SaaS

SaaS startups that ignored VC advice to cut sales and marketing better off this year

By zebethcontrolPosted on November 17, 2022Posted in Capchase, EC News Analysis, EC venture capital, Growth, SaaS, Startups, VentureNo Comments

Venture-backed startups have had to make myriad spending cuts this year in an attempt to either live up to a high valuation, minimize their burn rate or both. But new data from fintech Capchase shows that many startups — especially venture-backed ones — seem to be getting the wrong advice concerning where to downsize. Capchase, which lends non-dilutive capital to SaaS startups, looked at how more than 500 SaaS startups fared in a number of areas including revenue, runway and growth between August and December 2021 and between April and August 2022. One big takeaway was that companies that didn’t cut spending on sales and marketing were in a better financial and growth position now than those that did when the market started to dip in 2022. Miguel Fernandez, the co-founder and CEO of Capchase, said he was initially surprised by this finding because that doesn’t line up with the advice many VCs are giving their portfolio companies — at least on Twitter. However, the results do align with the fact that Capchase also found that most bootstrapped software companies were performing better than VC-backed ones this year — but more on that later.

Citi backs Indian SaaS startup Lentra as it plans to expand internationally • ZebethMedia

By zebethcontrolPosted on November 14, 2022Posted in citi ventures, Fintech, india, SaaS, StartupsNo Comments

India initially made its name in the tech world years ago when it staked out reputation as a key hub for business process outsourcing. Now that legacy has taken a very different turn in fintech with outsourcing of a very different kind, with the emergence of embedded finance technology. In the latest development, Lentra, an Indian embedded AI-based finance startup, has raised $60 million — a Series B that values the startup at “over $400 million,” D Venkatesh, the founder and CEO of the startup, told ZebethMedia in an interview. Existing investors Bessemer Venture Partners and Susquehanna International Group (SIG) led the round with strategic participation also from Citi Ventures, a subsidiary of the New York-based investment banking giant Citigroup. This is Citi Ventures’ first investment in a fintech out of India, and that and this round overall underscores how far the fintech and embedded finance ecosystem have come along in recent years. Lentra, which is profitable, has been growing at a very fast clip. In 2019, its first year of operations, it registered $1 million from its “annual consumption rate” — this term relates to the amount of revenue Lentra makes based on usage of its APIs. As of this year, that figure is up to $10 million, and it is projected to hit $100 million in 2024. The Mumbai-based startup works with commercial banks to power their digital loan services. HDFC Bank, Federal Bank, Standard Chartered and IDFC First Bank are some of its key customers. Overall, Lentra has more than 50 clients and has processed over 13 billion transactions and $21 billion worth of loans since its launch. Venkatesh said the startup achieved all this growth without hiring a single sales executive until April this year. The company’s mission is not unlike that of a number of other fintechs that have thrown their hats into the ring to work with — rather than completely upend and disrupt — legacy financial services providers, which have found themselves unable to keep up with innovation from faster moving, tech based competitors. “We want to help and empower the banks, who are our clients, to lend better, lend completely on a digital platform and improve on all parameters,” said Venkatesh. Those parameters are the same for banks the world over. Yes, banks want to lend more, and to be more accessible to more potential borrowers — hence moving to digital platforms to help them scale and compete better against digital-first offerings. But banks have had their feet burned many a time already: they don’t want to take on a load of bad debt in the process of scaling, so they need better tech to improve how they vet borrowers, and also to have a better grip on forecasting what they might expect to get in returns (and losses) as a result. The four-year-old fintech helps them do this through a variety of loan tools. Lentra Lending Cloud, which gives ready-to-use third-party API connectors to various data sources, as well as a Loan Management System (LMS) and a no-code Business rules engine (BREx) with modules for clients to use out-of-the-box. The startup also has a platform called GoNoGo in its catalog that helps banks ascertain whether a loan should be given to a customer once they get their application. Venkatesh said that in India, 90% of lending frauds occur by way of ID proof thefts, where bad actors impersonate someone with a better credit record to get a loan quickly. Lentra uses AI to triangulate data to identify potential fraud attempts. “If you solve ID theft fraud, you minimize the approach or the stance that the bank will have towards a non-performing asset or bad loan,” the founder said. He claimed while banks had only been able to whittle down the loan process — applying, processing and approving or denying applications — to between six and seven days, Lentra’s technology has reduced that turnaround to a few seconds. Even though a number of startups are trying to ease lending for banks, interestingly Lentra sees Salesforce as one of its biggest competitors when it comes to loan origination. “Our number one target is anyone who’s using Salesforce for loan origination. We go, latch on to them, and then we convert them,” Venkatesh said. Citi is not just interested in tapping more into India’s tech ecosystem, but to leverage it for its own global growth, too. “Lentra is our first fintech investment in India, and we are very excited about the team’s ability to develop and scale low-friction software solutions for lenders,” said Everett Leonidas, Director & APAC Lead Investor for Citi Ventures, in a statement. “As a global bank, we look forward to Lentra scaling their products and platform internationally.” Venkatesh told ZebethMedia that Lentra plans to utilize the funding to continue updating its platform, add new features and make it more robust and faster. The startup is also set to expand beyond India and establish its business outside the country, starting with three economies in Asia: Indonesia, the Philippines and Vietnam. Post the initial expansion, the startup plans to go beyond Asia and enter the U.S. Offices in the three new Asian countries will become operational starting as early as January, the founder said. Lentra already has its presence in Singapore since it acquired an AI startup TheDataTeam in June this year that had an office in the Lion City. Venkatesh said that the office in Singapore would become the vehicle for the startup to go into the ASEAN economies. Alongside improving the offering and expanding the business, Lentra has plans to acquire complementary businesses. The founder told ZebethMedia that its acquisition plans focus on three areas — robotic process automation, payment systems or solutions that are not regulated entities and teams working on statistical modeling or building heuristics model within statistics. “Lentra is empowering lenders to fuel the dreams of millions with effective financial inclusion and credit decisioning,” said Vishal Gupta, Partner at Bessemer Venture Partners. “We were really impressed with

