My thoughts on VentureBeat around the “Revenue Pit-Crew”, a growth technology stack for marketers and sales leaders.
Originally posted on VentureBeat:
This is a guest post by Indy Guha, an investor at Bain Capital Ventures
This week at Dreamforce, cloud applications businesses will come together to celebrate product announcements, impressive growth, partnerships and much more. That momentum is also reflected in all-time-high valuations, with Software-as-a-Service (SaaS) companies trading at an average of 12 times last-twelve-months revenue.
Unfortunately, high valuations come with equally high growth expectations. The expectation that you need to keep landing huge customers, and growing revenues, is omnipresent. Chief marketing officers and sales officers are feeling the pressure. I often hear this concern from CMOs: “My boss wants a plan for 60 percent growth next year… off a big number. Where are we going to find that many leads?”
This is a guest post by my colleague Ajay on why we invested in InfoScout. See how this startup is fundamentally disrupting the market research industry via mobile.
Originally posted on Ajay's blog:
Today InfoScout announced the launch of their company and their analytics dashboard for Consumer Packaged Goods (CPG) marketers. Bain Capital Ventures, along with Founder Collective and Dunnhumby Ventures, led a $5M Series A funding round in the company. We are thrilled to be partnering with the InfoScout founders, Jared and Jon, along with the entire InfoScout team.
We’ve discussed in the past here and here the rise of Marketing as the next great function in enterprise technology. A new wave of startups is leveraging Big Data and cloud computing to deliver incredible power to CMOs, giving them access to real-time insights and helping them drive faster, more data-driven decisions. InfoScout is leading this trend in the CPG industry where the marketing challenge is even more acute since the CPG brands don’t’ have direct access to the customer data (this is owned by the retailers) and the customer purchases take place primarily offline.
Given the lack of access to customer data, the 4 trillion-dollar industry of Consumer Packaged Goods (CPG) spends tens of billions of dollars on market research, syndicated data, and panel data to determine which products are selling to whom and why. For instance, why are a particular cereal brand’s sales declining? Are households substituting the brand for a private label brand? Are they shifting to other breakfast substitutes such as yogurt and granola bars? Or, are they simply eating less breakfast? Retail point of sale (POS) data is helpful for understanding aggregate SKU sales by retailer but sheds zero light on the behavior of individual consumers or segments of households.
Why we are in investing in Wrike
Today, Wrike announced a $10MM Series A funding round led by Bain Capital Ventures. We are thrilled to be partnering with Andrew Filev and Team Wrike! Here are just a few qof the reasons why we are excited to be on board.
Because Wrike is a great product
We could tell you that Wrike is a unique product because it adapts to your existing workflows, vs. requiring you to change how you get things done. Or that it sits across task management AND collaboration, vs. just doing one. Or my personal favorite – it works in your email.
But task management software is like ice-cream – everyone has their favorite flavor. So let’s just look at Wrike by the (engagement) numbers:
Being boot-strapped, Andrew and his team had to build a product that users love (and pay for). These usage metrics speak to something special. In the words of one customer:
“Wrike is the backbone of our company. It is so integrated within our company that it would be painful – and painful is not a strong enough word – to replace it.”
Because the “work cloud” needs more connective tissue
Between Google Drive, Dropbox, Box, email, etc., businesses have an incredible amount of data and documents in the cloud. Managing workflows across those platforms is increasingly challenging. Doing so within the app that most knowledge workers live in – email – is even harder.
And the next generation of knowledge workers will be even more cloud centric.
We think Wrike, with its flexible workflows and Drive / Dropbox / Email integrations, can be the connective tissue across those cloud apps.
Because “land-and-expand” is already working
As noted earlier, Wrike customers more than double their number of seats within the 1st year of using the product. That only happens if you have a great product and happy customers.
BCV has a long history of backing companies with “land-and-expand” DNA, including SolarWinds (NYSE: SWI), LinkedIn (NYSE: LNKD), SurveyMonkey, Rapid7, Optimizely and many more. When we see those fingerprints in a company, we know it can be special.
Because it all starts with the people
Andrew and his team have delivered a category-leading product, happy customers and huge growth with no outside capital. And they have built a great company culture with a real sense of mission around empowering their users.
Those are incredible achievements, but we get the feeling that Wrike is just getting started. We are excited to see what this crew does with a full tank of gas!
Many of you have reached out to me asking for the source data in this post. Since it’s based on an internal analysis we did at Bain Capital Ventures, I thought I’d share the updated version of the data.
SaaS Valuations Grouped by Growth Rate & Margin (March 2013)
In short, looking across all public SaaS Co’s, high growth (>30% YoY), high gross margin (>70%) companies trade at 7.6X Enterprise Value / Next Twelve Months (EV/NTM) Sales, vs. industry wide average of 5.5X.
And growth rate matters more than gross margin. The top-left quadrant (low growth, high gross margin) trades at 3.7X. The bottom right quadrant (high growth, low gross margin) trades at 6.2X, if you strip out Workday.
