Category Archives: SaaS

Key Data from the Last 12 SaaS IPOs

PandoDaily has a great piece up on how hard it is to build an enterprise Software-as-a-Service (SaaS) business that includes key data from the last 12 SaaS IPOs. Of the 12 SaaS companies, most have been profiled here including Eloqua, Rally Software, ExactTarget, ServiceNow, Marin Software, Marketo, and Bazaarvoice.

Here are some key takeaways from the article on the last 12 SaaS IPOs:

Company Age at IPO: Average of 9.5 years with median of 8 years
Rounds of Financing: Average of 4.5
Amount Raised: Average of $109 million with median of $75 million
Revenue: Average of $71 million with median of $61 million
Sales and Marketing Employees: Average of 35% of the workforce
Employees: Average of 532 with median of 363
Professional Services Revenue Percentage: Average of 20% with median of 17%
Compounded Annual Growth Rate: Average of 59% with median of 55%
Gross Margin: Average of 65% with a median of 66%

The moral of the story is that SaaS companies require substantial capital, scale, and growth to have a successful IPO.

What else? What are some other thoughts on the data from the last 12 SaaS IPOs?

Marketo IPO Priced

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As a follow up to the Notes from the Marketo S-1 IPO Filing, Marketo priced their IPO at $13/share earlier today. At the $13/share price, Marketo has an enterprise value of $435 million and a market cap of $540 million (the enterprise value plus cash on hand). Of course, the stock is likely to have a nice run up tomorrow when the markets open due to the high demand for fast-growing Software-as-a-Service companies.

Here are a few thoughts and some speculation:

Raising $107 million in venture capital and having an enterprise value of $435 million at time of IPO feels low
With an $80 million run rate, and a fast growth rate, my guess is that the stock goes up 20 – 30% tomorrow (~$17/share)
Existing investor Battery Ventures bought 500,000 more shares at the IPO price, showing a belief that the stock has significant upside (source)
Within 18 months a large tech company will buy the company for north of a billion (e.g. Adobe, Salesforce.com, SAP, etc)

It’s great to see that Marketo successfully went public and further validated the marketing automation space. I look forward to tracking their progress.

What else? What are your thoughts on Marketo going public and their future?

Notes from the Marketo S-1 IPO Filing

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I enjoy reading S-1 IPO filings. They’re just about the nerdiest, and most honest, documents you’ll find that spill all the darkest secrets of a company (salaries, equity ownership positions, valuations at each financing round, etc). So, when I read that Marketo’s S-1 filing is finally public, I jumped right in. Marketo’s the arch-enemy of Pardot, so over the years we’d debate things like how many customers do they really have (vs claimed to have), how much were they valued at each time they raised money, etc. Well, now we know.

Here are some notes from the Market S-1 IPO filing:

Over 2,000 customers (pg. 1)
In 2011, one client paid over $324k that year – (pg. 1)
Revenues (pg. 1):
2010 – $14mm
2011 – $32.4mm
2012 – $58.4mm
Losses (pg. 1):
2010 – $11.8mm
2011 – $22.6mm
2012 – $34.4mm
Key benefits (pg. 3):
- Drives faster revenue growth
- Enables organizations to better build and retain long-term customer relationships
- Streamlines the marketer’s world
- Increases efficiency and speed of marketing execution
- Provides deep analytical insight
Accumulated deficit of $82.2mm (pg. 10)
79% of customers integrate with Salesforce.com (pg. 11)
12.8% of revenue comes from outside the U.S. (pg. 17)
They define the SMB market as companies under 1,500 employees, with 80% of their customers in the SMB market (pg. 48)
Raised $107.1mm in financings (pg. 49)
Crowd Factory acquisition was for $13mm (pg. 72)
Five employees sold $2.5mm of their equity to a preferred shareholder in March 2012 (pg. 72)
Employees (pg. 96):
Total: 339
Research and development: 84
Sales and marketing: 124
Operations, customer support, and professional services: 98
General and administrative: 30
Equity ownership (pg. 128):
Venture capitalists: 85.5%
CEO/co-founder: 6.6%
Other co-founders: Not listed

Overall, the Marketo S-1 IPO filing is as expected and follows the Silicon Valley SaaS playbook: find a market with huge growth opportunities, burn a ton of cash to be a market leader, go public, and likely get rolled up by one of the behemoths technology companies.

The marketing automation market is enormous and Marketo is in a great position to capitalize on it.

What else? What are some other thoughts on the Marketo S-1 IPO filing?

Will the Next Major CRM Player Please Stand Up

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Customer Relationship Management (CRM) has been around for decades. Over the past 10 years, Salesforce.com has risen to prominence as both the largest Software as a Service (SaaS) company in the world and the largest CRM company in the world. Salesforce.com has an incredibly powerful product that is now geared towards the enterprise and over time has moved away from the small and even low mid market segments. Also, at a price point of $65 – $125/user/month (retail), the pricing is more inline with what larger organizations can afford to spend. The product is the most robust and most well integrated with other applications.

