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The Reasons Behind the Development of (Yet Another) SaaS Benchmark and Our Collection of ...

Liamjonh225
By December 1, 2022 - 9:14am

We investigate private firm SaaS benchmarks in this two-part series. Part I explains the motivation behind our benchmark and the lessons we took away from previous standards. Part II lists our SaaS criteria for 2022 and explains how to put them into practice.

Why Another SaaS Benchmark, you ask?
What constitutes high success for businesses similar to mine, question our portfolio firms' founders frequently?

It varies.

As a former management consultant, "it depends" is undoubtedly the most appropriate response, but more details can be gleaned to aid in decision-making. We cherish the clarity that results from developing an outlook on exceptional achievement. In the first of these two blog posts, we outline our methodology and results for determining the median and top quartile performance.

Some could argue that we reinvented the wheel. In the past few of years, numerous companies have released SaaS benchmarks. Why make a new one?
MedsDental is a renowned Dental Billing Company in the united states, equipped of the revenue cycle experts who are highly proficient in delivering fast and the error-free billing services to the dental practices by using the cutting edge technology.
To solve the problem of comparing different standards, we developed our own benchmark. Our objective is to offer a transparent, applicable, and user-friendly benchmark. We believe using our standards will be beneficial for startup executives and investors. We provide best practices for putting these standards and guidelines into effect when making judgments.

SaaS performance is the subject of a wealth of publicly available information. bootstrapped to venture-backed, private to public businesses. Excellent research was done. A book on their benchmarks was written by Scale VP.

Reviewing these benchmarks taught us so much that we decided to share our knowledge in the SaaS Benchmark Crash Course that is provided below.

Consider comparing the median ARR increase across published benchmarks as an example:

Various sources' line graphs showing Annual Recurring Revenue Growth by Revenue Band
For startups with $3 to $5 million in ARR, the median annual recurring revenue increase ranges from 40% to 220%. What range should we use while analyzing a potential investment? To a portfolio organization?

We'll discuss why the variation between benchmarks is neither surprising nor troublesome in Part II. By taking into account selection biases, variations in data collecting, and subtleties in calculation, we can more accurately interpret and utilize these ranges in practice. We'll also create a meta benchmark based on a trimmed mean to handle the practical problem of having ranges. We'll describe our approach, results, and major conclusions.

Let's start by discussing what we discovered through previous research.

Private-Company SaaS Benchmarks We've Collected
We looked at seven private SaaS company benchmarks:

a list of references and explanations
Company selection, data gathering, and measurements were the main distinctions between benchmark sets.Managing the billing process accurately is not easy as providers might face hurdles in revenue cycle management. Moreover, Net Collection Rate below 95% shows that your practice is facing troubles in the billing process. To eliminate all these hurdles and maintain your NCR up to 96%, MedsIT Nexus Medical Coding Services are around the corner for you so that your practice does not have to face a loss.

1. Company selection: The selection of businesses for each benchmark.

The SaaS benchmark used by Bessemer included their 200+ cloud investment holdings from 2010 to 2021 (details below). Bessemer benchmarks had a higher skew than other benchmarks because they were built using portfolio firms (pre-screened for performance).

A mixture of venture-backed and bootstrapped businesses was one of the additional benchmarks. For SaaS and subscription firms, Capchase (a Thomvest portfolio company) offers non-dilutive dynamic growth financing. Data from customers, including VC-backed and bootstrapped businesses, was used to create its benchmark. This benchmark may offer a more accurate frame of reference for early-stage SaaS success because it is typically easier to get growth capital than to secure a venture equity investment.

