2017 Private SaaS Company 2 Survey Results Annual · • This report provides an analysis of the...

0

51

102

51

153

102

104

162

191

153

204

255

150

150

150

153

153

255

152

182

138

51

102

204

51

51

51

205

37

43

1

2

3

4

5

Pacific Crest Securities is now KBCM Technology Group

KBCM Technology Group combines the technology specialist approach of Pacific Crest Securities with the expanded capabilities

and broader resources of KeyBanc Capital Markets and its parent, KeyCorp (NYSE - KEY).

October 17, 2017

2017 Private SaaS Company

Survey Results 8th Annual

FINAL

0

51

102

51

153

102

104

162

191

153

204

255

150

150

150

153

153

255

152

182

138

51

102

204

51

51

51

205

37

43

1

2

3

4

5

1

KBCM TECHNOLOGY GROUP 2017 PRIVATE SAAS COMPANY SURVEY

• This report provides an analysis of the results of a survey of private SaaS companies which KBCM Technology

Group’s software investment banking team (formerly Pacific Crest Securities) conducted in June-July 2017

– Represents the eighth such survey Pacific Crest / KBCM Technology Group has completed

– The survey results include responses from senior executives of ~400 companies

– Special thanks to our partners at Matrix Partners and the forEntrepreneurs blog for help soliciting participants and republishing

our report, as well as Intacct, which helped us solicit additional responses

– We made some important changes this year, including: (1) using annual recurring revenue (ARR) rather than GAAP revenue as

a primary gauge of size and growth; and (2) asking respondents to provide precise numbers (vs. ranges) for certain key data

• Representative statistics on the survey participants:

– $8.5MM median 2016 Ending ARR, with over 85 companies >$25MM

– Median organic growth in ARR in 2016 was 47% (37% for companies > $5MM in ARR, and 25% for companies > $25MM in ARR)

– Median employees (FTEs): 78

– Median customer count: 356

– 73% headquartered in the U.S.

– ~$21K median annual contract value (ACV), with 26% of respondents below $5K and 13% above $100K

– 41% use Field Sales, and 27% use Inside Sales as predominant mode of distribution

Our goal is to provide useful operational and financial benchmarking

data to executives and investors in SaaS companies

0

51

102

51

153

102

104

162

191

153

204

255

150

150

150

153

153

255

152

182

138

51

102

204

51

51

51

205

37

43

1

2

3

4

5

2

SURVEY PARTICIPANT GEOGRAPHY (HQ)

U.S. Regions

Northern California / Silicon Valley 63

Boston / New England 39

Midwest / Chicago 30

New York Metropolitan Area 29

Pacific Northwest 25

Southeast U.S. 23

Texas 22

Colorado / Utah 17

Southern California 16

Mid-Atlantic / DC 15

Other U.S. 14

TOTAL U.S. : 293

Other Locations

Europe 42

Canada 33

Latin America 11

Australia / New Zealand 8

Asia 7

Israel 5

TOTAL Non-U.S. : 106

TOTAL: 399

7

8

11

293

42

33

5

63

16

17

25

22

30

39

29

23

15

0

51

102

51

153

102

104

162

191

153

204

255

150

150

150

153

153

255

152

182

138

51

102

204

51

51

51

205

37

43

1

2

3

4

5

3

SURVEY PARTICIPANT SIZE DISTRIBUTION

Respondents (2016 Ending ARR): 390

Respondents (Ratio of ARR to Revenue): 384

Median = $8.5MM

ARR

2016 Ending ARR

2016 GAAP Revenue

≈ 100%

Median Ratio of ARR to Revenue

0

51

102

51

153

102

104

162

191

153

204

255

150

150

150

153

153

255

152

182

138

51

102

204

51

51

51

205

37

43

1

2

3

4

5

4

EMPLOYEE BASE

Respondents (FTEs): 397

Respondents (ARR per FTE Efficiency): 389, <$500K: 25, $500K-$750K: 24, $750K-$1.25MM: 18, $1.25MM-$2.5MM: 35, $2.5MM-$5MM: 46, $5MM-$7.5MM: 35,

$7.5MM-$10MM: 26, $10MM-$15MM: 45, $15MM-$25MM: 50, $25MM-$40MM: 37, $40MM-$60MM: 14, $60MM-$75MM: 8, $75MM-$100MM: 9, >$100MM: 17

Respondents (ARR per FTE Efficiency, excluding companies <$5MM in 2016 Ending ARR): 241

Overall

Median

= $100K

Median

= $137K (Excl. companies

<$5MM in 2016

Ending ARR)

Median = 78

FTEs

ARR per FTE Efficiency

0

51

102

51

153

102

104

162

191

153

204

255

150

150

150

153

153

255

152

182

138

51

102

204

51

51

51

205

37

43

1

2

3

4

5

GROWTH RATES

0

51

102

51

153

102

104

162

191

153

204

255

150

150

150

153

153

255

152

182

138

51

102

204

51

51

51

205

37

43

1

2

3

4

5

6

100%

54% 52%

54% 49%

31% 27%

20% 21% 22%

0%

20%

40%

60%

80%

100%

120%

<$2.5MM $2.5MM -$5MM

$5MM -$7.5MM

$7.5MM -$10MM

$10MM -$15MM

$15MM -$25MM

$25MM -$40MM

$40MM -$60MM

$60MM -$75MM

>$75MM

2016

Org

anic

AR

R G

row

th R

ate

2016 Ending ARR(1) Excludes respondents with <$5MM in ARR

(2) Excludes respondents with <$25MM in ARR

Respondents: Total: 361, <$2.5MM: 78, $2.5MM-$5MM: 45, $5MM-$7.5MM: 33, $7.5MM-$10MM: 26, $10MM-$15MM: 46, $15MM-$25MM: 49, $25MM-$40MM: 37,

$40MM-$60MM: 14, $60MM-$75MM: 7, >$75MM: 26

The median growth rate

drops to 25% percent for

companies with over $25

million in ARR and just

one-in-five companies

with over $25 million in

ARR experienced growth

rates over 50 percent.

Median(1)

= 37%

HOW FAST DID YOU GROW YOUR ARR IN 2016?

Median

= 47%

Median(2)

= 25%

0

51

102

51

153

102

104

162

191

153

204

255

150

150

150

153

153

255

152

182

138

51

102

204

51

51

51

205

37

43

1

2

3

4

5

7

14

19

37

31

25

1918

8

10

87

9

34

23

5

3

12 2

1 12

4

0

5

10

15

20

25

30

35

40

Nu

mb

er o

f C

om

pan

ies

2016 Growth in ARR (%)

(1) Including the 123 respondents with <$5MM in ARR increases the median to 47%

238 respondents

Once you screen out

the smallest

companies, the chart

resembles the right

side of a bell curve.

(EXCLUDING COMPANIES <$5MM IN 2016 ENDING ARR)

HOW FAST DID YOU GROW ARR ORGANICALLY IN 2016?

Median = 37%(1)

0

51

102

51

153

102

104

162

191

153

204

255

150

150

150

153

153

255

152

182

138

51

102

204

51

51

51

205

37

43

1

2

3

4

5

8

178 respondents

This year, for the first

time, participants

provided precise

values for ARR,

allowing us to

present a true size-

growth visualization.

(Note that this chart

includes only

companies over

$10MM in ARR and

collapses the scales

at the high ends for

presentation

purposes).

HOW FAST DID YOU GROW ARR ORGANICALLY IN 2016?

$150+

350%+

(SCATTER VIEW OF COMPANIES >$10MM 2016 ENDING ARR)

Median

= 31%

0

51

102

51

153

102

104

162

191

153

204

255

150

150

150

153

153

255

152

182

138

51

102

204

51

51

51

205

37

43

1

2

3

4

5

9

(1) Annual Contract Value (ACV): annualized monthly run rate in recurring SaaS revenues, excluding professional services, perpetual licenses and related maintenance

Respondents: Total: 189, <$5K: 43, $6K-$15K: 27, $16K-$25K: 28, $26K-$50K: 30, $51K-$100K: 30, >$101K: 31

Median

= 38%

It’s difficult to draw any

conclusions regarding

whether avg. target

contract size influences

growth.

MEDIAN GROWTH RATE AS A FUNCTION OF CONTRACT SIZE


0

51

102

51

153

102

104

162

191

153

204

255

150

150

150

153

153

255

152

182

138

51

102

204

51

51

51

205

37

43

1

2

3

4

5

10

36% 38%

41%

59%

40%

5%

15%

25%

35%

45%

55%

65%

Field Sales Inside Sales Internet Sales Channel Sales Mixed

2016

Org

anic

AR

R G

row

th

Primary Mode of Distribution (3)

(1) Discrepancy from 37% median on slide 6 due to smaller set of respondents answering both questions

(2) Results may be skewed by small respondent sample size

(3) Primary Mode of Distribution defined by determining the greatest contributor to new sales and confirming that it is at least a 25% point higher contributor than any

other. If no mode satisfies these conditions, then it is Mixed

Respondents: Total: 219, Field Sales: 103, Inside Sales: 48, Internet Sales: 11, Channel Sales: 12, Mixed: 45

Median

= 38%(1)

All other things being equal,

the data show no

discernable advantage (as

measured by success

growing) for Field-dominated

vs. Inside-dominated

distribution. Interestingly,

though the data is

somewhat sparse, Channel-

dominant strategies show

some real strength.

