Unlocking Growth: Retention and Metrics in SaaS Fundraising with Todd Gardner

Oct 16, 2023

24:06

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Episode notes

In the season premiere of the Saas Expert Voices podcast, Randy Wootton, CEO of Maxio, speaks with Todd Gardner, Managing Director at SaaS Advisors and founder of SaaS Capital. Randy and Todd discuss the current state of the capital markets for SaaS companies and the recent deceleration in the growth rate of SaaS companies. Todd emphasizes the value of three key metrics for fundraising: growth, profitability, and retention. He explains that while growth has traditionally been the most important metric, retention is now taking precedence and stresses that SaaS companies need to focus on improving their gross revenue retention and be intentional about their growth and profitability strategies. Todd also encourages companies to test the market for fundraising opportunities, as capital is still available for the right companies.

Quotes

“Gross takes out the effects of cross-selling and price increases and even some usage-based increases. And gross is believed to be, and I think a more pure measurement of the stickiness of the revenue stream. It's not clouded by some of the things that can be included in net retention.” -Todd Gardner [09:38]
“It is really hard to do a pivot in a high-growth SaaS business where there's been an enormous amount of capital invested in the future potential. So a pivot in that case turns into a recap. No investor wants a recap. But if you are looking at the reality of under single-digit growth and not being able to get profitable and running out of cash, it's a come to Jesus moment.” -Randy Wootton [20:12]

Expert Takeaways

Retention is now a top priority for investors, and companies need to focus on improving their gross revenue retention.
Growth, profitability, and retention are the three key metrics for fundraising, with retention currently taking precedence.
SaaS companies should be intentional about their growth and profitability strategies and pick a lane to avoid being caught in the middle.
It is not a bad time to raise capital, as there is a lack of quality SaaS companies in the market and a significant amount of capital available.

Timestamps

[00:00] Randy’s Intro

[01:14] | Todd’s Intro

[02:28] | Productive time for focused SaaS companies to build their product

[04:45] | SaaS valuations have regressed to the mean

[07:00] | Growth, profitability, efficiency, and retention

[11:19 | Logo retention and ACV are important factors in retention analysis

[13:03] | Burn ratio and profitability as key metrics for SaaS companies

[18:21] | Death Valley: Getting out of the low growth, low profitability

[19:37] | Pivot or Recap: Options for companies with low growth

[21:41] | Testing the market for fundraising opportunities

[23:52] | Importance of clarity in value creation plan for funding