In this episode, CJ Gustafson interviews Alex Clayton of Meritech Capital who leads the firm’s enterprise software, infrastructure, and fintech practices. They discuss the most important metrics used in the software industry, including ARR per employee, average contract value (ACV), net dollar retention (NDR), and valuation multiples. Alex also goes deeper into understanding market structure as a crucial factor to consider when evaluating whether a company will go to IPO. Tropic is the next-generation Procurement Platform that’s helping modern CFOs take control of their budgets and bottom line, head to
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X / TWITTER:
@afc (Alex)
@cjgustafson222 (CJ)
@TurpentineMedia (Turpentine)
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LINKS:
Alex’s S-1 Breakdowns at Meritech
https://www.meritechcapital.com/insights/category/s-1-breakdownsRun The Numbers episode w/ Tomasz Tungus:
https://youtu.be/ExU7Muwmi0M—
TIMESTAMPS:
(00:00) Intro
(01:05) Mailbag questions - where should the customer success team show up as a cost?
(04:56) Introducing Alex
(08:19) Measuring overall efficiency of a business and rules of thumb for people out there of what good looks like?
(10:46) Can you game the gross profit per employee metric?
(11:29) Looking at operating plans, what's the metric that matters as per Alex?
(12:52) Average contract value does not matter to long term value creation
(15:31) The metrics public companies disclose
(16:48) Disclosing net dollar retention
(19:05) On the relationship between NDR and CAC payback period
(23:12) Why Alex doesn't believe that LTV or LTV to CAC ratio is a very valuable metric for many software companies
(28:18) How much revenue you should have when you go public?
(32:40) On going public after you raise a certain amount and doing it sooner
(33:55) would you say that founding teams are showing up to IPO with less equity than they used to historically?
(35:43) The average age of a CEO when when they go public
(36:42) On long-term company performance: is it better for founder CEOs or for professional CEOs?
(40:18) Alex's latest thinking on valuation multiples
(43:32) One thing Alex screwed up at work
(44:35) Tropic presents Rep Yo Stack: Alex's VC tool stack
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