the show
group reports:
in November 2017 their average custom-
Besides its obvious caveat—that not ev- • Spreadsheets are used in the prepa- er value was $450. As of September 2019,
erybody can read spreadsheets—the tradi- ration of British company accounts they’ve more than doubled that, the CEO
tional way of documenting data is danger- worth up to £1.9 trillion says. Safe to say the average customer pays
ously inaccurate, F1F9 research reports: Funnel around $900 per month nowadays.
• The UK manufacturing sector uses
• 16% of large businesses have expe- spreadsheets to make pricing deci- The success is mostly defined by Skantze’s
rienced inaccurate information in sions for up to £170 billion worth of aggressive expansion towards enterprise
spreadsheets more than 10 times in business clients, as opposed to SMBs. While they
the last year did not forcefully churn the smaller cli-
• 78% of British businesses say that key ents, their focus these past couple of years
• 1 in 25 large businesses (4%) have ex- financial decisions are supported by was solely on adapting to the needs of larg-
perienced inaccurate information in spreadsheet er companies.
spreadsheets more than 30 times in
the last 12 months Safe to say, Funnel.io has plenty of prob- Skantze admits that the shift wasn’t a pure
lems to solve. strategic play, but a transition largely gov-
• 17% of large businesses have suffered erned by market forces. “As we became
financial loss due to poor spread- Funnel.io Provides an Alter- more established in the industry, as our
sheets native to Spreadsheets product was more capable, larger and larg-
The Enron case study provides scary evi- At its core, Funnel is an intermediary be- er companies found us and wanted to do
dence of how systematically detrimental tween marketing data sources and data business with us. And then also having
spreadsheet use can be: outputs. The sources are your marketing the capability to serve them,” the CEO ex-
platforms: Google, Facebook, Twitter, Ya- plains.
• 24% of Enron spreadsheets with for-
hoo, Pinterest. At the moment, Funnel’s
mulas contained errors Funnel.io Targets Mid-market
website says they support over 500 data
• 59% of unique formulas with errors source integrations. This means that wher- Clients, 700 Total Customers
had one or more dependent cells, ever you’re advertising, you’ll probably be Paying $900 Per Month
which indicates that spreadsheet er- able to have Funnel read that data auto-
Back in November 2017, Funnel served
rors can have an impact in other ar- matically.
around 340 customers, most of whom
eas of the spreadsheet were in the SMB cohort. Today, they have
The outputs are your ways of making
• The group of 158 Enron employees sense of the data. Instead of just lumping 700 customers, a significant part of which
were emailing approximately 100 everything into a spreadsheet and hoping are mid-market enterprises.
spreadsheets per day the right eyes are trained in Excel-detec-
Have they changed their sales process to
tive-work, Funnel offers three features that
land bigger clients? “A little bit,” the CEO
Funnel.io Quadruples Revenue to $10 Million, Raises $47 Million LATKA MARCH 2020 27
says. “We have substantially more sales
people, so we have specialized the sales
process a bit. Some teams are focusing on
smaller customers, some teams are focus-
ing on larger customers. We’ve grown our $18M
US presence quite a lot—we’re a European
company.”
$16M
A European company, Funnel has built an
office in Boston for 30 of their employees.
$14M
Their total team size is “just north of 100”
people, 15 of whom are quota-carrying
salespeople. 40-45 engineers are responsi- $12M
ble for the actual product.
$10M
Funnel.io Spends $100,000
Monthly on Search Engine
$8M
Marketing, 1000 Monthly
Leads, 100 New Customers
Each Month $6M
Running a mid-market company, the CEO

$4M
seems pretty loose in terms of the actual
quotas. “We think $5,000 in new MRR per
salesperson is pretty good. That gives us a $2M
payback time of 12 months.”
In terms of customer acquisition cost, $0
Skantze confirms that the company is hap- $0 $5M $10M $15M $20M $25M $30M $35M $40M
py to pay $12,000 for a new customer. The
lion’s share of that goes to lead generation,
the CEO says.
In 2018, Funnel built an office in Boston what we had [in November 2017,]” Skan-
Search engine marketing is one of Funnel’s to tackle the company’s geographical chal- tze says.
most successful lead generation funnels. lenge. Their Boston sales representatives
When I asked the CEO whether they spend cover the US clientele, while their home- A now-established mid-market player,
at least $100,000 per month on SEM, he town headquarters cater to European and Funnel has plenty of room for expansion
nodded with “something like that.” Middle East clients. “We don’t have a big revenue, and they haven’t been watch-
presence in Asia at the moment,” the CEO ing grass grow. Their expansion revenue
It takes 400 “dialogues” with qualified more than makes up for the 24% annual
adds.
leads to convert 40 customers, Skantze churn, Skantze says, with 0.5% net nega-
says. “We have a dialogue with about 1,000 Funnel differentiates clients not just by ge- tive monthly churn.
prospects every month,” the CEO says, ography, but by potential lifetime value as
“Some just want to talk, they’re not a good well. If it’s a smaller lead, Skantze explains, This puts Funnel’s net revenue retention at
fit. You have to sift this through. [In the they’ll strive to have fewer sales represen- about 106%, which is by no means a triv-
end,] it’s only 100 [leads] that are really tatives working on it and make the process ial achievement. However, at this average
high value.” as automated as possible. “But if it’s a larg- customer value range, world class players
er deal, then you want the whole team on are doing upwards of 130% in terms of net
To put it in more traditional terms, Fun- revenue retention. How does Funnel get to
that lead,” Skantze adds.
nel generates about 1,000 leads per month that point?
in total, 100 of whom eventually become Funnel.io Gross Churn Under
customers. Skantze points at increasing the average
24%, Net Revenue Retention contract value. If you get through to a cer-
Funnel.io Competitors, CEO: at 106% tain level of contract size, retention spikes.
“There are none” “Dealing with larger customers, then you
Back in November 2017, the CEO said have much higher net retention,” the CEO
In his 2017 Techcrunch interview, Skantze Funnel’s annual gross revenue churn was says.
said “90 per cent of the time [our pros- at about 35%. Today, Skantze says gross
pects] use Google Sheets or Excel for this monthly churn is “between 1.5% and 2% Funnel does not currently have a CRM-es-
and no other competitor is involved.” a month,” which puts them at 24% gross que model where they could sell those
annual churn at max. “It’s about half of mid-market companies on a per-seat ba-
28 MARCH 2020 LATKA Funnel.io Quadruples Revenue to $10 Million, Raises $47 Million
sis. “We have a model where we sell the 3. Fredrik’s favorite online tool for build- 5. What does Fredrik wish his 20 year-
platform the way it is,” Skantze admits. ing a tool besides Funnel.io is Gong. old self knew? “You know, getting out
Instead, the company generates expansion io, which records and transcribes of corporate. And doing something
revenue via selling additional features or your sales conversations. smaller, where what you do really re-
usage. Ad dollar spend, data quantity and ally matters and becomes more real a
number of data sources are key factors in 4. How many hours of sleep does Fredrik bit earlier.”
how much customers pay Funnel for their get every night? Married? Single?
platform. Kids? How old is Fredrik? “About 8
hours; married with two kids; I just
Funnel.io Raises Additional turned 48.”
$47 Million, Not Ready to Sell
In November 2017, Funnel had raised $13
million in funding. By the end of 2018, the
company had raised an additional $8 mil- Figure 1.2
lion. And, just this month, Funnel received
a hefty $47 million Round B investment. Funnel.io Customers Over Time
The $8 million equity investment, Skantze 1,000
says, mostly went the product develop-

ment side of things, to fund whatever their
800
team of 45 engineers is up to. The CEO
says they’re comfortable with an 18-24 700
month burn rate. Skantze confirms Funnel
CUSTOMER COUNT
600
is burning around $400,000 per month.
GETLATKA.COM
700 customers paying $900 per month
400
generate Funnel $670,000 per month, or
just over $8 million annually. Compared 340
to their $2.2 million annual revenue back 200
in November 2017, Funnel has grown 4x
over the course of two years.
0
When I asked the CEO whether he’d sell 2014 2015 2016 2017 2018 2019 2020
the company for $80 million in cash, he TIME IN YEARS
smiled and shook his head. Figure 1.3
5 Questions with Funnel.io Funnel.io Funding Over Time

CEO Fredrik Skantze $100M
1. Fredrik’s favorite business book? “I

really like Management 3.0, which is
about taking agile software methodol- $75M
ogies to general business practices. It’s +$47M
pretty dense, but it’s a really insightful
TOTAL $68M
book.” GETLATKA.COM
FUNDING
$50M
2. Is there a CEO Fredrik is current-

ly studying or following? “I like the
team from HubSpot. Brian Halligan $25M
and Dharmesh, I think they’ve built +$8M
TOTAL $21M
a great company, they’ve managed +$10M
TOTAL $13M
to pivot into CRM and expand their $3M
market, they’ve built a good culture.” $0M
2012 2013 2014 2015 2016 2017 2018 2019 2020
TIME IN YEARS
Funnel.io Quadruples Revenue to $10 Million, Raises $47 Million LATKA MARCH 2020 29
WHY ARE TOP SAAS CEO'S GOING
TO SECRETIVE LATKA CEO FORUM?
30 MARCH 2020 LATKA Secret Forum
Secret Forum LATKA MARCH 2020 31
UPCOMING SAAS
CONFERENCES
01 INORBIT
March 19th - Portorož, Slovenia
06 SAASTOCK LATAM
May 11th - Sao Paulo
02 BUSINESS OF SOFTWARE
March 23rd-24th - Cambridge, UK
07 GROWTH HACKERS CONF.
June 4th - San Francisco
03 GROWTH MARKETING STAGE

