Tuesday, December 05, 2017

We’re looking for an Associate

I’m very excited to announce that we’re looking for a new Associate. In all modesty, I think that for a young, smart person who’s passionate about startups and technology, an Associate role at Point Nine is one of the fastest ways to learn, build your network, and advance your career. Case in point: Rodrigo, who started as an Associate four years ago, is now a Partner at Point Nine; Fabian is running his own fund; Nicolas became a “30 under 30” and is now VP at Insight; and Mathias is now GM Germany at Uniplaces.

As I wrote last time when we were adding an Associate to our team, I'm pretty sure that it took me more than 10 years to get the expertise and network which you'll get during three years in this job.

If you’re interested, here are all the details. If you know somebody who could be a great fit, please pass on the link or let me know. Thank you very much in advance!

PS: As you may or may not know, the Associate role at Point Nine has historically been called “Truffle Pig” – because just like a truffle pig is digging up the best truffles from the ground, we as an early-stage VC try to find the best startups among a large number of potential investments. I still kind of the like that analogy, but all good things must come to an end. For now, we’ll just call the new position “Associate” but if you have a creative idea for something funnier I’m all ears!


Friday, December 01, 2017

How public SaaS companies report churn, and what you can learn from them

While doing some research for another post I just stumbled on this excellent overview from Pacific Crest on the churn rates of publicly listed SaaS companies. I’ve seen posts with churn benchmarks of public SaaS companies before, but this one is by far the most comprehensive collection I’ve seen and I think it’s very useful.

What’s maybe even more interesting than taking a look at the numbers themselves is to see how different companies define churn (or the inverse, retention). Since there is no official US-GAAP definition of churn or retention, different companies use different ways to measure and report these metrics. And because public companies are under the scrutiny by the SEC, any non-GAAP metric they report must be accompanied by a razor-sharp definition.

Most public SaaS companies report churn in the form of their dollar-based net retention rate, i.e. the inverse of net MRR/ARR churn (as opposed to account/logo churn), which compares the recurring revenue from a set of customers across comparable periods. Here’s a particularly nice description of this metric, coming from AppDynamics:

“To calculate our dollar-based net retention rate for a particular trailing 12-month period, we first establish the recurring contract value for the previous trailing 12-month period. This effectively represents recurring dollars that we should expect in the current trailing 12-month period from the cohort of customers from the previous trailing 12-month period without any expansion or contraction. We subsequently measure the recurring contract value in the current trailing 12-month period from the cohort of customers from the previous trailing 12-month period. Dollar-based net retention rate is then calculated by dividing the aggregate recurring contract value in the current trailing 12-month period by the previous trailing 12-month period.”

If you take a look at the data assembled by Pacific Crest you’ll see that many companies use the same logic with minor variations. For example, some companies look at the trailing 12 month period, while others look at calendar years, quarters, or months.

Some companies exclude customers that do not meet certain criteria, for example:

  • Box includes only customers with $5k+ ACV and annual contracts
  • Alteryx considers only customers which have been paying customers for at least one quarter.
  • AppDynamics includes only customers who have been paying customers for at least one year.
  • Zendesk excludes customers on the starter plan.

This makes perfect sense: It tells you what type of customer the company is focused on, and you can see the retention metrics in regards to this type of customer.

Other companies use variations that I think are questionable. Some companies report customer count-based retention, which I think is much less interesting than dollar-based retention. Some report renewal based on the number of seats; one company, Fleetmatics, reports churn based on the number of vehicles under subscription. But the majority of companies does report dollar-based net retention rate in a way that allows for an apples-to-apples comparison across companies.

What can you learn from this?

(1) There is not one perfect definition of churn that is right for every SaaS company. Depending on the specifics of your business you might want to:

  • focus on monthly, quarterly or annual retention
  • exclude customers that churned within the first, say, two months
  • include only customers that represent the core of your business, e.g. customers above a certain ACV

(2) Having said that, dollar-based net retention is the way to go. You should stay close to the definition above and tweak it with care.

(3) There may not be one perfect way to define and measure churn, but there sure are lots of ways to get it wrong. :) One classic example is to calculate a monthly churn rate and to mix in annual plans with monthly plans. By including customers on annual plans who aren’t up for renewal in the period you’re measuring you’re underestimating your true churn rate.

(4) Whatever metric you choose, make sure that you use it consistently and that you have a razor-sharp definition.

Bonus tip: Whenever you report numbers, be it in monthly updates or in a Board deck, include footnotes or an appendix with definitions of every metric that you’re reporting. I can almost guarantee you that this will save you ten minutes of discussion with your VC Board member(s) who (understandably) want to make sure that they understand the numbers you’re showing them. :)