SaaS Interviews with CEOs, Startups, Founders
SaaS Founder Confessionals: Lessons Learned From Raising $500 Million Dollars
19 Jul 2023
Chapter 1: What is the main focus of the SaaS Founder Confessionals?
I'm very excited to share this recording with you guys, which happened at our conference, sasopen.com, with over 100 speakers, all founders of B2B SaaS companies. We have a very high bar for what speakers share on stage, so you're going to enjoy this episode where we dive deep into revenue graphs, real tactics, and real growth metrics.
You are listening to Conversations with Nathan Latka, where I sit down and interview the top SaaS founders, like Eric Wan from Zoom. If you'd like to subscribe, go to getlatka.com.
We've published thousands of these interviews, and if you want to sort through them quickly by revenue or churn, CAC, valuation, or other metrics, the easiest way to do that is to go to getlatka.com and use our filtering tool. It's like a big Excel sheet for all of these podcast interviews. Check it out right now at getlatka.com. So my name is Ben Murray.
I'm a SaaS CFO by trade and came up through the finance and accounting ranks in the airline industry, then got into software, and now offer fractional SaaS CFO services, do some coaching. teach courses in SaaS metrics and finance, and actually co-founded an app to automate cash collections and have a SaaS news site. So really live and breathe SaaS at this point in time.
So today, talking about SaaS founder confessionals, lessons learned from raising a cumulative $500 million. So I have a podcast as well where I interview SaaS founders. And one of those questions is, Tips and tricks, lessons learned in the fundraising process. And we know Nathan, big fan of bootstrap companies, but we know SaaS companies also raise capital. So what are those lessons learned?
And of course, they always have something to say. Or even if they could go back in time and redo their fundraising process, this is what they do. So let me hit click. Over the next 20 minutes, boy, that's small, talk about founder-investor fit, know your milestones, and then storytelling. So we'll deep dive into these. And these were the three recurring themes with raising capital.
I'd say founder-investor fit, probably number one on the leaderboard is finding that fit with investors with your company. So first, diving into founder investor fit. So vision fit. And we know, and I've talked to a lot of investors, PE firms, we know they can talk SaaS, but do they know your vertical? Do they know prop tech, healthcare tech, gov tech? Can they define your competitors?
That's a big thing. Have they done the research? Do they know your space? Or are they just speaking general SaaS terms here? And then what's their value add? What do you want them to bring to your company? What are the strengths that can help your company as an investor? And then finally, one thing, the big thing here is problem aligned with the investor vision.
So is the problem you're trying to solve aligned with what they're trying to do? Say, for example, in prop tech or healthcare tech or for your CRM system. So do you have alignment of what you want to achieve in that space? And the next thing is do your research. And the SaaS founder told me, you're getting into bed with your lead investor. So do your reference checks. Go out to lunch with them.
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Chapter 2: What lessons can founders learn from raising significant capital?
And so this is from the last six months of fundraising announcements that I cover on my site. And you can see these are bottom quartile to top quartile. And seed ranging around 4 million. So it's important to get that initial amount that you're raised that you don't go too short. I think sometimes it's easy to not ask for enough.
And one founder that I was helping raise a seed round, looking in the million or two range where it's like, well, maybe he needs four, right? It takes a lot to go through product market fit and scale the company to that next phase. You saw Mesh with a Series B raise at $50 million.
And that was in the top quartile for Series B. And then I find after that, Series C, D, and E, it varies all over the place. But I have some data points on that as well. And the next thing, really important, is defining your milestones. So the first one, pick your targets. What are you trying to do with this capital? And there's so many different things that we can be doing.
Sometimes we sold our vision, now we have the funding to build our product. Or maybe we're trying to find product market fit. Or maybe the next thing we've got product market fit, and then we're scaling our go-to-market motion. So be specific as what we're trying to achieve with those milestones.
And then one thing that came up a lot, I also asked SaaS founders, what were those triggers that led you to your raise? How did you know it was time to raise money? And that's always the big thing with SaaS founders. Should I raise? Should I not raise right now? And there were always triggers. And one thing, of course, that came up a lot, product market fit.
They saw product market fit, and now it's time to take it to the next level. And the next value alignment is your definition of value creation with your investor the same. Maybe they're going after enterprise value market share, but you want user growth, or maybe you want to hit certain ARR targets. And of course, as a CFO, make sure you lock these targets in.
Rolling targets are great, but lock in those targets.
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Chapter 3: How important is founder-investor fit in fundraising?
Otherwise, we don't know if we're achieving against those targets. Are we ahead? Are we behind? So lock in those targets. And then finally, communicate. And again, this came up again, be authentic and transparent. And really, once you have that investor, right, you pick them because there's strengths, there's value add there. So, you know... Try to avoid those surprises.
And even as CFOs, we know we try to avoid surprises with our board, with our executive team, and our investors. And then also, this is a big thing. SaaS founders get busy. Frequent updates with your investors. And I'm talking to one founder. With those frequent updates, when they came
to the next point where they needed more capital, they were opening their checkbook because they know exactly where that company stands. They know what's happening, what's the story. And also, if you're targeting potential investors, keeping them in the loop as far as what's going on with the company, because then when you're going for that next raise, they know the same thing.