MEDIAN GROWTH RATE AS A FUNCTION OF SALES STRATEGY

(2)

37%38%

41%41% 40%

5%

10%

15%

20%

25%

30%

35%

40%

45%


2016

Org

anic

AR

R G

row

th

Primary Mode of Distribution(3)


(2)

0

51

102

51

153

102

104

162

191

153

204

255

150

150

150

153

153

255

152

182

138

51

102

204

51

51

51

205

37

43

1

2

3

4

5

11

DISTRIBUTION STRATEGY & CAPITAL EFFICIENCY

Field Sales

Inside Sales

Field Sales vs.

Inside Sales Focus

Capital Consumed

through 2016(1)

$0MM

$50MM

$100MM

$150MM

$200MM

≥$250MM

350%+

$150+

(1) Capital consumed defined as total primary cumulative equity raised plus debt drawn minus cash on the balance sheet (adjusted for dividends / distributions)

104 respondents

(SIZE-GROWTH SCATTER VIEW OF COMPANIES >$10MM IN 2016 ENDING ARR)

0

51

102

51

153

102

104

162

191

153

204

255

150

150

150

153

153

255

152

182

138

51

102

204

51

51

51

205

37

43

1

2

3

4

5

12

38%

32%

40%39%

32%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

Enterprise Enterprise &Middle Market

Middle Market &SMB

SMB & VSB Mixed

2016

Org

anic

AR

R G

row

th

Median

= 37%

(1) Target Customer – At least ~67% of revenues come from designated customer base; “Mixed” defined as respondents who didn’t select at least ~67% for any

designated customer base

Note: Enterprise customers defined as primarily targeting customers with >1000 employees, Middle market as 100-999 employees, SMB as 20-100 employees, and VSB

as <20 employees

Respondents: Total: 234, Enterprise: 74, Enterprise & Middle Market: 81, Middle Market & SMB: 34, SMB & VSB: 29, Mixed: 16

Companies focusing

either (1) mainly on

the high-end or (2)

mainly on the mid-

and low-end (Mid-

market, SMB &

VSB), grew modestly

faster than mixed or

Enterprise / Mid-

market companies.

Comparison with

Previous Surveys

Last year, there was minimal

correlation across these groups

MEDIAN GROWTH RATE AS A FUNCTION OF TARGET CUSTOMER(1)

38%

32%

30%

40%

32%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

Enterprise Enterprise & MiddleMarket

Middle Market & SMB SMB & VSB &Consumer

Mixed

2016

Org

anic

AR

R G

row

th


0

51

102

51

153

102

104

162

191

153

204

255

150

150

150

153

153

255

152

182

138

51

102

204

51

51

51

205

37

43

1

2

3

4

5

13

32%

30%

33%

37%

48%

51% 51%50%

0%

10%

20%

30%

40%

50%

60%

<10% 10-20% 20-30% 30-40% 40-50% 50-60% 60-70% >70%

Med

ian

201

6 S

ales

& M

arke

tin

g S

pen

d a

s %

of R

even

ue

2016 ARR Growth Rate

Not surprisingly, the

fastest growing

companies spent more

on sales & marketing.

Median

= 37%

Comparison with

Previous Surveys

In line with previous years’

survey results

Respondents: Total: 205, <10%: 23, 10-20%: 31, 20-30%: 27, 30-40%: 25, 40-50%: 17, 50-60%: 17, 60-70%: 7, >70%: 58

SALES & MARKETING SPEND VS. GROWTH RATE

31%29%

30%

36%

47%

50%51%

48%

0%

10%

20%

30%

40%

50%

60%

<10% 10-20% 20-30% 30-40% 40-50% 50-60% 60-70% >70%

Med

ian

201

6 S

ales

& M

arke

tin

g S

pen

d a

s %

of R

even

ue

2016 ARR Growth Rate


0

51

102

51

153

102

104

162

191

153

204

255

150

150

150

153

153

255

152

182

138

51

102

204

51

51

51

205

37

43

1

2

3

4

5

GO-TO-MARKET

0

51

102

51

153

102

104

162

191

153

204

255

150

150

150

153

153

255

152

182

138

51

102

204

51

51

51

205

37

43

1

2

3

4

5

15

(1) See definition on page 10

147 and 223 respondents, respectively

Smaller Companies <$5MM in 2016 Ending ARR

Larger Companies $5MM+ in 2016 Ending ARR

PRIMARY MODE OF DISTRIBUTION(1)

0

51

102

51

153

102

104

162

191

153

204

255

150

150

150

153

153

255

152

182

138

51

102

204

51

51

51

205

37

43

1

2

3

4

5

16

Note: Initial ACV of a contract

(1) See definition on page 10

Respondents: Total: 327, <$1K: 21, $1K-$5K: 71, $6K-$15K: 53, $16K-$25K: 50, $26K-$50K: 56, $51K-$100K: 41, $101K-$250K: 24, >$251K: 11

Comparison with Previous

Surveys

More confidence in Inside Sales

in the $1K-$25K range

Analyzed by contract

value, Field Sales

dominates for

companies with

median deals over

$50K. Inside Sales

strategies are most

popular among

companies with $1K-

$25K median deal

sizes.

PRIMARY MODE OF DISTRIBUTION(1) AS A FUNCTION OF

MEDIAN INITIAL CONTRACT SIZE

0

51

102

51

153

102

104

162

191

153

204

255

150

150

150

153

153

255

152

182

138

51

102

204

51

51

51

205

37

43

1

2

3

4

5

17

$6K-$50K Median Annual Contract Size

Field-Dominated Inside-Dominated

Median

2016 Ending ARR $17MM $19MM

2016 Organic ARR Growth Rate 30% 47%

2016 Ending ARR per FTE $106K $150K

S&M % of Revenue 37% 44%

Median ACV per Customer $25K $16K

Average Contract Length 1.5 Years 1 Year

Professional Services Attach Rate 7.2% 2.6%

Commissions for New Sales to New Accounts - Direct 10% 10%

Annual Gross Dollar Churn(1)

8% 13%

% of New ARR from Upsells & Expansions 23% 26%

Net Dollar Retention Rate(1)

104% 100%

CAC Ratio for New Customers(1)

$1.26 $1.06

Capital Consumed / ARR Ratio(1)

1.50 1.15

(1) See definitions described later in this presentation

Respondents: Total: 62, Field-Dominated: 33, Inside-Dominated: 29

Among companies

selling $6K-$50K

average ACV, we

compared those

favoring Field vs. Inside

and found: (1) Inside

Sales driven

companies had higher

growth and were more

capital efficient; (2)

Field Sales driven

companies had lower

churn and higher net

dollar retention rates.


DISTRIBUTION STRATEGY – ANALYSIS OF FIELD VS. INSIDE SALES IN

KEY CROSSOVER DEAL SIZE TIERS

0

51

102

51

153

102

104

162

191

153

204

255

150

150

150

153

153

255

152

182

138

51

102

204

51

51

51

205

37

43

1

2

3

4

5

18

12

19

23

22

26

19

22

14

12

16

10

0 5 10 15 20 25 30

<$0.25

$0.25-$0.50

$0.51-$0.80

$0.81-$1.00

$1.01-$1.20

$1.21-$1.40

$1.41-$1.60

$1.61-$1.80

$1.81-$2.00

$2.01-$3.00

>$3.00

Median ≈ $1.15

(1) CAC Ratio: Includes the fully-loaded amount spent on sales & marketing for the win, over multiple periods, if necessary

195 respondents

Respondents

(excluding the

smallest companies)

spent a median of

$1.15 to acquire

each dollar of new

ARR from a new

customer.


Surveys

Similar to last year’s results

of $1.13


CAC RATIO(1): HOW MUCH DO YOU SPEND FOR $1 OF NEW ARR

FROM A NEW CUSTOMER?

