Battery Ventures "State of the OpenCloud 2023" Report - Part 2

Welcome to the second half of SaaS Talk with the Metrics Brothers, episode 20, where we're focusing on the Battery Ventures recently published report, the Open Cloud '23 report. And Dave, we had a great first half, but let's move to the second half, and that is I think it's slide 17, the metrics that matter.

Yeah, let's hit that. And by the way, we're still live from Schenectady, New York. This is part 2, so we're continuing the recording. For you, it might be a week in between episodes. For Ray, it's 3 minutes for Ray and me. So we're jumping right across here. This is slide 16 in the deck, page 17 in the PDF, metrics that matter. What Battery calls the early stage and growth stage playbook. I like this because it's not just a benchmark study in my mind. I interpret this as Battery's opinion as to what you should be shooting for based on everything they know. So this is not a benchmark study. These are not quartiles, right? This is what Battery is basically making an editorial statement here saying, in our opinion, knowing everything that we know, this is what we think you should be shooting for. So it's important to understand that and we'll explain some of the data. I'll pick the scale-up stage and give you some numbers. The first thing you say is ARR growth of 3x, which personally I find highly confusing. Growth is usually expressed as a percent, not as an x. So I think they're actually saying 400% growth. Either somebody made a math mistake, which I think is possible here. So they may have completed 300% growth with 3x. But in any case, they're saying you should be shooting for exceptionally high growth in the $5 to $15 million bucket. Put differently, you should probably spend 1, at most 2 years in that bucket. Right? Because if you're growing at those kind of growth rates, you're going to be on to the next bucket after 1 or at most 2 years. They're saying you should be doubling to tripling your new logos. GDR of 90% plus and NDR of 120%. I think that's old, Ray. I think in the new world, it's more 80% and 105%. But I could be guilty of taking medians versus what you should be shooting for. So we're going to be back to how do you interpret this? Certainly, it's best of class. If you can be 90% plus and 120%, Um, on GDR and NDR, those are really good numbers. Gross margin a little bit low in my opinion, it's 70%. And then they're saying sales and marketing should be 100% of revenue, R&D 80%, uh, G&A 40%. These numbers are all very high relative to normal benchmarks. I think they are working here with a very exceptional company in mind. In addition, they give you the dollar figures per quarter, which I think is actually quite handy. So they're saying you should be spending $4, $3, and $2 million a quarter respectively. So just to eyeball that, that's what, 7, 9 times, that's $36 million a year in SG&A and R&D, which is you better have raised a lot of money if you're going to spend $36 million on that and be somewhere, you know, doing $10 million in ARR. So, but in any case, magic number of 0.7 to 0.8 and burn ratio of 2 to 2.5, which to me is on the high side, but in some ways I feel like this chart is a little bit Uh, you know, taken from the past? Like, hey, did this one fall on the deck from 2021?

You know, I think this is aspirational. You know, maybe it's the top 10% because that's the companies Battery wants to invest in. Because even the ARR growth, the old— what was it— T2D3, triple, triple, double, double, double, right, in the first 5 years, man, that's a growth at any cost model. And I don't think that's going to be the efficient growth model going forward, Dave. So that's the first thing that jumped out at me, is it's definitely Top, top tier. You know, the other thing that jumped out at me, and this is like the 3rd time I've heard this over the last month in my conversations or viewing reports, and that is logo growth is going to be more important today than ever before. And the reason being, you don't have the opportunity to drive higher NRR unless you got a great base of customers. And with some of these new models, because we're going to talk later on where They're really pushing consumption and product-led growth. And inherently, for a PLG model to work, you've got to have high-velocity logo acquisition. So that jumped out at me, Dave.

Got it. By the way, the other thing that jumps out at me, Ray, is I'm just not sure it's possible to have a magic number of 0.7 to 0.8 when you're growing at 400%, because you're going to be carrying so much forward capacity. I, I just don't think it's possible. Look, I think this chart's useful if you want to know what a great company might do. But I do think, like Ray says, it's— and I think that first line was a total clue that I missed, that it's triple, triple, double, double, double thinking. And that's what this chart is. Basically, my point of view, 2021 called and it wants slide 16 back. I love that.

Well, let's move back to end of 2023, and that is Slide number 17, and that's talking about what I, what I just mentioned, and that is the business models. You mind if I take the lead on this one, Dave?

Go for it, Ray.

