2. Summit intro
“Share data,
unblemished and
unbiased, in an effort to
provide transparency
and define best
practices, while creating
a network for ongoing
collaboration that lives
on long past this
afternoon.”
3. Today
1. Know Your Benchmarks…The
Survey Results Unveiled
Tyler Sloat, CFO Zuora
David Spitz, Managing Director Pacific-Crest
2. Cost to Book / Cost to Serve: The
Natural Long-Term Operating Margin
Leverage in Subscription Businesses
Walter Pritchard, Managing Director Citigroup
3. Runaway Costs of AWS and
Hosting and the Ideal Structure for
Your Corp IT
Ross Meyercord, CIO Salesforce.com
4. The Do's and Don’ts of D&O
Insurance
Priya Cherian-Huskins, SVP Woodruff-Sawyer &
Co
5. ASC606 Part 2 – Don’t Forget the
Commission Impact / General Update
Jagan Reddy, SVP/GM Zuora RevPro
Prasadh Cadambi, Partner KPMG
6. The Evolution of the CFO: Fireside
Chat
Ken Goldman, CFO Yahoo
5. Introducing
our speaker
David Spitz - Managing Director, Software and Security
• David Spitz joined Pacific Crest in 2004 and is a leader in the firm’s software
investment banking group, with an emphasis on software-as-a-service and cloud
computing.
• Of his 26 years of investment banking experience, 19 years have been focused on
the software industry. David’s team has served as a managing underwriter on
recent public offerings for HubSpot, Zendesk,Veeva, Amber Road, Cvent,
Cornerstone OnDemand, ExactTarget, Imperva, Responsys, ServiceNow and
Splunk, among others.
• His advisory experience includes Plex’s private placement led byT. Rowe Price;
WebPT’s fundraising with BatteryVentures;TOA’s private placement; Gomez in its
sale to Compuware; and IDeaS in its sale to SAS. Prior to Pacific Crest, David ran
the global software and Internet investment banking practice at SoundView
Technology Group.
• He began his career with CS First Boston in itsTechnology Group. He holds three
degrees from MIT: a B.S. in computer science, an M.S. in electrical engineering
and an M.S. in management from the Sloan School.
7. Source: Capital IQ; depicts average EV / NTM revenue consensus estimate valuations of the SaaS universe on a weekly basis (based on price at end of week)
Note: SaaS universe index is equally-weighted and includes the following (when each was publicly traded): ALRM, AMBR, APPF, APTI, ATHN, AYX, BCOV, BL, BNFT, BOX, BV, CNVO, COUP, COVS, CRM, CSLT,
CSOD, CTCT, CVT, DMAN, DWRE, ECOM, EOPN, ET, EVBG, FIVN, FLTX, HUBS, INST, KNXA, LOGM, MB, MIME, MKTG, MKTO, MRIN, MULE, N, NEWR, NOW, OKTA, OMTR, OPWR, PAYC, PCTY, PFPT,
PFWD, QTWO, RALY, RNG, RNOW, RP, SFSF, SHOP, SLRY, SPSC, SQI, TLEO, TRAK, TWOU, TWLO, TXTR, VEEV, WDAY, WK, XTLY, YDLE and ZEN
SaaS EV / Forward 12-Month Revenue Multiples Since
2005
Average since
Jan ’05:
4.9x
High (1/17/14):
8.4x
Current (5/26/17):
6.4x
8. Growth is Back to Historic Premium
• Sector has had extreme growth orientation since emergence from 2009 downturn and “normalization” of 2010 IT spend
• Average of hyper-growth has rebounded to 5.5x revenue
• Value multiples expanded in late 2012 and 2013 on the back of capital return and activist theses, again in 2016
• Segment performance suggests “growth” group is set up well, especially if there is better macro backdrop
• Hyper: ADBE, CRM, SPLK, VEEV, PFPT, SHOP, NOW, WDAY, TLND, CLDR; Growth: RHT, FTNT, GWRE, FEYE, DATA, JCOM, OTEX, SCWX; Value: CA, INTU, MSFT,
ORCL, SAP, VMW, CTXS, ADSK, CHKP, VRSN, SYMC, WEB, MSTR
0x
2x
4x
6x
8x
10x
12x
Jun-07 Jun-08 Jun-09 Jun-10 Jun-11 Jun-12 Jun-13 Jun-14 Jun-15 Jun-16 Jun-17
EV/Rev(NTM)
Software Value Growth Hyper
15. Free Cash Flow Profile of Recent Software IPOs
(1): Based upon initial research analyst estimates for each company published following IPO
How long from the IPO until the company turns free cash flow positive?