Why not both? • ZebethMedia

By zebethcontrolPosted on November 12, 2022Posted in Enterprise, openview, pricing model, product-led growth, SaaS, Startups, The ExchangeNo Comments

Welcome to The ZebethMedia Exchange, a weekly startups-and-markets newsletter. It’s inspired by the daily ZebethMedia+ column where it gets its name. Want it in your inbox every Saturday? Sign up here. The recent OpenView-Chargebee 2022 report had SaaS benchmarks as its focus, but also touched in passing on a topic I’ve been curious about: reverse trials, a pricing model that offers SaaS companies a middle ground between freemium and free trials. Let’s explore. — Anna A binary choice? As more SaaS companies adopt product-led growth (PLG), a sales method in which user conversions are driven by the product itself rather than a sales team, founders are often faced with a pricing model dilemma. If their startup opts for a freemium model, most users will never get a taste of the premium features reserved for paying users. But if the company offers a time-limited free trial, users who don’t become customers at the end of that period might be gone forever. There are many other pros and cons to freemium and free trials. As OpenView partner Kyle Poyar told me, “freemium models tend to drive more acquisition and more signups to your product, for example, while free trials have fewer signups but have a higher conversion rate from free to paid.” As a result, founders often think they are facing a binary choice, Poyar said. In an interview, Airtable head of growth Lauryn Isford told him that these two choices are often thought of as prioritizing user growth (with freemium) or revenue growth (with free trials.) Poyar, however, doesn’t think freemium versus free trials is the only alternative. For companies to “get the best of both worlds,” he and OpenView advocate for the reverse trial model, exemplified by Airtable. But what are reverse trials all about, and are they for everyone? Psychology 101

As the economy shifts, what’s the best software customer? • ZebethMedia

By zebethcontrolPosted on November 11, 2022Posted in appian, EC Cloud and Enterprise Infrastructure, EC Newsletter, Matt Calkins, Okta, SaaS, SMBs, Startups, The ExchangeNo Comments