You know, as I just mentioned, they are pushing hard on consumption, and then they put outcome-based pricing. We used to use it gain-share pricing 20 years ago when I tried to do this type of pricing, and I'm not sure PLG is all that it's been hyped up to be. I don't wanna step on anyone's grave here, but, you know, just recently one of the leaders in PLG as an investment firm, OpenView, just shuttered their doors. So that tells me maybe PLG isn't all it's cracked up to be. But then the other thing, they're talking about AI-powered future, and the AI-powered software is gonna allow you to have more outcome-based pricing. And I must admit, I haven't put enough critical thought into this, Dave, but how does AI equate to outcome-based pricing? I don't get that yet.

So look, there's always 2 factors at play in pricing. One is value, which serves as an upper bound on price, and the other is alternatives, which usually creates the lower bound, right? Which is I'm delivering the same value as you. Just say we both deliver our customer $1 million in value. If you're charging $100,000 for it, it's gonna be very hard for me to charge $300,000 for it. I mean, this is basically the argument for monopolies, by the way, because if you don't exist, then I can probably charge $700,000 or $800,000 to create $1 million in value. And I think sometimes these analyses miss that. Now, look, some of this is historical saying, hey, in the old days, we used to do on-premise. That's correct. Then we went to subscription. That's also correct. And by the way, this is why the industry kind of needs to move together, because if I'm the first guy in a category doing subscription, it's hard. But if the whole category goes subscription, then it's easier, right? So, in some sense, most software— I tell most software startups to price like the other people in the category. Unless you're trying to be a price disruptor, just say, hey, we all cost roughly the same thing, we all price on roughly the same basis. Now, let me tell you why to buy mine. That's not a very value-centric pricing approach. A lot of VCs would hate that. And by the way, if you don't have competitors, it's also a terrible pricing approach because then you can price more than based on value. So, what I think this slide is saying is basically, first, they're blurring 2 very different concepts, consumption-based pricing, which I think is an absolute necessity when you're paying your cloud infrastructure provider on a consumption basis, right? Like, you just have to price on some consumption level. And then outcome-based pricing, which is totally different. I would call that value-based pricing. This is just new fancy words for an old concept. And you can do that to the extent that you're the only person in the category and you're driving a lot of value. But, but as soon as there's a category, you know, congratulations, you created a category. Well, that means there could be 5 other vendors, and now it's going to come down to alternatives, and all the alternatives will probably be consumption-based.

Yeah, spend a couple more minutes on this slide because I truly believe that the best way to understand the future is to revisit history. And I, I know I've been around in this industry for quite a while, but when I first started, I had a consumption-based pricing model in the old timesharing business. I call it, um, SaaS 1.0. And what happened over the last 12 to 15 months, Dave, is consumption-based pricing companies had the largest decrease in growth rates because why? Customers could immediately throttle down or turn off consumption-based apps where they couldn't do that with subscription. And the second thing is, and you highlighted this before the show today, CFOs on the buyer side hate consumption-based pricing if it blows out the budget. Where if I budgeted $3 million for an application and the usage says it's going to be $5 million, that's not a very happy CFO. What say you on that?

Yeah, I mean, look, everybody loves Snowflake's 180% NRR, but the people who had to write the checks to pay for it, uh, now hopefully a lot of them felt like they were getting the value, but you know, if my cable bill went up 1.8x year over year, I would certainly be very unhappy. So I think VCs get confused about pricing sometimes. You know, I have great respect for Battery. I think this is a great report. I think they're correct that these are the industry trends from on-prem to subscription to consumption and outcome. I think they're 2 different things and almost create 4 buckets, not 3. And I don't think ultimately it's about aligning customers and vendors. That's what cloud was supposed to be. That's kind of the sales pitch for the pricing model, right? I could argue that cloud was all about making Wall Street happy and getting rid of the number one thing investors hated about software companies, which was non-predictability of revenue. So, let's go to a subscription model that smooths out all the revenue, so there aren't any more revenue surprises. We may have surprises in RPO, or billings, or backlog, right? But we're not ever gonna have a revenue surprise on a SaaS company when you're on a pure subscription model, right? So, I could take a different argument for why the world went to subscription. That balance, look, I do think it helps improve alignment between vendors and customers, but it's not a panacea. And it also, it helps with Wall Street like a ton. And then going forward, I just, as you know, discussed, I think consumption's real and it has to be real as long as you're paying for infrastructure on a consumption basis. And outcome-based pricing, gosh, if you can do it, great. But there's a whole bunch of conditions under which you can't.