18. Disclosures
KeyBanc Capital Markets is a trade name under which corporate and investment banking products and
services of KeyCorp and its subsidiaries, KeyBanc Capital Markets Inc., Member NYSE/FINRA/SIPC
(“KBCMI”), and KeyBank National Association (“KeyBank N.A.”), are marketed. Pacific Crest Securities is a
division of KBCMI. Securities products and services are offered by KeyBanc Capital Markets Inc. and its
licensed securities representatives, who may also be employees of KeyBank N.A.. Banking products and
services are offered by KeyBank N.A..
This document has been prepared by Pacific Crest Securities, a division of KeyBanc Capital Markets Inc.,
herein known as “PCS”. The material contained herein is based on data from sources considered to be
reliable, however PCS does not guarantee or warrant the accuracy or completeness of the information. This
document is for informational purposes only. Neither the information nor any opinion expressed constitutes
an offer, or the solicitation of an offer, to buy or sell any security. This document may contain forward-looking
statements, which involve risk and uncertainty. Actual results may differ significantly from the forward-looking
statements. This report is not intended to provide personal investment advice and it does not take into
account the specific investment objectives, financial situation and the specific needs of any person or entity.
This communication is intended solely for the use by the recipient. The recipient agrees not to forward or
copy the information to any other person outside their organization without the express written consent of
PCS.
23. LTV [LifetimeValue] = Customer Life * (ARPA * Gross Margin)
Sum of all sales & marketing expenses
# of new customers added in the period
CAC [CustomerAcquisition Cost] =
Magic Number
=
(Q2 Rev – Q1 Rev) *4
Q1 Sales & Marketing Expense
ARR n + 365
- only includes ARR from customers existing at start
ARR
Net Retention =
Or pick your own metrics
24. Calculate your own or track your peer
set
ServiceNow Netsuite Box Zendesk Demandware Twilio Marketo Hubspot Apptio New Relic Atlassian Coupa Blackline Talend
Customers X X X X X X X X X
Net new customers X X X X X X X X X
Retention (% customers) X X X X X X
Retention ($ ACV) X X
Upsell ($ ACV) X X X X
Contract length X
Billings duration X
Billings / billings growth X X X
Contract value by cohort X
Headcount by functional unit X
Subscription revenue X X X X X X X X X X X
Subscription revenue growth X X X X X X X X X X X
27. Benchmarking against the Best
GEI on
ARR
ARR
Growth
(Y/Y)
S&M as a %
ARR
Recurring
Profit Margin
%
G&A as a %
ARR
R&D as a %
ARR
Alteryx 1.18 58% 60% 35% 26% 21%
AppDynamics 1.61 NA 108% -33% 54% 57%
Apptio 2.59 25% 61% 31% 15% 30%
Atlassian NA NA NA NA NA NA
Blackline 1.93 47% 68% 39% 21% 23%
Box 2.09 124% 162% 2% 37% 42%
Cloudera 2.04 NA 132% -12% 22% 76%
