The problem with financial performance SaaS
Many SaaS startups will eventually be acquired by larger companies. Unfortunately, most of these companies do not recognize the system of financial performance SaaS. In this article, Matt Fates from Ascent Venture Partners explains that if a buyer company cannot calculate the true cost of a SaaS project, then the negotiations can come to a dead end at the earliest stage.
As a venture investor and a member of the board of directors, I always look for companies that set themselves complex goals and then reach them. The general director of one company in my portfolio likes to use the term “consciously competent”, which means achieving success precisely through achievement, not luck. This is what most startups aspire to (although luck is good too!), But this way requires a fairly accurate measurement of business model indicators. In recent years, those of us who have worked with or within SaaS companies have become accustomed to changes in indicators such as total monthly income (CMRR), customer acquisition cost (CAC), current value of future income (LTV), and so on.
But there is one problem. Many of these companies will be acquired one day, and the majority of potential buyers do not use the SaaS financial performance system, they use generally accepted accounting principles. This creates a gap between the two parties, which greatly complicates the negotiation process. But a little preliminary planning will help solve this problem.
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Last month I had the pleasure of leading a seminar organized by MassTLC . This seminar was devoted to the study of various SaaS indicators and their impact on business models and solutions. One of the key topics touched upon by us was the discrepancy between the financial performance systems between startups and their potential customers.
As Tyler Slots, the CFO of Zuora, explained during the seminar, the traditional financial system is a little behind the needs of SaaS companies that charge much less for their services than traditional companies. Tyler noted two big problems with traditional income declarations.
First, income declarations are a thing of the past. They measure revenue based on how much money the company earned in the last reporting period. Secondly, they do not share disposable and recurring income and expenses. These factors are unfavorable for companies selling, for example, a one-year or multi-year subscription to their service. And when it comes to selling a company, buyers look at traditional financial statements, not SaaS numbers.
“From the very beginning of their business, Saas companies should identify and begin to closely monitor the performance of potential buyers,” says Jim Pluntze, CFO of Navisite (which was recently absorbed by Time Warner). “There are many indicators, such as EBITDA (earnings before interest, taxes, depreciation and amortization). When evaluating the SaaS of a company, I compare the total costs of attracting customers with the revenue they bring and the average service life of the service. ” Slot said that he sees only three adequate indicators of the company's SaaS value: recurring profit, retention rate and degree of efficiency increase.
If you are not going to sell shares of your startup on the stock exchange, your options for exit are rather limited, provided that potential buyers do not recognize your system of financial indicators. Of course, SaaS founders of companies should clearly track the indicators reflecting the success of their business, but if they are going to sell their company someday, they also need to keep track of those traditional indicators that potential buyers pay most attention to.
Do you agree with Mat Fates?
By the way, this topic will be actively discussed on our forum Clouds NN 2012 .
As a venture investor and a member of the board of directors, I always look for companies that set themselves complex goals and then reach them. The general director of one company in my portfolio likes to use the term “consciously competent”, which means achieving success precisely through achievement, not luck. This is what most startups aspire to (although luck is good too!), But this way requires a fairly accurate measurement of business model indicators. In recent years, those of us who have worked with or within SaaS companies have become accustomed to changes in indicators such as total monthly income (CMRR), customer acquisition cost (CAC), current value of future income (LTV), and so on.
But there is one problem. Many of these companies will be acquired one day, and the majority of potential buyers do not use the SaaS financial performance system, they use generally accepted accounting principles. This creates a gap between the two parties, which greatly complicates the negotiation process. But a little preliminary planning will help solve this problem.
')
Last month I had the pleasure of leading a seminar organized by MassTLC . This seminar was devoted to the study of various SaaS indicators and their impact on business models and solutions. One of the key topics touched upon by us was the discrepancy between the financial performance systems between startups and their potential customers.
As Tyler Slots, the CFO of Zuora, explained during the seminar, the traditional financial system is a little behind the needs of SaaS companies that charge much less for their services than traditional companies. Tyler noted two big problems with traditional income declarations.
First, income declarations are a thing of the past. They measure revenue based on how much money the company earned in the last reporting period. Secondly, they do not share disposable and recurring income and expenses. These factors are unfavorable for companies selling, for example, a one-year or multi-year subscription to their service. And when it comes to selling a company, buyers look at traditional financial statements, not SaaS numbers.
“From the very beginning of their business, Saas companies should identify and begin to closely monitor the performance of potential buyers,” says Jim Pluntze, CFO of Navisite (which was recently absorbed by Time Warner). “There are many indicators, such as EBITDA (earnings before interest, taxes, depreciation and amortization). When evaluating the SaaS of a company, I compare the total costs of attracting customers with the revenue they bring and the average service life of the service. ” Slot said that he sees only three adequate indicators of the company's SaaS value: recurring profit, retention rate and degree of efficiency increase.
If you are not going to sell shares of your startup on the stock exchange, your options for exit are rather limited, provided that potential buyers do not recognize your system of financial indicators. Of course, SaaS founders of companies should clearly track the indicators reflecting the success of their business, but if they are going to sell their company someday, they also need to keep track of those traditional indicators that potential buyers pay most attention to.
Do you agree with Mat Fates?
By the way, this topic will be actively discussed on our forum Clouds NN 2012 .
Source: https://habr.com/ru/post/149223/
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