SaaS investor reporting
The vast majority of SaaS companies seek outside funding. Here’s what investors are looking for and why different metrics are so important as you go from seed to IPO.
Seed round $1-2m
Seed investors look for an exceptional team (almost 44% say team is the top priority at seed stage) plus proven track record, and a product focused on a large market. Plus the ability to show how the product differentiators can outdo competitors. This early stage is often about investors belief combined with metrics, rather than purely about the numbers.
- ARR (close to $0.1m)
- MRR (close to $8.3k)
- Team (domain expertise, tech co-founder)
- TAM (total addressable market size)
- Moat (defend what you have from competitors)
- Highly differentiated product
- Traction and proof of scalability (product/market fit)
- Valuation ($5-7m)
The more boxes you tick the better your chances. Your metrics must be at your figure tips. You must be able to show you understand what contributes to your ARR or MRR growth (positive and negative). This will build investor confidence.
Not having paying customers or proven product-market fit is not as important at the seed stage as having the right team. A technical co-founder is startup gold-dust. Having a believable go to market strategy provides seed investors with added confidence in your solution and the team.
Angel/micro investor Christoph Janz, of Nine Point Land, says that for seed investors the team along with ‘go to market’ strategy and product are top priorities.
Series A $5-10m round size
Investors are looking for evidence of repeatability, defensibility and retention, as well as strong ‘go-to-market’ activity and potential.
I spoke to Jocelyn Goldfein of Zetta Ventures at Saastr, (Feb 2019) and her big focus was finding early stage investments capable of building big defensible moats around their products. This needs products to include large amounts of diverse data, data sets that cannot be easily replicated by Google, Facebook, Salesforce or Amazon.
The moat becomes an absolute necessity at series A/B investment stages. Janz (above) discovered that for Series A the moat came in as the #2 priority after team. Therefore, the product must be unique and defensible.
Series A and B investors want growth rates at 3x plus. Investors rely on key metrics to demonstrate growth potential for Series A. These include;
- ARR (year on year growth 3x)
- Dollar retention rate (the magic negative churn)
- Revenue Movements
- Sales efficiency
- CAC payback period (less than 2 years)
- Product usage metrics
- Stand-out team
- Product-market fit
- Evidence of a multi-billion-dollar (no mere millions here!) market size
- Deep understanding of competitors
- Future vision
Series B $10-30m round size
B stage investors are focused on global scaling. Beyond evidence of metric performance, they’re establishing if a team’s vision for a company’s growth fits with their own vision. Is there a cultural fit? They want to see logo growth, revenue growth and retentions of near 90%. Beyond evidence of customer retention, they’re looking for expanding revenues from existing customers.
- ARR growth (year on year growth2.5x – 3x)
- Net dollar retention
- Revenue Movements
- CMRR (net change)
- Payback period (12 months)
- Cohort analysis
- Product usage metrics
- Continuing evidence of a multi-billion-dollar market size
- Can handle scaling 20x
- Ability to recruit
- Vision for global growth
- Understand the why behind performance metrics
Preparing investor reports and updates is time-consuming and distracting not just for the CEO and CFO, but for many of a company’s senior team. However, investors expect metrics to be accurately and consistently reported. VC’s find it particularly frustrating when the data formulation used to report a metric, changes from one report to the next. Providing hard to understand, inconsistent or inaccurate metric reporting undermines credibility and erodes trust with investors.
A SaaS business when reporting to investors needs to be able to demonstrate an understanding of the reasons behind their performance. The onus is on the SaaS team to look deeper into their metrics. They need to know the reasons behind specific outcomes. This requires deeper dives into the different cohorts (products, customer type, time etc) and advanced metrics like revenue movements that tell the story behind MRR, ARR, growth rates and CAC.
Reporting systems should be automated where possible. A commitment to consistent data entry makes it so much easier to provide reports that tell the story of how a company is growing, clearly illustrating ongoing performance improvements. A team that tracks and records important metrics from the outset is more likely to secure funding and faster.
Podcast: Attracting the right investors
Learn more from CloudKPI on SaaS metrics and how to accelerate now.