Yeah, I could go on outcome-based pricing 'cause I've done a couple deals like that. And let's just say it's very hard to actually do the reporting calculation And getting agreement between buyers and sellers on what was the value delivered. But that's a whole nother thing unless you're doing GMV.

Yeah, and I think I actually didn't answer your actual point, Ray, which was yes, there is a dark side to consumption, which is, you know, what goes up can come down. And I actually talked about that as one of my 2023 predictions that we'd see the dark side of consumption pricing, and I think we are.

Okay, at the risk of poking my big brother here, I'm gonna have you take this on logo velocity, but more importantly, What percentage of total growth ARR is coming from expansion versus new, Dave?

So it's— this one varies as a function of size. So we're now on slide 18, page 19 in the PDF, um, and it's breaking out by size the distribution of new versus expansion ARR. So what— sorry, new logo versus expansion ARR. So they actually use my terminology, by the way. They, they're basically saying the new ARR is both types and And type 1 is expansion ARR, and the other type is new logo ARR. So I agree with the taxonomy and the naming. You know, I have Dave's rule of 30, which is roughly 30% should come from your expansion. If it's a lot more than 30, I get nervous. If it's a lot less, I get nervous. And they're basically saying I'm right below $25 million. And by the way, most of the work I do is below $25 million. I work with a ton of brand new companies, 0 to 1 companies. I work with a lot of 1 to 10s. I work at 10 to 25s. I work at a few 50 to 100 and a couple hundred plus, but most of my work by volume is down in that range. So I think it's right. The thing that surprised me, just because I hadn't seen the data, is how high expansion gets as you go up. And I guess it makes intuitive sense that the bigger you get, the more you want to milk your base. But I'll just read the progression across the size buckets. It goes from 25% expansion to 35% to 45% by $50 million top end. And then from $50 to $100, 55%. $100 plus, 60%. Billion plus, 75%. So gosh, take care of your customers and love your CSMs because you're getting 3 quarters of your new ARR from existing customers.

And hunters out there, beware. It looks like there's going to be a lot of farmers and ranchers out there expanding existing accounts. But here's the other thing on this slide, and I really actually like it, and that is they're recommending Increased logo velocity from a customer acquisition perspective. And they're saying that account executive salespeople should not just have a revenue or RR-based quota, but also a quota based upon the number of new logos. And I love the fact that they put a guardrail around that saying it's not any new logo, it's got to be a new logo with a minimally acceptable ACV. So I actually really like this. I'm just not sure how much a company's gonna be willing to pay an AE for bringing in a new logo versus $1 million of ARR. What do you think about this forecast of logos becoming almost more important than revenue-based quota retirement, Dave?

I don't know. I don't love it at first venture. I obviously, I think it works if you have a high expand model, which the people, the smaller sizes do not, um, in general. So But if the idea is, hey, we just need a foot in the door and then we know great things are going to happen. So kind of a small land, big expand model, I think it makes sense. You might even do the model, my favorite name for a sales model is farmers with shotguns. So you have, you have hunters.

The Metrics Brothers is proudly sponsored by Benchmarkit, the B2B AI and software industry's largest, broadest, and most contextualized benchmarking index. Dave Kellogg and Ray Groth Wright have put the Metrics Brothers podcast on hiatus for remainder of 2026. All episodes we have ever recorded are still available on your favorite podcasting app. You can reach Dave at Kellogg and Ray on LinkedIn at Ray Reich. Thank you so much for listening to the Metrics Brothers podcast.

Hunters who do lots of small deals or far— no, it's Hunters in a Zoo. That's the name of it. Or Farmers with Shotguns is another one. But it's Hunters in a Zoo, which is you go get sellers to go get animals in the zoo, right? Get customers, any price, just get them in here. And then once they're constrained to the zoo, we're going to put big enterprise reps on them and they're going to go hunting in the zoo. So the animals have already kind of been captured by somebody else. And now we're going to work them really hard for expand. And I know there are some companies that use that model, and with that kind of model, it makes sense. Now, I think it always made sense, so I don't think it's a new thing. I think it, you know, in the end, if you, you want to incent logos when you're pretty sure if you get a logo, it's going to grow real fast, uh, otherwise don't incent logos. And I think that was true in 2017 as it is in 2023.