0

51

102

51

153

102

104

162

191

153

204

255

150

150

150

153

153

255

152

182

138

51

102

204

51

51

51

205

37

43

1

2

3

4

5

19


120 respondents

CAC & CAPITAL EFFICIENCY

$150+

<$0.25

$0.25-$0.50

$0.51-$0.80

$0.81-$1.00

$1.01-$1.30

$1.31-$1.50

$1.51-$2.00

$2.01-$3.00

>$3.00

CAC for a New

Customer

350%+

Capital Consumed

through 2016(1)

$0MM

$50MM

$100MM

$150MM

$200MM

≥$250MM


0

51

102

51

153

102

104

162

191

153

204

255

150

150

150

153

153

255

152

182

138

51

102

204

51

51

51

205

37

43

1

2

3

4

5

20

$0.75

$0.23

$0.07 $0.06

$1.65

$0.97

$0.62

$0.36

$1.15

$0.57

$0.30

$0.15

$0.00

$0.25

$0.50

$0.75

$1.00

$1.25

$1.50

$1.75

New ARR from New Customer Upsells to Existing Customer Expansions Renewals

(1) Upsell defined as selling additional products / modules / functionality to an existing customer; expansion defined as expanding sales of existing products to

existing customers

Respondents: New ARR from New Customer: 195, Upsells to Existing Customer: 123, Expansions: 112, Renewals: 132

The median cost to

acquire $1 of new

upsell ARR ($0.57) is

50% of the cost to

acquire $1 of ARR

from a new

customer. The cost

to acquire $1 of new

expansion ARR

($0.30) is 26%, and

the cost for $1 of

renewal ARR ($0.15)

is 13%.

Comparison with

Previous Surveys

This year's group is spending

substantially more on CAC for

upsell dollars -- last year,

upsells CAC was $0.27, or 24%

of new customer CAC

25th

percentile

75th

percentile

Median


CAC RATIO ON NEW CUSTOMERS VS. UPSELLS, EXPANSIONS, AND

RENEWALS

(1) (1)

0

51

102

51

153

102

104

162

191

153

204

255

150

150

150

153

153

255

152

182

138

51

102

204

51

51

51

205

37

43

1

2

3

4

5

21

$1.04

$1.08

$1.27

$1.08

$1.37

$1.24

$-

$0.20

$0.40

$0.60

$0.80

$1.00

$1.20

$1.40

$1.60

$5MM-$7.5MM $7.5MM-$15MM $15MM-$30MM $30MM-$50MM $50MM-$100MM >$100MM

Med

ian

Rat

io fo

r N

ew A

RR

fro

m N

ew C

ust

om

ers

2016 Ending ARR

Respondents: Total: 195, $5.0MM-$7.5MM: 30, $7.5MM-$15MM: 59, $15MM-$30MM: 53, $30MM-$50MM: 21, $50MM-$100MM: 19, >$100MM: 13

Difficult to assert that

there is significant

correlation between

size of company and

CAC ratio, although

there appears to be a

modestly higher

tolerance among

larger companies to

spend more on CAC.

Median

≈ $1.15


CAC RATIO ON NEW CUSTOMERS AS A FUNCTION OF SIZE OF COMPANY

0

51

102

51

153

102

104

162

191

153

204

255

150

150

150

153

153

255

152

182

138

51

102

204

51

51

51

205

37

43

1

2

3

4

5

22




Respondents: Total: 195, Field Sales: 94, Inside Sales: 41, Internet Sales: 10, Channel Sales: 9, Mixed: 41

Other than Internet

and Channel Sales,

where CAC appears

significantly lower

(but data is sparse),

there is no significant

correlation between

go-to-market

approach and

median CAC – nor is

there a meaningful

difference between

the distribution of

responses.

Table TBU


Median ≈ $1.28

Median ≈ $1.11

Median ≈ $0.29

Median ≈ $0.86

Median ≈ $1.14


Less than $0.25 $0.25-$0.50 $0.51-$0.80 $0.81-$1.00 $1.01-$1.30

$1.31-$1.50 $1.51-$2.00 $2.01-$3.00 >$3.00

(1) (2) (1)

CAC RATIO SPEND BY PRIMARY MODE OF DISTRIBUTION

0

51

102

51

153

102

104

162

191

153

204

255

150

150

150

153

153

255

152

182

138

51

102

204

51

51

51

205

37

43

1

2

3

4

5

23

Median ≈ $1.34

Median ≈ $1.21

Median ≈ $1.06

Median ≈ $0.93

Median ≈ $1.16

Enterprise Enterprise &Middle Market

Middle Market & SMB SMB & VSB Mixed

Primary Target Customer

Less than $0.25 $0.25-$0.50 $0.51-$0.80$0.81-$1.20 $1.21-$1.50 $1.51-$1.80$1.81-$2.00 $2.01-$3.00 Over $3.00

(1) Target Customer – At least ~67% of revenues come from designated customer base; “Mixed” defined as respondents who didn’t select at least ~67% for any

designated customer base

Respondents: Total: 191, Enterprise: 58, Enterprise & Middle Market: 72, Middle Market & SMB: 25, SMB & VSB: 23, Mixed: 13

Not surprisingly, the

median CAC ratio for

companies targeting

larger enterprises is

higher than that for

those targeting VSB,

SMB and middle

market companies.


(1)

CAC RATIO SPEND AS A FUNCTION OF TARGET CUSTOMER

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Enterprise Enterprise / MiddleMarket

Middle Market / SMB SMB / VSB Mixed

0

51

102

51

153

102

104

162

191

153

204

255

150

150

150

153

153

255

152

182

138

51

102

204

51

51

51

205

37

43

1

2

3

4

5

24

70% 71%67%

25%

68% 66%

30% 29%34%

75%

33% 34%

0%

20%

40%

60%

80%

100%

Overall Field Sales Inside Sales Internet Sales Channel Sales Mixed

Sales Marketing

Overall, the median

company devotes

30% of their S&M

expenses to

marketing, with the

remainder allocated

to sales. However,

Internet Sales-driven

companies have a

much greater

reliance on

marketing at 75%.




Respondents: Overall: 215, Field Sales: 103, Inside Sales: 46, Internet Sales: 10, Channel Sales: 12, Mixed: 44


Surveys

Results are largely consistent

with previous years' results

Sales vs. Marketing Spend of Companies by Dominant Sales Strategy

(1) (2) (1)

S&M COMPOSITION: SALES VS. MARKETING COST %

0

51

102

51

153

102

104

162

191

153

204

255

150

150

150

153

153

255

152

182

138

51

102

204

51

51

51

205

37

43

1

2

3

4

5

25

S: 62% / M: 38%

S: 69% / M: 31%

S: 60% / M: 40%

S: 20% / M: 80%

S: 61% / M: 39%S: 58% / M: 42%

S: 75% / M: 25% S: 76% / M: 24% S: 75% / M: 25%

S: 44% / M: 56%

S: 73% / M: 27%S: 70% / M: 30%

70%

71%

67%

25%

68%66%

0%

20%

40%

60%

80%

100%

Overall Field Sales Inside Sales Internet Sales Channel Sales Mixed

The survey data

shows a greater

conformity in sales

vs. marketing spend

for field-sales driven

organizations than

for inside sales.

Internet sales

organizations exhibit

even greater

diversity in balancing

sales vs. marketing

spend.




Respondents: Overall: 215, Field Sales: 103, Inside Sales: 46, Internet Sales: 10, Channel Sales: 12, Mixed: 44

(1) (2) (1)

MIDDLE-THIRD DISTRIBUTION OF SALES VS. MARKETING COST %

(1) (2) (1)

Sales vs. Marketing Spend of Companies by Dominant Sales Strategy

67th percentile

Median

33rd percentile

S: Sales %

M: Marketing %

0

51

102

51

153

102

104

162

191

153

204

255

150

150

150

153

153

255

152

182

138

51

102

204

51

51

51

205

37

43

1

2

3

4

5

26

5

4

1

9

3

9

4 4

3

4

5

3

7

9

7

10

6 6 6

9

7

3

2

1

4 4

3

5

3

2

1

6

22

0

2

4

6

8

10

12

14

16

18

20

22

Nu

mb

er o

f C

om

pan

ies

CAC Payback Period

(1) Implied CAC Payback Period: Defined as # of months of subscription gross profit required to recover the fully-loaded cost of acquiring a customer; calculated by

dividing self-reported CAC ratio by subscription gross margin

177 respondents

Respondents

reported an implied

median CAC

payback of ~18

months, though there

was a wide

distribution of

responses.

How long does it take to recover CAC, based on gross margin subscription dollars received?


CAC PAYBACK PERIOD(1) (GROSS MARGIN BASIS)


Surveys

Results are largely consistent

with previous years' results

Median ≈ 18 months

1 year 2 years ≥ 3 years

0

51

102

51

153

102

104

162

191

153

204

255

150

150

150

153

153

255

152

182

138

51

102

204

51

51

51

205

37

43

1

2

3

4

5

27

9%

15%

19%

26%

29%

24%

37%

32%

0%

5%

10%

15%

20%

25%

30%

35%

40%

<$2.5MM $2.5MM-$5MM $5MM-$7.5MM $7.5MM-$15MM $15MM-$30MM $30MM-$50MM $50MM-$75MM >$75MM

% N

ew A

CV

fro

m U

pse

lls

& E

xpan

sio

ns

2016 Ending ARR

Respondents: Total: 366, <$2.5MM: 105, $2.5MM-$5MM: 46, $5MM-$7.5MM: 33, $7.5MM-$15MM: 64, $15MM-$30MM: 60, $30MM-$50MM: 25, $50MM-$75MM: 10,

>$75MM: 23

Median

= 19%

The median

respondent gets 19% of

new ARR sales from

upsells and

expansions; larger

companies rely more

heavily (up to 2x more)

on upsells and

expansions.