April 8th - Ukraine
08 SAASTOCK SAN FRANCISCO
June 22nd - San Francisco
TRACTION CONF
04 PRODUCTSENSE 09 August 5th - Vancouver
April 13th - Russia
SAASTOCK DUBLIN
05 DUBLINTECHSUMMIT 10 October 12th-14th - Dublin, RDS
April 22nd - Dublin, RDS
32 MARCH 2020 LATKA

Top Conferences LATKA MARCH 2020 33
Internal
Tool Turns
Into $250k/
mo SaaS
Company.
Here’s how.
• Split off into its own product in Jan-

uary 2018, Trainual raised $6.75
million in Series A funding the fol-
lowing year
• Trainual paid $300 to acquire a cus-
tomer paying $100 per month, lead-
ing to a payback period of 3 months
• Tripled customer count from 3,000
to 15,000 in the first two years
A small business owner gets no rest.
Between managing staff, answering cus-
tomer inquiries, looking for new pros-
pects, and developing the product, there’s
no time for your own life.
Especially when the staff you hire comes
and goes, and you’ve got to start every-
thing all over again in terms of training.
Enter Chris Ronzio, founder and CEO of
Trainual. He came on the show in 2018
to chat with Nathan about the company’s
history and the amazing growth they saw
in their first year, revealing some fantastic
bits of wisdom in the process.
Not Ronzio’s First Rodeo

Before he was 25, Chris Ronzio was build-
ing and running a multimillion-dollar vid-
eo production company, and after selling
that off, he started a consulting agency to
get small and growing businesses orga- Trainual CEO Chris Ronzio
nized.
34 MARCH 2020 LATKA Internal Tool Turns Into $250k/mo SaaS Company. Here’s how
Because as mentioned, small business- ten about the subscription and ask for a
es have so much going on every day that refund.
it can be impossible to take a breath and
But that doesn’t actually happen that often.
look at the big picture.
Trainual keeps metrics on which accounts
Ideally, though, every small business are being used and which are likely to be
would document their processes so that canceled, and in fact at the time of the in-
current and future staff would know ex- terview was working on an entirely new
actly what to do, every time. analysis platform for customer retention.
And so when Ronzio’s team built an inter- Interestingly enough, removing the credit
nal process management tool for their own card gate (in other words, allowing people
use at the consulting agency, the problem to sign up without a credit card) didn’t
and the solution clicked together instantly. generate a whole lot of signups. Most peo-
It just so happened that it came at the time ple willing to put their credit card down
when he was thinking about trying SaaS. are willing to pay for it anyway, they just
want the two weeks free before they start
The Spinoff Product Takes getting charged.
Off
Profit After 3 Months of
So the deal here is simple. Much like Goo- Subscription… $180-$300
gle Docs, a person or team of people log
in to a web interface where they can write
Customer Acquisitions Cost
down the steps in a process. (CAC)
But instead of padding out whitespace Trainual has an interesting pricing mod-
to get all the pictures lined up perfectly el based on “buckets” of users. With sin-
on the page (we’ve all been there), users gle-user licenses, people start license shar-
flow from step to step, each one able to be ing, but lots of places balk at paying similar
signed off on by a peer or supervisor to prices for every single employee that needs
check that the process is well-thought-out. to be on the system – generally, all of them.
Ronzio sums up the ideal process in just Therefore, there’s one rate for one number
three words: “You develop the system, of employees, and another rate for a slight-
document it, and delegate it.” ly larger group, and so on.
Because every business owner wants more The CAC (Customer Acquisition Cost)
time for themselves and more time letting was about $180 per trial user, and just un-
the business run itself. And so a couple der $300 per paying user. At the time of
of well-placed Internet campaigns made the interview, the company was making
Trainual grow with surprising speed. profit after three months of subscriptions.
A Whirlwind First Year… 8% Raising Money For The Fu-

of Website Visitors Sign up ture… $6.75M in Funding
for a Trial A big question about the CAC for busi-
nesses in their early years of growth is
Trainual was formally split off from the
scalability. If you can spend $300 per sub-
consulting agency in January of 2018. It
scription now, does that mean $300,000
started out entirely bootstrapped, and in
is going to be a thousand subscriptions?
fact although there were some customers
How about $300 million?
that knew about it already, it had to build a
customer base from nothing. At that time, they hadn’t yet held their Se-
ries A funding round (which they did in
And it did – thanks to the classic strategy
2019 for $6.75 million dollars).
of the free trial to subscription model.
That’s because their revenue, while im-
About eight out of every hundred people
pressive at $50,000 monthly, wasn’t quite
who visit the site end up signing up for the
enough to entice the kind of capital that
free trial, which requires a credit card. Five
could really make a big difference. Instead,
of those eight keep the subscription past
they were investing profits from the com-
the two-week free trial, though naturally
pany back into growth and using credit
a couple of those are likely to have forgot-
Internal Tool Turns Into $250k/mo SaaS Company. Here’s how LATKA MARCH 2020 35
card debt to cover the rest. Figure 1.1
Equity and Acquisition Trainual Revenue Over Time

As Ronzio considers growth, he’s got to $5M
look at different options for where the cash

is coming. He prefers debt, but if there was $4.2M
a strategic partner who could open up new $4M
markets and take the company in interest-

ing directions, he’d go down the equity
GETLATKA.COM
$3M
path as well.
REVENUE
And it’s never too early to start thinking
$2M
about acquisitions! Since Trainual is de-
signed specifically for the niche of small
businesses who don’t have a streamlined $1M
onboarding process, Ronzio would defi-
nitely be interested in partnership with $600K
FOUNDED JANUARY
others in the small business space like 0
Bamboo or GoDaddy. 2014 2015 2016 2017 2018 2019 2020

TIME IN YEARS
Figure 1.2
About the CEO Chris Ronzio
In addition to running Trainual, Chris Trainual Customers Over Time
Ronzio is also a motivational speaker and 15k
author of “100 Hacks to Improve Your 15K
Business.” He has a regular column on Inc.

com as well, where he shares insights on
making processes more efficient.
10k
Favorite Business Book: Rework, Jason
CUSTOMER COUNT
Fried & David Henemeier Hansson

GETLATKA.COM
Following CEO: Clate Mask, another Ar-
izonan and founder of Keap (a marketing 5k 3K
automation product formerly known as
Infusionsoft)
Favorite Online Tool: Personal fitness
tracker app Strava, because “building me 0
has really helped build the business.” 2014 2015 2016 2017 2018 2019 2020
TIME IN YEARS
Hours of sleep per night: Seven Figure 1.3
Family Situation: Married with two kids Trainual Funding Over Time
Age: 33 $10M
Advice for 20-Year-Old Self: Set Bigger

Goals.
$8M
+$6.75M
$6M
FUNDING
GETLATKA.COM
$4M
$2M
0
2012 2013 2014 2015 2016 2017 2018 2019 2020
TIME IN YEARS
36 MARCH 2020 LATKA Internal Tool Turns Into $250k/mo SaaS Company. Here’s how
The worlds top SaaS CEO’s get together
to share intimate details on how they run
their companies including how they got
their first 100 customers, their first $10m
in revenue, and their first 25 employees.
NathanLatka.com/Conference
Friday, Friday,
May Sept
1st 11th
2020 NYC 2020 SF
Forum LATKA MARCH 2020 37

How Logi Analytics Scaled To $30m
in Revenues, Exit to PE Firm Marlin in
2017
Figure 1.1
Logi Analytics Revenue Over Time

$40M
$30M $30M
GETLATKA.COM
REVENUE
$20M $20M
$10M
0
2014 2015 2016 2017 2018 2019 2020
Logi Analytics Team TIME IN YEARS
38 MARCH 2020 LATKA How Logi Analytics Scaled To $30m in Revenues, Exit to PE Firm Marlin in 2017
• Since 2003, Logi Analytics has ment. How does Schneider figure out the
raised $48 million as of 2019 pricing? After all, their engineers need to
work on making the code work with soft-
• Customers spend between five and ware written by, well, anybody.
seven digits annually on the soft-
ware, with an average of $100,000 Every deployment has an individual, cus-
tomized contract. Some are priced based
• 1800+ Clients integrate Logi Ana- on the number of end users, and others
lytics into their software stack, but are priced based on the number of metrics
the CEO hesitates to call his product provided.
SaaS
It’s hard to put a real number on what the
If you had an idea for a software product average client is paying because there’s
right now, how would you build it? such a wide range – from 50,000 dollars a
You wouldn’t start with code. You’d start year to more than $1 million. However, in
with finding a library, API or utility that general the typical client is spending close
you could integrate into your product to $100,000 annually for the service.
stack. And besides, the company has been
Fitting seamlessly into that stack is Logi around long enough that it isn’t dealing
Analytics, a company that works with your entirely in renewable licenses. About ten
software company to embed analytics into percent of the licenses currently main-
your software systems. It was founded by tained are perpetual licenses, after a grad-
Steven Schneider in 2003, and he came on ual shift away from that direction since the
the show in 2019 to talk about his still very year 2010.
niche market and his path to success.
Is Schneider a SaaS CEO?
The Classic Logi Analytics One interesting semantic point that came
Use Case up during the interview was that Schnei-
When asked for a typical use case, Schnei- der doesn’t see his product as necessarily
der immediately brought up Motionsoft, a “software as a service.” His customers sell
company making software for managing software as a service, but he often just pro-
fitness studios. vides a single contract.
So if their goal is fitness studio manage- So if a customer buys Functionality A,

