Mind the Gap: Balancing Growth and Efficiency in Tougher Times with Point Nine
•Download as PPTX, PDF•
1 like•488 views
In the last few weeks, the VC funding environment has changed dramatically. In this session, Christoph will share tactical advice on how to weatherproof your financial plan for the funding downturn.
Recommended
Recommended
More Related Content
What's hot
What's hot (20)
More from saastr
More from saastr (20)
Recently uploaded
Recently uploaded (20)
Mind the Gap: Balancing Growth and Efficiency in Tougher Times with Point Nine
- 18. $1-10M ARR $10-25M ARR $25-50M ARR Top quartile 230%+ 135%+ 110%+ Middle 50% 100-230% 40-135% 45-110% Bottom quartile <100% <40% <45%
- 19. 𝑵𝒆𝒕 𝑩𝒖𝒓𝒏 𝑵𝒆𝒕 𝑵𝒆𝒘 𝑨𝑹𝑹
- 20. 𝑵𝒆𝒕 𝑵𝒆𝒘 𝑨𝑹𝑹 𝑺𝒂𝒍𝒆𝒔 & 𝑴𝒂𝒓𝒌𝒆𝒕𝒊𝒏𝒈 𝑺𝒑𝒆𝒏𝒅
- 21. 🎉
Editor's Notes
- Good morning! I’m Christoph Janz, ...
- We‘re an early-stage VC focused on SaaS. In case you haven’t heard about us yet, I’m sure you know some of our amazing portfolio companies, like …
- Topic that is relevant for a lot of people … I know that there’s been a lot of VC advice out there on what startups should do in a downturn, so … Funding environment has changed dramatically in the last few weeks. Growth at all cost is no longer rewarded, so you should probably revisit some of your assumptions.
- A few weeks ago, I published a blog post titled “Hyper-growth is great,… I’d like to start by walking you through the key concepts of that post. After that, I’ll share some thoughts on how to navigate your company through the current market conditions.
- Question: Who of you has been in a situation where things were going well, growing fast you were crushing it you got calls from Tiger your VCs probably told you that you should burn more cash, …
- … and then, just a few months later, things looked drastically worse. Growth rate tanked Your runway has become uncomfortably short Nervous about the next financing round. Put your hands up if this sounds familiar to you. Awesome to have a few honest people in the audience today. :-) Let’s try to understand why this happens and what you can do about it.
- So … how come companies sometimes go from boom to bust in a matter of a few months? How is that possible?
- If you suddenly find yourself in a much worse spot it’s probably because two things happened: Your growth rate went down You kept spending cash according to your original plan
- Formula for disaster. Lower revenue growth + high spend leads to higher burn rate and less runway, so you have to raise your next round earlier. With less ARR, and a lower growth rate. In a red hot VC market, you may get away with this. But in a tougher market this is a huge problem. Best case = lower valuation Worst case = literally going bust
- Let’s take a look at an imaginary SaaS company to better understand the impact of this formula. Here’s the ARR projection of Acme. $4M ARR, has raised $12M Plan: Triple ARR to $12M in 12 months and reach $19M after another 6 months. Cash flow projections Green – incoming cash Red – outgoing cash Red line - net burn Based on this – one and a half years runway.
- Fast-forward six months and see how Acme has been doing. Acme has grown from $4 million to $6.2 million in ARR. Not quite as fast as projected, but not bad. Here’s the updated Cash Flow chart, and here’s the Bank Balance.
- Difference to the plan doesn’t seem huge, but nonetheless, the founders of Acme decide to do a reforecast. In the last 6 months, monthly ARR growth has been about 7% instead of 9.6%. => new forecast based on that growth rate. What you can see now is that if Acme keeps spending according to the original budget, it will run out of money in month 14. Since we’re at month six already, the company has only 7 months of runway left!
- Acme started with 18 months of runway. Only 6 months later – only 7 months runway left What happened?! Simple answer – burn was too high … should have had a larger buffer and longer runway. But let’s dig in a little deeper here.
- One issue: when you look at total ARR, a small gap doesn‘t look alarming. But because we‘re talking about % growth rates – small gap leads to a huge gaps a few months later. Net new ARR – much better picture
- Plan figures and actuals for ARR and Net New ARR ARR goal achievement isn‘t far off – at ca. 90%. Everything green? Net New ARR reveals that the company is not on track and urgently needs to do something. As a startup, the ability to adapt quickly is absolutely crucial – to changes in company performance as well as changes in the market. … and can‘t adapt quickly if you‘re not focused on the right KPIs.
- What do you do if you’re in a difficult situation already? (Iceberg / Fan) No one-size-fits-all answer “5 years of runway” – for many startups not realistic If you’re playing it too safe … Ideally you’re “default alive” … but not always possible. Second best option – “default investable” What makes a company investable?
- Investors look at lots of different metrics – growth, logo churn, revenue churn, net expansion, efficiency, and many other metrics. … and more qualitative things – Team, Product, Market, Competition – that we always try to capture on our SaaS Funding Napkin … but not at all costs.
- Growth continues to be super important … Bessemer’s benchmarks from their large Cloud portfolio
- But it’s no longer about growth at all costs If we look at efficiency, two metrics particularly important One is the Burn Multiple. It tells you how much capital …
- The other one is Sales Efficiency. It tells you how much Net New ARR … A few variations – Gross Sales Efficiency looks at New ARR (vs. Net New), Magic Number based on quarterly revenue, … but in the end they all measure …
- If we put these 2 numbers on a 2x2 matrix, we can draw some interesting conclusions. Top right: Congrats! Bottom right: acquiring customers efficiently but high overall burn G&A or R&D too high? Make some cuts there to reduce burn? At the same time you can probably spend MORE on S&M. Top left: total burn is OK, but your sales & marketing spend is inefficient Might have to let go a big part of your sales team. Bottom left: Difficult spot Probably don’t have great PMF Probably have to make deep cuts to ensure survival.
- On 1 – projecting exponential revenue growth and spending money based on that – super risky On 2 – „burn budget“, term learned from Jason, means you simply don‘t allow yourself to spend more than a certain amount