Rory O’Driscoll just published an excellent post titled Understanding the Mendoza Line for SaaS growth where he argues that the minimum requirement for a SaaS company to raise venture capital is a path to $100 million of revenue growing at least 25% at that milestone. Of course, as a startup grows the law of large numbers kicks in and fast growth becomes harder and harder. Historical data from SaaS companies that have gone public (considered best-in-class) shows that they typically grow between 80 and 85 percent of the prior year once past $10 million of revenue.
From the post, here’s an example with numbers:
- Year 1 – Grew 120% from $4.5M to $10M
- Year 2 – Grew 98% from $10M to $19.8M
- Year 3 – Grew 81% from $19.8M to $34.8M
- Year 4 – Grew 66% from $34.8M to $59.6M
- Year 5 – Grew 54% from $59.6M to $91.9M
- Year 6 – Grew 44% from $91.9M to $132.8M
SaaS entrepreneurs need to understand the calculus for raising venture capital and have the requisite growth rate to make it worthwhile.
Want to learn more? Head over and read Understanding the Mendoza Line for SaaS growth.