I'm a partner at Redpoint
. I write daily, data-driven blog posts about key questions facing startups. I co-authored the
book, Winning with Data
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A founder emailed me last week to raise the question of whether performance pricing for SaaS companies is an effective technique. Performance pricing means explicitly pricing of product in terms of the customers' revenue gained or cost reduced from its use.
Five months into 2017 nine venture-backed technology companies have gone public compared to 14 in 2016. Four consumer companies and five enterprise companies have popped on average 29% since their IPO pricing. Only two, Carvana, an online used car dealer, and Netshoes, a Brazilian ecommerce company have traded down from their IPO pricing. The other seven have demonstrated the broad public investor demand for new offerings.
Earlier this week, a founder asked whether the fundraising market suffered from seasonality. Are there more prosperous months to raise than others? That's a simple question to answer - or so I thought. Ultimately, a dinosaur proved to me the answer is more nuanced.
Instead of raising an equity round, a startup might choose to borrow money- and for good reason. Venture debt dilutes founders much less than equity rounds. Low interest rates have increased the attractiveness of venture debt, because the cost to borrow is low. Millions of dollars for little dilution at little cost? Venture debt is an attractive financial product. No wonder it has grown in popularity by 16x in the in the last six years.
My algorithm is better than yours. My algorithm performs better on the precision/recall tradeoffs. It surfaces fewer false positives. It converges to an answer faster. Perhaps it requires a bit less data. Those statements might all be true. But none of these advantages confer a competitive sales advantage in the market. They aren't technology innovations leading to a go-to-market advantage.
There are approximately 22 million trucks in the US. Many of these trucks run software to track the location of the vehicle, manage inventory, and comply with regulation. There are two SaaS companies operating at greater than $100M million in ARR in the space and they illustrate one of the mantras on this blog. There are many different ways to build a SaaS company.
A founder asked me recently if a dead zone in ACVs exist around the $10k price point. Yesterday, I listened to a podcast in which an executive asserted that infrastructure software priced lower than $250k in ACV threatens the viability of the company. What does the data show?
At SaaStr earlier this year, I spoke about the huge potential of machine learning in SaaS. In that talk, I broke down some of the advances in ML that might be useful for software companies. In the discussion that ensued, I stressed the importance of not letting the technology obfuscate the value proposition of the software. Yes, ML is a huge step forward, but it's not enough by itself. In fact, it likely isn't the most challenging part of building a disruptive product.
After a startup establishes product market fit, scaling demand generation becomes the the next major challenge. Doubling or tripling ARR each year for several consecutive years is not easy. The best marketers create a demand generation portfolio. There are four axes to measure this portfolio - scale of investment, sophistication, breadth and potential.
A friend recently asked, "Which path is better for SaaS startups? SMB to mid-market to enterprise or straight to enterprise?" It's a key strategic question for many founders building software companies.