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The ICONIQ Growth Enterprise Five 2022

Key Performance Indicators of Enterprise SaaS companies

The ICONIQ Growth Enterprise Five 2022

Key Performance Indicators of Enterprise SaaS companies

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https://www.iconiqcapital.com/growth/insights/iconiq-growth-enterprise-five-2022

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This post was written in 2022. Read our latest post

ICONIQ Growth is proud to have partnered with more than 90 B2B SaaS companies to date. Working closely with these exceptional leaders has given us a deep understanding of what strength looks like at all stages of company growth—from first-revenue to IPO and beyond.

Based on financial and operating metrics from ICONIQ Growth’s SaaS partnerships and select public companies [1], we publish an annual in-depth research report that illuminates the data behind effectively scaling a B2B SaaS company. Explore our 2022 Topline Growth & Operational Efficiency report here.

Through this research, we’ve identified five key metrics we believe are highly representative of a SaaS company’s overall growth and efficiency. While our quantitative evaluation of software businesses is always tailored to the nuances of a company’s industry, product, sales motion, and more, we’ve found the “ICONIQ Growth Enterprise Five” to be consistently strong indicators of a company’s long-term success.

For insight into how these—and other SaaS metrics—should be calculated, including nuances of cost classifications, revenue recognition, unit economics, and more, we invite you to explore our SaaS Glossary.

This scorecard provides benchmarks for top quartile performance against the ICONIQ Growth Enterprise Five as B2B SaaS companies scale, and below we explore insights across these metrics from our research:

YoY ARR Growth = (EOP ARR – Prior Year EOP ARR) / Prior Year EOP ARR

 YoY ARR growth reveals how quickly and consistently a company is growing and has historically been one of the top two metrics most correlated with SaaS valuations.

 We consistently see top-performing SaaS companies double or triple ARR in each of the first two to three years after reaching $10M ARR. These companies also maintain double-digit growth in years four through six as they approach IPO (typically around $200M+ ARR).

 This ARR growth is primarily driven by new logos until companies reach about $200M ARR, when customer expansion begins to make up more than half of gross new ARR, making early-stage new logo velocity critical to sustainable growth.

Net $ Retention = (BOP ARR + Expansion ARR - Gross Churn ARR) / BOP ARR

 Net dollar retention (NDR) signals the efficiency of a company’s revenue generation by measuring its ability to retain and expand existing customers, making it one of the most important gauges of business health—from product market fit to customer health. We’ve found NDR to be one of the strongest indicators of long-term success for B2B SaaS companies.

Between $1-$10M ARR, top-performing companies achieve 130-150% NDR and maintain 120-130% NDR as they scale toward IPO. Strong net retention is driven both by customer expansion (upsell and cross-sell of existing customers) and bottom-line gross retention: top-performing companies maintain a churn rate of <10% regardless of scale, leading to >90% gross dollar retention.

Rule of 40 = YoY ARR Growth + FCF Margin

Rule of 40 measures growth and profitability in tandem. The general rule of thumb is that a SaaS company’s combined YoY growth and FCF margin (a measure of profitability) should meet or exceed 40%.

Though Rule of 40 tends to decline as SaaS companies scale and growth slows, top performers exceed 40% regardless of scale, and typically achieve profitability within one to two years after IPO.

This year has brought the path to profitability back into focus in the public markets, with correlation between growth and profitability (Rule of 40) and SaaS valuations surpassing the correlation between growth (YoY ARR or revenue growth) alone [2]. We expect the shift towards the importance of profitability to endure in the coming years, and recommend companies closely track their performance against Rule of 40.

Net Magic Number = Current Q Net New ARR / Prior Q S&M OpEx

Net Magic Number (NMN) measures revenue generation for every sales and marketing dollar spent while accounting for the lag of a typical sales cycle, making it a robust measure of go-to-market efficiency—perhaps the most critical driver of overall efficiency.

Early-stage SaaS sales are often highly efficient on this front, with top-performers achieving 1.3x+ NMN until ~$50M ARR. As these companies continue to scale, go-to-market efficiency generally trends down due to competitive dynamics and shrinking headroom and NMN stabilizes around 1.0x-1.2x.

Driven primarily by lower sales and marketing spend, companies with product-led growth tend to have higher go-to-market efficiency with top performance Net Magic Numbers between 2.0 and 4.0x.

ARR per FTE = EOP ARR / EOP FTEs

An average 60-75% of SaaS operating costs are people-related, making headcount productivity (ARR per full-time employee) and headcount efficiency (spend per full-time employee) two of the most robust measures of overall growth and efficiency.