You know, the one metrics question that I always ask when I see these type of slides about expansion ARR as a percentage of total new ARR growth, and that is when do they define new logo ARR as ending and when expansion ARR begins? And in that ultra lands and expand, are they basically saying, hey, we have consumption-based model, it takes them 3 months to go ramp, so month 4 and beyond is expansion ARR? I think there needs to be some clear definition of new versus expansion, Dave.

Yeah, I agree. And I think it actually— for whatever it's worth, I think it should vary by company. I think each company should look at their model and decide what they want to call it. So I'm not sure this is an industry standards problem because I know you work on those as well. But to me, every— and by the way, it is a benchmarking problem because different companies will define it differently. But I think it's valid. For example, I think it's— if we're sure that we land with one person and then within a month we always have 20, just say we have some viral product, I don't know, Calendly or something, you land with one person and then boom, almost instantly you've got a whole department of 20 people using it. The question is, do you charge the CAC or do you credit the CAC for 1 seat or 20 seats? Right. And if you're sure it expands within 30 days to 20, there's a strong argument that you, in the CAC calculation, the ARR that was captured should be from the 20 seats, not the 1. And it has a massive impact on the CAC ratio. And it'll also have a massive impact on your expansion rate. Because if you want to juice NRR, right, you want to make everything expansion. and land really small, right? So, so there's ways to play the game, but, but I just think it should be driven by what your model actually is. And for some people, yeah, the first 30 days, the first 3 months might be land, and then thereafter it's expand. But, but the traditional definition, just to be clear, is first deal is land, everything else is expand.

For our listening audience, did you notice how Dave Kellogg took a growth chart and turned it into a CAT dissertation? That was nice, Dave.

Payback, Ray. Payback.

Okay, let's move on to the next slide. Ooh, this is scary for your GTM leaders out there, Dave.

Yeah. So in this slide, it's a fun slide for a bunch of reasons. Well, maybe fun's not the right word. It's an interesting slide where they're talking about potential savings in headcount from AI. And they go through in the go-to-market model, 5 different roles, maybe 6, no, 5. AEs, SDRs, SEs, CSMs, and marketing. So 5 roles, and they show typical headcount for a company. And they basically say, hey, if you have 30 AEs before AI, you'll probably have 30 after. But AI, we can juice more productivity out of our SDRs. So instead of a 2-to-1 ratio, we can drive that up to 3-to-1. So we're only going to need 10 SDRs instead of 15 to support those 30 reps. Similarly, we used to need 20 SEs to support 30 reps, but we can juice that ratio from 3-to-2 to 3-to-1. And take the SEs down to 10. CSMs, we used to have a 2-to-1 ratio. Normally, I do CSM per ARR, but I'll stick with their model here. They'd say normally, you have a 2-to-1 AE-to-CSM ratio. So, you needed 15 CSMs. We can juice that ratio to 3-to-1, take that down to 10. Marketing, we used to need 30 people to support 30 reps, which strikes me as high. And so, a 1-to-1 ratio. But with AI, we can take that down to 15. Juicing that ratio to 2 to 1, ultimately resulting in about a 30% headcount savings, taking this hypothetical GTM org from 110 people down to 75 people.

Well, if I'm an investor and I judge a company based upon profitability, I love this. If I'm an operator, I'm a little nervous right now, Dave, because even though I'm fine with marketing getting reduced by 50%, But these other ratios—

Ray used to work in sales back in the day, so he's happy to see sales survive this one unscathed.

Boy, I'm not— I don't know if I'm going to survive this episode with my metrics brother here, but I just look at this from a customer success, from an SDR. I'm just really thinking about what does this do to those human capital resources in the industry? But that's not what we're talking about today, but we got to find a home for these people, Dave.

Yeah, I'm not as worried about that because I believe overall the system works and they'll end up at different companies or in new roles and the ratios will change. This drives efficiency. By the way, they may well end up working at companies that sell AI automation software to automate their jobs, right? Not uncommon for an SE to go work at, or an SDR to go work at an SDR automation company, right?

Yeah.