ment, then they’re probably pretty good at they can keep using it in their product for
figuring out things like billing, customer as long as they need to. Then they can add
signups, equipment ordering, and so on. on Functionality B at any time for anoth-
But as it turned out, their clients – the er metric and another perpetual license, if
gyms – wanted more data. that happens to be the case.
They wanted to know when the peak times Even though he does have contract clients,
were, broken down by season. They want- Schneider hesitates to use the word “SaaS”
ed to know how to predict when a cus- because Logi Analytics doesn’t have any
tomer was about to cancel so they could kind of cloud backend that they offer to
be offered free vouchers. And Motionsoft the client. There’s nothing they maintain
hadn’t had those types of analytics built that keeps getting tapped over and over
into the app at all. during the course of a given piece of soft-
ware’s lifetime.
Enter Logi Analytics. Logi partners with
Motionsoft to provide exactly the type of Why Clients Stop Using Logi
analytics that the end user wants, leaving Analytics
Motionsoft open to focus on developing
the rest of the software product. If you just looked at the numbers, you
might be concerned at a relatively high
Charging For Very Different amount of churn (10%) going on. Howev-
Markets – $50k-$1M in ACV er, this ties in to Schneider’s larger overall
philosophy about how his business isn’t
Now, obviously people are going to be us- really SaaS. He’s not worried.
ing this sort of analytics solution in a ton
of different markets, not just gym manage- And besides, the churn doesn’t reflect bad-
How Logi Analytics Scaled To $30m in Revenues, Exit to PE Firm Marlin in 2017 LATKA MARCH 2020 39
ly on his company. In A Nutshell Nightly hours of sleep: eight
Logi Analytics loses customers for a cou- Logi Analytics was started in 2003 as Family Status: 42, married with two kids
ple of reasons. Chief among them, ac- LogiXML. They produce analytics soft-
counting for 60% of all clients that end ware designed to integrate seamlessly into Advice to 20-year-old self: Planning real-
their contracts, are clients who simply dis- other software products, working with ly far ahead is valuable but you can never
continued the software product they had more than 1,900 enterprises that pay them get more than one or two years out. Plan
been using – or even worse, went out of on average $100,000 annually for their the next six months really specifically, but
business themselves. solutions. don’t plan too far ahead because life gets
in the way. L
Other clients might sign a contract and About the CEO Steven
work on integrating the product into their Schneider
own software, but then upper manage-
ment pulls the plug on that project and the Favorite business book: W. Chan Kim
contract gets canceled. It happens more and Renée Mauborgne, Blue Ocean Strat-
often than you’d think! egy
Schneider Stayed After His Following a CEO: Jerry Delinski

Company Was Bought Favorite online tool: Salesforce
So this company was founded in 2003, and
it was bootstrapped up until 2007 when it
Figure 1.2
received $5 million in funding.
2010 is when it started to really find its
Logi Analytics Customers Over Time
niche, and it grew slowly but surely, final- 2,000
ly getting some really big funding rounds
1,800+
in 2011 and 2013. SaaS as an industry was 1,750
growing at the same time, and in 2017 the
whole company was bought by Marlin Eq- 1,500
uity Partners.
CUSTOMER COUNT
And it’s not a lot of founders who stay on

1,000
after something like that happens. But 1,000 1,000
Schneider genuinely likes coming to work, GETLATKA.COM

building things, and solving problems. In
fact, he sees Marlin as just another inves- 500
tor.
Where Logi Analytics is

0
Headed 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
TIME IN YEARS
In particular, he sees growth in the new Figure 1.3
field of businesses launching with a prod-
uct stack. He’s excited about developing Logi Analytics Funding Over Time
new products to scale with the growing
market of product managers. $50M
+$27.5M
TOTAL $48M
At the same time, he’s not focused on ex-
tremely rapid growth like most CEOs who $40M
have weathered their product through de-

cades. He’s strongly in favor of maintain-
$30M
ing profitability in the years to come and
FUNDING
creating a truly sustainable business. GETLATKA.COM

+$10M
And finally, there are no acquisitions $20M
TOTAL $20.5M
planned for the near future. Logi Analyt-

ics is focused on more predictable organ- $10M +$2.5M
ic growth right now, and acquisitions are +$3M
TOTAL $10.5M
surprisingly tough to time well. Bookings TOTAL $8M
growth seems to be the way to go from 0

$5M
here on out. 2006 2007 2008 2009 2010 2011 2012 2013 2024
TIME IN YEARS
40 MARCH 2020 LATKA How Logi Analytics Scaled To $30m in Revenues, Exit to PE Firm Marlin in 2017
What Books Are Top SaaS CEO’s Reading?
New Mindset Journal:
Transform Yourself in 60
days
The New Mindset Journal breaks down
the barriers between you and your authen-
tic-self by providing a series of simple,
10-minute journal prompts that guide you
on a path to self-discovery in only 60 days.
• Discover what motivates and inspires
you.
• Overcome your insecurities.
• Gain clarity on the path that is right
for you.
• Learn to approach every day with op-
timism. Ben Horowitz, cofounder of The godmother of Silicon SELLING THE INVISI-
Andreessen Horowitz and Valley, legendary teacher, BLE is a succinct and often
After 60 days you’ll be saying...
one of Silicon Valley’s most and mother of a super family entertaining look at the
"... new mindset, who dis? " respected and experienced shares her tried-and-tested unique characteristics of
entrepreneurs, offers essen- methods for raising happy, services and their prospects,
What is Different About The
tial advice on building and healthy, successful children and how any service, from a
New Mindset Journal? running a startup - practical using trust, respect, inde- home-based consultancy to
The New Mindset Journal provides you wisdom for managing the pendence, collaboration, a multinational brokerage,
with questions you likely aren't asking toughest problems business and kindness: TRICK. can turn more prospects
yourself so you can discover the answers school doesn’t cover, based into clients and keep them.
you want and need in your life. on his popular ben’s blog.
This is not a daily planner, a goal setting
checklist, or a productivity journal.
This is a journal designed to make you
more self aware.
When you know who you are and what
you want in your life, you become happier,
healthier, more motivated and confident.
In this instant and tenacious Built to Last, the defining The Four Steps to the
New York Times bestseller, management study of the Epiphany launched the
Nike founder and board nineties, showed how great Lean Startup approach to
chairman Phil Knight “offers companies triumph over new ventures. It was the
a rare and revealing look at time and how long-term first book to offer that start-
the notoriously media-shy sustained performance can ups are not smaller versions
man behind the swoosh” be engineered into the DNA of large companies and that
(Booklist, starred review), of an enterprise from the new ventures are different
illuminating his company’s verybeginning. than existing ones. Startups
early days as an intrepid search for business models
start-up and its evolution while existing companies
into one of the world’s most execute them.
iconic, game-changing, and
profitable brands.
Top Books LATKA MARCH 2020 41

How Passive Founder Pays Himself $25k/mo
(No VC Raised)
Dane Maxwell, CEO Paperless Pipeline
42 MARCH 2020 LATKA How Passive Founder Pays Himself $25k/mo (No VC Raised)
you’ve been looking for for years that you a ton of time and money with dedicated
just haven’t found yet?” software for the task.
He already had business clients from pre- The third? “What does your email inbox
vious experiences, but his point is that you look like?” People spend endless hours
can do this cold. People are always trying answering repetitive emails and doing
to sell their product and make their cus- the same kinds of tasks, like checking
• Founded in 2009, Paperless Pipeline tomers motivated to change their behav- signatures on contracts. If you can make
has been completely bootstrapped iors to fit. a solution to their most time-consuming
and profitable each year through problems that also fits neatly into their
2019. Nobody’s thoughtful enough to just ask established workflow, you’ll be absolutely
companies what solutions they’d like to adored.
• CEO Dane Maxwell stepped away in see developed.
2015 and uses Paperless Pipeline as
a way to generate income
Dane Doesn’t Actually Want
Tripling Income During A
To Run A Business
• Clients of Paperless Pipeline nearly Recession
doubled from 40k in 2014 to 80k+ The thing is, Dane’s Paperless Pipeline
So it was 2009, and the economy wasn’t company has been doing very well for a
in 2019 doing too hot. How did Dane manage to long time. Nobody’s denying that. They’re
It’s hard to really quantify the kind of per- pitch a new expense to real estate agents still experiencing regular growth year-
son that Dane Maxwell is. He’s a success- and brokers? over-year and have stellar reviews from
ful software company co-founder. He’s an Well, it turns out that even if the real es- brokers large and small.
educator and mentor for millionaires and tate market was depressed, the real estate
company leaders. He’s an author and a Dane spends about an hour a year on
agents were dealing with the same amount managing the company.
musician with three albums to his name. of business. “Money moves even in a re-
Most of all, though, he’s a man who under- cession,” says Dane. “It just shifted to fore- He’s been mostly hands-off since 2015,
stands the customer. closures.” when he handed the reins of the compa-
ny over to a lead developer and essentially
In today’s interview, he walks us through He presented the product in the context said “Make me 25% profit each year, and
his philosophy of winning and keep- of the recession itself, by emphasizing the you’ll have free rein to lead the company
ing customers, framed through the story labor costs that could be saved with a pa- however you’d like.”
of one of his most successful products, perless workflow.
Paperless Pipeline, a tool for real estate Because that’s what a lot of entrepreneurs
Crucially, his competitors were selling really want. They want the freedom to
agents to manage their clients with $2.5m software to manage transactions, but Dane
in revenues annually. leave their jobs and have somebody else
was selling a process where a small real es- help them make money from their idea.
One of the most fundamental points that tate company could downsize to a smaller You can win some people over by saying
he makes is that you should not try to office and get by with fewer staff. It’s not “You’ll have economic freedom,” but if you
modify user behavior. People are used to hard to see which was more attractive to put it as bluntly as possible and say “You
doing the same thing in the same way, and the clients. can quit your job,” they’re probably going
if you come to them with a solution that to think harder about being an entrepre-
promises huge returns after revamping
Three Questions To Ask A
neur.
their whole workflow, they’ll just toss your Potential Client
email in the trash. With that, Dane thought he’d made it.
When you want to create a new product He picked up his guitar and wrote songs,
or even just stand out in the market, Dane
Keep The Behavior Constant thinking that life would be easy street
suggests three important questions. from then on out.
For example, do you remember the Nor-
First, “What software do you wish was on
dicTrack ski machine? As Dane puts it, The Master Returns As
the market right now?” This question gets
nobody was practicing for cross-country Mentor
people opening up to you and gives them
skiing in their homes before it came out,
hope that you might be the one to solve But three albums in he felt a calling to help
and although it caught on briefly, people
that long-standing woe. other entrepreneurs realize their dreams.
slowly returned to just what they had been
doing before. The behavior didn’t exist, The second is “What are you using Ex- He set up a unique training program
and the product couldn’t change that. cel for?” Excel is really good for a num- called The Foundation and accepted all
ber of problems, and just okay for a ton takers – people that wanted to rise beyond
And so he went to the market and asked
more. Usually, people are just using Excel the middle-of-the-pack where they were
people “What’s the software product
to track sales or something in a simple and become the best, even if they had no
spreadsheet, where they could be saving money, no experience, and no customers.
How Passive Founder Pays Himself $25k/mo (No VC Raised) LATKA MARCH 2020 43
All of the training was built on his in- Figure 1.1
stincts and the trial-and-error experience