As SaaS companies scale they are able to meaningfully increase ARR per FTE while steadily decreasing spend per FTE, leading to both increasing headcount productivity and efficiency. ARR per FTE tends to surpass spend per FTE when companies reach $100-$150M ARR.

A brief note on impact from the macro-environment:

Macro trends of the last few years have changed how markets, entrepreneurs, and investors think about the balance of growth and efficiency as SaaS companies scale. In the coming years, we predict renewed focus on four key categories of business health: growth and profitability, spend and burn, go-to-market efficiency, and customer health.

In our next posts, we’ll provide additional context on each of these four key categories of business health and the metrics we track for each. In the meantime, please reference our report on Topline Growth and Operational Efficiency for more on the impact from the macro environment and what to expect in 2022 and beyond.

Notes

Notes & Disclosures:
1 Based on quarterly operating and financial data through Q1 2022 from 92 B2B SaaS companies (79 of which are ICONIQ Growth portfolio companies, chosen based on data availability, and 13 of which are other public companies selected based on ICONIQ Growth’s IPO performance criteria).

2 Based on Market data and consensus estimates as of 07/29/2022

The views expressed in this presentation are those of ICONIQ Growth ("ICONIQ" or the "firm"), are the result of proprietary research, may be subjective, and may not be relied upon in making an investment decision. This presentation is for educational purposes only and does not constitute investment advice or an offer to sell or a solicitation of an offer to buy any securities which will only be made pursuant to definitive offering documents and subscription agreements, including, without limitation, any investment fund or investment product referenced herein. Any reproduction or distribution of this presentation in whole or in part, or the disclosure of any of its contents, without the prior consent of ICONIQ, is prohibited. This presentation may contain forward-looking statements based on current plans, estimates and projections. The recipient of this presentation ("you") are cautioned that a number of important factors could cause actual results or outcomes to differ materially from those expressed in, or implied by, the forward-looking statements. The numbers, figures and case studies included in this presentation have been included for purposes of illustration only, and no assurance can be given that the actual results of ICONIQ or any of its partners and affiliates will correspond with the results contemplated in the presentation. No information is contained herein with respect to conflicts of interest, which may be significant. The portfolio companies and other parties mentioned herein may reflect a selective list of the prior investments made by ICONIQ.Certain of the economic and market information contained herein may have been obtained from published sources and/or prepared by other parties. While such sources are believed to be reliable, none of ICONIQ or any of its affiliates and partners, employees and representatives assume any responsibility for the accuracy of such information. All of the information in the presentation is presented as of the date made available to you (except as otherwise specified), and is subject to change without notice, and may not be current or may have changed (possibly materially) between the date made available to you and the date actually received or reviewed by you. ICONIQ assumes no obligation to update or otherwise revise any information, projections, forecasts or estimates contained in the presentation, including any revisions to reflect changes in economic or market conditions or other circumstances arising after the date the items were made available to you or to reflect the occurrence of unanticipated events. For avoidance of doubt, ICONIQ is not acting as an adviser or fiduciary in any respect in connection with providing this presentation and no relationship shall arise between you and ICONIQ as a result of this presentation being made available to you. ICONIQ is a diversified financial services firm and has direct client relationships with persons that may become limited partners of ICONIQ funds. Notwithstanding that a person may be referred to herein as a "client" of the firm, no limited partner of any fund will, in its capacity as such, be a client of ICONIQ. There can be no assurance that the investments made by any ICONIQ fund will be profitable or will equal the performance of prior investments made by persons described in this presentation.

Disclaimer:

Unless otherwise indicated, the views expressed in this presentation are those of ICONIQ Growth (“ICONIQ" or the “Firm"), are the result of proprietary research, may be subjective, and may not be relied upon in making an investment decision. Information used in this presentation was obtained from numerous sources. Certain of these companies are portfolio companies of ICONIQ Growth. ICONIQ Growth does not make any representations or warranties as to the accuracy of the information obtained from these sources. 

This presentation is for general information purposes only and does not constitute investment advice. This presentation must not be relied upon in connection with any investment decision. The information in this presentation is not intended to and does not constitute financial, accounting, tax, legal, investment, consulting or other professional advice or services.  Nothing in this presentation is or should be construed as an offer, invitation or solicitation to engage in any investment activity or transaction, including an offer to sell or a solicitation of an offer to buy any securities which should only be made pursuant to definitive offering documents and subscription agreements, including without limitation, any investment fund or investment product referenced herein. 