But the thing to me is this software isn't free. So the upper bound of what we can pay for that software, and it's a pretty big upper bound, is the, what is it, 35 heads. And at $200K a head on average, $7 million in this company. So you could pay up to $7 million if you could make these ratios work to make this math work. So I guess I have 2 points. One, that software won't be free. And 2, we're basically talking about substituting capital for labor or substituting software technology for labor. And in general, that's fine with me. It's the efficiency is the nature of socioeconomic improvement. I have no problem with it societally. The question is, will it actually work? And by the way, the one they interestingly missed because they wanted to make it ratio-driven is I think you can get as much ARR out of 20 reps or 25 reps as the 30, right? We can— AI tools can certainly make AEs more productive, not just their supporting resources. And/or we could just increase their quotas. So you keep the 30 reps, but you get more out of them. So sales, sales will not be untouched by this productivity as this chart kind of implies.

That's a really good point in this slide because I've been talking to a lot of CROs where some of them who have reduced their AE count by 20-30% are actually getting more top-line new revenue than they did with 30 or 40% more AEs. So, but let's move on to the next slide. And oh, it's another one that you picked, and that is all about stock option repricing. You want to talk about that?

Sure, sure. So this is slide 26 in Battery's deck, page 27 in the PDF. Oh no, I'm off by one. Hang on. That's why I'm telling you both. This is slide— here we are. Slide 25 in Battery's deck, slide 26 in the PDF. Valuation resets are catalyzing stock option repricing. This, in my opinion, is good for employees, right? Because what happens to the stock option repricing is we basically say, well, we granted you shares at an exercise price of $20 a share. But all valuations have been knocked down by 2/3, so we're going to knock down your strike price to $6 a share. And this is not being done because it's a good deed. It's being done because if the stock— and I'm just pretending the company's public and it's actively traded, we can still put a value on it. But if the stock is worth $10 and my option strike price is $20, I am underwater on my options and they lose their incentive value. So the reason employers want to do this is they want to say, hey, wait a minute, Ray, we granted you at $20. The fair market value is now $6. I'm going to regrant you and/or reprice your options. But regrant, you have to be careful because you can reset vesting and other things. But effectively, just reprice, take the existing grant with the existing vesting structure and your existing vesting and reprice the strike price of the option down to $6. It's basically a win for everybody. It's the way you retain employees because the alternative If you don't do this, people will leave and go to the company across the street where you do get your new grant at the current FMV. So in many ways, you don't have a choice but to do this. I thought it had become verboten. This was popular back in the day, and I hadn't heard about it in a long time, but it seems like it's back. In my mind, it's a good thing for companies.

I think it's a great thing. I was reading another report just 2 days ago that was showing about private company stock being sold in the aftermarket and some of the high-flyer unicorns from 2 years ago, the price per share of stock that's available on the aftermarkets are anywhere from 50 to 85% lower than what the option was granted at.

Yeah, these, these things are deeply underwater. Potentially people who joined companies during the peak bubble will be sitting on options and/or anyone who got a grant during the bubble will be deeply underwater. And look, there are some people who are against repricing, particularly for the top executives, because it's like, hey, you ran the company and the stock went down, that's your fault. Well, I mean, some of it's their fault, some of it's just market condition changed. But for top employees, let's just say this can be— for the C-level, this can be controversial. I still think it's necessary if you want to retain them, but it's controversial. But for rank-and-file employees, This is absolutely necessary because, like I said, if you're sitting on an option with a strike price of 20 and the current FMV is 6 and equity is a material part of your compensation, you are going to go get a new job. So look, to apply this, I'd be looking at repricing if I'm a C-level person or a CFO or a CEO. I'd think, wow, I can use repricing. If I was an employee, I'd ask about it. I wouldn't just quit. I'd say, hey, are we planning repricing anytime soon? And by the way, if you're on the East Staff, say yes to that question and get cracking on it. Because otherwise, you know, you could just run a very quick report to see who's got underwater options. And if it's a large part of your workforce, there's a large amount of risk there.

No, I think this is a great slide. Okay, I snuck one in on you and we won't spend more than a minute on this, but there is on slide number, I gotta put my glasses on here, 22, page 23, that measuring R&D on the right metrics I just love the fact that Battery included this because I think measuring software development teams on very tangible metrics that are held to is way overdue. And I just love the fact that Battery put this in here. I don't know, just at a high level, do you think measuring R&D using metrics is a good strategy going forward, Dave?

