The Metrics Brothers

Bessemer Venture Partners recently released their 9th annual Cloud 100 Report. Dave "CAC" Kellogg and Ray "Growth" Rike dive deep into the impact of AI companies on the top 100 private cloud companies which increased their aggregate enterprise value to $820B and increased their growth rate to 70%!

Key highlights Dave and Ray discuss include:

• Aggregate enterprise value of the Cloud 100 increased 25% year over year
• Average growth rate increased from 55% in 2023 to 70% in 2024
• 97% of the Cloud 100 will be over $100M ARR by the end of the year
• Top 10 companies in the Cloud 100 represent ~ 30% of the total Enterprise Value
• Ai companies represent the top category of the Cloud 100 EV (21% of total)
• EV:Revenue multiples are down YoY (23x) but still at very attractive levels

As a follow-on to the BVP "State of the Cloud 2024 Report" the Cloud 100 highlights the era of AI has moved from hype to reality as measured by growth rates and enterprise value!

If you are interested in the latest "CLOUD" industry trends as measured by company value, revenue growth rates and industry impact this episode is a must listen!

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Go-to-Market continues to be a trending topic for the majority of B2B SaaS companies being challenged to optimize efficient revenue growth. ICONIQ recently published a report entitled "State of GTM Benchmarks" and Dave "CAC" Kellogg and Ray "Growth" Rike discuss the report's findings and what the benchmarks mean to both operators and investors.

Key GTM benchmarks covered during today's episode include:

• Growth Rate Trends ('24 vs '23)
• Customer Acquisition Logo Velocity
• Pipeline Coverage Ratio
• Pipeline Conversion Rates
• Partner Sourced Contributions
• Expansion ARR vs New Logo ARR

If you are a B2B SaaS CEO, CFO or GTM executive this episode is full of interesting insights based upon the most recent GTM benchmarks.

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The SaaS Mendoza line highlights the slope of the long term growth rate that investors expect and operators should target on a path to IPO. Dave "CAC" Kellogg and Ray "Growth" Rike break down the updated expectations.

Veteran software VC, Rory O’Driscoll of Scale Venture Partners proposed a theory to identify the growth rate below which a company may not be on the VC-to-IPO trajectory.

In 2018, Rory started with an analysis of SaaS companies at the time of IPO. In 2018, SaaS companies going public had a minimum run rate ARR of $100M and at least a 25% forward growth rate. He then examined growth rates over time and observed that the growth persistence - which represents the rate of growth decay year over year, that public SaaS companies grew at 80-85% of their previous year’s growth. This metric is commonly known as "Growth Endurance".

Dave and Ray discuss the new reality of the SaaS Mendoza line, with the most recent data in 2023-2024 suggesting that a SaaS company must have at least $400M - $500M" in revenue before they can IPO as evidenced by the recent Klaviyo, OneStream and Rubrik initial pubic offerings.

CAC and Growth highlight other common "growth expectation" models including the T2D3 (Triple, Triple, Double, Double Double) and 56789 models.

If you are evaluating what it takes for early stage company to attract new investors as your growth on a path to IPO - this conversation is full of great insights and perspective on investor expectations.

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Go-to-Market trouble shooting is a very common activity in 2024 as B2B SaaS companies continue to face growth and especially efficient revenue growth challenges. In this episode Dave "CAC" Kellogg shares his top-down GTM trouble shooting method which boils down into two primary categories:

• Pipeline Coverage
• Pipeline Conversion

Dave and Ray dive into the details on the key metrics to evaluate and what they tell a SaaS GTM operator about the current state of their GTM performance. Key insights are provided across multiple topics including:

• Week 3, Day 1 Pipeline Coverage Ratio
• Win Rate vs Pipeline Coverage Ratio
• Pipeline Conversion Measurement
• Pipeline Source and Composition

CAC also provides his most basic insight into the top two questions a CEO should be asking which are:

1. Are we giving sales a chance to hit the number (pipeline coverage)
2. Is Sales converting enough opportunities into customers (pipeline conversion)

If you are a CEO, CFO or GTM leader in B2B SaaS and are responsible for GTM performance and/or evaluating GTM performance this episode is a great listen!

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OneStream went public on July 24, 2024 and Dave "CAC" Kellogg and Ray "Growth" Rike dedicated this episode to discussing their S-1 and Initial Public Offering (IPO). OneStream, the company offering their Digital Finance Cloud to the Office of Finance has a long history including being self-funded, being acquired by Private Equity (KKR) in 2019 and beginning the transition from a perpetual license software company to a SaaS company in 2020 on the path to their IPO.

During the episode, Dave and Ray discuss multiple aspects of the OneStream public offering including:

• The history of OneStream
• KKR investment in 2019
• IPO pricing
• Umbrella Partnership Corporation (Up-C)
• Stock Class Voting Rights
• Financial Performance Metrics Trends

If you are a student of the SaaS industry and/or are interested in the details behind a company that serves the Office of Finance this episode is a great listen.