he’d gained with Paperless Pipeline and the Paperless Pipeline Revenue Over Time
other six software companies he’d started. $5M
It worked beyond his wildest dreams, and

within a year from the beginning of the
$4M
program he had people running multi-mil-
lion dollar companies when they’d never GETLATKA.COM
even taken the first steps before. $3M
REVENUE
As of early 2020, The Foundation is re-
turning under a new name as the podcast $2M
$2.1M
Start From Zero, which is also the title of a $1.9M
forthcoming book from Maxwell himself.

“I love waking people’s minds up to the $1M
idea of entrepreneurship,” he says. “It’s my

wheelhouse.” $600K
ESTIMATED
0
About The Founder Dane 2014 2015 2016 2017

TIME IN YEARS
2018 2019 2020
Maxwell Figure 1.2
Dane Maxwell’s current favorite business Paperless Pipeline Customers Over Time
book: Flip The Script: Getting People to
Think Your Idea is Their Idea, Oren Klaff 70K
68K
A CEO he studies: Nathan Latka 60K
Favorite Outsourcing Site: Upwork

50K
Hours of Sleep: Seven per night GETLATKA.COM
CUSTOMER COUNT
40K
Family Situation: Newborn baby
Age: 36 30K 30K
Advice to 20-year-old self: You’re Beautiful 20K
10K 10K
0
2009 2011 2013 2015 2017 2019
TIME IN YEARS
44 MARCH 2020 LATKA How Passive Founder Pays Himself $25k/mo (No VC Raised)
1500
1000
R $24K
ARR = 12,000
MRR = 1,000
QRR = 3,000
ΔT 2 years 500

90
CUSTOMER COUNT
80
10 40
30
C x Δt 20
LIFETIME
10 10 5 YEARS

35,000
TRR 20,000
C 15,000
- ARR = $7,500
# New Customers 400
5,000
TIME

20,000
15,000
10,000
ARR = $7500
5,000
CAC $2500
TIME
Total CAC $1,950,000 0 1 2 3 4 5 (YEARS)
12,000
9,000

C
TOTAL
service expenses
0 100 200 300 400 # CUSTOMERS

200,000
160,000
120,000
ARR
a

i + a -g
How Reveleer Carved Out the
Healthcare Niche and Scaled
to $10.2m in Revenue
Jay Ackerman, CEO of Reveleer
46 MARCH 2020 LATKA How Reveleer Carved Out the Healthcare niche and scaled to $10.2m in revenue
• 30 healthcare companies pay an av- all of their patient data with everyone else. How Ackerman Manages
erage of $300,000 per year with an And even if they did, it would be a night-
acquisition cost of just $75,000 per mare trying to get each database to per- Reveleer’s Millions in
customer, leading to a payback peri- fectly sync with the others. Funding
od of 3 months
Reveleer’s cloud software makes it easy Having raised $2.8 million dollars before
• Funding as of 2019 was $11.9 mil- for insurance companies to communicate Ackerman showed up, total funding now
lion and poised to attract another with hospitals and doctors, collecting and reaches more than ten million dollars with
$10 million cleaning the claim and demographic data another ten million in progress. What
to produce more accurate risk adjustments spurred such a rapid influx of investment?
• Burning $100,000 a month in capi- in far less time than otherwise. After all,
tal but ready to turn a profit at the insurance is all about managing risk, and a A great deal of that goes into product de-
end of 2019 company that can help expedite that pro- velopment. It simply requires a lot of cap-
cess could be worth its weight in gold. ital, nearly $100,000 dollars a month, to
Jay Ackerman was not a founder of Rev- develop software at this kind of national
eleer. Instead, he joined the company at scale. Particularly when you consider that
a time when they were looking for some The Pricing Model in addition to risk adjustment, Reveleer is
serious growth. There are a couple of different pricing also offering quality improvement and au-
And that’s what he gave them. strategies in play at Reveleer. dit protection platforms.
Brought on in 2016 as President and CEO, First, there’s a typical enterprise scheme, “We’re also looking at some acquisition
under Ackerman’s leadership this software where there’s a single flat rate able to be in- opportunities, and as we move forward
in the healthcare space has seen some re- teracted with by as many users as needed. with that, it would be nice to have a bank-
ally fast expansion and is poised for easy That’s good for enormous companies with ing partner on our side there.”
double-digit growth in the early 2020s. In national reach like UnitedHealthcare or
Anthem Blue Cross. And that $100,000 a month being burned
late 2019, Ackerman sat down to chat with is on its way out as well. As 2019 came to
Nathan about where his product fits in in If needed, Reveleer can also work to create a close, Ackerman predicted that the com-
the wide world of enterprise-level SaaS. an individual pricing plan that more ac- pany would be cash-flow positive for the
curately reflects how many customers (ie. fourth quarter.
Who They Are and members covered under the insurance)
What They Do will have their data collected by the soft- The Makeup of Reveleer –
ware. Only Two Sales Reps
The name “Reveleer” is actually a product
of a rebranding workshop in 2016, where SaaS and Services – Netting With enterprise software development at
the previously-named Health Data Vision, that scale, you might expect Reveleer to
Inc. decided to shake up the company’s $300k/Year Per Client have a team chock-full of the best engi-
whole image. At the end of 2019, Reveleer had 30 en- neers available. Not quite – only fifteen of
Ever since 2009, though, they have been terprise clients, and they were paying the 75 employees are engineers.
offering cloud-based data management $300,000 each per year to use the prod-
uct. That was 6 more than the previous Perhaps even more surprising is that the
applications to government-funded revenue growth and expansion has so far
healthcare providers in the United States. year (keeping in mind the 10% churn)
and there’s a surprisingly low customer ac- been accomplished by a team of two sales
Reveleer’s potential clients are any of the representatives. Naturally, with a relative-
healthcare companies currently cooper- quisition cost: roughly $75,000 including
commissions, marketing, trade shows, and ly small customer base of huge insurance
ating with Medicare, Medicaid, and the companies, everybody in a public facing
ACA, so if you’re covered under an Amer- so on.
role (including the C-suite) does some
ican healthcare plan, there’s a good chance Of course, in the United States healthcare sales here and there.
you’ve indirectly interacted with Reveleer information is treated very seriously, and
before. the sending and saving of such data is very The bulk of the employees, in fact, are
highly regulated with regard to patient members of the operations team, sup-
“The beauty of our market is that it’s easy porting the new clients on contract for the
to identify all the customers that we can privacy. Therefore, there’s usually an ad-
ditional $200,000 per year per client for coming years. These fifty people on the
sell to,” says Ackerman. Essentially, they ops team are the ones actually calling up
help insurance companies track informa- training and other servicing.
the doctor’s offices and getting the medical
tion better on the members signed up with Remember, Ackerman was hired specif- records to put in the centralized databases
their plan. ically because he had experience scaling for the insurance companies.
businesses. He had been a chief revenue
A Complex Sea of Regulation officer before, and liked the company so In A Nutshell
And Communication much he was willing to take a significant
salary cut in return for around 10% of the Brought in to Reveleer around 2016, Pres-
Why, you might ask, don’t the insurance company in equity. ident and CEO Jay Ackerman wasted no
companies have the information they time before bringing in serious capital
need? After all, they’re using Reveleer to Clearly, he made the right decisions! to fund new software development and
gain data about their own clients! Thanks to the growing customer base, he greatly expand the product support base.
expects the cost per customer to shrink
Since the healthcare system in the United and the overall revenue to continue grow- Their customers in the health care enter-
States operates with private doctors, pri- ing significantly from 2019 to 2020. prise market grew by more than 25% last
vate hospitals and private insurance com- year, and through the next few years they
panies, not every doctor is going to share are hoping to make some acquisitions and
continue to see very impressive growth
numbers.
How Reveleer Carved Out the Healthcare niche and scaled to $10.2m in revenue LATKA MARCH 2020 47
Figure 1.1 About the CEO Jay
Reveleer Revenue Over Time Ackermann
Favorite Business Book: Keith Ferazzi,
$10M $10.2M Never Eat Alone
CEO he follows: John Donahoe at Nike
$8M
Online tool: HubSpot
$6.8M Hours of sleep per night: 6 and a half
$6M
Family situation: 52 years old, married
REVENUE
with two kids

GETLATKA.COM
$4M Advice to 20-year-old self: Find a great
mentor, don’t be afraid to join a large com-
pany, and manage your cost structure. It’s
$2M hard to peel back costs after they’ve crept
into your life. L
0
2013 2014 2015 2016 2017 2018 2019
TIME IN YEARS
Figure 1.2
Reveleer Customers Over Time