They know you're not pitching your company from scratch. And I've got another clip, but I don't know if it's going to play here. I don't think so. Let's see. Yeah, nothing. All right. Oh, well. When we raised our seat round. We considered that our calibration phase, the goal was to prepare scalable processes. We figured out product market fit.
Now let's figure out a sales process, onboarding process, a service process that will allow us to bring this to multiple markets. And then now that we are in the scale-up phase where we did our pre-series A round, our goal is to go internationally and therefore a couple of new KPIs that kick in. So instead of measuring MR, we now talk in terms of AR.
We also care about net dollar retention rate, ARPA, customer acquisition cost payback rate, sales funnel metrics. So perfect, that played. So let's keep going here. Can you move it to the next here? Oh, there we go. So to summarize what Stefan said here, there are many different paths as you scale up your company. But we had the seed round, proof of concept, MVP, maybe selling your story.
And next came product build, that product market fit stage. So going through the build, discovery calls, finding that fit. And then finally, he called it calibration phase. So now building out your systems, your processes, building out your staff, your people. And then next, the scale-up phase.
So he had the calibration phase and then the scale-up phase, and now adding staff, going after revenue, and in Stefan's case, going international as well. And then finally getting him ready for the Series A. And the Series A then, you know, it's so important we're selling our vision, but now at the Series A stage, we have to support our vision with metrics, with data.
So he had that calibration phase, the scale-up phase. And then I put this kind of red danger warning symbol here because I've seen SaaS companies who are in this product build phase trying to find product market fit and then trying to scale up their go-to-market engine because they're their cash is declining. The cash runway is depleting.
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Chapter 4: What milestones should SaaS founders aim for during fundraising?
that managing director, general partner at a VC firm is much more likely to invest time and even take you more seriously if it's a personal introduction. And a fractional CFO is a great point of contact for you. Other questions? Hi, Ben. Hi. We're B2B SaaS doing around 5 to 10 mil ARR right now.
So I kind of want your take on how should the finance team structure look like at the five to 10 mil ARR? And how should the finance team structure when we grow to like 10 mil plus? And what are some of the process and control? Because when we started, we started bootstrap. Everyone have the company credit card. They just spend whatever they need.
And I basically told everyone just treat it like your own money is good. But now I feel like we're at a size where things need some control. Yeah, I'd say 5 to 10 million. Things are getting more complex. Usually what I see less than 10 million AR, your accounting is outsourced. Rarely do I see someone, an in-house accountant or controller, which is nice. It's a nice plus when they do have that.
But usually accounting is outsourced to a firm that understands SaaS. So you can get your bookkeep in place, produce financial statements on a timely basis. And then maybe see what your needs are. How complex are you invoicing? Do we need to bring that in-house? And we invoice on behalf of ourselves versus the accounting firm doing that.
So usually less than 10, it's around the accounting function. Do we want to bring some of that staff in? Do we want to have, say, a staff accountant who oversees the outsourced accounting firm? And then we build from there. Then it's like, all right, do we want to bring a controller in?
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Chapter 5: How do SaaS founders determine when to raise money?
Then do we want to bring in maybe then a CFO at some point, then an FP&A hire? But usually it's around accounting. It's outsourced. And you can get a lot of runway from outsourced accounting and then decide what to bring in. The other thing I would add is we have someone else in the audience, David Apple, who heads up the subscription revenue business at Sage.
He talks to hundreds of SaaS companies your size every year that's thinking about what's that financial tech stack infrastructure I need. So he's in the back. I'm sure he'd be happy to talk to you about what he's seeing as far as best practices regarding financial automation. And I was talking to Ana about this earlier. For the first time, financial automation has seen its real day in the sun.
THINGS LIKE AUTOMATING SPEND MANAGEMENT OR AUTOMATING THE ENTIRE CLOSING PROCESS. SO NOW IS AN OPPORTUNITY FOR YOU TO GET FINANCIAL OPERATIONAL EFFICIENCY IN PLACE. KIND OF THAT 10 MILLION AND ABOVE, YOU SHOULD REALLY THINK ABOUT THAT. ANY OTHER QUESTIONS?
Okay, Ben, anything you want to, any, you talk to SaaS finance people every day, any last minute advice, even beyond funding you would give to really bulletproof your financial operations infrastructure? Sure. Well, now, I mean, tech is such a big thing. But it's things that I see over and over as you scale your SaaS company.
One, it's always, you know, I always say it's not sexy, but it's satisfying, is your accounting foundation, right? We've got to have the accounting foundation in place. And then from there, we create our SaaS P&L. And there's so much data you can take from your SaaS P&L. And then from there, put in the SaaS metrics. So it's a journey, but it starts with accounting.
And then thinking about our tech, our roadmap, our core accounting software. Then do we need invoicing software, revenue management software, sales tax compliance? Those are the first few things that I'm really focused on. And then from there, travel and expense, different things, spend management. But there's an evolution.
So CFOs need their own product roadmap for their finance and accounting organization. Great. Ben, thank you so much. Good job, boys. Appreciate it.
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