WHAT PERCENTAGE OF NEW ARR IS FROM UPSELLS & EXPANSIONS TO

EXISTING CUSTOMERS?


Surveys

Similar trends to previous years

– however every group seems

to have increased focus and

success with upsells and

expansions – ~5% increases at

every level

0

51

102

51

153

102

104

162

191

153

204

255

150

150

150

153

153

255

152

182

138

51

102

204

51

51

51

205

37

43

1

2

3

4

5

28

16

13

10

1

9

8

9

7

15

15

32

0 10 20 30 40

< (25%)

(25%)-(15%)

(15%)-(5%)

(5%)-(1%)

0-10%

10-20%

20-25%

25-30%

30-40%

40-50%

>50%

(1) Median does not include respondents with no professional services

216 and 135 respondents, respectively

Professional Services

(as % of 1st year ARR) Professional Services Margin

Median = 14%(1)

Professional services

play a minor role for

most, with the

median company

booking P.S.

revenues on new

deals equivalent to

14% of first year

subscription contract

value. Median P.S.

margins are approx.

26%.

Comparison with

Previous Surveys

Professional services

margins increased from

~22% in 2016 to 26%

Median = 26%


PROFESSIONAL SERVICES ROLE IN GO-TO-MARKET

62

70

38

21

9

7

3

3

3

0 20 40 60 80

0% (no professional services)

1-10%

11-25%

26-50%

51-75%

76-100%

101-150%

151-200%

>200%

0

51

102

51

153

102

104

162

191

153

204

255

150

150

150

153

153

255

152

182

138

51

102

204

51

51

51

205

37

43

1

2

3

4

5

29

22%

12%

9%

8%

13%

0%

5%

10%

15%

20%

25%

Enterprise Enterprise / MiddleMarket

Middle Market / SMB SMB / VSB Mixed

P.S

. % o

f 1s

t Y

ear

AR

R

Primary Target Customer

Median

= 14%

Respondents: Total: 154, Enterprise: 60, Enterprise & Middle Market: 54, Middle Market & SMB: 18, SMB & VSB: 13, Mixed: 9 , excludes respondents indicating no

professional services

As expected,

companies which are

focused mainly on

enterprise sales have

higher levels of

professional

services.

Comparison with

Previous Surveys

Attach rates ticked up for

Enterprise (2016 survey:

Enterprise 18%)


PROFESSIONAL SERVICES (% OF 1ST YEAR ARR) AS A FUNCTION OF

TARGET CUSTOMER

0

51

102

51

153

102

104

162

191

153

204

255

150

150

150

153

153

255

152

182

138

51

102

204

51

51

51

205

37

43

1

2

3

4

5

30

15

7

5

10

20

26

34

32

38

22

0 5 10 15 20 25 30 35 40

Less than 50%

50-55%

55-60%

60-65%

65-70%

70-75%

75-80%

80-85%

85-90%

Over 90%

“What is your gross profit margin on just subscription / SaaS revenues?”

209 respondents

Median subscription

gross margins are

78%.

Median

≈ 78%

Comparison with

Previous Surveys

Virtually unchanged from the

2016, 2015 and 2014 results


SUBSCRIPTION GROSS MARGIN

0

51

102

51

153

102

104

162

191

153

204

255

150

150

150

153

153

255

152

182

138

51

102

204

51

51

51

205

37

43

1

2

3

4

5

31

13

9

19

42

30

1516

8

11

15

25

22

1011

0

5

10

15

20

25

30

35

40

45

0-3% 3-6% 6-8% 8-10% 10-12% 12-15% 15%+

Nu

mb

er o

f R

esp

on

den

ts

Sales Commission Paid to Direct Rep (as % of first year ARR)

Field Sales Inside Sales

Respondents: Total: 246, Field Sales: 144, Inside Sales: 102

The survey results

did not point to a

significant difference

in direct and fully

loaded commissions

between companies

that predominantly

use a Field go-to

market strategy

versus Inside Sales.

Field

Dominated

Inside

Dominated

Median Direct Sales

Commission ≈ 10% ≈ 10%

Median Fully-Loaded

Sales Commission ≈ 13% ≈ 12%

DIRECT SALES COMMISSIONS BY SALES STRATEGY

0

51

102

51

153

102

104

162

191

153

204

255

150

150

150

153

153

255

152

182

138

51

102

204

51

51

51

205

37

43

1

2

3

4

5

32

8%

9% 10% 10%9% 10%

9%

9%

7%

13% 12%

14%

13%

11%

14%

11%

0%

2%

4%

6%

8%

10%

12%

14%

16%

<$1K $1K-$5K $6K-$15K $16K-$25K $26K-$50K $51K-$100K $101K-$250K $251K-$1MM

Med

ian

Sal

es C

om

mis

sio

n

Median Contract Size (ACV)

Direct Sales Commission Fully-Loaded Sales Commission

Respondents: Total: 297 and 288, <$1K: 15 and 16, $1K-$5K: 62 and 62, $6K-$15K: 50 and 50, $16K-$25K: 48 and 45, $26K-$50K: 52 and 50, $51K-$100K: 38 and 35,

$101K-$250K: 21 and 19, $251K-$1M: 11 and 11, respectively

Comparison with

Previous Surveys

Similar to previous years’

survey, there is minimal

correlation here

Median Direct Sales

and Fully-Loaded

commission rates did

not vary significantly

across contract sizes

greater than $1K. Fully-Loaded

= 12%

Direct Sales

= 10%

SALES COMMISSIONS AS A FUNCTION OF MEDIAN CONTRACT SIZE

0

51

102

51

153

102

104

162

191

153

204

255

150

150

150

153

153

255

152

182

138

51

102

204

51

51

51

205

37

43

1

2

3

4

5

33

Renewals

3%Median Commission Rate

on Renewals(1)

% of Respondents Not

Paying Any Commission

on Renewals

35%

(1) Among companies paying a commission

(2) Same rate (or higher) than new sales commissions

Respondents: Renewals: 175, Upsells: 194, Extra Years on Initial Contract: 217

Comparison with

Previous Surveys

The most significant change this

year was with respect to how

companies are commissioning

Upsells – with 71% of

companies this year providing

full commissions on Upsells,

versus 59% in last year's survey

results

Commissions on

renewals are either

non-existent or very

low. Upsells this year

command a

commission rate

nearly as high as new

customer sales.

Renewals

34%

Median Commission Rate

on Renewals(1)3%



on Renewals

Additional Commission for

Extra Years on Initial Contract

·No Additional

Commission25%

· Nominal Kicker 29%

· Full Commission 9%

% of Respondents Paying:

Upsells


on Upsells

% of Respondents Paying

Full Commission(2)71%

Additional Commission for

Extra Years on Initial Contract

·No Additional

Commission26%

· Nominal Kicker 29%

· Full Commission 9%

% of Respondents Paying:

COMMISSIONS FOR RENEWALS, UPSELLS AND MULTI-YEAR DEALS

Renewals

3%



on Renewals

Median Commission Rate

on Renewals(1)35%

Upsells


on Upsells(1)

% of Respondents Paying

Full Commission(2)71%

0

51

102

51

153

102

104

162

191

153

204

255

150

150

150

153

153

255

152

182

138

51

102

204

51

51

51

205

37

43

1

2

3

4

5

OPERATIONAL ASPECTS

0

51

102

51

153

102

104

162

191

153

204

255

150

150

150

153

153

255

152

182

138

51

102

204

51

51

51

205

37

43

1

2

3

4

5

35

Now 3 Years from Now 76% of participants use

third parties

predominantly (2/3 of

which is AWS);

expectations for the

future show a continuing

shift as third-party

application delivery

continues to gain

popularity.

Comparison with

Previous Surveys

The trend toward using

third-party public cloud is

significant (mostly AWS)

– self-managed is down

from 33% last year to 24%

this year

(1) Reported “predominant” mode of delivery

(2) 384 and 383 respondents, respectively

HOW IS YOUR SAAS APPLICATION DELIVERED(1)?