100
90
80
70
GETLATKA.COM
CUSTOMER COUNT
60
50
40
30 30
24
20
10
0
2013 2014 2015 2016 2017 2018 2019
TIME IN YEARS
Figure 1.3
Reveleer Funding Over Time
$30M
+18M
TOTAL $29.9M
$25M
$20M
FUNDING
$15M
GETLATKA.COM
+9.1M
$10M TOTAL $11.9M
$5M
+$2.8M
0
2013 2014 2015 2016 2017 2018 2019
TIME IN YEARS
48 MARCH 2020 LATKA How Reveleer Carved Out the Healthcare niche and scaled to $10.2m in revenue
The worlds top SaaS CEO’s get together
to share intimate details on how they run
their companies including how they got
their first 100 customers, their first $10m
in revenue, and their first 25 employees.
NathanLatka.com/Conference
Friday, Friday,
May Sept
1st 11th
2020 NYC 2020 SF
LATKA MARCH 2020 49

Tom Tunguz
50 MARCH 2020 LATKA Simpson's Paradox In Measuring Net Dollar Retention Rate
Simpson's Paradox In Measuring
Net Dollar Retention Rate
the averages of different groups. We see

this paradox all over the place: college
admissions, sports performance data, and
medicine.
Which is right? Well, there’s no industry
standard today. These are the summa-
ries from their public disclosures. Alex
Clayton collected the list here. Zendesk
reports the annual change in cohort
monthly recurring revenue. Twilio cal-
culates it as the annual change in cohort
quarterly recurring revenue. Marketo uses
the change in cohort revenue for each of
the last month of each quarter; for exam-
ple, June revenue/March revenue. Okta
and Box measure 12 month bookings
changes for each cohort.
So how do you pick the right one for your
business? The first principle is to align it
to your billing cycles. If your business has
annual contracts, then measuring annual
growth makes sense. If your business is
utility based, monthly is a better mea-
sure or perhaps quarterly to smooth out
revenue.
The second principle is to share how
you calculate NDR and stick to it, so it’s
consistent. And the third principle is to
benchmark your business to others who
measure themselves in the same way. L
This post originally appeard on
Net Dollar Retention is one of the most ending revenue compared to the total tomtunguz.com
important metrics is a SaaS business. It starting revenue. You could aggregate the
measures the value of a cohort of custom- data by quarter and average that.
ers over time including expansion, cross-
sell, and churn (loss of revenue). But how In the first case (average of each cohort),
do you measure NDR? your NDR would be 0.5%. In the second
case (annual total), your NDR would be
Imagine this is your company’s data. The -1.4%. In the third case (average of each
first column is the cohort month for each quarter), your NDR would be -2.6%.
cohort in a year. The second column is
the revenue of this cohort in their first So which do you choose? If you’re
month. The second colum is a random fundraising, certainly the last one. And if
number between -20 and +20 that is the you’re managing internal company goals,
NDR for that cohort. The last column is then certainly the first one. Just kidding.
the ending revenue of that cohort. Let’s take a step back. First, why is this
You could calculate NDR as the average happening? Why aren’t all the averages
of the Percent Change column. You could the same? Simpson’s paradox. The overall
calculate it as the percent growth in total average of a data set may be different than
Simpson's Paradox In Measuring Net Dollar Retention Rate LATKA MARCH 2020 51
52 MARCH 2020 LATKA D.A Davidson Analyst Predicts 2020 SaaS IPOs, Investor Confidence Growing
D.A Davidson Analyst Predicts The movement also opens up the possi-
bility of Amazon acquiring Snowflake be-
fore they IPO. Rishi says he would not be
2020 SaaS IPOs, Investor shocked if that scenario ended up becom-
ing a reality.
Confidence Growing He says it’s common for companies going
down the IPO path to run a “dual-track”
process.
2019 was the year for SaaS companies. The company is the largest full-service
investment firm in the Northwest. It has “On the one hand, they have the IPO, and
Just take a look at the newly rebuilt “BVP
most recently handled multi-million dol- at the same time, they are actively shop-
Nasdaq Emerging Cloud Index“; a collec-
lar deals for SaaS companies including ping themselves out there,” he says.
tion of SaaS and cloud companies. The in-
Mobile Solutions, Building Systems De-
dex helps provide useful data on the value Freshworks could struggle with expansion
sign and Planet DDS.
of modern software and tooling concerns. revenue & public offering
According to TechCrunch’s Alex Wilhelm, Snowflake well-positioned
if the index rises, it’s good news for start- Freshworks has been an in-
ups as it shows investors are bidding up
to IPO this year
credible success story out of
the value of SaaS companies as they grow. In December, Nathan predicted Snowflake India’s growing SaaS space.
would successfully IPO at the end of 2020.
And if the index falls? Well, that could Their small business offerings include
mean revenue multiples are contracting After the release of Okta’s annual growth products like Freshdesk and Freshchat.
amongst the public comps of SaaS start- report, Snowflake is now the fastest-grow- Last time we spoke to them, they were
ups. Looking at the index, it seems that ing cloud-based software program. The pulling over $100m in revenues with 150k
the worth of public SaaS is doing anything report highlighted Snowflake’s massive paying customers. A predicted 2021 IPO
but falling. growth within its customer base; its use was first reported by The Times Of India
among clients more than tripled in 2019. last year and gained a $3.5B valuation
thanks to a $150m Series H funding round
in November.
However, Freshdesk makes up for more
than 85% of their total revenue. And, only
6% of customers pay for one or more of
the company’s 12+ products.
Red flag?
It looks like 2020 is shaping up to be anoth- Jaluria says he is seeing two major shifts in
er exciting year for SaaS companies who Jaluria says when public investors are
Snowflake’s growth.
are looking to IPO. To see what trends we looking at SaaS companies, there is a de-
might see this year, Nathan sat down with “One of them is the ongoing shift from bate about whether something is a feature,
Rishi Jaluria, senior research analyst with on-premise to cloud environments, so a product, or a platform. He predicts with
D.A. Davidson. The firm advises technol- they’ve been able to take away the lega- the company being so reliant on a single
ogy companies and their shareholders on cy Teradata and Netezza workloads from product, public investors may be a little
their most significant transactions, includ- those data warehouses,” he says. skeptical about Freshworks.
ing raising capital, going through an M&A The other shift has been customers mov- “If a single product company has all the
event or going public. ing from platforms like AWS Redshift over other products, but nobody is using them,
Here are the trends Jaluria sees in the SaaS to Snowflake’s platform, which coincides it has a tougher chance of becoming a plat-
space, and what he looks for a successful with Okra’s findings of massive growth in form down the line,” he says.
IPO. the company’s customer base.
“A lot of companies are looking more and
“I think both of those tailwinds have more to consolidate their IT spending.
What does D.A. Davidson do?
worked really well in their favor and al-
“Not let’s go back to the days of a mono-
Founded in Montana in 1935, D.A. Da- lowed this kind of exponential growth that
lithic stack of Oracle and Microsoft, but
vidson Companies is a financial services you’ve seen out of Snowflake to make them
they do want to maybe not have ten differ-
firm offering advice to individuals, cor- one of the fastest-growing Enterprise SaaS
ent HR solutions and instead have one full
porations, institutions and municipalities companies out there,” Jaluria says.
HCM platform.”
around America. The firm has now ex-
“I would expect them to do really, really
panded and has regional headquarters in Using this scenario, SaaS companies that
well once they hit the public markets be-
Great Falls, Denver, Los Angeles, Portland are relying on the majority of their reve-
cause of all the tailwinds they’re enjoying,
and Seattle. It also employs approximately nue from one product will have a harder
and their growth is not slowing down. “
1,400 associates. time down the line.
D.A Davidson Analyst Predicts 2020 SaaS IPOs, Investor Confidence Growing LATKA MARCH 2020 53
Figure 1.1 “Last year, we saw private equity deals
lining the public markets with companies
GitLab Breaks 20x Multiple like Dynatrace, and Ping Identity,” he said.
With $100M+ in ARR, $2.65B Valuation
$120M “There are these rivers out there of private
$114M
equity-backed firms of wanting to, at least,
$100M 143% YOY growth, get companies out into the public markets
$268M raised at $2.56B
valuation and lock in a little bit of gain.
$80M “I would not be surprised to see more of
that happening again this year.”
GETLATKA.COM
REVENUE
$60M
Earlier this month, Jaluria told the San
$100M raised at
$1.1B valuation Francisco Business Times he believes Wall
$40M $42M
Street was generally happy with the per-
Ice cream money formance of tech stocks in 2019. Nasdaq
test got to $1K
$20M was up 35% in 2019. Even more telling,
$10M
the Nasdaq Composite, which is 50% tech
$0
stocks, serves as a good barometer for the
2011 2012 2013 2014 2015 2016 2017 2018 2019 health of the tech market.
TIME IN YEARS
In the final weeks of December, the Nas-
daq broke through a new milestone of
GitLab hasn’t been quiet Market appetite may lead to 9,000.
about their plans to IPO this private equity firms taking Pre-IPO SaaS companies
year some portfolios public should focus on growth over
We’ve talked about GitLab’s IPO plans be- It won’t be a surprise if some private equity cash-burn
fore, especially after they landed their 20x firms look to the public markets this year
multiple valuation of $2.75b in November. and take some of their portfolio compa- For companies who are planning to IPO,
nies public. there’s a decision to be made. Should they
The company even has a section on its set a growth rate target to hit, or should
website that outlines a 3-year cadence 2019 IPOs in Enterprise software land they conserve their cash on hand?
strategy, and its IPO goal date: Wednes- have been very successful. CNBC’s Bob
day, November 18, 2020. Their 143% YoY Pisani noted late last year that Enterprise From Jaluria’s perspective, the bias is to-
growth has been remarkable, and they’re SaaS companies were among the most suc- wards growth.
planning to spend $50m of GitLab’s cash cessful initial public stock offerings of the “If a company went public with 50% reve-
this fiscal year on development costs like year. Pisani said there had been nine SaaS nue growth and 10% cash burn, that would
product functionality to fuel growth. IPOs, raising $11.2 billion. probably be more well received than one
Jaluria says as long as GitLab’s story is told And the average return of those nine? 54%. that was doing 10% growth with 30% pre-
well and is understood by investors, the cash-flow margins,” he said.
company plans should play out nicely. 2019 Software IPOs
“For cash-burning companies, they also
He says the appetite for DevOps tools like (from IPO price) have to be able to tell a very effective story
GitLab is very healthy right now for two of a path to profitability.”
• Crowdstrike — up 108%
reasons: Jaluria says success relies on proving that if
• Zoom — up 134% they’re not profitable today, they have the
• 77% of developers have a voice in IT
decisions; either as the decision-mak- • Pagerduty — up 27% pieces in place that they will become prof-
er or as an influencer itable. He says looking at gross margins,
• Cloudflare — up 30% net expansion rates, and sales efficiency
• 70% of Enterprise applications are go- paints a picture of whether a company can
• Dynatrace — up 30%
ing to be built—not bought come from a cash-burning situation to
• Slack — down 1% eventually, healthy profitability.
“Essentially we’re at this point where pub-
lic investors understand how important Of the Enterprise SaaS IPOs made last Apart from looking at metrics like CAC/
the developers are,” Jaluria says. year, Rishi said only one had broken issue. LTV and Net Expansion Rate, Jaluria says
According to Rishi, the IPO window is a crucial metric in determining a compa-
“Any tools that make a developer more ny’s pre-IPO health is their sales efficiency.
open for business right now and business-
effective and make their lives easier are To find this out, Jaluria calculates a com-
es shouldn’t hit any kind of volatility until,
going to do really well, and DevOps is no pany’s sales and marketing spend and then
perhaps, the 2020 presidential election.
doubt a really strong, ongoing trend.” looks at the incremental revenue that is
54 MARCH 2020 LATKA D.A Davidson Analyst Predicts 2020 SaaS IPOs, Investor Confidence Growing
generated the following year. Finally, he averages the figures out The best companies sit above the 50th percentile on both dimen-
over a multi-year timeframe. sions. These are rewarded in the public markets, with double-digit
Next Twelve Months (NTM) revenue multiples. As of May 2019,
“You want to see not only strong sales efficiency, but you want to here were those same company’s averages of multiples and market
see that metric improving over time,” he says. cap at IPO:
What equates to good sales efficiency?
Jaluria says the average for public SaaS companies is medium point
8x. If a company spends $1 this year, they should be getting back
80c the following year in new Annual Recurring Revenue (ARR).
Jaluria’s thinking is backed up by investor Parsa Salijoughian, who
works at late-stage VC-firm, IVP. Salijoughian says although the
sales efficiency metric is a spin on a ‘magic number’, the proof of
its viability is shown in recent IPOs. Here is how he calculates sales
efficiency: Salijoughian says the companies in the 90th percentile traded, on
average, at an 8.6x NTM revenue multiple at IPO. Post-IPO, some
companies were trading at an eye-watering ~17x NTM multiple.
“Each of these companies is worth at least $10B today and com-
bined represent over $250 billion in market value,” he says.
“Conversely, the companies in the bottom 40th percentile on both
dimensions traded on average at only 3.4x NTM revenue at IPO.
And to test the metric’s worth, he looked at every SaaS company “Few of these companies are worth more than $3B today, and
that has gone public. He then built a snapshot of how they looked many have been acquired for modest amounts.”
in the year prior to IPO.
Pro-tip: Have you got a SaaS company, and you’re wondering how
your sales efficiency stacks up? Check out this sales efficiency cal-
culator to see if you’re on track.
All signs point to a strong growth year for

