The Magic of a $5 Million SaaS Run Rate

After Defining a Successful Business several years ago for a Software-as-a-Service (SaaS) entrepreneur, the logical question is “what’s the next revenue milestone for a SaaS company after initial success has been achieved?” Things really start getting interesting once a startup hits the magic $5 million run rate mark. Here are a few reasons why $5 million is so important:

• Product critical mass – $5 million often represents enough customers that the business will keep growing for several years to come
• Team – There’s enough scale with 30-50 employees to have depth in each department, yet still move fast
• Fundraising – Assuming a good growth rate (> 30%), it’ll be easy to raise money as a number of venture and growth equity funds exist with a minimum requirement of $5 million in revenue
• Industry presence – There’s enough money for a marketing budget that enables attending all the conferences, being covered in analyst reports, and showing up in the key places online (SEO, PPC, etc)
• Exit opportunities – Many acquirers aren’t interested in small startups, especially ones that are outside their hometown, so $5 million in revenue represents a minimum level where it’s worthwhile to look at acquiring a business

While there’s no exact number, entrepreneurs that reach $5 million in recurring revenue with strong gross margins and a high growth rate have a tremendous number of strong options as well as enough scale to start spending more time on the business instead of in it.

What else? What are your thoughts on a $5 million SaaS run rate being a major milestone for entrepreneurs?