Market wise, there exists an opportunity for a lighter weight, more end-user friendly CRM that’s in the $5 – $15/user/month for the small to mid-sized business segment of the market. It doesn’t need to be as comprehensive as Salesforce.com, but it does need to be fairly customizable, and just as important, integrate with a large number of third-party apps (one of the most challenging things). SugarCRM, NetSuite, and Microsoft Dynamics CRM have strong products, but all target the enterprise with products that are north of $30/user/month.

Here are some of the current contenders in the SMB market:

Zoho CRM
$12/user/month
Nutshell
$10/user/month
Nimble
$15/user/month
Capsule CRM
$12/user/month
Highrise (more of a contact manager than CRM)
$49/month for 15 users
Batchbook
$50/month/10,000 contacts (no per user fees)

So, the SMB market is clearly healthy with a number of competitors, but talking to other entrepreneurs, no system dominates. I believe over the next 2-3 years another CRM player will emerge as the leading SMB provider, and it’s only a matter of time before the winner becomes apparent.

What else? Do you use any of these products and who do you think will be the next major CRM player?

Notes from the Rally Software S-1 IPO Filing

Thoughts on the Content Sourcing Marketplace Space

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Almost two years ago I wrote a post on a Content Marketing as a Service idea where I talked about the need in the market for high quality custom content on a regular basis for companies. It’s been two years and I still haven’t seen anything breakthrough as a clear leader in the space.

Here are three content marketing companies that are related to the idea but not the exact thing:

Contently – marketplace that facilitates high quality freelancers for companies
Compendium – content marketing platform that provides a set of tools for content planning, managing, and publishing
Kapost – content marketing platform with a marketing calendar, workflow, analytics, etc

After thinking more about the idea and market for content marketing marketplaces, I believe there are some challenges in the space to build a $100 million business:

Content is too personal and custom to a business such that business owners and marketers are very reluctant to outsource it to a third party (this is anecdotal after asking several business owners about it)
Crowd sourcing areas in the creative space have been most successful with simple, visual items like logos where there are people that design logos for fun and it’s easy to decide which ones you do and don’t like. It’s exponentially more difficult on both sides of the equation to facilitate 1,000 word blog posts as the product.
Even if you outsourced the content development to a third party, it still takes a significant amount of effort to come up with content ideas and the subsequent editing of it to maintain a consistent voice and message aligned with your brand

Content marketing continues to grow in importance but I think there’s too much friction relative to the return on investment for a content marketing production as a service company to emerge as a large vendor. As it is now, it will continue being serviced by agencies, PR firms, and more involved freelancers.

What else? What are your thoughts on the content sourcing marketplace space?

SaaS Momentum is Strong

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Recently I was talking with a friend about entrepreneurship and technology. The topic of Software-as-a-Service (SaaS) came up and how it’s been a hot area for years now. After discussing it further, we agreed that SaaS is just getting started and shows no signs of slowing down.

Here are some of the reasons SaaS is so disruptive:

Pace of innovation is much faster for a tech company compared to installed software due to delivering software over the web
Ease of on-boarding a new client and getting value is a magnitude better than the previous way
Removal or lack of IT involvement empowers line-of-business managers to be more autonomous and self-sufficient
Anytime, anywhere access changes the approach to work and frees up team members to be productive on their own schedule
Open APIs to share data and connect systems in an automated fashion is 10x more efficient than traditional enterprise software

Software-as-a-Service has another decade of rapid adoption ahead and is just getting started.

What else? What are some other reasons SaaS momentum is so strong?

Notes from the Marin Software IPO Filing

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Marin Software just filed their S-1 (SEC doc) to go public and sell $75mm worth of shares. Marin makes an advertising and pay-per-click (PPC) Software-as-a-Service (SaaS) management platform for online marketing, or Revenue Acquisition Management, as they put it. I remember first hearing about Marin several years ago when the PPC bid management world was heating up, so it’s great to see how far they’ve come.

Here are a few notes from the Marin Software IPO filing:

Platform works with Baidu, Bing, Facebook, Google, Yahoo! and more (pg. 1)
Revenues (pg. 2):
2009 – $7.5mm
2010 – $19mm
2011 – $36.1mm
2012 first 9 months – $42.5mm
Business benefits (pg. 3)
Financial lift
Efficiences and time savings
Better business decision making
Key strengths (pg. 3)
Robust and flexible integration
Big data analytics
Real-time, cross-publisher campaign management
Predictive bid management and optimization
Intuitive interface offering visibility and control
Experienced team committed to customer success
Highly-scalable and extensible cloud-based architecture
Losses (pg. 8)
2009 – $9.7mm
2010 – $11.9mm
2011 – $17.4mm
2012 first 9 months – $19.2mm
Accumulated deficit – $70.1mm (pg. 11)
Fees are calculated as a percentage of customers’ advertising spend managed on the platform (pg. 12)
Substantial majority of spend is through Google using the Google AdWords API (pg. 12)
Sales cycle is typically one to nine months (pg. 15)
Employee count (pg. 23)
2011 – 285
2012 – 386
181 day lock-up period for shareholders (pg. 31)
26% of total revenue came from advertisers outside the U.S. (pg. 44)
502 active customers on September 20, 2012 (pg. 45)
58% 2012 gross margin (pg. 49)
Total amount raised from investors: $105.7mm (pg. 56)
Equity ownership percentages (pg. 114)
Benchmark Capital – 16.4%
DAG Ventures – 16.1%
Temasek Capital – 10.1%
Focus Ventures – 6.5%
Crosslink Ventures – 5.8%
Founder – 8.8%
Co-founder – 2.8%
Co-founder – 3%