Self Managed

Servers24%

Google Cloud

2%

Salesforce App

Cloud3%

Amazon Web

Services (AWS)53%

Another Third-Party

IaaS or PaaS8%

Microsoft Azure

5%Other

4%

Self Managed

Servers13%

Google Cloud

5%

Salesforce App

Cloud3%

Amazon Web

Services (AWS)63%

Another Third-Party

IaaS or PaaS6%

Microsoft Azure

7% Other

4%

0

51

102

51

153

102

104

162

191

153

204

255

150

150

150

153

153

255

152

182

138

51

102

204

51

51

51

205

37

43

1

2

3

4

5

36

Respondents: Total: 225, $5MM-$10MM: 58, $10MM-$15MM: 42, $15MM-$25MM: 47, $25MM-$40MM: 33, >$40MM: 45

When filtered by

company size,

smaller respondents

reported more

frequent use of third-

party providers as

their primary


method, while the

largest companies

were more likely to

use self-managed

servers.

SAAS APPLICATION DELIVERY METHOD AS A FUNCTION OF

SIZE OF COMPANY

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

$5MM-$10MM $10MM-$15MM $15MM-$25MM $25MM-$40MM >$40MM

2016 Ending ARR

Amazon Web Services (AWS) Google Cloud Salesforce App Cloud

Microsoft Azure Another Third-Party IaaS or PaaS Other

Self Managed Servers

0

51

102

51

153

102

104

162

191

153

204

255

150

150

150

153

153

255

152

182

138

51

102

204

51

51

51

205

37

43

1

2

3

4

5

37

78% 78%

70% 70%

80% 75% 77%

0%

20%

40%

60%

80%

100%

Amazon WebServices (AWS)

Google Cloud Salesforce AppCloud

Microsoft Azure Another Third-PartyIaaS or PaaS

Other Self ManagedServers

2016

Su

bsc

rip

tio

n G

ross

Mar

gin

Respondents: Total: 380, Amazon Web Services (AWS): 202, Google Cloud: 7, Salesforce: 11, Microsoft Azure: 19, Other Third-Party: 32, Others: 17,

Self Managed Servers: 92

Median

= 78%

Median subscription

gross margins did

not appear to vary

significantly when

filtered by SaaS


method (note that the

Google Cloud and

Salesforce data is

sparse).

SUBSCRIPTION GROSS MARGIN AS A FUNCTION OF

SAAS APPLICATION DELIVERY METHOD

0

51

102

51

153

102

104

162

191

153

204

255

150

150

150

153

153

255

152

182

138

51

102

204

51

51

51

205

37

43

1

2

3

4

5

COST STRUCTURE

0

51

102

51

153

102

104

162

191

153

204

255

150

150

150

153

153

255

152

182

138

51

102

204

51

51

51

205

37

43

1

2

3

4

5

39

2016 Median

Gross Margin 73%

Operating Expense Margins:

Sales & Marketing 35%

Research & Development 28%

General & Administrative 19%

EBITDA (14%)

FCF (12%)

YoY GAAP Revenue Growth Rate 33%

YoY Organic ARR Growth Rate 36%

Respondents reporting: Gross Margin: 220, Sales and Marketing: 216, R&D: 215, G&A: 216, EBITDA Margin: 201, FCF Margin: 201, GAAP Revenue Growth: 249,

Organic ARR Growth: 245


Surveys

Results are largely in-line with

previous results

(EXCLUDING COMPANIES <$5MM IN 2016 GAAP REVENUE)

COST STRUCTURE

0

51

102

51

153

102

104

162

191

153

204

255

150

150

150

153

153

255

152

182

138

51

102

204

51

51

51

205

37

43

1

2

3

4

5

40

Size of Company (2016 GAAP Revenue)

All Respondents$5MM -

$10MM

$10MM -

$15MM

$15MM -

$25MM

$25MM -

$40MM

$40MM -

$60MM>$60MM

Total Gross Margin 73% 73% 72% 76% 68% 73% 73%

Subscription 78% 76% 77% 79% 77% 78% 80%

Professional Services 27% 30% 40% 28% 20% 35% 18%

Operating Expense Margins:

Sales & Marketing 35% 33% 37% 37% 29% 24% 43%

Research & Development 28% 29% 33% 29% 24% 21% 22%

General & Administrative 19% 22% 19% 19% 18% 16% 14%

EBITDA Margin (14%) (39%) (23%) (13%) (6%) (7%) (8%)

YoY GAAP Revenue Growth Rate 33% 54% 46% 39% 24% 27% 26%

YoY Organic ARR Growth Rate 35% 57% 47% 32% 22% 27% 23%

Note: Numbers do not add due to the fact that medians were calculated for each metric separately and independently

Average Number of Respondents: $5MM-$10MM: 54, $10MM-$15MM: 34, $15MM-$25MM: 48, $25MM-$40MM: 30, $40MM-$60MM: 12, >$60MM: 33


Surveys

Results are largely in-line with

last year’s survey, except for

Professional Services gross

margin, which was 11% last

year for all respondents

>$2.5MM, and is 27% this year

for all respondents >$5MM

MEDIAN COST STRUCTURE BY SIZE


0

51

102

51

153

102

104

162

191

153

204

255

150

150

150

153

153

255

152

182

138

51

102

204

51

51

51

205

37

43

1

2

3

4

5

41

Total Revenue Run-Rate

~$25MM ~$50MM ~$100MM

Median Values

Total Gross Margin 63% 65% 67%

Sales & Marketing 52% 44% 43%

Research & Development 22% 20% 19%

General & Administrative 22% 16% 16%

EBIT Margin (34%) (22%) (18%)

Adj. EBITDA Margin (28%) (12%) (3%)

FCF Margin (29%) (17%) (7%)

YoY Revenue Growth Rate(1) 123% 51% 36%

(1) YoY Revenue Growth compares against previous year’s revenue of the companies at the time

Note: Excludes stock-based compensation (SBC)

Median includes ALRM, AMBR, APPF, APTI, ATHN, AYX, BCOV, BL, BNFT, BOX, BV, CLDR, CNVO, COUP, COVS, CRM, CSOD, CTCT, CVT, DMAN, DWRE, ECOM, EOPN, ET, FLTX,

HUBS, LOGM, MB, MKTG, MKTO, MRIN, N, NEWR, NOW, OKTA, OPWR, PAYC, PCTY, PFPT, QLYS, RNG, RNOW, RP, RPD SFSF, SHOP, SPSC, SQI, TLEO, TWLO, TXTR, VEEV, VOCS,

WDAY, WK, XTLY and YDLE

~$25MM median excludes ALRM, APTI, ATHN, BNFT, CALD, CSLT, ECOM, COUP, CVT, EOPN, FIVN, FLTX, MKTG, MULE, OKTA, PAYC, PCTY, PFPT, QLYS, RNG, RP, ULTI, TWLO, WK

and YDLE

~$50MM median excludes ALRM, APTI, BV, BNFT, CALD, FLTX, N, RP and WDAY

~$100MM median excludes AMBR, APPF, AYX, BL, CALD, CTCT, CNVO, COUP, DMAN, DWRE, EOPN, EVBG, NOW and VEEV

FOR COMPARISON: HISTORICAL RESULTS OF

SELECTED PUBLIC SAAS COMPANIES

0

51

102

51

153

102

104

162

191

153

204

255

150

150

150

153

153

255

152

182

138

51

102

204

51

51

51

205

37

43

1

2

3

4

5

42

Continuing our theme from last year, we

looked at “The Rule of 40%" index of

{Growth + Profitability} for companies

>$15MM ARR. The median G+P Index

for this group was 17% or a little less

than half the so-called "Rule of 40%"

threshold.

“The Rule of

40%” line

Survey

Median

= 17%

Respondents: Total: 110, {G+P} > 40%: 27, {G+P} < 40%: 83


MEASURING SURVEY PARTICIPANTS AGAINST “THE RULE OF 40%”

2016 Ending ARR

$10MM

$50MM

$100MM

$150MM

≥$200MM

0

51

102

51

153

102

104

162

191

153

204

255

150

150

150

153

153

255

152

182

138

51

102

204

51

51

51

205

37

43

1

2

3

4

5

43

Rule of 40%

{G + P} > 40% {G + P} < 40%

(Medians) (Medians)

Scale / Growth / Profitability:

2016 Ending ARR (MM) $29 $33

2016 Organic ARR Growth Rate 62% 22%

2016 EBITDA Margin (3%) (14%)

SaaS Metrics:

Annual Gross Dollar Churn(1)

6.3% 8.3%

Net Dollar Retention Rate(1)

104% 100%

CAC Ratio for New Customers(2)

$1.11 $1.29

CAC Ratio for Upsells(2)

$0.46 $0.67

CAC Ratio for New Expansions(2)

$0.28 $0.26

% of New ARR from Existing Customers 34% 29%

Business Focus / Go-To-Market:

% of Companies with a Vertical Focus 41% 23%

End Customer 22% Enterprise 29% Enterprise

Median ACV per Customer $14K $23K

Inside Sales Dominated 37% 17%

Field Sales Dominated 37% 54%

Capital / Maturity:

Capital Consumed $45MM $48MM

Capital Consumed / ARR Ratio 0.94 1.64

Years in Operation 10 years 11 years

(1) See definitions described later in this presentation

(2) See definitions described earlier in this presentation

Respondents: Total: 110, {G+P} > 40%: 27, {G+P} < 40%: 83

The median results of

those respondents meeting

or exceeding “The Rule of

40%” showed that while the

best G+P performers are of

similar size and age, they

have significantly better

churn, CAC and capital

consumption ratios. Also,

more of the high

performers comprise a

higher percent of vertically-

focused vendors and a

higher tendency to be

Inside-sales driven.


