SaaS Engineering

SaaS Engineering explores the complexities of SaaS startups, delving into finance, valuation, investing, and operational strategies. It provides insights on founding teams, business modeling, investment decisions, and metrics analysis while addressing the unique challenges of SaaS ventures from startup valuation to IPO analyses.

SaaS Startups Finance and Valuation Investing Strategies Operational Strategies Business Modeling Market Entry Strategies Economic Analysis Revenue and Profitability Company Evaluation Capitalization and Financing

The hottest Substack posts of SaaS Engineering

And their main takeaways

Thinking about Writing Down your Investment?

137 implied HN points • 07 Jan 24
đź’° Finance Investments Venture Capital Startups Valuation Capital Markets
  1. Understanding the difference between preferred and common stock is crucial for calculating holding values.
  2. Writing down investments only makes sense if a company's value decreases below the size of its liquidation preference relative to the investment.
  3. High valuations may not always benefit investors due to misaligned incentives, especially in scenarios where the company's valuation is higher than its true worth.

How to mess up a good company and not make any money along the way

137 implied HN points • 02 Jul 23
đź’° Finance Investing Venture Capital Financing
  1. Investing early in a successful company may not guarantee returns if mispricing and over financing occur.
  2. Selling secondary shares at various funding rounds can lead to a more secure return than waiting for a long-term exit.
  3. Maintaining a conservative financing trajectory can lead to attractive outcomes, even if less exciting than high-risk strategies.

How are SaaS Startups Valued?

157 implied HN points • 03 Mar 22
  1. Valuing SaaS startups is a complex process, not a straightforward task.
  2. Raising capital significantly impacts a company's valuation and future potential.
  3. Understanding share classes and the implications of different funding rounds is crucial for founders and investors.

Understanding and Describing Groups with Averages

39 implied HN points • 02 Mar 23
🚌 Education Math Statistics
  1. Averages like mean, median, and mode help us summarize and understand groups of data.
  2. Using the correct type of average is important to accurately represent the data, like using median for ranking or mode for most common occurrences.
  3. In scenarios like evaluating investment portfolios, understanding the median progress and how it relates to the future mean outcome is crucial for decision-making.
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The Revenue Multiple

78 implied HN points • 17 Aug 22
  1. Revenue is the key factor in making a business valuable.
  2. Understanding a company's characteristics drives its valuation.
  3. Revenue multiples vary based on growth predictability and scalability.

The Purpose of Business Modeling

157 implied HN points • 29 Nov 20
  1. Models should accurately reflect reality like simulating the reaction of a physical device.
  2. For a business model, inputs, mechanics, and outputs need to represent how the business functions.
  3. Building an effective model can help set goals, understand impacts of operational changes, and guide budgets.

Unit Economics Fundamentals

98 implied HN points • 18 Jan 21
  1. Unit economics is crucial for understanding the profitability of businesses.
  2. Identifying the right unit is key, like customers, orders, or items.
  3. Focus on CAC, customer consistency, acquisition costs, and long-term revenue when analyzing unit economics.

Calculus in SaaS

117 implied HN points • 18 Sep 20
  1. ARR is similar to velocity in calculus - it's a rate at a specific point in time implying future revenue.
  2. In SaaS, ARR is like a balance sheet metric, taken at a single point in time.
  3. While ARR growth can be conceptually tied to calculus, predicting it with equations might not be practical in real businesses.

Thin Slicing ARR

117 implied HN points • 11 Aug 20
  1. Separate business metrics early on for better understanding and improvement.
  2. Break down ARR into fundamental components like new, churned, upsell, and downsell ARR.
  3. Thin slicing ARR helps assess business health, make predictions, and align goals for efficient operations.

B2B, B2C, B2B2C, B2C2B... the GTM Menu and Business Model Innovation

58 implied HN points • 19 Aug 21
  1. Different business models like B2B, B2C can lead to successful market entries
  2. Optimizing the go-to-market strategy is crucial for success in the current market
  3. Creative application and combination of GTM strategies can lead to innovative business models

Customer Acquisition Cost ≠ Sales & Marketing Expense

98 implied HN points • 31 Aug 20
  1. Customer Acquisition Cost is not the same as Sales & Marketing Expense.
  2. The sales cycle length is a critical factor in understanding the difference between CAC and S&M expense.
  3. Calculating CAC based on sales cycle length provides a more accurate picture of sales efficiency.

Talking FP&A

19 implied HN points • 15 Sep 22
  1. FP&A is critical for analyzing and planning in companies as data volume increases.
  2. Start building models early and keep them simple but accurate.
  3. Ensure variables tie to measurable business triggers for a mathematical reality.

What is SaaS

98 implied HN points • 29 Jun 20
  1. SaaS stands for 'software as a service' sold through subscriptions.
  2. Software scalability and low marginal costs are key factors in SaaS business models.
  3. Subscription models in businesses may not operate or be valued in the same way as SaaS.

Economic Metrics

58 implied HN points • 18 Feb 21
  1. Businesses have evolved over the years with new models driven by technology
  2. When analyzing a company, focus on accounting, cash, and operating metrics to understand economic reality
  3. There is no one-size-fits-all approach to determining economic reality as it varies based on sector, business model, and strategies

Leverage Frameworks

78 implied HN points • 15 Jul 20
  1. Using technology to perform tasks faster and more efficiently.
  2. Leveraging different people and their skills to work together effectively.
  3. Utilizing money or access to networks to enhance one's pursuits.

Who am I, What do I do, How did I get here

78 implied HN points • 26 Jun 20
  1. The author works with technology companies on finance, considering it the language of business.
  2. They aim to align entire companies to common goals using consistent data and language.
  3. The author has a background in mechanical engineering and experience in tech investment banking and early-stage businesses.