This is the 50th episode of SaaS Talk™ with the Metrics Brothers and don't miss CAC and Growth sharing credits to the people who made SaaS Talk a reality!!!

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Burn Multiple is a metric created by David Sacks to measure the capital efficiency of ARR growth in B2B SaaS companies. In this episode, Dave "CAC" Kellogg and Ray "Growth" Rike discuss alternatives to the Burn Multiple and then dive into the details of the two primary burn multiple components which are Net Burn and Net New ARR.

There are multiple metrics that attempt to measure capital efficiency of B2B SaaS companies including:

• Hype Ratio = Capital Raised / ARR
• Cash Conversion Score: Current ARR / (Total Capital Raised to date - cash)
• Efficiency Score = Net New ARR / Net Burn

The Burn Multiple uses two primary components in it's calculation which is:

• Burn Multiple = Net Burn / Net New ARR
• Net Burn = Revenue in the Period - Operating Expenses in the Period
• Net New ARR = New Logo ARR + Expansion ARR - Down-sell ARR - Churned ARR

What is a good Burn Multiple? It depends on the stage of the company, but let's use David Sacks benchmark framework from his original Burn Multiple article in 2020:

• Amazing = < 1x
• Great = 1.0 - 1.5x
• Good = 1.5 - 2.0x
• Suspect = 2.0 - 3.0x
• Bad = >3x

If you have an investor focused on the Burn Multiple or you have heard about the Burn Multiple but want to understand the details and nuances this episode is a great listen!

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Bessemer Venture Partners recently released their "State of the Cloud 24" which included the catch phrase "The Legacy Cloud is Dead - Long Live AI Cloud!" Dave "CAC" Kellogg and Ray "Growth" Rike discuss the report and the opportunities and threats to traditional SaaS companies.

Topics discussed include:

• Social Media Buzz and Sources of "SaaS is Dead"
• Gen AI VC Funding Categories and Sources
• Top Five Gen AI Trends

Trend 1: AI foundation models set the stage for Big Tech’s new battle-of-the-century

Trend 2: AI turning all of us into 10X developers

Trend 3: Multimodal models and AI agents will transform human relationships with software

Trend 4: Vertical AI shows potential to dwarf legacy SaaS with new applications and business models

Trend 5: AI Brings Consumer Cloud Back from the Dead

If you are in a SaaS company evaluating how best to maneuver the risks and/or capture the potential of Gen AI, the Bessemer State of the Cloud report is a great read and this episode with CAC and Growth is a great listen!

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McKinsey recently published a report entitled "Navigating the Generative AI Disruption in Software" that Dave "CAC" Kellogg and Ray "Growth" Rike discuss in his episode.

Some of the primary topics discussed include:

• GEN AI penetration velocity today vs SaaS in the early days
• GEN AI impact on switching from traditional SW/SaaS vendors
• Where will the rewards of Gen AI go
• Impact on SaaS Growth and Churn Rates

One of the most interesting parts of the report and this episode is that expansion growth rates of software will increase for those with embedded generative AI. In addition, the adoption of Generative AI solutions will be spread across three primary modalities of Gen AI software including:

• Native Generative AI Point Solutions
• Broader platforms with embedded Generative AI
• Internally developed Generative AI software

If you are a traditional SaaS company and are looking to navigator the unchartered waters of the Generative AI software era, the McKinsey report and this episode are great sources of ideals and insights.

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What is the difference between the price and value of a SaaS company? How do metrics such as Enterprise Value to  EBITDA multiples play a role in this discussion? Dave "CAC" Kellogg and Ray "Growth Rike discuss the topic on this episode of SaaS Talk with the Metrics Brother and cover a wide array of topics including:

• What is a SaaS company worth?
• What is the definition of "price vs value" in the stock market
• Examining Valuation Multiples What They Miss, Why They Differ, and the Link to Fundamentals
• How Cash and Debt impacts Enterprise Value
• EV/EBITDA vs EV/FCF vs EV/Revenue Multiples

An inspiration for this episode was from a paper written by Michael Mauboussin with the title: "Examining Valuation Multiples What They Miss, Why They Differ, and the Link to Fundamentals". You can read the paper by clicking here.

If you are a SaaS professional or even just interested in learning more about how SaaS companies are valued, this conversation is full of interesting insights and details on the concept of SaaS company valuations.

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Trouble shooting Go-to-Market (GTM) issues is a critical competency to master for every SaaS company as they face the pressures of lower growth and reduced revenue growth efficiency. Dave "CAC" Kellogg and Ray "Growth" Rike introduce a GTM trouble shooting framework that addresses the five primary opportunities to improve GTM efficiency.

The five key areas of Go-to-Market efficiency opportunities include:

• Pipeline Generation
• Pipeline Conversion
• Win Rates + ACV
• Customer Retention
• Customer Expansion

CAC and Growth discuss some of the key metrics that measure the performance and health of each of the above areas. In addition, as two former B2B SaaS operators, they cannot help but dive into some of the key issues and solutions that go beyond "trouble shooting" and move into potential solutions to enhance revenue growth efficiency and improve performance.

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