Any reproduction or distribution of this presentation in whole or in part, or the disclosure of any of its contents, without the prior consent of ICONIQ, is strictly unauthorized.

This presentation may contain forward-looking statements based on current plans, estimates and projections. The recipient of this presentation ("you") are cautioned that a number of important factors could cause actual results or outcomes to differ materially from those expressed in, or implied by, the forward-looking statements. The numbers, figures and case studies included in this presentation have been included for purposes of illustration only, and no assurance can be given that the actual results of ICONIQ or any of its partners and affiliates will correspond with the results contemplated in the presentation. No information is contained herein with respect to conflicts of interest, which may be significant. The portfolio companies and other parties mentioned herein may reflect a selective list of the prior investments made by ICONIQ.

Certain of the economic and market information contained herein may have been obtained from published sources and/or prepared by other parties. While such sources are believed to be reliable, none of ICONIQ or any of its affiliates and partners, employees and representatives assume any responsibility for the accuracy of such information.

All of the information in the presentation is presented as of the date made available to you (except as otherwise specified), and is subject to change without notice, and may not be current or may have changed (possibly materially) between the date made available to you and the date actually received or reviewed by you. ICONIQ assumes no obligation to update or otherwise revise any information, projections, forecasts or estimates contained in the presentation, including any revisions to reflect changes in economic or market conditions or other circumstances arising after the date the items were made available to you or to reflect the occurrence of unanticipated events. Numbers or amounts herein may increase or decrease as a result of currency fluctuations.

Disclaimer

The views expressed in this presentation are those of ICONIQ Growth ("ICONIQ" or the "firm"), are the result of proprietary research, may be subjective, and may not be relied upon in making an investment decision.  This presentation is for general information purposes only and does not constitute investment advice. This presentation must not be relied upon in connection with any investment decision. The information in this presentation is not intended to and does not constitute financial, accounting, tax, legal, investment, consulting or other professional advice or services. Nothing in this presentation is or should be construed as an offer, invitation or solicitation to engage in any investment activity or transaction, including an offer to sell or a solicitation of an offer to buy any securities which should only be made pursuant to definitive offering documents and subscription agreements, including without limitation, any investment fund or investment product referenced herein.  Any reproduction or distribution of this presentation in whole or in part, or the disclosure of any of its contents, without the prior consent of ICONIQ, is strictly unauthorized. This presentation may contain forward-looking statements based on current plans, estimates and projections. The recipient of this presentation ("you") are cautioned that a number of important factors could cause actual results or outcomes to differ materially from those expressed in, or implied by, the forward-looking statements. The numbers, figures and case studies included in this presentation have been included for purposes of illustration only, and no assurance can be given that the actual results of ICONIQ or any of its partners and affiliates will correspond with the results contemplated in the presentation. No information is contained herein with respect to conflicts of interest, which may be significant. The portfolio companies and other parties mentioned herein may reflect a selective list of the prior investments made by ICONIQ. Certain of the economic and market information contained herein may have been obtained from published sources and/or prepared by other parties. While such sources are believed to be reliable, none of ICONIQ or any of its affiliates and partners, employees and representatives assume any responsibility for the accuracy of such information. All of the information in the presentation is presented as of the date made available to you (except as otherwise specified), and is subject to change without notice, and may not be current or may have changed (possibly materially) between the date made available to you and the date actually received or reviewed by you. ICONIQ assumes no obligation to update or otherwise revise any information, projections, forecasts or estimates contained in the presentation, including any revisions to reflect changes in economic or market conditions or other circumstances arising after the date the items were made available to you or to reflect the occurrence of unanticipated events. For avoidance of doubt, ICONIQ is not acting as an adviser or fiduciary in any respect in connection with providing this presentation and no relationship shall arise between you and ICONIQ as a result of this presentation being made available to you. ICONIQ is a diversified financial services firm and has direct client relationships with persons that may become limited partners of ICONIQ funds. Notwithstanding that a person may be referred to herein as a "client" of the firm, no limited partner of any fund will, in its capacity as such, be a client of ICONIQ. There can be no assurance that the investments made by any ICONIQ fund will be profitable or will equal the performance of prior investments made by persons described in this presentation. Any information in this presentation is directed at, and intended for, only persons who are experienced institutional or professional investors (“professional investors”) as defined by applicable law and regulation. Any person that is not a professional investor is not an intended recipient of this presentation and the matters discussed herein.

For avoidance of doubt, ICONIQ is not acting as an adviser or fiduciary in any respect in connection with providing this presentation and no relationship shall arise between you and ICONIQ as a result of this presentation being made available to you.