This is a guest post by Ajay Agarwal, my colleague at Bain Capital Ventures, who was the Series A investor in BloomReach. That company has the kind of story that gets all of us excited to build great tech. Congrats to the team!
Today one of our portfolio companies, Bloomreach, announced a new funding round led by NEA and their partners Scott Sandell and Ravi Viswanathan. Bain Capital Ventures and Lightspeed Venture Partners also participated in the round. We are thrilled to work with NEA and welcome them to Bloomreach. I have known NEA for 17 years…their managing partner, Peter Barris, was on the board of Trilogy. Peter, Scott, Ravi and the entire partnership at NEA are world-class.
I had the good fortune of meeting Raj De Datta and Ashutosh Garg, the co-founders of Bloomreach, four years ago. At the time, it was the two of them and an idea. The founders wanted to solve the “content discovery” problem online and make sure that every web business in the world could be effectively “found” by their respective customers. Together, we at Bain Capital Ventures and the founders spoke to over 25 CMOs to validate this opportunity – the feedback was extremely strong and helped shape the initial product vision. We subsequently led the Series A funding in March of 2009, alongside a great group of strategic angel investors.
Less than four years later, Bloomreach employs 100 people and is on path to being the fastest growing SaaS company in history. They are one of the pioneers in the emerging Big Data Applications space: using data from inside and outside the enterprise to transform enterprise functions. Bloomreach uses techniques such as machine learning, web crawling, and search technology to mine a massive amount of data. That data drives marketing insights, new customer traffic and most importantly, new revenue. On average, BloomReach customers see 94% lift in non-branded, natural search traffic.
Unlike the last generation of SaaS and cloud marketing applications, Bloomreach is not a “form on top of a database” or a repository of manually entered data and workflow. These types of sales and marketing automation solutions are necessary and important, but fail to deliver real measurable business value and ROI to the enterprise. In contrast, Bloomreach and companies like it are helping web businesses large and small enjoy high margin revenue through an automated service and by doing so, are transforming the marketing function….which we believe is the next 10 Billion dollar opportunity in enterprise technology
Raj and Ashutosh have been outstanding founders and exemplary leaders. They have created a company and culture that is built to last. The last four years have been a fantastic journey. The opportunity for Bloomreach is awesome and we look forward to deploying the new funding in relentless pursuit of our vision.
But how should you think about valuation? What is “market” for high growth SaaS companies?
Well, here’s one way to think about it:
SaaS Valuations Grouped by Growth Rate & Margin
In short, high growth (30% per year or more) and high margin (65% or more) businesses trade at a big premium. How much of a premium? 7 times your NTM (next 12 months) sales, vs. 4-5 times NTM sales for “regular” SaaS businesses.
Your business (and founder shares) could be worth 40-75% more if you are in that top right category.
Duh right?!? But it raises an important question every founder should care about – how do I get there and what are the signposts?
Some “SaaScid Tests” to live by:
All 3 tests relate to sustainable, high revenue growth:
- If LTV > 3X CAC, every dollar of sales & marketing spend builds strong, sustainable revenue backlog, assuring future growth.
- If months to recover CAC < 12, you are capital efficient (less fundraising and dilution!) and can use your own cashflows to fund your CAC
- Low churn = higher starting point for next years revenue = higher growth rate
If you manage your pricing and your sales & marketing model to these benchmarks, you will enjoy strong profitability. And if you have profitability, you can pursue growth because the customer economics scale.
Oh, and if you’re hitting those benchmarks, we should talk!
This is a guest post from my colleague, stud-entrepreneur-turned-VC, who is a big believer in the power of fresh college grads to make a dramatic impact at start-ups. His views really resonated with me (where would I be if someone didn't take a big bet on a fresh college grad?), so I wanted to share.
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Only The Best
Prior to joining Bain Capital Ventures, I spent 8 years at Trilogy
which was founded by Joe Liemandt, a Stanford dropout and brilliant entrepreneur. I first met Joe in 1988 when he and I and a few others worked on a startup (pre-Trilogy) during my sophomore year and his junior year at Stanford. While Trilogy was a very successful company (it scaled to $300M in revenue), most people don’t know much about the company because Joe kept it private and decided to not sell or take it public. However, anyone who was a CS or Engineering Major in college in the mid to late 90s knows Trilogy because of its legendary college recruiting process, dubbed “only the best”. Whether it was the BMW giveaways on campus, the weekends in Vegas or at Joe’s cabin in Deer Valley, or the raucous “sell weekends” on 6th street in Austin, the Trilogy campus recruiting program was nothing short of memorable.
Joe was a big believer in only hiring “Kids”. At Trilogy’s peak, we
hired more than 300 college kids into a company of less than 1000 people total. Because of the heavy focus on college hiring, the average age of the company was less than 25 years old and we had very few “adults” or experienced hires. The benefits of hiring from college are pretty obvious, but Trilogy took it to an extreme and at such scale it was a competitive advantage for the company.