COMPARISON OF “THE RULE OF 40%” LEADERS VS. OTHERS

0

51

102

51

153

102

104

162

191

153

204

255

150

150

150

153

153

255

152

182

138

51

102

204

51

51

51

205

37

43

1

2

3

4

5

44

LTM data and Enterprise Value as of 10/6/17

2017E revenue based on consensus estimates as of 10/6/17

For comparison, public

SaaS companies’ median

growth + profitability was

34.6%. Notably, 66% of the

market cap of public SaaS

was above the 40%

threshold.

Median {G + P} =

34.6%

2017E GAAP Revenue

$100MM

$2,000MM

$4,000MM

$6,000MM

$8,000MM

$10,000MM

EV / 2017E Revenue Multiple

0.0x 5.5x 15.0x

FOR COMPARISON: “THE RULE OF 40%” FOR PUBLIC SAAS COMPANIES

“The Rule of

40%” line

0

51

102

51

153

102

104

162

191

153

204

255

150

150

150

153

153

255

152

182

138

51

102

204

51

51

51

205

37

43

1

2

3

4

5

CONTRACTING & PRICING

0

51

102

51

153

102

104

162

191

153

204

255

150

150

150

153

153

255

152

182

138

51

102

204

51

51

51

205

37

43

1

2

3

4

5

9.12.17v1 46

Monthly33%

1 year9%

Quarterly to <1 year 9%

1 year45%

1-2+ years3%

Month to Month11%

Less than 1 year 6%

1 to 2 years64%

2 to 3 years15%

3 years or more4%

MEDIAN / TYPICAL CONTRACT TERMS FOR THE GROUP

Respondents: Average Contract Length: 349, Average Billing Frequency: 348

Median ≈ 1.4 years Median ≈ 10 months

Average Contract Length Average Billing Frequency


Surveys

No significant change in

contract durations; somewhat

better billing terms (10 months

in advance, vs. 7 months in last

year's data)

The median average

contract length is 1.4

years; and the

median billing term is

ten months in

advance.

0

51

102

51

153

102

104

162

191

153

204

255

150

150

150

153

153

255

152

182

138

51

102

204

51

51

51

205

37

43

1

2

3

4

5

9.12.17v1 47

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

<$1K $1K-$5K $6K-$25K $26K-$100K $101K-$250K >$251K

Median Contract Value (ACV)

Month to month Less than 1 year 1 to 2 years 2 to 3 years 3 years or more

CONTRACT LENGTH AS A FUNCTION OF CONTRACT SIZE

Respondents: Total: 308, <$1K: 19, $1K-$5K: 61, $6K-$25K: 94, $26K-$100K: 94, $101K-$250K: 30, >$251K: 10


Surveys

Largely similar to previous

years' results

The phenomenon of

longer contract terms

for larger contracts is

pretty clear with the

exception of a few

outliers.

0

51

102

51

153

102

104

162

191

153

204

255

150

150

150

153

153

255

152

182

138

51

102

204

51

51

51

205

37

43

1

2

3

4

5

9.12.17v1 48

Usage or Transactions

29%

Sites8%

Total Employees9%

Database Size4%

Other17%

Seats36%

WHAT IS YOUR PRIMARY PRICING METRIC?

“Other” includes: Data usage, number of apps being tested, inventory volume / SKUs, customer devices and amount of content

348 respondents


Surveys

Largely similar to previous

years' results

0

51

102

51

153

102

104

162

191

153

204

255

150

150

150

153

153

255

152

182

138

51

102

204

51

51

51

205

37

43

1

2

3

4

5

9.12.17v1

RETENTION & CHURN

0

51

102

51

153

102

104

162

191

153

204

255

150

150

150

153

153

255

152

182

138

51

102

204

51

51

51

205

37

43

1

2

3

4

5

9.12.17v1 50

5

4

14

10

16

10

7

4

7

28

16

27

27

39

0 5 10 15 20 25 30 35 40 45

1%

2%

3%

4%

5%

6%

7%

8%

9%

10%

11%-12.5%

12.6%-15%

16%-20%

>20%A

nn

ual

Un

it C

hu

rn R

ate

ANNUAL UNIT CHURN(1)

(1) Annual Unit Churn: Percentage churn of # of paid customers at year-end 2015 that were still customers at year-end 2016

214 respondents


Median

≈ 11%


Surveys

This median increased slightly,

by 1%, from 10% to 11%

0

51

102

51

153

102

104

162

191

153

204

255

150

150

150

153

153

255

152

182

138

51

102

204

51

51

51

205

37

43

1

2

3

4

5

9.12.17v1 51

30

16

30

49

26

23

20

12

0 10 20 30 40 50 60

0-2%

3-5%

5-7.5%

7.5-10%

10-15%

15-20%

20-35%

>35%A

nn

ual

Gro

ss D

olla

r C

hu

rn

ANNUAL GROSS DOLLAR CHURN(1)

Median

≈ 8%


Surveys

This result is comparable to past

survey results (8% in 2016, 7%

in 2015 and 6% in 2014)

(1) Annual gross dollar churn is the % of dollar ARR under contract at the end of the prior year which was lost during the most recent year (excludes the benefits of

upsells and expansions

Respondents: Total: 206, Month to month: 18, Less than 1 year: 9,1 year: 87, 1.5 year: 33, 2 years: 16, 2.5 years: 8, 3 years: 23, 4 years: 3, 5+ years: 9


0

51

102

51

153

102

104

162

191

153

204

255

150

150

150

153

153

255

152

182

138

51

102

204

51

51

51

205

37

43

1

2

3

4

5

9.12.17v1 52

(1) Capital consumed defined as total primary cumulative equity raised plus debt drawn

minus cash on the balance sheet (adjusted for dividends / distributions)

130 respondents

GROSS DOLLAR CHURN & CAPITAL EFFICIENCY

Annual Gross Dollar Churn

0% 8% ≥25%

350%+

$150+


Capital Consumed

through 2016(1)

$0MM

$50MM

$100MM

$150MM

$200MM

≥$250MM

0

51

102

51

153

102

104

162

191

153

204

255

150

150

150

153

153

255

152

182

138

51

102

204

51

51

51

205

37

43

1

2

3

4

5

9.12.17v1 53

12.5%

17.5%

12.5%

8.3%8.8%

4.0%

2.5%

1.3% 1.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

18.0%

20.0%

Month tomonth

Less thana year

1 year 1.5 year 2 years 2.5 years 3 years 4 years 5+ years

An

nu

al

Gro

ss D

ollar

Ch

urn

Rate

Average Contract Length

ANNUAL GROSS DOLLAR CHURN AS A FUNCTION OF CONTRACT LENGTH

Respondents: Total: 206, Month to month: 18, Less than 1 year: 9,1 year: 87, 1.5 year: 33, 2 years: 16, 2.5 years: 8, 3 years: 23, 4 years: 3, 5+ years: 9


Surveys

Largely in line with previous

results

Unsurprisingly,

companies with longer

contracts generally

experience lower

gross dollar churn.

Median

≈ 8%


0

51

102

51

153

102

104

162

191

153

204

255

150

150

150

153

153

255

152

182

138

51

102

204

51

51

51

205

37

43

1

2

3

4

5

9.12.17v1 54

NA

12.5%

7.5%

5.0%

12.5%

8.8%

2.5%

1.1%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

Less than 1 year 1 to 2 years 2 to 3 years 3+ years

An

nu

al G

ross

Do

llar

Ch

urn

Rat

e

Average Contract Length

Non-Renewal Rate Annual Gross Dollar Churn Rate

ANNUAL NON-RENEWAL RATES(1) VS. GROSS DOLLAR CHURN

(1) Non-Renewal Rate defined as the dollar ARR up for renewal in any period which does not renew

Respondents: Total: 206, Less than 1 year: 27, 1 to 2 years: 136, 2 to 3 years: 31, 3+ years: 12

We've broken out "non-

renewal rates" from

gross dollar churn, and

determined that some of

the resulting improved

churn rates -- but not all

-- is explained by longer

contract duration.