It’s a busy time in tech, with billions of dollars of value incinerated in recent days: FTX is at death’s door, while Twitter, recently sold at a price that no longer made sense once the transaction closed, is either slouching toward insolvency or not, depending on how you vet its new owner’s recent comments. But while there are a great many shiny things vying for our attention, the larger (and more boring) world of B2B software is going through a fascinating year. Recall that when COVID-19 first swept the world, there was doubt that tech companies would perform well. Those concerns were misplaced; as it turns out, businesses of all sizes still needed tech solutions to run their operations, meaning that while much of the economy suffered, tech companies picked up extra momentum. The Exchange explores startups, markets and money. Read it every morning on ZebethMedia+ or get The Exchange newsletter every Saturday. The market ran a bit too far with the idea last year, pushing valuations into the stratosphere and betting that a great number of smaller tech companies were the next Microsoft when in reality, the number of truly massive winners in a venture context will remain limited. Regardless, valuations have come down and the growth reported by some public tech companies has decelerated. But looking at Q3 results, it’s not too hard to see elements of strength amid warnings from executives that the economy could remain rather wobbly in the coming quarters. Investors are getting stricter with their marks this year, so we’re getting more granular. Today, let’s peek at some recent tech results — with a focus on gross retention — from companies that sell to big and small corporations alike. We’ll also weave in notes from a chat with the CEO of Appian the other week, as well as some new data from GGV about where SMBs intend to spend. This gives us a modestly well-rounded perspective on where the software market — which accounts for much of the larger tech industry itself — is today, and where it may be heading next year.

What’s the right NDR target for SaaS startups? • ZebethMedia

By zebethcontrolPosted on November 8, 2022Posted in EC Newsletter, EC venture capital, Enterprise, openview, SaaS, Startups, The Exchange, VentureNo Comments

Why are software companies valuable? Put another way, why have we spent so many years valuing software companies using revenue multiples, instead of the profit multiples that are more common in other industries? There are several key reasons. First, software companies have very strong gross margins; software is cheap to sell once you’ve written the code. Secondly, and more to the point today, is the fact that modern software companies are set up to sell more of their product to existing customers over time. This is often achieved through selling more seats (individual use licenses) to extant accounts or, in the case of on-demand pricing, more total usage of a service over time. Regardless of the method, what matters is that software companies today tend to see limited gross churn (customers dropping their contracts) and positive net dollar retention (the sale of more product to existing customers over time). The Exchange explores startups, markets and money. Read it every morning on ZebethMedia+ or get The Exchange newsletter every Saturday. Net dollar retention (NDR) is, essentially, gross churn from existing customers plus upsells from the same, measured over a set time period. The resulting metric, measured in a percent of prior revenue, helps investors understand just how much built-in growth momentum a company has. The greater net dollar retention that a software company has, the more efficient its growth will be (selling more stuff to already-landed customers is cheaper than securing net-new accounts). NDR matters, and investors, focused on more efficient growth than last year, are likely putting more emphasis on the metric. So, what should startups target when it comes to NDR results? Even more, do those expectations match what startups are actually reporting? And who has better net retention, public software companies or their startup rivals?

New data shows how SaaS founders have been dealing with whiplash from public markets • ZebethMedia

By zebethcontrolPosted on November 7, 2022Posted in EC venture capital, Enterprise, openview, SaaS, Startups, VentureNo Comments

What a difference a year makes. If you are looking for proof, go no further than OpenView Venture Partners’ 2022 SaaS benchmarks report, which couldn’t be more different from the 2021 edition. Both reports come from an annual survey of SaaS companies, and with 660 global respondents, the 2022 sample doesn’t look very different from last year. But boy, the mood has changed. Among other findings we’ll dive into shortly, OpenView learned that “an overwhelming majority of respondents are slashing spending regardless of cash runway.” This need to cut cash burn is of course an answer to the public SaaS selloff and the “whiplash” that ensued. Being set off by macro concerns, there’s no reason to think that it won’t continue for some time, which explains why companies are gearing up. Founders don’t just need to cut burn, though — they also need to turn their startups into the kind of companies that investors will back, and that’s definitely not the same as it was in 2020 or 2021. But then, what does a great SaaS company look like these days? And how to become one? Well, benchmarks are a good start to answering these questions — knowing what the top of the class is doing can help other entrepreneurs steer their companies in the right direction. OpenView has some how-to advice on the nitty-gritty, too, which we discussed with the report’s co-authors, operating partner Kyle Poyar and senior director of growth Curt Townshend. “One thing that we saw in talking to CFOs, as well as looking at the data,” Townshend said, “is that it’s just a really hard time to be a founder today — and you need to be very, very specific about where you’re going to put your dollars.” Let’s explore what the answer(s) might be.