Cornerstone On Demand 0.97 62% 67% 48% 19% 15%
Coupa 1.65 76% 61% 26% 22% 30%
Demandware 1.78 44% 58% 40% 23% 21%
Hubspot 1.49 49% 70% 37% 17% 20%
Marketo 1.52 63% 79% 26% 25% 25%
MuleSoft 1.84 NA 102% 43% 25% 24%
New Relic 1.55 72% 92% 39% 22% 22%
Netsuite 1.34 67% 53% 45% 11% 13%
Okta 1.23 90% 96% 19% 24% 31%
RingCentral 1.47 NA 56% 19% 20% 24%
ServiceNow 0.62 105% 51% 59% 12% 10%
Talend 1.99 43% 76% 42% 23% 20%
Twilio 0.47 NA 37% 1% 23% 25%
Ultimate NM 35% 39% 29% 13% 33%
Veeva 0.36 109% 28% 40% 13% 20%
WorkDay 0.80 NA 81% 1% 13% 64%
Yext 2.07 45% 63% 31% 22% 17%
Zendesk 0.97 80% 61% 13% 22% 24%
Average 1.46 66% 73% 26% 22% 29%
$100mn ARR
GEI on
ARR
ARR
Growth
(Y/Y)
S&M as a %
ARR
Recurring
Profit Margin
%
G&A as a %
ARR
R&D as a %
ARR
Qs from $100mn to
$200mn ARR
Alteryx NA NA NA NA NA NA NA
AppDynamics NA NA NA NA NA NA NA
Apptio NA NA NA NA NA NA NA
Atlassian 0.45 45% 22% 14% 22% 49% NA
Blackline NA NA NA NA NA NA NA
Box 2.44 74% 100% 25% 29% 27% 5
Cloudera 4.59 73% 102% 22% 13% 47% 5
Cornerstone On Demand 3.30 54% 61% 56% 15% 12% 6
Coupa NA NA NA NA NA NA NA
Demandware 0.49 38% 45% 32% 20% 29% 7
Hubspot 1.43 58% 62% 53% 16% 15% 6
Marketo 2.13 40% 61% 49% 15% 17% 8
MuleSoft 1.46 62% 66% 49% 19% 25% 5
New Relic 1.60 60% 70% 40% 18% 26% 5
Netsuite 2.28 22% 54% 60% 11% 16% 17
Okta NA NA NA NA NA NA NA
RingCentral 1.33 38% 50% 33% 16% 22% 9
ServiceNow 0.79 85% 49% 33% 18% 17% 5
Talend NA NA NA NA NA NA NA
Twilio 0.53 81% 24% 10% 18% 25% 5
Ultimate 1.42 26% 27% 37% 9% 23% 13
Veeva 0.50 79% 25% 46% 12% 17% 4
WorkDay 0.92 116% 66% -17% 40% 56% 3
Yext NA NA NA NA NA NA NA
Zendesk 1.01 64% 48% 30% 18% 22% 5
Average 1.57 60% 55% 34% 18% 26% 6.75
$200mn ARR
28. Grow Fast or Die Slow
Our perspective is based on research into 3,200 public software companies between
1980 – 2013
3197 companies analyzed that were public between 1980 – 2013 and were categorized as one of the four
following categories: Internet Software & Services, Application Software, System Software, and Home
Entertainment Software in CPAT Nominal revenue
3 Excluded Loyaltouch SA. Internet Retailers such as Amazon, Netflix, Rakuten have not been included
3,197
953 212 108 19
# of public SW companies1,3 to reach
different revenue2 points (1980-2013)
$100M $500M $1B $4B
Conversion
Rate (%)
30% 7% 3% <1%
B2B B2C
Sustaining growth is
challenging for
software companies
SOURCE: CPAT; McKinsey
analysis
McKinsey & Company
29. Grow Fast or Die
Slow
4-5x
greater
returns1
10xhigher
likelihood of
crossing
$1B2
2.5x
higher revenue
multiple for early
growth
1 - Supergrowers (>50% CAGR) vs. Growers (10-50% CAGR)
2 - Supergrowers (>50% CAGR) vs. Stallers (<10% CAGR) McKinsey & Company
Growth rate matters … a lot
31. P P M
PM/PMM
R&D
Docs
Recruiting
Onboarding
Training
HelpDesk
Finance
Operations
Legal
Product People Money
P A D R E
Web
Social
AR/PR
Events
Products Launches
Demand Gen.