0

51

102

51

153

102

104

162

191

153

204

255

150

150

150

153

153

255

152

182

138

51

102

204

51

51

51

205

37

43

1

2

3

4

5

9.12.17v1 55

8.3%

11.7%

8.3% 7.5%

2.5%2.8%

2.5%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

0% (noprofessional

services)

1-10% 11-25% 26-50% 51-75% 76-100% >100%

An

nu

al G

ross

Do

llar

Ch

urn

Rat

e

Professional Services (as % of 1st year ACV)

ANNUAL GROSS DOLLAR CHURN AS A FUNCTION OF

UPFRONT PROFESSIONAL SERVICES


Respondents: Total: 196, 0%: 56, 1-10%: 62, 11-25%: 36, 26-50%: 20, 51-75%: 7, 76-100%: 6, >100%: 9

Respondents with higher

levels of professional

services reported lower

churn and lower non-

renewal rates.

Median

≈ 8%

0

51

102

51

153

102

104

162

191

153

204

255

150

150

150

153

153

255

152

182

138

51

102

204

51

51

51

205

37

43

1

2

3

4

5

9.12.17v1 56

10.8%

8.3%7.5% 7.5%

5.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

<$15K $16K-$25K $26K-$50K $51K-$100K >$100K

Med

ian

An

nu

al G

ross

Do

llar

Ch

urn

Rat

e

Median Contract Size (ACV)

ANNUAL GROSS DOLLAR CHURN AS A FUNCTION OF

MEDIAN CONTRACT SIZE


Respondents: Total: 181, <$15K: 66, $16K-$25K: 28, $26K-$50K: 29, $51K-$100K: 30, >$100K: 28

Comparison with

Previous Surveys

Similar trends to last year;

however, this year we see less

differentiation by ACV

As contract sizes

increase, gross dollar

churn consistently

trends downwards

(presumably related

to longer term

contracts).

Median

≈ 8%

0

51

102

51

153

102

104

162

191

153

204

255

150

150

150

153

153

255

152

182

138

51

102

204

51

51

51

205

37

43

1

2

3

4

5

9.12.17v1 57

8%

13%

25%

8%8%

0%

5%

10%

15%

20%

25%

30%

Field Sales Inside Sales Internet Sales Channel Sales Mixed / Other

An

nu

al G

ross

Do

llar

Ch

urn

ANNUAL GROSS DOLLAR CHURN AS A FUNCTION OF PRIMARY DISTRIBUTION MODE

(1) Primary Mode of Distribution defined by determining the greatest contributor to new sales and confirming that it is at least a 25% point higher

contributor than any other. If no mode satisfies these conditions, then it is Mixed

Respondents: Total: 196, Field Sales: 91, Inside Sales: 43, Internet Sales: 9, Channel Sales: 11, Mixed / Other: 42

Median

≈ 8%


Surveys

Largely similar results to

previous years

Those companies

employing primarily

Field Sales had

lower gross dollar

churn rates than

those employing

primarily Inside

Sales, Internet Sales

or Mixed distribution.


(1)

0

51

102

51

153

102

104

162

191

153

204

255

150

150

150

153

153

255

152

182

138

51

102

204

51

51

51

205

37

43

1

2

3

4

5

9.12.17v1 58

ANNUAL NET DOLLAR RETENTION FROM EXISTING CUSTOMERS

100%

+ N

et

Rete

nti

on

(upsells

/ e

xpansio

ns

gre

ate

r th

an c

hurn

)

Net

Ch

urn

(Churn

gre

ate

r

than u

psells

/

expansio

ns)

(1) We define this as the “net dollar retention rate”

323 respondents


Surveys

Largely consistent with past two

years’ results (2016: 102%,

2015: 104% and 2014: 103%)

The median annual

net dollar retention

rate, including churn

and the benefit of

upsells and

expansion, is 101%.

The result does not

change materially

when removing the

smallest companies

(<$5MM in ARR)

from the group. Median

≈ 101%

“How much do you expect your ACV from existing customers to change, including the effect

of both churn and upsells / expansions?”(1)

28

28

18

38

57

36

34

42

42

0 10 20 30 40 50 60

<80%

80-90%

90-95%

95-100%

~100%

100-105%

105-110%

110-120%

>120%

0

51

102

51

153

102

104

162

191

153

204

255

150

150

150

153

153

255

152

182

138

51

102

204

51

51

51

205

37

43

1

2

3

4

5

9.12.17v1

CAPITAL REQUIREMENTS

0

51

102

51

153

102

104

162

191

153

204

255

150

150

150

153

153

255

152

182

138

51

102

204

51

51

51

205

37

43

1

2

3

4

5

9.12.17v1 60

Median for Participants

Years Total Capital

Threshold Required Consumed (MM) (1)

$5MM ARR 4 $7.9

$10MM ARR 5 $12.3

$25MM ARR 7 $23.7

$50MM ARR 9 $41.0

CAPITAL EFFICIENCY

Time and investment required to reach selected ARR thresholds:

We phrased our survey questions differently this year from years past, requesting true dollars consumed, rather than primary equity capital raised.

(1) Capital consumed defined as total cumulative primary equity raised plus debt drawn minus cash on the balance sheet (adjusted for dividends / distributions)

Responses: 373, $5MM ARR Threshold: 141, $10MM ARR Threshold: 146, $25MM ARR Threshold: 62, $50MM ARR Threshold: 24

0

51

102

51

153

102

104

162

191

153

204

255

150

150

150

153

153

255

152

182

138

51

102

204

51

51

51

205

37

43

1

2

3

4

5

9.12.17v1 61

1.491.43

1.72

1.35

0.97 0.98

0.00

0.20

0.40

0.60

0.80

1.00

1.20

1.40

1.60

1.80

2.00

$5MM to $10MM $10MM to$20MM

$20MM to$30MM

$30MM to$50MM

$50MM to$100MM

>$100MM

Cap

ital

Co

nsu

med

20

16 E

nd

ing

AR

R

2016 Ending ARR

CAPITAL CONSUMPTION RATIO(1)


Respondents: 206, $5MM to $10MM: 54, $10MM to $20MM: 66, $20MM to $30MM: 32, $30MM to $50MM: 24, $50MM to $100MM: 20, >$100MM: 10


Median

= 1.46

Total Cumulative Capital Consumed(1)

ARR Achieved

= Capital

Consumption

Ratio

0

51

102

51

153

102

104

162

191

153

204

255

150

150

150

153

153

255

152

182

138

51

102

204

51

51

51

205

37

43

1

2

3

4

5

9.12.17v1 62

% Using Median Debt Median Debt-to-MRR

2016 ARR Range Debt(1)

Availability(2)

Ratio(2)

Less than $5MM 34% $1MM 5.0x MRR

$5MM to $10MM 78% $3MM 3.0x MRR

$10MM to $15MM 73% $5MM 5.0x MRR

$15MM to $25MM 77% $7MM 4.0x MRR

$25MM to $40MM 89% $10MM 5.0x MRR

Greater than $40MM 77% $17MM 3.5x MRR

USE OF DEBT CAPITAL AMONG PRIVATE SAAS COMPANIES

We phrased our survey questions differently this year from years past, requesting true dollars consumed, rather than primary equity capital raised. The results should

make it easier for "apples-to-apples' comparisons.

(1) Of at least $1MM in debt

(2) Median among companies with at least $1MM of debt; includes debt outstanding plus availability under existing lines

Respondents: Total: 172, Less than $5MM: 34, $5MM to $10MM: 36, $10MM to $15MM: 27, $15MM to $25MM: 24, $25MM to $40MM: 24, Greater than $40MM: 27

0

51

102

51

153

102

104

162

191

153

204

255

150

150

150

153

153

255

152

182

138

51

102

204

51

51

51

205

37

43

1

2

3

4

5

9.12.17v1

ACCOUNTING POLICIES

0

51

102

51

153

102

104

162

191

153

204

255

150

150

150

153

153

255

152

182

138

51

102

204

51

51

51

205

37

43

1

2

3

4

5

9.12.17v1 64

49%

63%

44% 44%

9%

12%

7%11%

24%

11%

32% 19%

16%12%

16%26%

1% 2% 2%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Whole Group 0% (no professionalservices)

0-50% >50%

Professional Services Attach Rate

A few quarters or moreafter signing

A few months aftersigning

Within a month ofsigning

Within a week or two ofsigning

Shortly after signing

SUBSCRIPTION REVENUE RECOGNITION POLICIES


Respondents: Whole Group: 207, 0%: 57, 0-50%: 123, >50%: 27

“When do you typically begin recognizing subscription revenues on a new contract

with a new customer?”

Approximately 49% of the

respondents indicated that

they begin recognition very

soon (within a week or two)

after signing new contracts.

0

51

102

51

153

102

104

162

191

153

204

255

150

150

150

153

153

255

152

182

138

51

102

204

51

51

51

205

37

43

1

2

3

4

5

9.12.17v1 65

As the service is provided

69%

Deferred over the term of the contract

24%

Deferred over the expected life of the

customer7%

PROFESSIONAL SERVICES REVENUE RECOGNITION POLICIES


220 respondents

“What is the predominant mode for recognizing professional services revenues?”