SaaS and alts • ZebethMedia

By zebethcontrolPosted on November 5, 2022Posted in alternative assets, Enterprise, Fintech, SaaS, Startups, TechCrunch Exchange newsletter, The ExchangeNo Comments

Welcome to The ZebethMedia Exchange, a weekly startups-and-markets newsletter. It’s inspired by the daily ZebethMedia+ column where it gets its name. Want it in your inbox every Saturday? Sign up here. As much as I like spotting new trends, it is just as important to get confirmation on previous predictions we made or heard. This week brought us some fodder in that regard, on two sectors that are pretty high on my radar: SaaS and alts. Let’s explore. — Anna Shrinking SaaS multiples, hard times for IPOs Alex and I spent quite a bit of time this week diving into Battery Ventures’ “State of the OpenCloud 2022” report. It brought some forward-looking data to our attention — for instance, on cloud adoption — but also confirmed something impossible to ignore: That SaaS multiples — enterprise value compared to revenue projections — are shrinking. “The median forward multiple for SaaS companies has fallen from about 16x forward revenues to roughly 6x today,” Battery general partner Dharmesh Thakker told us. Multiples haven’t only shrunk, but they have also range-compressed, with fewer rewards for the fastest-growing companies compared to slower-growing ones. There are many factors at play, but the gist of it is that profitability seems to matter again to the markets. As a result of that, we’re seeing the revenge of some old rules. “Adjusted for growth,” Thakker said, “companies today that show efficient growth as implied by the Rule of 40 (i.e., companies with a growth rate + free cash flow margin greater than or equal to 40) are trading at a premium to those that are growing without regard to profitability.” Note that it’s not either growth or profitability: It has to be both, and the bar to please investors seems to be getting higher and higher. A more demanding market is a worrying picture for the many unicorns waiting to IPO, as well as for their peers who already went public but struggle to maintain their market cap. Let’s also spare a thought for Alex, who may not get his hands on another juicy S-1 before Q2 2023.

Here’s why ServiceNow’s stock soared in a week of dismal tech earnings reports • ZebethMedia

By zebethcontrolPosted on October 28, 2022Posted in Bill McDermott, EC Cloud and Enterprise Infrastructure, EC News Analysis, Enterprise, SaaS, ServiceNow, stock marketNo Comments

If you’re a regular reader of this publication, chances are you know that it hasn’t been a great year for many tech company stocks — one in which giants like Meta, Amazon, and Alphabet have been mauled by the markets after less than stellar earnings reports. Even an enterprise stalwart like Salesforce is behind hounded by activist investors. The fact is that few have been spared, whether startups or established public companies. We’ve seen a litany of stories on hiring freezes, layoff announcements, and tech stocks taking bigger hits than an NFL quarterback behind a bad offensive line — in other words, getting crushed. SaaS stocks in particular are having a rough year, so when a SaaS stock does well, well, that’s news. And that’s what happened to ServiceNow this week when it reported Q32022 earnings. It bucked the odds with a mostly positive earnings report — good revenue, good guidance, the whole nine yards — and believe it or not, Wall Street rewarded the company, with the stock up over 13% at the bell on Thursday, a number that held steady throughout the day. (It was down around 1% so far in trading today.) Maybe we’re not the only ones looking for some good news. Perhaps investors are, too. But what led to this positive 2022 earnings anomaly? To find out, let’s explore the earnings report and the impact of hiring former SAP CEO Bill McDermott to lead the company. A look at the numbers Given the general carnage we’ve seen in the public markets for tech earnings this quarterly cycle — Snap kicked things off with a raspberry, followed quickly by other leading tech shops failing to meet Wall Street’s stringent expectations — the ServiceNow share-price boomlet caught our eye and made us curious what the company had managed that was so worthy of investor praise.