I mean, loaded question. And we need to do an episode, one or more episodes on this. You know, McKinsey did a report on this a while back. that we talked about offline. Look, to be contrarian, the risk is you count what you can, you either count what's available, like uptime. Okay, that's an available metric, we can count it. But we don't want to overweight the metrics on availability basis, right? Because what actually matters is, are you writing quality code that delivers new features to customers that works, that scales, that performs, that's easy to debug and maintain over time, that doesn't become legacy, Right? That's what we want. And the more we incent, you know, you get what you incent, not what you want. So we have to be careful not to let kind of availability bias, right? I.e., in plain English, these things are easy to count. So because they're easy to count, we'll count them and we'll drive all the bonuses and comp structure and success failure rewards based on a set of metrics that don't actually hit at what matters most. So are these a good set of metrics? Yes. Are they things that I would want to measure?

Yeah.

Uptime, severity, incidents and severity, cycle time, pickup time. They're good things to measure. But ultimately, I think you could score really well on all these and still build the wrong stuff or build it badly, and you won't see it for time. So, or you won't see it until overtime. So I get nervous, Ray, but my shorthand for this is get nervous about counting angels on pinheads. Because you can either count what's available and feel all proud of yourself for counting, but it sent the wrong stuff. Or you can find, like, story points would be the best example of counting angels on pinheads. It's kind of a made-up unit on purpose. They weren't supposed to be used for productivity or compensation. And then some genius comes along because they can count them and starts paying people on them. And that would be counting angels on pinheads.

And it ends up resulting in what should have taken 2 story points ended up being a 5-story-point feature. But let's move on because we got to wrap up. It's something that you like, and that's an appendix. You want to talk about the appendix real quick? Sure.

What slide are we on here, Ray? I'm having trouble seeing it. 42, it looks like.

Oh, I think the appendix starts on slide 42, which is page 43 of the report.

Yeah, yeah, there it is. Yeah, thank you. So EV to revenue to growth. Oh, this metric. Yeah. Okay. I know we're running short on time. Back in the day, there was a ratio called the PEG ratio, the price to earnings to growth ratio. So you take the PE of a stock and say, oh, it's 15. So it's trading at 15 times earnings. And then you divide it by the growth rate. Let's just say it was growing at 15%. So you'd get 1 and you'd say the PEG ratio, the price-to-earnings growth ratio is 1. And that would also be known as a growth-adjusted price-to-earnings ratio. And on that particular metric, above 1 meant kind of aggressive, lower than 1 meant kind of unaggressive, right? So the higher the PEG ratio is, in theory, the more overvalued the stock. But the thing it helps with is you might say, oh, the PE ratio is really high on this stock if it's 20, but wait a minute, they're growing at 50%, so the peg is only a half, right? So that's why you do the ratio. And this— a couple of other people are doing this right now. I can't remember who the other one is. It's either Jamin Ball at Cloud of Judgment or it's Meritech. But this growth-adjusted enterprise value to revenue multiple It's the spiritual equivalent of a PEG ratio. Most people don't talk about it. Unfortunately, the values that come out are not intuitive to me at all. Like, I have an intuitive notion of what a PEG ratio should be, basically 1, as it works out. But here it's not intuitive, but I like what they're doing. I think it's worth looking at based on their empirical data. They're basically saying that when you take your enterprise value to revenue multiple, right, which might be something like 10 or 20 for a highly valued software company, 5 to 10, For a low company, then divide that by the growth rate, you end up with, you know, a better number of what they call 0.3 to 0.4, right? So, uh, for example, if your EV to revenue is 10 and you're growing at 30%, you would end up with the 0.3 here, right? And that would put you in the better category. So I don't have a lot of deep insight on this. I like that they're doing it. They're trying to tell you basically What's overvalued given the growth rate, which I think is a very good intent, and/or what's undervalued given the growth rate. And I think it's super funny that Domo on a '24 basis is the best in terms of the EV to revenue growth, growth adjusted EV to revenue, right? And they are the worst at growth, which I guess means they're trading at a terrible price. Oh, I think that's what it means.

They are trading at a terrible price. As a former stockholder, I will tell you, when I saw Domo going from the worst from a growth perspective to the highest with this EV to revenue to growth peg, I'm like, I don't know if I really want to understand this, Dave, because I, I don't— I'm not aligned with the company going from worst to first.

Yeah, Domo does the chart a disservice. I agree with you. Any chart that takes Domo from worst to best has to be suspect. But hopefully the explanation of price-to-earnings growth made more sense. It's a good concept. It needs work. We need to get used to it.

Okay, well, there's a lot of other slides here. Can we wrap up here in a couple minutes with the, the other KPIs they have in the appendix, Dave?

