The Official SaaStr Podcast: SaaS | Founders | Investors
00:00:03 · Sam Blond
[00:00:03] S0: This is SaaStr's Founders Favorite Series, where you can hear some of the best of the best from SaaStr speakers. This is where the cloud meets. SaaStr Europa is back, and this time we're heading to London for two fun filled days of content, networking, and SaaS. Join us June sixth and seventh for SaaStr Europa twenty twenty three. Use code FAV100 for $100 off tickets at sasterlondon.com. Up today, unveiling the data behind effective scaling with Iconiq Growth General Partner, Doug Pepper, and Iconiq Growth Partner and Head of Analytics, Christine Edmonds.
00:00:48 · Doug Pepper
[00:00:48] S1: So before we get started, for those of you who don't know us, we both work at Iconiq Growth. We're a venture capital firm whose mission really is to be entrepreneurs backing entrepreneurs. And what we mean by that is we have a very unique set of investors ourselves. Our limited partners are almost entirely individuals. They're CEOs, they're founders, they're business leaders of some of the world's most important technology companies, as well as Fortune 500 global companies. And they view Iconiq Growth as their vehicle to back the next generation of Iconiq technology companies. And That's what we've been doing for the last decade. As you'll hear later in the presentation, we've been lucky enough to partner with some of the most important new software companies of the last ten years. I joined Iconiq about three years ago because we shared a number of investments together. And I saw the really impressive impact of that unique network that we have of our investors, as well as our platform. And one of the key pillars of our platform is our data science team and our analytics team that Christine heads up, and she'll tell you a little bit more about that.
00:01:58 · Christine Edmonds
[00:01:58] S2: Thanks, Doug. So the premise behind our analytics efforts is really the recognition that we are really fortunate to partner with the companies that we have. We have partnered with over 90 leading technology companies and really seen them grow through critical phases. So wanted to capture the learnings that we were gathering along with these founders and share them back with the broader community in a more proactive manner. We do that in a couple of different ways. One is through broad thought leadership, some of which we are really excited to share with you all today. We also partner with our founders on a variety of different custom projects, analytics projects, and some strategic advisory. And then finally, we apply the same data frameworks and insights to various facets of our internal operations as an investing platform. So as I mentioned, today, we are really excited to share some insights from our latest growth and efficiency report. We've now published this report for the last four years. And this year in particular, we wanna highlight some of the aggregate trends and insights we've collected over the past five, ten years of partnerships, but in particular, how to think about these in the context of a 2022 environment. We are gonna fly through a bunch of numbers today. Do not feel like you have to take notes furiously. You should each have some postcards on your table with a QR code. The full report is available publicly, so you can find it on our website and download it there. Just a quick note in methodology. Where is this data coming from? So as I mentioned, we feel really fortunate to partner with some amazing companies and have seen many of them grow from a $10,000,000 ARR stage all the way up and past IPO. Names including Snowflake, Datadog, Procore, GitLab, Braze, and some amazing private companies still on that journey like Miro, ServiceTitan, and many others. We did wanna note that for many of these companies, we actually now have almost a decade of data, and so we're talking about tens of thousands of data points. The result of that, though, is that some of the trends we're going to be speaking to today really reflect the past five to ten years of what best in class looks like.
00:04:02 · Christine Edmonds, Doug Pepper
And, again, we will be sure to try and point out where we recognize the past two years have been a little bit different and how do we think about some of these metrics in that context. We also included a number of public companies that we deemed through another set of analyses that we do every year to truly be best in class in terms of their operation leading up to and at IPO. So feel like we have a really robust and representative dataset of leading companies. [00:04:28] S1: All right, so enough background. Let's dive into what we're talking about today. What we're really trying to do is address some of the key questions that every startup has, but especially those that have reached product market fit, they're at 10,000,000 ARR, and they're wondering, how do I continue to grow the top line? What are the components of that growth? What are the key measures and metrics that I need to be tracking and attaining? And then, of course, in today's environment, what are the ways that I balance that growth with efficiency as well? And again, as Christine said, we're not presenting theoretical numbers. These are real numbers from some of the best companies that we've been lucky enough to work with. So hopefully you'll find this really helpful.
00:05:12 · Christine Edmonds
[00:05:12] S2: Great. So let's dive into some of the actual results. We're gonna start with growth and then we'll spend some time on efficiency and bring it all together at the end with some 2022 insights. In the most basic manner, when we think of growth, we're looking at growth in ARR or annual revenue. And so to to just put some real numbers behind this, first, we wanna recognize that it is hard to get to 10,000,000 in ARR. It is very hard to sustain that growth through the 10 to 50,000,000 benchmark and then on beyond that. And so what we look at, we see our top quartile companies consistently hit doubling their ARR in those first two to three years, but more notably, continuing to have really robust growth in the years leading up to IPO with about 1.5 x. And so you see here the net new ARR doesn't just level off, which is something that is very easy to happen, but it's actually growing by an incremental 15 to 25,000,000 every single year. So what's driving this growth? Never before has it been more important to understand your customers, their health, their size, the concentration, and much of that is because it does relate really closely to the various drivers of growth and understanding how to think about where your revenue is coming from in every single year and every quarter. Fairly consistently, we see companies over time lean on expansion efforts more than new logo when they think about the contribution to gross ARR. There are also times like now where it can be much easier and really beneficial to be able to lean on that expansion motion when markets are a little more volatile, demand may be less predictable, but we did wanna highlight the importance of really nailing the ability to win new logos. All of you here who are founders, I'm... Have no doubt are in extremely competitive markets. And so building a really robust go to market motion and an engine that can sustain that growth but also capture a lot of those new logos early on is critical to have a strong base to actually expand into later on. That also makes sure that you won't have too high of a customer concentration, which, of course, can lead to some volatility when it comes to churn with every single customer mattering more.
00:07:17 · Doug Pepper
[00:07:17] S1: Yeah. I was gonna share an anecdote. I was lucky enough to be involved with Marketo from its founding and through IPO on the board for ten years, and it was founded in 2006. So it was actually one of the very first companies that was exploring this business model and many of these metrics. And I'll never forget a board meeting that we had probably around 150,000,000 ARR where we all collectively realized kind of simultaneously that the Chief Customer Officer who's in charge of upsells, expansions, had a bigger net new ARR number that year than the VP of Sales. And it really reoriented how we thought about customer success and thinking of it more as a revenue generation function than simply account management. But I agree with what Christine said. In the early years, Marketo and most of our very successful companies are focused on new logo velocity, winning the market, closing new deals from new logos. So speaking of expansions, obviously that's a key factor in what I think everybody in this room knows is a core metric to understand the health of a software business, and that's net dollar retention. And we looked at our top quartile of companies over the five years after 10,000,000 ARR, and you can see one thing here very clearly, that these companies very consistently have extraordinarily high gross and net dollar retention. But I'll call out a couple of nuances here. One, these gross dollar retentions for anybody who's running one of these businesses probably looks quite daunting. These are big numbers, and they are being dragged up as an average with some of the very top performing companies. When you look at the median, it's closer to 90 to 93 in terms of gross dollar retention, and even some of our businesses that are selling to SMBs, for example, do very well in the high 80s gross dollar retention. On net dollar retention, again, you can see that consistency, 120% or above, but we have a number of companies that do a whole lot better than that, and they do that in a variety of ways. Take Datadog, for example. They have just done incredibly well in rolling out new products and a land and expand motion as part of that.