Field Enablement
Business Dev.
Emerging
Enterprise
International
Sales Eng.
Self Service
Squads
Partners
Methodology
Tech Ops
Support
Renewals
Account Mgmt.
Adoption
Training
Upsell
Cross-sell
Pipeline Acquire Deploy Run Expand
32. Pacific Crest 2016 Private SaaS Company Survey
• 336 private SaaS company participants, conducted
summer 2016 (7th annual)
• Focus on financials, operations, SaaS metrics
• Detailed 71-page report, with results “sliced and diced” to
determine benchmarks & patterns
• Broad diversity of participants:
• Median size of $5MM revenue, also 60+ >$25MM
• Heavily U.S.-headquartered companies, but
approximately 30% international
44. Acquire: What are your commission rates?
11%
40%
27%
22%
< 5%
6-10%
11-15%
> 15%
Cheapskates
The Norm
The Norm
Breaking The Bank
45. Deploy
• Profit or break even?
• What KPIs should you hold the
implementation team accountable to?
• Alignment between Sales Professional
Services
• When does subscription start?
46. Deploy
Have an implementation
component to their
solution
70%
Do not charge for their
implementation
component
39%
Of customers go
live within 30 days
of contract signing
53%
64% commence the
subscription on
contract signing
64%
47. Deploy: Professional Services Impact on Go-To-Market
Source: Pacific Crest 2016 Private SaaS Company Survey
Excludes Companies <$2.5MM in Revenue
146 and 139 respondents, respectively
Professional Services (as % of 1st year ACV) Professional Services Gross Margin
48. Deploy: What is your average implementation fee as
a percentage of your annual subscription fees?
>50%
20%-50%
0%-20%
Included or “Free”
4%
7%
50%
39%
Implementation Fee as a % of Annual Bookings
49. Deploy: What is the average time it takes for your new
customers to go live?
0-1 day 2-30 days 31-60 days 61-180 days >180 days
16% 37% 18% 28% 1%
50. Run • Churn is the Achilles heel of any subscription
business
• Gross Margin improvements = Efficiency
• Support verses customer success
• SLAs and uptime commitments
• How does a company learn from service
tickets?
52. Run: Cost Structure by Revenue Band: Public SaaS
Companies
Source: Pacific Crest 2016 Private SaaS Company Survey based on historical analysis of 52 SaaS companies’ IPO filings
53. Run: What is your subscription gross
margin?
>75%
71-75%
66-70%
60-65%
51-60%
<50%
0% 10% 20% 30% 40% 50% 60%
SubscriptionGrossMargin%inRange
% of Respondents
10%
7%
9%
9%
14%
52%
54. Run: What is the annual R&D expense per engineer
using average # of engineers in seat throughout the
year?
(Including product, quality assurance, and engineering departments)Annual R&D Expense per Engineer: Data suggests ~5%
increase Y/Y28%
19%
22%
12%
8%
5%
2% 1%
4%
25%
19%
17%
12% 12%
6%
4%
3%
3%
0%
5%
10%
15%
20%
25%
30%
<$100K $101K-$125K $126K-$150K $151K-$175K $176K-$200K $201K-$225K $226K-$250K $251K-$300K >$300K
2016 2017
55. Run: Are your customers
committed? Contract Terms
Monthly
Semi-
Annual
1-2
Years
> 2
Years
8%
7%
68%
17%
56. Run: Are your customers committed?
Source: Pacific Crest 2016 Private SaaS Company Survey
Respondents: Average Contract Length: 270, Average Billing Period: 268
57. Run: Are your customers committed?
Source: Pacific Crest 2016 Private SaaS Company Survey
Respondents: Total: 165, Month to Month: 10, Less than 1 year: 13,1 year: 30, 1 to 2 years: 69, 2 years: 35, 3+ years: 8
58. Run: Are your customers committed?
Source: Pacific Crest 2016 Private SaaS Company Survey
Respondents: Total: 163, Field Sales: 77, Inside Sales: 34, Internet Sales: 7, Mixed/Other: 45
59. Run: Are your customers committed?
Source: Pacific Crest 2016 Private SaaS Company Survey
Respondents: Total: 154, <$5K: 19, $5K-$15K: 26, $15K-$25K: 19, $25K-$100K: 56, $100K-$250K: 19, >$250K: 15
61. Expand
• Who owns the upsell?