Yeah, what slide do you want to hit, Ray? And I'm—

well, I think, you know, Rule of 40, it basically shows those companies that have the best. And we've already talked about the premium value based upon Rule of 40 scores above 40, so I don't think we need to hit that one, Dave. Yeah, revenue growth. I think that's— it's showing that the best-in-class, um, 12 months after IPO, it's 70% and greater after IPO. To me, that tells you that growth is still a high expectation of the public investors.

Yeah, to build a public SaaS company is so hard these days. I mean, you need to get to $200 to $300 million in ARR and be growing at 70%. That's a really high bar.

That's what we got. A couple more here. Do we even want to talk about the magic number? It's my, my least favorite metric.

Yeah, we, we can skip it for now.

Dollar-based retention. Now this is where you talked about, you know, also known as net revenue retention or net dollar retention, where best in class is 140. The kind of the middle of the road is 120 to 140, and good's 120. I do think this is old data because I just saw, um, David Spitz write something today where we're actually regressing down to like 105 to 110 for the median for public company NRR. What say you?

Yeah, this is a funny chart because it's, it's rank— it's dollar-based net retention at IPO. So what— in which, i.e., these companies range, it looks like, you know, the newest ones are 2021, some of the older ones are back— well, it's not going that far back, is it? 2018, I see 2017, so it's fairly recent, 2016. But they're IPOing into very different markets. A lot has changed between 2016 and now. So I think it's kind of inherently flawed. I don't think this chart makes sense. I would much rather look at one of the cloud adjustment charts that shows it right now in terms of public companies. So at IPO, it's less interesting to me because the IPO bar is constantly moving over time and it's not telling you what it is today.

You know, Dave, thank you for pointing that out. I missed it that they're showing the Net dollar-based retention at IPO. And we know that where NRR was in 2021 is much different than the end of 2023. Much different.

Oh yeah, all these charts in the appendix, I believe, with the exception of the, uh, the EV-to-value one, are showing at IPO.

That's a great call out. And then the last one here is the LTV-to-CAC ratio, and it's using the standard: if you're 3.0 or better, you're in best of class. But once again, This is from 2, 3, 4 years ago.

Yeah, even back more than that, even 2016 SE. Yeah.

Well, let's end this second episode. And do you want to have any summary comments on the Battery Ventures Open Cloud Report?

Uh, just a couple quick ones. One, I think it's a great report. I think it's, you know, one everybody should read. Ray and I look at a lot of reports. We don't do episodes on everything we find, uh, but we find a good one, we share it. This one we actually split in So definitely go read the report. It's got a lot of great data in it. The other one I think of late we did, I guess 2 episodes ago at this point, was the OpenView one. If there were 2 reports I'd read over the holidays, it would be this, the Battery Ventures State of the Open Cloud, and then the OpenView 2023 SaaS Metrics, which unfortunately there may not be a 2024 SaaS Metrics from OpenView. It doesn't look like.

Yeah, that is sad. And I wanted to give you a little bit of an early holiday gift, Dave. If you want to channel your inner growth and post about something that's growth-oriented, you've got my blessing. Happy holidays.

Oh, thank you, Ray. LTV to CAC is on my list. I still have a post I'm doing on it, so that's what I'll be working on. And predictions over the holidays. I'm going to do LTV to CAC revisited and 2024 predictions.

Okay, happy holidays everyone. Happy holidays, Dave. Thank you so much for listening to SaaS Talk with the Metrics Brothers.

The Metrics Brothers AI, SaaS, and More is a production of the Metrics Brothers Growth and CAC. And a member of the Bench Market Podcast Network. By accessing this podcast, you acknowledge that the Metrics Brothers make no warranty, guarantee, or representation as to the accuracy or sufficiency of the information provided or the humor content of the jokes told.

Ray?

Information, opinions, and recommendations presented are, according to our spouses, probably wrong and provided for information purposes only. This podcast should not be considered professional or, for that matter, unprofessional advice. We disclaim any and all liability for any direct, indirect, indirect, misdirect, incidental, special, ordinary, consequential, inconsequential, or other damages arising out of any use of, or God help you, reliance upon the information presented here. Ray Grothreich is based in New York City and available on X @RayReich. Dave Kellogg is based in Silicon Valley and available on X @Kelblog. Schedectady, which is French for unspellable, is not our actual production location. Thanks for listening.