SaaS
The markets are bullish for SaaS companies right now, and inves-
tor confidence is rising. Tides are turning on what investors are
looking for; they know tools like DevOps are starting to cement
their place in the future of global growth. So, that’s where the
money is going.
At GetLatka, we predict (at a minimum) for GitLab and Snow-
flake to IPO this year (if they’re not acquired earlier), and other
companies like DataStax and even Instacart could try and do the
same in 2020.
The companies are broken down into four percentiles:

• 90th (dark green)
• 75th (light green)
• 50th percentiles (yellow)
• Bottom 40th percentile (red)
D.A Davidson Analyst Predicts 2020 SaaS IPOs, Investor Confidence Growing LATKA MARCH 2020 55
David Cummings
56 MARCH 2020 LATKA Investor Sweeteners in Term Sheets

Investor capital buy common stock at 15-20%
discount, and retire it. The retired
common stock is an effective increase
Sweeteners in in ownership for all shareholders —
common and preferred — such that
Term Sheets the new investors gets a larger own-
ership percentage and existing share-
holders don’t get diluted as much (the
ones that don’t sell any of their hold-
ings).
During my time trying to raise money in As expected, money and ownership per-
the early 2010’s, investor term sheets were centages are the drivers of these sweeten-
expected to have a number of strings at- ers. Thankfully, entrepreneurs now have
tached — the questions were how many more options and investors are more cre-
and how onerous were they. Now, with a ative at getting deals done. The next time
much more entrepreneur-friendly market you see a term sheet, look for the sweet-
and a long bull run, investors have come eners. L
up with a variety of ways to sweeten the This post originally appeared on
term sheet in an effort to increase the davidcummings.com
chance of selection by the entrepreneurs.
Here are a few of the sweetener strategies:
• Give the Founders New Stock Op-

tions – Every round of funding comes
with dilution, often a heavy amount
(e.g. 30%+ when an expansion of the
stock option pool is factored in). One
strategy is to write into the term sheet
some level of new stock options for
the founders (similar to a refresher
grant) such that the financing round
dilution is slightly less painful.
• Buy Founder Common Stock –
Founders often have the majority of
their net worth tied up in the startup.
By buying some of the founder’s com-
mon stock, the founder gets liquidity
and the investor gets a larger owner-
ship position. Win, win.
• Buy Existing Shareholder Common
Stock – If certain shareholders have
been in the business a long time and/
or there’s a substantial step up in val-
uation, there’s often an appetite to sell
a portion of the holdings (much like
dollar cost averaging out). The new
investors will buy all preferred eq-
uity, then have a portion of that new
Investor Sweeteners in Term Sheets LATKA MARCH 2020 57