• Sales efficiency depends on farming the
existing base
• New usage, new divisions, new
products…can all be leveraged as upsell
strategy
62.
63. 40%
53%
8%
Who Manages Upsells?
Customer Success Team
Sales Reps
Other
34%
66%
Do you pay for results?
no yes
Sales reps are the key – companies generating higher upsells assign reps to
manage
Expand
64. Expand: What percentage of New ACV is from Upsells
to Existing Customers?
Source: Pacific Crest 2016 Private SaaS Company Survey
Respondents: Total: 154, <$5K: 19, $5K-$15K: 26, $15K-$25K: 19, $25K-$100K: 56, $100K-$250K: 19, >$250K: 15
Respondents: Respondents: Total: 285, <$2.5MM: 106, $2.5MM-$5MM: 46, $5MM-$7.5MM: 23, $7.5MM-$10MM: 20, $10MM-$15MM: 12, $15MM-
$25MM: 27,$25MM-$40MM: 15, $40MM-$75MM: 22, >$75MM: 14
65. “How much do you
expect your ACV from
existing customers to
change, including the
effect of both churn and
upsells?”(1)
Expand: Annual Net Dollar Retention from Existing Customers
Source: Pacific Crest 2016 Private SaaS Company Survey
(1): We define this as the “net dollar retention rate”
240 respondents
66. Expand: CAC Ratio on New Customers vs. Upsells vs.
Expansions vs. Renewals
Source: Pacific Crest 2016 Private SaaS Company Survey
Respondents: New ACV from New Customer: 174, Upsells to Existing Customer: 127, Expansions: 131, Renewals: 137
67. Expand: Net retention can be the difference between being a
good company and a great company
Source: Pacific Crest 2016 Private SaaS Company Survey
Respondents: Total: 77, Yes: 20, No: 57
68. Expand
What percentage of your total annual bookings are from upsells?
Upsell as % of Total Annual Bookings Range
%ofRespondents
Upsell as % of Total Annual Bookings
28%
29%
25%
12%
6%
1%
0%
5%
10%
15%
20%
25%
30%
<10% 11-20% 21-40% 41-60% 61-80% 81-100%
69. Expand: Churn
What percentage of $ ARR (entering 2016) churned in 2016?
32%
14%
33%
21%
Churn as % of Entering ARR
<5% 10%-15% 5%-10% >15%
70. Disclosures
KeyBanc Capital Markets is a trade name under which corporate and investment banking products and services of
KeyCorp and its subsidiaries, KeyBanc Capital Markets Inc., Member NYSE/FINRA/SIPC (“KBCMI”), and KeyBank
National Association (“KeyBank N.A.”), are marketed. Pacific Crest Securities is a division of KBCMI. Securities
products and services are offered by KeyBanc Capital Markets Inc. and its licensed securities representatives, who may
also be employees of KeyBank N.A.. Banking products and services are offered by KeyBank N.A..
This document has been prepared by Pacific Crest Securities, a division of KeyBanc Capital Markets Inc., herein known
as “PCS”. The material contained herein is based on data from sources considered to be reliable, however PCS does
not guarantee or warrant the accuracy or completeness of the information. This document is for informational
purposes only. Neither the information nor any opinion expressed constitutes an offer, or the solicitation of an offer,
to buy or sell any security. This document may contain forward-looking statements, which involve risk and uncertainty.
Actual results may differ significantly from the forward-looking statements. This report is not intended to provide
personal investment advice and it does not take into account the specific investment objectives, financial situation
and the specific needs of any person or entity.
This communication is intended solely for the use by the recipient. The recipient agrees not to forward or copy the
information to any other person outside their organization without the express written consent of PCS.