ICONIQ is a diversified financial services firm and has direct client relationships with persons that may become limited partners of ICONIQ funds. Notwithstanding that a person may be referred to herein as a "client" of the firm, no limited partner of any fund will, in its capacity as such, be a client of ICONIQ. There can be no assurance that the investments made by any ICONIQ fund will be profitable or will equal the performance of prior investments made by persons described in this presentation.

Any information in this presentation is directed at, and intended for, only persons who are experienced institutional or professional investors (“professional investors”) as defined by applicable law and regulation. Any person that is not a professional investor is not an intended recipient of this presentation and the matters discussed herein.

Copyright © 2024 ICONIQ Capital, LLC. All rights reserved.

Disclaimer

The views expressed in this presentation are those of ICONIQ Growth ("ICONIQ" or the "firm"), are the result of proprietary research, may be subjective, and may not be relied upon in making an investment decision.  This presentation is for general information purposes only and does not constitute investment advice. This presentation must not be relied upon in connection with any investment decision. The information in this presentation is not intended to and does not constitute financial, accounting, tax, legal, investment, consulting or other professional advice or services. Nothing in this presentation is or should be construed as an offer, invitation or solicitation to engage in any investment activity or transaction, including an offer to sell or a solicitation of an offer to buy any securities which should only be made pursuant to definitive offering documents and subscription agreements, including without limitation, any investment fund or investment product referenced herein.  Any reproduction or distribution of this presentation in whole or in part, or the disclosure of any of its contents, without the prior consent of ICONIQ, is strictly unauthorized. This presentation may contain forward-looking statements based on current plans, estimates and projections. The recipient of this presentation ("you") are cautioned that a number of important factors could cause actual results or outcomes to differ materially from those expressed in, or implied by, the forward-looking statements. The numbers, figures and case studies included in this presentation have been included for purposes of illustration only, and no assurance can be given that the actual results of ICONIQ or any of its partners and affiliates will correspond with the results contemplated in the presentation. No information is contained herein with respect to conflicts of interest, which may be significant. The portfolio companies and other parties mentioned herein may reflect a selective list of the prior investments made by ICONIQ. Certain of the economic and market information contained herein may have been obtained from published sources and/or prepared by other parties. While such sources are believed to be reliable, none of ICONIQ or any of its affiliates and partners, employees and representatives assume any responsibility for the accuracy of such information. All of the information in the presentation is presented as of the date made available to you (except as otherwise specified), and is subject to change without notice, and may not be current or may have changed (possibly materially) between the date made available to you and the date actually received or reviewed by you. ICONIQ assumes no obligation to update or otherwise revise any information, projections, forecasts or estimates contained in the presentation, including any revisions to reflect changes in economic or market conditions or other circumstances arising after the date the items were made available to you or to reflect the occurrence of unanticipated events. For avoidance of doubt, ICONIQ is not acting as an adviser or fiduciary in any respect in connection with providing this presentation and no relationship shall arise between you and ICONIQ as a result of this presentation being made available to you. ICONIQ is a diversified financial services firm and has direct client relationships with persons that may become limited partners of ICONIQ funds. Notwithstanding that a person may be referred to herein as a "client" of the firm, no limited partner of any fund will, in its capacity as such, be a client of ICONIQ. There can be no assurance that the investments made by any ICONIQ fund will be profitable or will equal the performance of prior investments made by persons described in this presentation. Any information in this presentation is directed at, and intended for, only persons who are experienced institutional or professional investors (“professional investors”) as defined by applicable law and regulation. Any person that is not a professional investor is not an intended recipient of this presentation and the matters discussed herein.

For avoidance of doubt, ICONIQ is not acting as an adviser or fiduciary in any respect in connection with providing this presentation and no relationship shall arise between you and ICONIQ as a result of this presentation being made available to you.

ICONIQ is a diversified financial services firm and has direct client relationships with persons that may become limited partners of ICONIQ funds. Notwithstanding that a person may be referred to herein as a "client" of the firm, no limited partner of any fund will, in its capacity as such, be a client of ICONIQ. There can be no assurance that the investments made by any ICONIQ fund will be profitable or will equal the performance of prior investments made by persons described in this presentation.

Any information in this presentation is directed at, and intended for, only persons who are experienced institutional or professional investors (“professional investors”) as defined by applicable law and regulation. Any person that is not a professional investor is not an intended recipient of this presentation and the matters discussed herein.

Copyright © 2024 ICONIQ Capital, LLC. All rights reserved.

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