Dave Kellogg
58 MARCH 2020 LATKA Ten Questions Founder CEOs Should Always Be Able to Answer About Their Startups
Ten Questions Founder CEOs
Should Always Be Able to
Answer About Their Startups
Dave Kellogg is a technology executive, consultant, advisor, independent director, angel
investor, and blogger. This piece orginially appeared on Kellblog.com
I
I’m working with more early-stage companies these days (e.g., pre-seed, seed, seed-plus
[1]) and one of the things I’ve noticed is that many founders cannot clearly, succinctly,
and confidently answer some basic questions about their businesses. I decided to write
this post to help entrepreneurs ensure they have their bases are covered when speaking to
angel investors, seed firms, or venture capitalists.
Note that Silicon Valley is the land of strong convictions, weakly held so it’s better in most
cases to be clear, confident, and wrong than it is to waffle, equivocate, and be right. I often
have to remind people of this — particularly founders recently out of PhD programs —
because Sand Hill Road is about the dead opposite of graduate school when it comes to
this philosophy [2].
Ten Questions Founder CEOs Should Always Be Able to Answer About Their Startups LATKA MARCH 2020 59
Here are ten questions that early-stage 3. How do they solve that not to deep dive into how the technology
founder/CEOs should be able to answer problem today? works. That’s not the question; the ques-
clearly, succinctly, and confidently — tion is why is your technology is better
along with a few tips on how to best an- The majority of startups solve a problem than the alternatives. The most common
swer them. that is already being solved in some way incorrect answer to this question is a long
today. Be realistic about this. Unless you speech about how the technology works.
1. Who is the target custom- are solving a brand-new problem (e.g., or- (See this post for tips on how to build a
er? chestrating containers at the dawn of the feature, function, benefit marketing mes-
container revolution), then somehow the sage.)
Be precise, ideally right down to a specif- problem is either being solved today (e.g.,
ic job title in an organization. It’s great if in Excel, a legacy app, a homegrown sys- Example 1: traditional databases were built
the answer will broaden over time as the tem) or the buyer has deliberately decided for and work well at storing structured
company grows and its strategy naturally not to solve it, likely because they think it’s data, but they have little or no capability
expands, but up-front I’d name the peo- unsolvable (e.g., baldness cures [5]). for handling unstructured data. Unlike
ple you are targeting today. Wrong: “The traditional databases, our technology is
Office of the CIO in IT organizations If they are already solving the problem in built using a hybrid of database and search
in F5000 enterprises around the world.” some way, your new solution more likely engine technology and thus provides ex-
Right: “VPs of financial planning and represents an optimization than a break- cellent capabilities for storing, indexing,
analysis in 250-1000 employee Services through. And even breakthrough com- and rapidly querying both structured and
firms in North America.” panies, such as VMware [6], solved very unstructured data.
practical problems early on (e.g., provid-
I’m admittedly fanatical about this, but I ing multiple environments on a laptop Example 2: many planning systems re-
want to know what it says on the target without having to physically change hard quire you to throw out the tool that most
buyer’s business card [3] . I can’t tell you drives). people use for planning today — Excel.
the number of times that I’ve heard “we Unlike those systems, our product inte-
sell to the CIO,” only to be introduced to As another example: even if you’re using grates and leverages Excel as part of the
someone whose business card said “di- advanced machine learning technology solution; we use Excel formula language,
rector of data warehousing.” If you don’t to automate trouble ticket resolution and Excel formatting conventions, and provide
know who you’re selling to, you’re going to — technically speaking, customers aren’t an Excel add-in interface that preserves
have trouble targeting them. doing that today — they certainly are han- and leverages your existing Excel knowl-
dling trouble tickets and the alternative to edge. We don’t throw the baby out with the
2. What problem do you solve automatic resolution is generally a combi- bathwater.
for them? nation of human work and case deflection.
6. How many target customers have you
When you meet one of these people, what 4. Why is your solution supe- spoken to — and what was their reaction
do you tell them? Right: “We sell a solu- rior to the status quo? to your presentation?
tion that prevents spear phishing.” Wrong:
Once you can clearly describe how cus- First, you means you, the founder/CEO.
“We sell a way to improve security culture
tomers solve the problem today, then you It doesn’t mean your salesperson or
at your organization” [4]. The latter answer
should be able to clearly answer why your co-founder. The answer to the first part
is wrong because while an improvement
solution is superior to the status quo. Note of the question is best measured in scores;
in security culture may be a by-product of
that I’m not asking how your technology investors want to know that you are in the
using your solution, it is not the primary
works or why it’s superior — I’m asking market, talking with customers, and lis-
benefit.
why it provides a better solution for the tening to their feedback. They assume that
First-order benefit: our solution stops customer. Sticking with the trouble ticket you can sell the technology [7], the strate-
spear phishing. Second-order benefit: example: “our solution is superior to hu- gic question for later is the transferability
that means you avoid data breaches and/ man resolution because it’s faster (often by of that skill. They also want to know how
or save millions in ransomware and other days if not hours), cuts ticket resolution target customers react to your presenta-
breach-related costs. Third-order bene- cost by 90%, and results in greatly supe- tion and how many of them convert into
fit: that means you protect your compa- rior end-user satisfaction ratings.” That’s trials or purchases.
ny’s reputation and your valuable brand. a benefits-driven explanation of why it’s
Fourth-order benefit: using our solution 7. Who’s using your product
superior.
ends up increasing security culture and and why did they select it?
awareness. People generally go shopping 5. Why is your technology It’s not hard to sell government labs and
for the first-order benefit — they may buy different from that offered by commercial advanced research divisions
into higher-order benefits, they may say
they like your company’s approach and/
other suppliers? one of pretty much anything. It’s also not
hard, in brand new categories, to sell your
or vision — but budgets and shopping lists Marketers call this differentiation and it’s software to people who probably shouldn’t
get made on the first-order. Don’t be sell- not really just about why your technolo- have purchased it — i.e., people not know-
ing security culture when customers are gy is different from alternatives, it’s about ing all their options in the nascent market
buying anti-spear-phishing. why it’s better. The important part here is
60 MARCH 2020 LATKA Ten Questions Founder CEOs Should Always Be Able to Answer About Their Startups
picked the wrong one. And that’s not to That’s become the table stakes. The real Finally, and this is somewhat tongue in
mention the other customers you can get question is thus why is your team of smart, cheek, remember my concentric circles of
for the wrong reason — because a board well educated, and appropriately experi- fundraising from this post. How VCs see
member had a friend on the executive enced people better than the others [10]: founders and entrepreneurs?
staff, because someone was a big donor,
etc. Customers “buy” (and I use air quotes A lot of this is confidence: “of course, we’re 10. If I give you money what
the right folks, because we’re the ones who
become sometimes these early “custom- are going to do with it?
ers” didn’t pay anything at all) the wrong are going to win.” Some people feel like
software all the time, particularly in the they’re doing a homework assignment The quantitative part of this answer should
early days of a market. while others feel like they’re building a already be in the three-year financial mod-
winning company. Be the latter. We know el you’ve built so don’t be afraid to refer-
So the question isn’t who downloaded or the stakes, we know the second prize is a ence that to remind people that your plan
tried your product, the question is who’s set of steak knives, and we are going to win and financial model are aligned [11]. But
using it — and when they selected it did or die trying. #swagger then drill down and give the detail on
they know all their options and still choose where the money is planned to be spent.
you? Put differently, the question is “who’s Drivers vs. passengers. Big successful en-
For extra credit, talk about milestone-
not an accidental customer” and why did terprise software companies have defi-
or ARR-based spend triggers instead of
that set of non-accidental customers pick nitionally employed a lot of people. So if
dates. For example, say once we have 3
you over the alternative? So don’t give a you’re doing a sales-related category it’s
sales reps hitting their numbers we will
list of company brand names who may not hard to companies full of ex-Siebel
go out and hire two more. The financial
or may not be active users. Instead tell a and ex-Salesforce people. The real ques-
plan has that happening in July, but if July
few deep stories of active customers (who tion thus becomes: what did your people
comes and we haven’t passed that mile-
they could ask to call), why they picked the do at those prior companies? Were they
stone we won’t pull the trigger. Ditto for
software, and how it’s benefiting them. drivers (who drove what) or were they
most hiring across the company. And ditto
passengers just along for the ride. If they
for marketing: e.g., we’ve got a big increase
8. What is the TAM for solv- drove, emphasize the amazing things they
in programs budget in the second half of
did, not just the brand names of where
ing this problem? next year but we won’t release that money
they worked.
until we’re sure we’ve correctly identified
There are a lot of great posts about how to the right marketing programs in which to
Completeness. Some startups have rela-
build a total available market (TAM) anal- invest.
tively complete teams while others have
ysis, so I won’t explain how to do it here. I
only a CEO and CTO and a few functional
will say you should have a model that cal- It’s also very important that demonstrate
directors. The best answer is a fairly com-
culates an answer and be able to explain knowledge of a key truth of VC-backed
plete team that’s worked together before.
the hopefully simple assumptions behind startups: each round is about teeing-up
That takes a lot of hiring and on-boarding
that model. While I’m sure in b-school the next one. So the key goal of the Series
risk off the table. Think: give us money and
every VC undoubtedly said that “getting A round should be to put the company in
we can start executing right away.
1% of a $10B market is a bad strategy,” a position to successfully raise a Series B.
when they got into the workplace some- Prior exactly-relevant experience. Saying And so on. Discuss the milestones you’re
thing changed. They all love big TAMs Mary was VP of ProductX Sales carrying aiming to achieve that should support that
[8]. Telling a VC you’re aiming for 50% of a $500M number at BigCo is quite differ- tee-up process. And don’t forget the SaaS-
an $800M TAM will not get you very far. ent from saying Mary just scaled sales at tr napkin for getting a rough idea of what
Your TAM better be in the billions if not her last startup from $10M to $100M and typical rounds look like by series.
the tens of them. is ready to do the exact same thing here.
Bonus: origin story. If I were to add one
The smaller the gap between what people
9. Why are you and your team question it would be: tell me how you
just did and what you’re asking them to do,
came to found your company? Or, us-
the best people to invest in? the better.
ing the more modern vernacular: tell me
Most interesting ideas attract several start- about your origin story? If yours is good
ups so, odds are, you have fairly direct and your founders are personable and vid-
competitors pretty much from inception. eogenic, then I’d even make it into a short
And, particularly if you’re talking with video, like the founders of Hashicorp did.
a VC at a larger firm, they have probably You’re going to get asked this question a
researched every company in the nascent lot, so why not work on building the opti-
space and met most of them [9]. So the mal answer and then videoing it.
question here is: (of all the teams I’ve met
in this space) why you are the folks who
are going to win?
I’d expect most startups in your space have
smart people with strong educations, with
great backgrounds at the right companies.
Ten Questions Founder CEOs Should Always Be Able to Answer About Their Startups LATKA MARCH 2020 61
6 Pricing Mistakes You Might Be Making
Setting up a seamless front-end and back-end billing system for a home-grown billing system can seriously impact your revenue
your SaaS business is crucial. Your billing engine sets the tone and growth.
for your company’s future and can mean the difference between
profit or failure. However, as software as a service (Saas) contin- Mistake #2: Not Pricing Based on Value
ues to mature, we have seen a rise in SaaS subscription billing
It is no surprise that researching and understanding the true
mistakes.
value of your product offering is invaluable, yet many businesses
These recurring problems are tempting pitfalls that SaaS busi- fail to do it because it’s complicated and ever-changing.
nesses can fall into and are often due to a lack of research or
However, the value metric of a product is a crucial aspect to con-
understanding of the billing process.
sider when discussing billing. After all, your value metric defines
To ensure you are setting yourself up for SaaS subscription billing how you will present and bill your product.
success, avoid these 6 mistakes.
A value metric is how a product is measured and subsequently
Mistake #1: DIY Billing Engine billed. For example, take a look at Slack’s billing packages. They
charge per user per month. This makes Slack’s value metric the
Building a homegrown billing engine seems like an attractive users that benefit from their functionality each day.
option at surface level for some. After all, you have the talented
development resources in-house and the opportunity to forgo the Pretty simple, right? Well, there is a lot that goes into figuring
cost of any third-party platforms. out what value metric your SaaS product should use. A common
knee-jerk reaction is to just choose the per-user value metric, but
However, this is one of the foremost traps that SaaS businesses many SaaS businesses make this mistake. Instead, a value metric
fall into. While your development team might have time now to should be a result of in-depth research to ensure that the correct
craft the best billing engine for your current needs, what about value metric is chosen. Perhaps the per-user value metric does
the future? work well for your company. However, it could also be something
else – like bandwidth, number of messages, or more.
Building an in-house billing solution can be a slippery slope
that ends up consuming a ton of time and resources in the long
run — time and resources that you could have used to grow and
evolve your business. Instead of building a custom billing engine,
you should instead focus your time on optimizing your business
and its processes. Maybe even implement some version of reve-
nue operations to more efficiently generate revenue.
Think about it: Will your development team have time down the
road to work new features and processes into your DIY billing
engine? What about when your company is experiencing wild
amounts of success and all teams are operating at capacity on
business-critical initiatives? Or, what about when you add new
products and features that change when and how you bill cus-
tomers?
This is why it’s critical to have a billing solution that scales with Your value metric will determine how you set your pricing. You
you. Rapid success often brings rapid change, and a DIY billing wouldn’t charge the same amount per user as you would per
engine will only slow you down. Your billing engine will have to bandwidth amount. If you don’t take into account your product’s
take its place in line on the dev team’s backlog — and it’s unlikely value metric, it can create a disconnect between your product
that it will have the amount of prioritization it requires. and billing that can hinder growth.
Alternatively, if you instead invest in an already vetted, robust For an in-depth look at the value metric, see our recent blog post:
billing solution, you can do away with scaling problems and bur- How to Find Your SaaS Product’s Best Value Metric
dening your dev team. Instead, you can focus on optimizing your
business to run at its best. Mistake #3: Not Customizing the Experience
Working with a billing and revenue management provider like The SaaS economy is relationship-driven, making it imperative
Chargify takes this burden off of your company. Our fully stacked that your customers feel some connection to your company.
team is constantly working to ensure our platform is up to date Gone are the days of cookie-cutter invoices and notices. If you
and addressing the most current needs of B2B SaaS companies. send out the same billing materials to everyone, you’ll be just an-
Not to mention, you don’t have to worry about compliances like other interchangeable SaaS company they’ll ditch when a cheaper
PSD2. If you’re on your own, all of the burdens fall on you, and or more relevant product comes along.
62 MARCH 2020 LATKA 6 Pricing Mistakes you might be making