Metrics, metrics & METRICS

58 implied HN points • 28 Jun 20
  1. There are two main types of metrics: Diagnostic Metrics and Operating Metrics.
  2. Diagnostic Metrics help understand a business's health, while Operating Metrics help improve the business.
  3. In the SaaS world, common metrics like LTV/CAC and Churn Rate provide value but may not have standardized calculations.

Crossing Over on Causal.app

39 implied HN points • 03 Nov 20
  1. Solar panels became more energy efficient to produce after 2007
  2. Causal.app is a powerful tool for building models with intuitive features
  3. Causal can streamline the process of creating detailed financial plans

Churning

39 implied HN points • 08 Jul 20
  1. Churn is when a customer stops paying for a subscription service, leading to loss of revenue and customer.
  2. Churn is important because it disrupts the predictability of recurring revenue in a business model.
  3. To evaluate churn, focus on customer churn rate, revenue churn, and non-renewals, but avoid net churn as it oversimplifies the analysis.

Revenue, Etc.

39 implied HN points • 06 Jul 20
  1. Revenue is recognized when goods/services are delivered as per a contract.
  2. Bookings refer to the total or annual value of contracts signed within a period.
  3. MRR is the monthly recognized revenue from recurring contracts.

SaaS vs. Subscription

39 implied HN points • 02 Jul 20
  1. SaaS companies need subscription, high margin, and scalability to achieve high multiples.
  2. Subscription businesses like insurance rely on regular revenue from premiums.
  3. Insurance business demonstrates strong metrics like customer retention and cost efficiency.

The FinOps Flow

19 implied HN points • 03 Feb 21
  1. Start by building a business model highlighting key metrics.
  2. Develop forecasts based on the model and commit to targets.
  3. Build budgets by department, track actuals, and refine the model.

Proxy Valuation Modeling

19 implied HN points • 24 Jul 20
  1. Valuation goes beyond simple models like discounted cash flow.
  2. Higher order models can be useful in estimating long-term value.
  3. Use a combination of models to assess a business's viability.

Directional Valuation

2 HN points • 18 Sep 22
  1. Company valuations for startups can be challenging due to various factors, making it more art than science.
  2. Understanding key variables in a DCF analysis, like growth rates and discount rate, is essential for accurate valuation.
  3. Utilizing a model like the Startup DCF Model can help clarify the impact of changing key variables on a business's value.

How I Evaluate Companies

19 implied HN points • 19 Mar 19
  1. In venture capital, evaluating companies requires asking fewer questions but getting more valuable information.
  2. When assessing early stage businesses, prioritize team, product, metrics, market, and business model, in that order.
  3. For growth stage companies, focus on team, metrics, market, technology & product, and business model, in that order, with deep emphasis on financial metrics.

You pick the Valuation, I set the Terms…

19 implied HN points • 28 Dec 16
  1. Consider the disconnect between stated valuations and actual returns in venture investing.
  2. Understanding liquidation preferences can align incentives between founders, employees, and investors.
  3. Complex financing terms in mega-financing deals can impact returns and incentives in venture-backed companies.

Ongoing Expenses vs. One-time Expenses

0 implied HN points • 11 Sep 20
  1. Differentiate between ongoing and one-time expenses in accounting.
  2. Effectively allocate expenses to represent the business accurately for planning.
  3. Misallocation of expenses can impact unit economics and long-term profitability.

Harry

0 implied HN points • 02 Dec 16
  1. Harry Weller was a mentor who empowered others to grow and learn independently.
  2. Harry excelled at work-life balance and found inspiration in personal experiences.
  3. Harry had a unique ability to recognize potential in others and help them succeed.

Are Recent Valuation Hits as Unreasonable as they seem?

0 implied HN points • 09 Feb 16
  1. Valuing a company involves considering its future cash flows and applying industry-appropriate metrics like Price to Earnings multiples.
  2. For growing companies with negative cash flow and net income, valuation may rely on metrics like revenue and growth projections.
  3. A small change in revenue guidance for high-growth companies can lead to significant impacts on future profitability and stock prices.

What I learned about VC Investing from… Paintball?

0 implied HN points • 09 Jan 17
  1. In VC investing, taking calculated risks is crucial for success, not playing it safe.
  2. Controversial deals often lead to the best outcomes in venture capital.
  3. Successful venture portfolios are carried by a small number of high-performing investments.

Software IPO Analysis

0 implied HN points • 04 May 18
  1. Over 100 software companies have gone public since 2011, with 2018 being a standout year for IPOs.
  2. Software companies are going public later, with higher valuations, but are less profitable than in previous years.
  3. Market caps and deal sizes have significantly increased in 2018, showing strong investor demand for scalable businesses.

Modeling SaaS with Causal — Answering key Operating Questions

0 implied HN points • 26 Mar 20
  1. Causal modeling tool helps in visualizing dependencies within a model and sharing institutional knowledge.
  2. Creating a useful model involves identifying input and output variables to answer key questions.
  3. Important features of Causal include input ranges, live integrations, and sensitivity analyses.

SaaS, Venture, Finance, Valuation, Investing, Operations

0 implied HN points • 25 Jun 20
  1. The post is about SaaS, venture, finance, valuation, investing, and operations.
  2. Alex Oppenheimer's Substack focuses on SaaS engineering with a background in finance, engineering, and investing.
  3. Readers are encouraged to sign up to not miss the first issue and share with friends.

Operating Data Time Steps

0 implied HN points • 13 Jul 20
  1. Data visualization is crucial for understanding businesses quantitatively.
  2. Using the right time step in analyzing operating data is essential for accurate insight.
  3. Slicing data effectively can reveal deeper insights into business operations.