Scaling to $100M ARR - B2B Cloud Benchmarks with Mary D'Onofrio, Partner Bessemer Ventures

Imagine having access to the metrics and benchmarks over an entire decade for 200+ B2B Cloud and SaaS private companies as they scaled from $0 to $100M ARR. That is precisely the data Mary D'Onofrio, Partner at Bessemer Venture Partners (BVP) has access to as the Growth Stage investing partner since 2018.  Mary published her findings in the Scaling to $100M ARR report and joined us to share the insights from her research. Mary also maintains the BVP Emerging  Cloud 100 Index,  is the author of the "10 Laws of Cloud".   Mary was often approached by BVP portfolio companies and by other partners within BVP, asking for stage-appropriate benchmarks for metrics such as growth rate, retention rates, and gross margins, to name just a few. So,  Mary thought, why not analyze the data over the last decade across the entire BVP B2B Cloud portfolio. The first finding was that Committed Annual Recurring Revenue (CARR) growth is the main metric to determine the enterprise value of a private B2B Cloud/SaaS company at every stage of growth.  ARR growth captures variables that GAAP revenue alone does not capture. CARR growth is a multivariate metric, as it includes not only ARR growth from new customers but also ARR growth from existing customers. Simply stated,  CARR includes New Customer Acquisition ARR + Existing Customer Retention ARR + Existing Customer Expansion ARR. Net Dollar Retention, the amount of ARR from customers that is available to renew versus the same cohort of customers 12 months prior to the current accounting period. This metric was included as part of the "CARR Growth" benchmark. When looking at the decade long data,  Mary shared the following average enterprise value to revenue multiples (EV:REV)at each stage of growth under the "Know Your Worth" lesson #3 < $10M ARR = 31X EV:REV multiple $10M - $50M ARR = 17X EV:REV multiple > $50M ARR = 13-14X EV:REV multiple The B2B Cloud market and the associated enterprise valuations continue to increase, with the latest data in 2021 showing the following multiples:  2021* = 34x enterprise value to revenue multiple (up from 9x in 2016) *2021 Cloud 100 Benchmarks Report (Top 100 Private Cloud Companies) Across the BVP portfolio, the EV:REV multiple is closer to 20x Growth Endurance is a metric that BVP has recently introduced. Growth Endurance is defined as the sustained growth year over year and is fairly consistent across all B2B Cloud companies.  Growth rate decay is typically 30% annually for private Cloud companies and 20% for public companies.  Public company's growth endurance is stronger primarily due to the leverage they gain, including pricing power, new products to drive revenue, and enhanced access to talent. Growth Endurace is a heuristic and not a deterministic metric.  The second lesson Mary shared in the Scaling to $100M ARR report was "Win by wide Margins".  The effective point is to optimize gross margin to the average of 65% - 70% regardless of ARR. The middle 50% distribution increases in range to  60% - 80%. Next we pivoted to where Customer Success costs should be allocated - COGS or Operating Expenses.  The simple answer is that whatever the percentage of CS time is invested in revenue-centric activities should go to OPEX and the percentage of CS time on support goes to COGS. Another area of "Win by Wide Margins" includes CAC Payback Period.  CAC Payback Period is the measure of time it takes to repay the costs of acquiring a new customer after factoring in Gross Margin. BVP.com/scale is a great resource to learn more about Scaling to $100M ARR and download templates to see how your Cloud company measures up to the benchmarks. ' See Privacy Policy at https://art19.com/privacy and California Privacy Notice at https://art19.com/privacy#do-not-sell-my-info.