Customization is key in SaaS businesses. When you send a But it’s much more than that. Many companies don’t think about
customized billing notice, it helps build a relationship between dunning as a strategy until it’s too late and they have already lost
you and your customer. When this approach is coupled with a ton of revenue to churn.
great customer service and in-person or phone interactions with
customers to build rapport, customers notice — it can go a long This mistake is easy to avoid with the right tools in place. We
way to inspire brand loyalty. mentioned earlier the importance of building relationships and
customizing your customers’ experience. This approach also
Billing materials, like invoices or dunning emails, are great places applies to dunning. Convince customers that they are important
to begin implementing customizations. If you have a good billing to you by customizing your dunning communications.
solution, this type of customization should be easy.
A good billing solution will make dunning customization easy.
Mistake #4: Trying to use a Payment Gate- Building dunning strategies shouldn’t be complex or hard work.
It should be a series of emails that include customized remind-
way to Manage Billing
ers and prompts. If you want to be on top of your dunning
We love payment gateways. In fact, we integrate with 20+ of game, start your strategy before a customer reaches the dunning
them. However, they are not designed to be a full billing and process. Some billing solutions offer features to help you prevent
subscription management solution. Many companies make the failed transactions altogether, like end-of-trial and credit card
mistake of trying to manage their subscriptions on top of these expiration emails.
gateways without any additional framework.
Mistake #6: Not Having the Right Reporting
Because payment gateways aren’t optimized for this level of busi-
ness management, it can create a truly painful process for both a Reporting gives you insights and insights lead to meaningful
company and its customers. decisions. Not having a billing solution that can supply you with
meaningful insights about how your customers consume your
That’s why we recommend that companies look for a billing product can cause complications for your business in the future.
and subscription management platform to work on top of their
gateway(s). That way, they have a pre-built framework designed
to work seamlessly with a gateway and add functionality that the
gateway does not offer out-of-the-box. This additional function-
ality includes things like subscription management, analytics and
reporting.
Mistake #5: Not Having a Dunning Strategy

Dunning refers to the process of reaching out to a customer who
has failed to make a payment. When the payment fails to go
through, you send a reminder email (or two, or three) notifying There is so much information to be gathered from the billing and
them of the failed payment and prompting them to make the subscription management process – not only the obvious met-
necessary changes so that payment can be made. rics, like MRR and churn, but less obvious insights like billing
Dunning seems deceptively simple. It’s just to remind your cus- forecasts to show your company’s performance outlook.
tomers to make their payments, right? The more insights you have, the more context you have to inform
your decisions. Make sure you choose a billing solution that illu-
minates the path ahead, instead of keeping you in the dark.
Billing is never stagnant — it needs to be consistently updated
and improved. By investing in your reporting tools, you can
stay up-to-date on any billing, pricing or operational shifts or
improvements that should be made. L
This post originally appeard on
chargify.com
6 Pricing Mistakes you might be making LATKA MARCH 2020 63

1500
1000
R $24K
ARR = 12,000
MRR = 1,000
QRR = 3,000
ΔT 2 years 500

90
CUSTOMER COUNT
80
10 40
30
C x Δt 20
LIFETIME
10 10 5 YEARS

35,000
TRR 20,000
C 15,000
- ARR = $7,500
# New Customers 400
5,000
TIME

20,000
15,000
10,000
ARR = $7500
5,000
CAC $2500
TIME
Total CAC $1,950,000 0 1 2 3 4 5 (YEARS)
12,000
9,000

C
TOTAL
service expenses
0 100 200 300 400 # CUSTOMERS

200,000
160,000
120,000
ARR
a

i + a -g


WALL #3!
STREET
See my tax returns (pg6) at CapitalistBook.com

GETLATKA.COM
1000’S OF B2B SAAS CEO’S SHARE PRIVATE
REVENUE, GROWTH NUMBERS EVERY MONTH
LATKA
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LATKA

THESE ARE THE IPO PREDICTIONS

LARGEST PRIVATE B2B VENTURE DEBT

Funnel.io CEO, Fredrik Skantze

RECURRING REVENUE EXAMPLE RECURRING REVENUE

ARR = 12 x MRR = 4 x QRR

CHURN RATE (AKA ATTRITION) EXAMPLE 100

AVERAGE RECURRING REVENUE (ARPU) EXAMPLE CUMULATIVE REVENUE WITH CHURN

CUSTOMER ACQUISTION (PER CUSTOMER) EXAMPLE COVERING CAC WITH ARR

ACS per Current Customer $3,200

CUSTOMER LIFETIME VALUE EXAMPLE DRAMATIC EFFECT OF CHURN ON CLTV

(”customer lifetime” is quoted as L=1/a so CLTV = ARR x L) 40,000

(”customer lifetime” L=1/10% per year = 10 years) ARR = $10,000

On top of that, Rule of 40 metrics must be

2 MARCH 2020 LATKA

20,000 COPIES SOLD! KING OF CABLE?

INCREDIBLY INCISIVE, USEFUL AND SENSIBLE

NATHAN IS THE NEW TIM FERRISS

J. EGGLESTON VERIFIED PURCHASE

TAPPING INTO THE NEW SHARING ECONOMY

See my tax returns (pg6) at CapitalistBook.com

Sam1495 - Must Listen for Techies and Entrepreneurs

Gerads - great show, hardball questions

Tallpplrule - No Unicorns and Rainbows - Raw and Real Business

COMPANY RELEASE DATE CEO NAME ROLE PODCAST TITLE

Brandzooka 3/7/2020 Aquiles LaGrave CEO

4 MARCH 2020 LATKA Podcast

Management 4/17/2020 Steve Arnold CEO Why Is He "Waiting" To Drive Sales?

The father son team behind Madwire is

Largest Private B2B SaaS employee revenue sharing. They’ve man-

Revenue) Look for PV to test the IPO waters in Q3/

Other IPO’s to watch out for: Gitlab in

1 Cvent Reggie Aggarwal $500M 1999 4K 25K 11/27/2018

2 247 PV Kannan $350M 2000 800 150 7/25/2019

3 Discoverorg Henry Schuck $325M 2007 4500 11/7/2018

4 Xactlycorp Chris Cabrera $288M 2005 694 1600 7/9/2019

5 Bullhorn Art Papas $199.9M 1999 1K 10K 7/29/2019

6 Centro Shawn Riegsecker $142.8M 2001 700 1700 7/10/2019

7 Numerator Dennis Moore $130M 2014 1500 2K 11/14/2018

8 Gitlab Sid Sijbrandij $120M 2012 900 10K 9/24/2019

9 Expensify David Barrett $108M 2008 110 25K 3/12/2018

10 Madwire JB Kellogg $105M 2009 600 10K 8/29/2018

11 Moj Kenny Hawk $102M 2012 90 850K 2/6/2019

12 Alfresco Bernadette Nixon $100M 2005 350 1370 10/3/2018

13 Datastax Billy Bosworth $100M 2011 450 500 1/16/2018

14 Freshworks Girish Mathrubootham $100M 2010 1500 150K 9/13/2018

15 Hotschedules Mike Arenth $100M 2000 600 160K 6/18/2018

16 Kaminario Dani Golan $100M 2008 250 1K 9/2/2018

17 Swiftpage John Oechsle $96.1M 2001 200 89K 5/23/2019

18 Adswerve Clint Tasset $96M 2009 160 800 5/23/2019

19 BounceX Ryan Urban $96M 2012 400 1K 9/26/2019

20 Sumo Logic Ramin Sayar $96M 2010 250 1300 9/3/2018

21 Act John Oechsle $90M 2001 170 85K 1/15/2018

22 Coveo Louis TÃªtu $90M 2008 350 1K 8/6/2018

23 Printful Davis Siksnans $84M 2013 500 100K 7/9/2019

24 Shipmonk Jan Bednar $84M 2014 450 1K 8/26/2019

25 Bill Rene Lacerte $80M 2008 225 66K 9/2/2018

26 Conga Matthew Schiltz $80M 2006 500 11K 7/12/2018