The clear majority of

respondents offering

professional services

indicated that they

recognize that

revenue as the

services are

provided.

0

51

102

51

153

102

104

162

191

153

204

255

150

150

150

153

153

255

152

182

138

51

102

204

51

51

51

205

37

43

1

2

3

4

5

9.12.17v1 66

Recognized upfront73%

Deferred recognition27%

SALES COMMISSION COST RECOGNITION POLICIES


215 respondents

“How do you recognize sales commission costs (deferred or recognized upfront)?”

We also inquired as to

the recognition of sales

commission costs. We

found ~3/4 of

respondents indicating

that they recognize

commission costs up-

front.

0

51

102

51

153

102

104

162

191

153

204

255

150

150

150

153

153

255

152

182

138

51

102

204

51

51

51

205

37

43

1

2

3

4

5

9.12.17v1 67

ACCOUNTING POLICIES ACROSS SELECTED ACCOUNTING FIRMS


Respondents: Total: 212, BDO: 10, Deloitte: 18, E&Y: 25, KPMG: 33, Grant Thornton: 9, McGladrey: 9, PwC: 29, Other: 79

Subscription Revenue Recognition Professional Services Recognition Sales Comission Recognition

Within days of

signing a contract

Within a week or

two of signing

Within a month of

signing

A few months after

signing

A few quarters or

more after signing

As the service

is provided

Deferred over

contract term

Deferred over the

life of customer

Deferred

recognition

Recognized

upfront

BDO 50% 0% 0% 40% 10% 78% 0% 22% 22% 78%

Deloitte 44% 11% 33% 11% 0% 73% 20% 7% 16% 84%

E&Y 56% 12% 24% 8% 0% 46% 46% 8% 29% 71%

KPMG 52% 9% 24% 9% 6% 70% 30% 0% 36% 64%

Grant Thornton 22% 11% 22% 44% 0% 80% 20% 0% 50% 50%

McGladrey 56% 0% 33% 11% 0% 67% 22% 11% 33% 67%

PwC 62% 7% 24% 7% 0% 74% 15% 11% 40% 60%

Other 41% 9% 27% 23% 1% 66% 25% 9% 19% 81%

Total 49% 9% 24% 16% 1% 69% 24% 7% 27% 73%

0

51

102

51

153

102

104

162

191

153

204

255

150

150

150

153

153

255

152

182

138

51

102

204

51

51

51

205

37

43

1

2

3

4

5

9.12.17v1 68

2011-2017 YTD SaaS and Software IPOs

Rank Firm Deals Value ($MM)

1 KBCM Tech Group / Pacific Crest 47 $7,055.0

2 Morgan Stanley 37 7,122.7

3 J.P. Morgan 35 6,177.9

4 Goldman Sachs 34 5,990.8

5 Raymond James 26 4,026.6

6 Cannaccord 25 4,498.0

7 Credit Suisse 24 3,258.6

8 JMP Securities 23 4,080.5

9 William Blair & Co 23 3,094.2

10 Stifel Nicolaus Weisel 21 2,742.3

11 Deutsche Bank 19 3,081.2

12 UBS 17 3,664.2

13 Barclays 17 2,601.2

14 Bank of America 15 2,221.8

15 RBC Capital Markets 15 1,772.7

16 Needham & Co 14 1,329.1

17 Allen & Co 11 2,874.2

18 Oppenheimer & Co 9 815.1

19 Piper Jaffray & Co 8 1,179.3

20 Wells Fargo 7 1,856.3

21 Cowen & Co 7 1,607.6

22 Jefferies 7 1,326.1

23 Citi 7 1,299.4

24 BMO 5 879.4

25 Lazard Capital Markets 4 446.2

KBCM TECHNOLOGY GROUP LEADERSHIP IN SOFTWARE TRANSACTION EXECUTION

Corporate Finance Advisory

$215,050,000

Okta

(OKTA)

Senior Co-Manager

April 2017

Initial Public Offering

$86,250,000

Appian

(APPN)

Senior Co-Manager

May 2017


has been acquired by

Not Disclosed

$168,130,000

BlackLine

(BL)

Senior Co-Manager

October 2016


Not Disclosed


$140,000,000


$150,535,000

Shopify

(SHOP)

Co-Manager

May 2015


$100,100,000

MINDBODY

(MB)

Senior Co-Manager

June 2015


Not Disclosed


Not Disclosed


$85,560,000

AppFolio

(APPF)

Cc-Manager

June 2015


$172,500,000


$345,000,000

RealPage

(RP)

Co-Manager

May 2017

Convertible Debt Offering

$144,900,000

Alteryx

(AYX)

Senior Co-Manager

March 2017


$39,000,000

Series D financing led by

$70,000,000

Alert Logic

June 2017

Senior Secured Credit Facility

Not Disclosed


Not Disclosed

has received a

majority investment from

a portfolio company of

$172,500,000

Twilio

(TWLO)

Senior Co-Manager

June 2016


$103,500,000

Everbridge

(EVBG)

Senior Co-Manager

September 2016


$110,400,000

Apptio

(APTI)

Joint Bookrunner

September 2016


$165,000,000

has received an

investment from

Not Disclosed


$100,000,000


http://www.google.com/url?sa=i&rct=j&q=&esrc=s&source=images&cd=&cad=rja&uact=8&ved=0ahUKEwjX_ev8vJ7WAhWLz4MKHQHeC1QQjRwIBw&url=http://www.exactdrive.com/news/exactdrive-and-doubleverify-partner-to-offer-online-media-verification-solutions&psig=AFQjCNEfBSbwqj_V1bhkPSFoy3FUfJlofg&ust=1505265463692917

http://www.google.com/url?sa=i&rct=j&q=&esrc=s&source=images&cd=&cad=rja&uact=8&ved=0ahUKEwjtisiNvZ7WAhVm2oMKHYMaDQgQjRwIBw&url=http://www.provequity.com/&psig=AFQjCNF2D6rx1zoDwhLtwWaH424F4SYqYA&ust=1505265499389314

http://www.google.com/url?sa=i&rct=j&q=&esrc=s&source=images&cd=&cad=rja&uact=8&ved=0ahUKEwjY-basvZ7WAhUL5IMKHVSvBJsQjRwIBw&url=http://www.prometheusgroup.com.php56-26.phx1-1.websitetestlink.com/&psig=AFQjCNGEdkgTTxoFrnyD60XnWDhVxWofFg&ust=1505265564564444

0

51

102

51

153

102

104

162

191

153

204

255

150

150

150

153

153

255

152

182

138

51

102

204

51

51

51

205

37

43

1

2

3

4

5

9.12.17v1 69

DISCLOSURES

KeyBanc Capital Markets is a trade name under which corporate and investment banking products and services of KeyCorp and its subsidiaries,

KeyBanc Capital Markets Inc., Member NYSE/FINRA/SIPC (“KBCMI”), and KeyBank National Association (“KeyBank N.A.”), are marketed.

Securities products and services are offered by KBCMI and its licensed securities representatives, who may also be employees of KeyBank N.A.

Banking products and services are offered by KeyBank N.A.

The material contained herein is based on data from sources considered to be reliable; however, KeyBanc Capital Markets does not guarantee or

warrant the accuracy or completeness of the information. This document is for informational purposes only. Neither the information nor any opinion

expressed constitutes an offer, or the solicitation of an offer, to buy or sell any security. This document may contain forward-looking statements,

which involve risk and uncertainty. Actual results may differ significantly from the forward-looking statements. This report is not intended to provide

personal investment advice and it does not take into account the specific investment objectives, financial situation and the specific needs of any

person or entity.

This communication is intended solely for the use by the recipient. The recipient agrees not to forward or copy the information to any other person

outside their organization without the express written consent of KeyBanc Capital Markets Inc.

KBCMI IS NOT A BANK OR TRUST COMPANY AND IT DOES NOT ACCEPT DEPOSITS. THE OBLIGATIONS OF KBCMI ARE NOT

OBLIGATIONS OF KEYBANK N.A. OR ANY OF ITS AFFILIATE BANKS, AND NONE OF KEYCORP’S BANKS ARE RESPONSIBLE FOR, OR

GUARANTEE, THE SECURITIES OR SECURITIES-RELATED PRODUCTS OR SERVICES SOLD, OFFERED OR RECOMMENDED BY KBCMI

OR ITS EMPLOYEES. SECURITIES AND OTHER INVESTMENT PRODUCTS SOLD, OFFERED OR RECOMMENDED BY KBCMI, IF ANY,

ARE NOT BANK DEPOSITS OR OBLIGATIONS AND ARE NOT INSURED BY THE FDIC.

If you have questions or comments, please contact David Spitz, Managing Director, KBCM Technology Group:

[email protected]

2017 Private SaaS Company 2 Survey Results Annual · • This report provides an analysis of the...

Documents

Transcript of 2017 Private SaaS Company 2 Survey Results Annual · • This report provides an analysis of the...