Marin Software looks to have the makings of a successful IPO based on being a modern SaaS platform growing incredibly fast at scale.

What else? What are some other thoughts on the Marin Software IPO filing?

The First 12 Months of a Seed-Funded Startup

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Yesterday I was reading the post Moderate Success is the Enemy of Breakout Success and saw the note that Jason Goldberg of Fab.com said that if a startup doesn’t breakout in a year, he moves one. Now, I agree with the author, Jason Calacanis, when he says that it takes more like 2-3 years to determine if something is going to be a big success.

That question got me thinking about our Pardot experience and whether or not we felt like it would be a breakout success at the end of 12 months. From day one of working full-time on it we had financing, so I’d consider it a seed-funded startup from the get-go whereas most startups would need 3-6 months to raise money if they weren’t able to do things in a scrappy (bootstrapped or capital light) manner.

Here’s the first 12 months of Pardot beginning when my co-founder and I started working full-time on the business March 1st, 2007:

March – Get the basics together like a minimum viable product, simple marketing site, bank account, etc
April – After several customer discovery interviews, decided to pivot from a pay per click bid arbitrage lead generation platform (like LendingTree.com for B2B tech lead gen) to a B2B marketing automation platform
May – Hire an awesome lead engineer (I wrote code full-time for the first year as well) and build the product with direct feedback from Hannon Hill, the content management software company I had started seven years earlier
June – Hire 11 full-time interns (eight programmers and three non-technical) (Note: this is not recommended and I wouldn’t do it again)
July – Continue rolling out product features to production for Hannon Hill to use (everything about the product and company was live but there was no external sales or marketing)
August – Start marketing the product publicly, begin recruiting for a sales person, and interns finish up
September – Hire two full-time sales people (one doesn’t work out and the other works out unbelievably well)
October – Give product demos to potential resellers that were already connected with Hannon Hill and start engaging with leads
November – Enter into a few free trial relationships and start collecting more feedback and product ideas
December – Sell our first couple customers
January – Continue to receive excellent reviews from prospects and the number of customers grows modestly
February – A handful of additional customers sign on and we start thinking about raising prices to reflect the product’s value

So, at the end of the 12 months, beginning from a cold start, we had an awesome team, product, and ~12 paying customers with strong market validation that we were on to something. I didn’t know if we’d be a breakout success, but all the indicators at that point were looking good and I felt we’d be successful.

What else? What are your thoughts on the first 12 months of a seed-funded startup?

Bessemer’s Updated 5 Cs of Cloud Finance

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Continuing with the post a couple days ago on Bessemer’s Updated Top 10 Laws of Cloud Computing (that name is better suited to be “Cloud Computing Companies” as the current title sounds more technical than it really is) one of the most important ones, after #9 about corporate culture is #5 titled: Play moneyball in the cloud, and check the scoreboard with the 5 Cs of Cloud Finance. The good thing about these metrics is that they are incredibly powerful while still being easy to understand — a rare feat in much of the financial world.

Here are Bessemer’s 5 Cs of Cloud Finance:

CMRR, ARR, & ARRR – Committed Monthly Recurring Revenue, Annual Recurring Revenue, and Annual Run Rate Revenue.
Cash Flow – Start with Gross Burn Rate and Net Burn Rate, then hopefully turn to Free Cash Flow over time.
CAC – Customer Acquisition Cost Payback Period.
CLTV – Customer Lifetime Value.
Churn & Renewal Rates – Logo Churn, CMRR Churn, and CMRR Renewed.

Every Software-as-a-Service company should have a Google Spreadsheet where they track each of these values on a monthly basis and discuss it with their senior management team on a regularly.

What else? What are your thoughts on Bessemer’s Updated 5 Cs of Cloud Finance?

10,000 Startup Hours – David Cummings

Over 1,400 posts on entrepreneurship and startups

Category Archives: SaaS

Key Data from the Last 12 SaaS IPOs

Marketo IPO Priced

Notes from the Marketo S-1 IPO Filing

Will the Next Major CRM Player Please Stand Up

Notes from the Rally Software S-1 IPO Filing

Thoughts on the Content Sourcing Marketplace Space

SaaS Momentum is Strong

Notes from the Marin Software IPO Filing

The First 12 Months of a Seed-Funded Startup

Bessemer’s Updated 5 Cs of Cloud Finance

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