Group Leader

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Think about finding a lead. Many funds "will be pleased to invest in you," yet they don't do anything. They may not actually lead rounds of the magnitude you are raising, but they may follow a believable lead. It may also not be their approach. They might agree to join your round "after you find a lead and acquire a term sheet," according to them. Managing the billing process accurately is not easy as providers might face hurdles in revenue cycle management. Moreover, Net Collection Rate below 95% shows that your practice is facing troubles in the billing process. To eliminate all these hurdles and maintain your NCR up to 96%, MedsIT Nexus Medical Coding Services are around the corner for you so that your practice does not have to face a loss. Dealing with them is a waste of time beyond some feedback for the pitch and, in certain situations, warm introductions (only helpful if actually it's evident that they can't lead). Until you identify a lead investor, you won't get a penny from them. And when you do, supporters will emerge from hiding. It is your responsibility to ascertain which of the investors you are pitching is genuinely in the lead on rounds. Check Crunchbase and Pitchbook to see who has lately been leading rounds of a similar size. Make sure they are not merely extensions of their current portfolio companies. Look for businesses that raised new funding in 2021–2022. Do you lead rounds? should be your first or second inquiry while attending meetings. A possible lead should only be introduced if they credibly recommend it. If they don't, don't spend too much time with them. When you spend time presenting to or conducting extensive due diligence with followers, you are not presenting a possible lead. When a firm gains the confidence to present a term sheet, you can be sure that other investors will rely only on the lead's due diligence.MedsDental is a renowned Dental Billing Company in the united states, equipped with revenue cycle experts who are highly proficient in delivering fast and error-free billing services to dental practices by using cutting-edge technology. Even worse, a lot of funds are currently zombies. They attend meetings, "dig deep," and do everything else they didn't do in 2021, but they still choose not to invest because they are either waiting for the market to bottom out, sobbing over their mistakes from 2021, or setting aside money for their portfolio. This is referred to as "we are more selective." However, what they're really doing is wasting your time in order to justify their management fees. Before we had a term sheet in that A round last year, we had received over $30M in soft commitments. However, it took us six months to receive the first term sheet, which in some senses was never real. See more below on that. A term sheet is an indicator of a lead. The phrase that will distinguish the wheat from the chaff is "We have a term sheet." The message to other investors is "the company is credible, and there is a deal to be had" once you have a term sheet. If they are followers, then this is indeed their chance to choose. If they are leaders, it indicates that someone else believes the business can be funded and confirms their interest. They genuinely convey the idea that "someone else thinks it's investible, so should we" during their partnership meetings and investment committee meetings. This is also the reason why a term sheet frequently results in other term sheets. As a result, even if it may have taken you months to obtain one, suddenly there may be several term sheets available, allowing you to choose the most suitable investor (note: generally more important than the best terms). We received 2 additional term sheets from investors we liked within weeks of receiving the first, which enabled us to close a sizable deal. But it's quite a tale how we received that term sheet. How to Generate a Lead in the Absence of One Some folks lack the funds despite having the guts. They can write a check for $1–2 million, but you can't use that check to raise $20 million. They are desperate to claim that they won a round but are unable to. What's this? When you have two of these and refer to them as co-leads, you have an anchor. A term sheet is available. Recall that term sheets frequently produce more term sheets. We had a strategic investor who could write a $2 million check and was willing to "explore becoming a co-lead" in wacky 2021. We also had a venture capitalist who could write a $2 million check. The VC was very passionate about leadership. Thus, we advised them to co-lead alongside the strategy. But after we see a term sheet we like, we would just introduce them to the co-lead. They sprinted forward and placed a term sheet on the desk. We started by letting everyone we were speaking to know that we had a term sheet. The second step was to really help the possible co-leads communicate with one another. The strategic investor eventually said, "We're not going to co-lead with that fund, they are not reputable enough in our eyes and will not be able to help in the future." However, by the time they made that choice, two additional VCs had already entered the game and, with the support of a term sheet from a third party that they had never seen, placed their own term sheets on the table. The rest, as they say, is history. Co-leading is a technique for turning a follower who is confident into a lead and a reluctant leader into a follower. An SPV is another option, which normally comes from the investor side. In order to write a larger check, a VC with limited resources may occasionally pool funds with another partner, such as a family office, LP, or strategic investor. The bigger check might be sufficient to start a round and enable them to present a term sheet. Normally, carrying over the entire amount is advantageous to the VC, and you receive a lead. It is good bringing up this idea if you have followers you can persuade to join this structure and a dedicated, ambitious investor who is unable to write a big enough check. The Decreasing Leader And Willing Followers Just last week, I was discussing a potential $50-100M round in a meeting with a big VC. That VC is capable of writing a cheque for $10 million or even $15 million. They suggested the following: "We'll draft a term sheet and invest $10 million. You'll use this to leverage a $30–40M round with the strategics you already do business with and that we know want to join. Other players will join in as a result of the momentum; you can talk to strategics, and we can recruit institutional investors. We can reach $100M in this manner. In other words, they'll try to take 10% of the money and lead a round. They see value in it because they support the business and are already stockholders, and because being able to say they raised $100 million is good for their reputation (and ego!). From the standpoint of the market, it appears to be entirely feasible. because there is a lot of money out there seeking for leadership.

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