Why College Kids Rock
No sense of impossible
Recruits straight out of college have no experience and as a result,
they have no idea what is possible or impossible. They can look at any problem with a fresh perspective and bring unvarnished and unjaded creativity and sheer force of will to a challenge. I recall a time when our head of marketing and PR, Krista, who was a couple years out of Stanford, was asked by Joe to get Trilogy on the cover of Forbes Magazine. She didn’t respond with all the “rational” reasons why this was a silly goal, why it wasn’t do-able, or why the press is fickle. Instead, she made it happen. Four months after agreeing to the goal, she got Trilogy on the front cover of Forbes. It became the stuff of folklore and legend at Trilogy and reinforced Joe’s belief in The Kids.
Crazy work ethic
Trilogy’s college recruits had no life outside of Trilogy. They didn’t
have commitments at home, they didn’t have mortgages, they didn’t have any obligations. As a result, the Trilogy recruits were regularly there at work past midnight – in fact, many of them enjoyed it – this was the life they loved and were used to in college (staying up all night working on some code) – now they were getting paid to do the same thing with smart people around them. Not all of these hours were necessarily highly productive, but the work ethic was ridiculous.
Out of the Box Thinkers
Some of Trilogy’s best ideas and innovations came from our college hires. They were smart and talented. They just graduated from college- a fantastic environment where people are encouraged to study across disciplines, where they are thrown in dorms with people from all walks of life, and they spend four plus years absorbing ideas, debating the meaning of life, and trying to improve the state of the world. They are taught to question authority and take nothing at face value. Contrast that with a typical corporate environment, even that of a medium to
large tech company, where teams are more functionalized, roles are more specialized, and decisions are more hierarchical. The Trilogy Kids, while inexperienced, were not sullied by traditional corporate process or thinking. They still had the mindset one has in college when they arrived. This perspective and approach led to amazing innovation at Trilogy, including pcOrder, which spun off and became a $1B market cap company. Other new products like our marketing configurator or commission applications generated over $100 million of revenue. Entire new geographies, like our European division was launched and run by a Trilogy college hire.
Insanely strong culture
Every great startup that becomes an iconic company has a strong company culture. This company culture is what sustains a startup during difficult times and is what is celebrated during times of success. College recruits are a big contributor to company culture. These recruits come from campus environments where every Saturday they paint their faces and wear their school colors….environments where they cheer on ridiculous mascots like a dancing tree or a blue devil. College kids love the rituals and symbols that come with being part of a freshman class or dorm or college organization. These same rituals at Trilogy were celebrated with amazing intensity whether it was the friday party on the patio, the weekend vegas trips, or the toga party at the Hawaii retreat. Could you imagine how different a college football game would
be if there were no college students in the stands and only the alums and boosters? This is what Trilogy would have been like without the college hires. Our culture would not have been nearly the same.
Why don’t more startups recruit from college at scale?
These are all obvious benefits of hiring from college. Big tech
companies in the 90s like Microsoft were heavily focused on college recruiting. Similarly, the big tech companies of this era, Google and Facebook, aggressively recruit from college. Many startups may target a local college for a handful of hires or look to add 1-2 folks from the alma mater of the founder. However, very few startups recruit from college at scale the way Trilogy did it in the 90s. Why is that?
Cost, Time, Resources
On campus recruiting is expensive and time consuming. College fairs and college recruiting events are big ticket items. It can cost over $20,000 to participate in a formal job fair or similar event. In addition, the cost of flights and interviews on campus add up quickly. Now multiply this by 5 or 10 campuses and you quickly have a $500k investment to recruit from college, which makes a scaled campus recruiting program prohibitive. Plus, college recruiting requires an enormous investment of time – info sessions, on campus interviews, sell weekends, and new hire training typically involve a team of dedicated individuals plus significant time from the founders who already have too much on their plate. However, most of our startup founders wish they could hire more engineers directly from college. And all of our founders, especially those in NYC and the Valley, feel that technical hiring is their number one challenge right now….
Introducing Startup Academy
It is in response to this challenge that we at Bain Capital Ventures are announcing the launch of the Startup Academy – a program run and staffed by our firm that is designed to identify some of the best technical graduates in the country and pair them with exciting startups in our portfolio. The goal of the Startup Academy is to provide startup opportunities for college grads and place them in a network with other recent grads who are working in startups. We think the work experience of being in a startup right after college, combined with being in a network with other recent grads who are also in startups, creates a fertile ground to develop the next generation of entrepreneurs. Not to mention, it provides enormous benefits to our portfolio companies. In this initial year, we are targeting a dozen campuses across the country and will be focusing on full time technical hires. Over time, we will look to expand the number of campuses and also include interns and non technical hires also. Here is the link with more information: http://www.baincapitalventures.c…
Thanks to Joe, Jeff, Alexa and the entire college recruiting team at
Trilogy for being the inspiration for Startup Academy. And an extra
special thanks to DR for being an advisor to our initiative.
Trilogy University – 1995. “Only the best”