I just came across the most shocking piece of data I’ve seen in a long time.
These are a bunch of (anonymized) SaaS companies classified by their size.
And this is their median growth.
Take a look at this bar. These are all Seed Stage companies but in order to raise capital,
they need to be growing at like 3x the rate that they are currently growing
Take a look at a business like this one. This is a company that is generating millions
of dollars in annual revenue, and it’s ‘just’ growing at 3% month over month
If you put these companies in front of a venture capital investor they will call it mediocre. Non-fundable.
But this is the reality of thousands and thousands of companies
These are exiting companies that maybe profitable, that maybe growing fast
They had existing products and businesses, and good economics, but they do still not venture backable.
Because venture capital is reserved for a privileged few. For extremely-fast growing
businesses- effectively the top 10% of companies are growing the fastest.
Are the rest shit companies? Most certainly not. They just aren’t the sexy company that
gets that Techcrunch article. They aren’t lifestyle businesses either
(a term I hate by the way). They are just startups nobody talks about- who happen
to be the majority-, and today I want to look into their (annonymous) stats.
so let’s first look at some stats to make sense of this fundraising landscape.
Globally, we close to 35,000 rounds of funding, 20,000 of which were Angel or Seed rounds.
While the number of angel rounds decreased with the pandemic, the number of VC rounds
grow- but more importantly, the size of the rounds skyrocketed.
More than $600B were raised in 2021, twice as much as companies raised in 2020.
But like I said, this is a select club. In the US alone,
over 5 million new business registrations happened in 2021,
but less than 4,500 early-stage companies raised any venture capital. That is a mere 0.08%
SO MANY companies are not venturing backable (one of the reasons we decided to pivot our
product into something that any startup, not just venture-backable companies would find useful).
So again, with that context here are some stats that show the reality of SaaS companies-
Data courtesy of our friends at ChartMogul.
First, let’s talk about growth. We can tie the bands used to classify companies so that they
more or less correspond with funding rounds.
According to Elizabeth Yin, GP at Hustle Fund, if you’re not growing 30% MoM buy you shouldn’t even
be thinking of pitching investors- but the median company at this stage is growing at just 3.3%.
That of course slows down as revenue grows. Growing 2.3% per month when you have $250K
MRR is no easy feat (you’d be adding $6K in subscriptions per month).
Here’s the annualized version of that growth. Again,
while not an investor favorite- building a startup with $250K or $500K in monthly subscriptions,
and continuing to grow at 30% is VERY exciting.
That’s the median- so half of the surveyed companies grow faster, and half grow slower.
Now if we zoom into that information, we can start looking at percentiles, or brackets.
The median is still there- but now we can look at the 75th percentile (or the top 25%
of faster-growing companies). This is still annualized growth.
Just like we concluded before, even that select 75th percentile
is not reaching that 3x YoY the growth that venture capital investors are looking for.
This is the 95th percentile (or the top 5% of fastest-growing companies).
They grow at over 10% MoM for the seed stage, 7% MoM
for Series A, and stay well above 5% throughout their journey to $1M MRR.
But this is really just the tip of the iceberg on growth
(you can download the full report- I’ll link it in the description).
What I was really excited to dig into was what drives that growth.
What drives growth?
First, splitting companies by ARPA (Average Revenue per Account)- the guys from ChartMogul
found that median monthly growth tends to be faster, the more expensive the product is.
The top 25% group across all ARPA bands stands at around 6%.
And that seems, at least indirectly correlated to churn rate.
The median churn rate decreases drastically as the product gets more expensive.
This makes sense of course: more expensive products are bound to be harder to sell, tend
to have more hands-on assistance and onboarding, and customers are therefore less likely to cancel.
Cheaper products are also more likely to be
B2C focused, or at the very least self-service- vs the more expensive enterprise product.
Going one step deeper in our nerdiness, we looked at Net Churn (which also accounts for expansion
and reactivation revenue, when the same cohort of customers upgrades to a more expensive tier.
Instead of dropping their MRR, it increases, that causes negative net Churn
This is where you can start to see what I like to call SaaS Nirvana: negative churn.
A feat that companies in the lower pricing tears can only dream of achieving-
but that for B2B and enterprise products looks like the norm.
We SaaS founders tend to live in bunkers of our own data. I’m usually pretty open about
exchanging this information with other founders that I know.
but some of this data is sensitive we can't just publish it online
plus a lot of the stuff that we published online
but having a chance to look at this report was like data porn for me.
Once again, the report is absolutely free for you to download at the link below.
If you don’t know ChartMogul, we’ve been their customers for 8 or so years:
we’ve used it since the get-go to track our SaaS metrics in what
I believe is the most powerful SaaS dashboard in the market.
You can sign up for free, and use it for free if you have under $10K MRR (so this bracket).
If you have more, - just used the code Slidebean for a $600 credit on your annual plan.
Another shoutout to ChartMogul for sponsoring today’s video.
And providing this insane amount of beautiful data to consume. See you guys next week.