Episode 16 · 2020-04-26 · 46:24 · Original in Finnish
SaaS Investor KPIs | Sami Miettinen | Negotiator 16
Originally published as “SaaS-klubi - SaaS-sijoittajien KPIt | Sami Miettinen | Neuvottelija 16”
Sami Miettinen walks the SaaS Club through the metrics professional investors use to evaluate software businesses: annual recurring revenue, churn, customer acquisition cost and lifetime value. The episode unpacks the Rule of 40, revenue and EBITDA multiples, and why the income statement has to be split between new customer acquisition and recurring business. It also covers SaaS funding options from venture debt to private equity, and when a company should start shaping itself for a sale. Finally it examines the sales model and cost load involved in moving from a home market to international expansion.
Core theses
- Splitting the income statement between acquisition and recurring business is the move that makes every other metric interpretable.
- Churn has several calculation methods and investors want a specific one; logo churn and revenue churn answer different questions.
- Five million in annual recurring revenue is named as the threshold at which the exit conversation changes, which is a concrete number rather than a rule of thumb.
- Moving from a home market abroad changes the sales model before it changes the cost base, and companies usually discover this in the wrong order.
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Summary
Sami Miettinen walks the SaaS Club through the metrics professional investors use to evaluate software businesses: annual recurring revenue, churn, customer acquisition cost and lifetime value. The episode unpacks the Rule of 40, revenue and EBITDA multiples, and why the income statement has to be split between new customer acquisition and recurring business. It also covers SaaS funding options from venture debt to private equity, and when a company should start shaping itself for a sale. Finally it examines the sales model and cost load involved in moving from a home market to international expansion.
Split the income statement first
A software company’s profit and loss mixes two different businesses: winning customers, which costs money up front, and serving them, which produces margin for years. Until those are separated, no ratio computed from the statement means anything — which is why this is the first move rather than one of the analyses.
Which churn
Logo churn counts customers leaving; revenue churn counts money leaving. A company can look healthy on one and poor on the other, and an investor asking for churn has a specific definition in mind. Answering with the wrong one reads as evasion even when it is not.
Five million
The threshold named for when the exit conversation changes. Concrete numbers of this kind are what a session like this is for, and they are also what dates it — the figure belongs to the market of April 2020.
Watch
The recording lives on the Neuvottelija channel: SaaS-klubi - SaaS-sijoittajien KPIt | Sami Miettinen | Neuvottelija 16. A Finnish edition of this episode is published at www.neuvottelija.fi.
In depth
The Neuvottelija AI editions carry a long-form write-up of this episode: English · suomeksi.
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