SaaS Startups

I believe there is still an incredible opportunity in SaaS both in the Corporate and in the SME (small and medium enterprise) world. In Spain, we have all the components: seed and round A capital, technical talent, business talent, one of the best technology infrastructures and a large enough market to experiment. We are also starting to have experienced SaaS executives that can drive the creation of new businesses. So there should be great hits coming out of Spain and joining the global leagues and powerhouses.

I am especially passionate about the SME opportunity. Spain has one of the comparatively deeper SME landscapes, we are a country of SMEs. Those SMEs are waking up to the fact that technology is necessary. So we might be able to lead in the for now comparatively neglected world of SME SaaS. SMEs, especially on the small and very small side seem to me the future of employment, so it is also doing well by doing good.

I love to get to know, help, mentor and even invest in SaaS focused companies. So if you are a SaaS founder please feel free to reach out to me.

Here I will try to aggregate for you everything I see interesting in terms of SaaS: resources, companies, investors, key areas, stages, and metrics.

In terms of resources, we are lucky that the folks in the US focused on this area have been extremely generous sharing. The two pillars of knowledge for me are:

  • David Skok’s, For Entrepreneurs especially awesome around metrics.
  • Jason Lemkin’s, SaaStr and the great podcast that comes with it.
  • There are other interesting sites like Darmesh Shah’s OnStartups and K-fund’s blog and podcast

The holy grail of SaaS is metrics. You will find lots of acronyms around metrics thrown about. The top 5 for me are:

  • ARR, annual recurring revenue, and its cousin MRR, monthly recurring revenue.
  • ACV, average contract value. How large is each deal you close? There are models from less that $1.000 to more than $1 million, each works differently.
  • CAC to LTV, What is the ratio of the Cost to Acquire a Customer compared with the Lifetime value it has for you. More than 3 gets investors excited.
  • Churn, how much of your customer base you lose each year, and the more targetted NDC (net dollar churn), how do a cohort’s billings compare to their initial sign up value after a period of time.
  • Gross margin, what is your product’s gross margin without sales cost. 70% is table stakes, 80% typically makes people excited.

In terms of the key areas, SaaS is different from typical consumer internet companies. You have five key areas to focus on:

  • Product, getting to product market fit at the ACV level you need.
  • Sales and Marketing, building a repeatable sales machine with the right CAC to LTV.
  • Customer Success, getting net dollar churn positive.
  • Company and cash,  growing ARR sustainably at >40% per year.
  • People and culture, to manage the tens or hundreds SaaS still requires.

My favorite staging concept of SaaS is David Skok’s (slightly adapted):

  • Product-Market Fit. Can the founders sell the product to 10 to 100 strangers at the right ACV and gross margin? This is about Product.
  • Sales machine. Can normal salespeople sell at scale with the right CAC to LTV and NDC? This is about Sales, Marketing, and Customer Success.
  • Rapid Growth. Can you maintain the level of funding and hiring required to keep ARR growth at more than 40% to 10 and 100 million? This is about Company and People.