Valence Security raises fresh capital to secure the SaaS app supply chain • ZebethMedia

By zebethcontrolPosted on October 26, 2022Posted in Enterprise, M12, Microsoft, SaaS, startup, Startups, Valence SecurityNo Comments

Valence Security, a company securing business app infrastructure, today announced that it raised $25 million in a Series A round led by M12, Microsoft’s corporate venture arm, with participation from YL Ventures, Porsche Ventures, Akamai Technologies, Alumni Ventures and former Symantec CEO Michael Fey. The new capital brings the company’s total raised to $32 million, and co-founder Shlomi Matichin says it’ll be put toward product development and doubling Valence’s 25-person headcount by the end of the year. Matichin co-founded Valence Security with Yoni Shohet in 2021. A two-time entrepreneur, Shohet previously co-launched SCADAfence, an industrial Internet of Things security startup. Matichin, for his part, was one of the founding members of Capester, a platform for cataloging videos of civic violations. “In recent years, malicious actors have placed their focus on the interconnectivity between software-as-a-service (SaaS) applications, leveraging its potential for their attack campaigns, as we saw in the SolarWinds breach,” Matichin told ZebethMedia in an email interview. “Organizations struggle to secure this [app] mesh — a growing, complex and interconnected environment of SaaS apps, third-party integrations, identities, privileges and data.” Matichin and Shohet built Valence to address these challenges around visibility into the SaaS supply chain, including misconfigurations, risk prioritization and remediation. The platform attempts to detect all of a company’s SaaS apps and contextualize them with vendor risk assessments, offering tools to spot improperly configured security controls and drifts from established policies. Valence can also help manage risky, inactive and overprivileged authentication keys, third-party integrations and no- and low-code workflows, Matichin says — in addition to potentially insecure public-facing files and emails forwarded externally. Identity security flows within Valence, meanwhile, aim to ensure users are managed by a central identity provider, using multi-factor authentication and are properly offboarded. According to Matichin, driving the demand for these services is the increasing threats companies face — and general SaaS app sprawl. The average enterprise uses around 80 SaaS apps, with BetterCloud estimating that businesses with more than 1,000 employees use more than 150 apps. This opens firms to attack. According to a Dimensional Research survey commissioned by ReversingLabs, a cybersecurity vendor, just over half (51%) of IT security teams report being able to protect their software from supply chain attacks. The impact of such attacks can be devastating. In a recent paper, Kaspersky estimated the cost of a supply chain software attack to an enterprise at $1.4 million. That doesn’t factor in the lost revenue from additional downtime arising during remediation, which can substantially add to costs (to the tune of thousands to millions of dollars) and affect a firm’s reputation. “Beyond security concerns, the repercussions of SaaS supply chain attacks are at the top of business priorities in light of the growing number of high-profile SaaS supply breaches over the past two years,” Matichin said. “These breaches can expose multiple interconnected SaaS applications for a single organization as well as threaten the business-critical data stored in those applications. This risk to business objectives, as well as to business continuity and efficiency due to the significant impact these breaches have on SaaS use, should be top-of-mind for the C-suite.” Tel Aviv-based Valence competes with a number of vendors in the supply chain SaaS app security space, including Canonic Security, Atmosec (which has raised $6 million), Astrix Security ($15 million), Wing Security ($26 million), AppOmni ($123 million), Obsidian Security ($119.5 million) and Adaptive Shield ($34 million). When asked whether that concerned him, Matichin responded by highlighting what he sees as a growing need for visibility and control over SaaS assets and remediation of the risks. “As remote working conditions accelerated the adoption and use of SaaS applications, a unique and unaddressed risk surface uncovered a growing need for SaaS security solutions targeting the sprawling SaaS mesh,” Matichin said. “In this respect, Valence was strongly positioned to address the unique security and business needs at the height of the pandemic, [and] Valence will continue to set the standard for SaaS security going forward.” Matichin didn’t reveal the size of Valence’s customer base or projected revenue. But even if it’s lower than that of the company’s close competitors, VCs seem ready and willing to throw their weight behind security vendors. In the first half of 2022, there was $12.5 billion in venture capital invested across more than 530 deals, according to a report from investment firm Momentum Cyber — in line with H1 2021’s $12.6 billion invested.

Unito, a platform for managing SaaS apps, raises $30M • ZebethMedia

By zebethcontrolPosted on October 26, 2022Posted in Apps, Enterprise, funding, SaaS, software as a service, startup, Startups, UnitoNo Comments

Unito, a startup offering a service to bring together disparate software-as-a-service (SaaS) platforms — for example, Jira and Trello — today announced it raised $20 million in a Series B funding round led by CDPQ’s Equity 253 fund with participation from Rainfall Ventures, Investissement Québec, Bessemer Venture Partners, Tom Williams and Mistral Venture Partners. The new cash brings the company’s total raised to $33 million, which CEO Marc Boscher says is being put toward product development and expanding Unito’s headcount from 65 people to 70 by the end of the year. SaaS tool usage is on the rise, with corporate teams now using 40 to 60 tools on average; a 2019 report from Blissfully found companies were spending around $343,000 per year on SaaS. But while SaaS apps have become the lifeblood of organizations, they can often be unwieldy. In a 2021 survey, enterprise architecture startup LeanIX found that businesses rarely have common standards when it comes to responsibility for SaaS management. On a mission to uncover a solution — or invent a new one — Boscher and Eryk Warren joined Montreal’s Founder Institute program in 2015. Boscher hails from the IT industry, while Warren has software engineering experience, having worked at startups in Montreal, including events ticketing system Outbox Technology and Fluential. Boscher and Warren founded Unito that same year, in late 2015, as they finally arrived at a way to help companies manage SaaS sprawl. Rather than build a new project management or collaboration platform, the two co-founders created two-way integrations with automatic syncing between existing SaaS tools. “The massive proliferation of online tools is causing nearly as many headaches as it solves,” Boscher told ZebethMedia in an email interview. “[T]ools made for collaboration can actually hinder collaboration, as they become virtual information silos … There are more SaaS tools than ever before and remote work is forcing companies to adopt these digital solutions, which leads to fragmentation and less control over tools as people work from anywhere on any device.” Configuring workflows using Unito’s cloud platform. Image Credits: Unito Unito attempts to ease this fragmentation by letting IT teams choose which apps they wish to connect — supported apps include GitLab, HubSpot, Google Sheets, ClickUp, Salesforce and Wrike — and authorize the Unito service to access them. Users with admin access can then map how other users, lists, custom fields and more travel among and leverage the various connected tools. On the back end, Unito provides analytics, including usage statistics and executive reporting for IT resource planning. The platform also acts as a secure gateway, limiting access to SaaS apps to only authorized users. Boscher argues that Unito can even save companies money by reducing seat requirements and “optimizing” software licensing. “Two-way syncing means developers can stay in their software development tools, and business teams in their project management tools — no doubling up on licenses to allow collaboration,” he added. “Eliminating hours of manual copying and pasting and always having the right information in your tools is key for agile and high-velocity teams.” True or not, many vendors claim to achieve this with their own tools for SaaS app management. Beamy recently raised $9 million to further develop its platform to detect and orchestrate SaaS apps. Torri, which is also venture backed, aims to bring businesses together around the cloud apps they use so they can discover all the apps they have — and automatically take action on those most appropriate for return on investment. Those are just the tip of the SaaS management iceberg — see BetterCloud, Lumos and Paragon for other examples. But Boscher believes there’s breathing room yet in the budding market. He points to findings from Gartner, which suggest 50% of organizations using multiple SaaS apps will centralize orchestration and usage of these apps using a SaaS management platform — an increase from less than 20% in 2021. “Unito’s competitors include integration software-as-a-service players like Zapier and its copycats, which boast thousands of easy to use but shallow one-way connectors, and integration platform-as-a-service players like Workato and Tray.io, which offer deeper one-way integrations but are difficult to use and need professional services and/or developers for implementation,” Boscher said, touting the ostensible advantages of Unito’s two-way syncing tech. “Unito’s two-way sync provides users with the most recent data from any work app and shares it in real-time based on customized fields and rules set by the user.” Boscher claims Unito has more than 50,000 users across 7,000 companies, including Atlassian, Corpay, Teamwork, the Cincinnati Reds and Wrike, with workflows in IT, project management, sales, spreadsheets and the software development domains. This year alone, Unito’s inbound monthly sign-ups doubled in six months, he says. And while Boscher wouldn’t reveal revenue, he noted that Unito is still hiring. “Having taken startups through two recessions before, Unito founders are taking hiring slow and keeping the bar high … Unito has always kept burn in line with growth,” Boscher said. “Unito aims to become the universal translator for enterprises by letting any team or department set up deep integrations on their own, while keeping IT in control at the governance and security level.”