According to a report by Capchase comparing more than 400 SaaS startups to unicorns that reached the public markets in the last two years, the top performers “are handily beating the ‘Rule of 40,’” reports Kyle Wiggers.
For those of us who haven’t memorized economic frameworks: The Rule of 40 is a metric investors developed to gauge the health and growth potential of SaaS startups. If a company’s combined growth and profit rates add up to more than 40%, it’s a good bet.
Capchase’s report looked at startups pulling in between $1 million and $15 million in annual recurring revenue. According to its findings, SaaS founders should target at least 80% and aim to surpass 110%.
“Financial discipline is key here,” said Capchase CEO and co-founder Miguel Fernández.
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“This includes cutting non-performing products, decreasing R&D and general and administrative expenses, and doubling down on creative strategies to recover customer acquisition cost instantly to reduce burn associated with growth.”
Useful news for investors and founders, but a worrisome signal for workers at software companies: Aggregator Layoffs.fyi tracked 75 layoff events in May 2022, and as of this writing, 152 in June.
I remember the dread I felt as a startup worker during downturns when I read about mass layoffs at tech firms that had previously been considered ascendant. My best advice: Strengthen your network. Find five co-workers to recommend on LinkedIn, reach out to someone you haven’t spoken to in a while, and do your best to keep your mind in the present moment.
And if you have ever discussed an idea for starting a company with a friend, think about working on a pitch deck. You never know…
Thanks for reading TechCrunch+ this week and best wishes for a happy Independence Day to our readers in the U.S.
Walter Thompson
Senior Editor, TechCrunch+
@yourprotagonist
Today’s startup layoffs have nothing on the 2020 correction
Image Credits: Nigel Sussman (opens in a new window)
Although the pace of startup layoffs has increased in recent months, it’s still well below the rate at which companies were reducing headcount at the start of the pandemic, reports Alex Wilhelm in The Exchange.
“The 2022 correction is different. It’s been slower to arrive, giving startups more time to adjust to changing market conditions. And it was presaged by falling public markets that, we presume, allowed some private companies to conserve cash in anticipation of, say, a more conservative funding market.”
When it comes to sanctions, PE firms must proceed with great caution
Image Credits: mikkelwilliam (opens in a new window) / Getty Images
Banks and other financial institutions must follow know your customer (KYC) guidelines, but private equity funds have a loophole: They are not legally bound to tell regulators who their investors are — or if they’re behaving suspiciously.
Russia’s invasion of Ukraine changed that, however.
The increasingly isolated nation is now facing international sanctions, and “PEs are investing in the close management of compliance programs, policies and procedures at each of their portfolio companies,” writes Snežana Gebauer, a partner with StoneTurn.
5 ways to seize the opportunities created by recent chaos in ad tech
Image Credits: Jeffrey Coolidge (opens in a new window) / Getty Images
This year, TikTok’s ad sales are expected to triple to more than $11 billion, trouncing the combined ad revenue of Twitter and Snapchat.
According to Alex Song, CEO and co-founder of data science company Proxima, this upheaval in media technology stocks is creating benefits for early-stage startups, “because forced innovation makes for a more competitive environment.”
In a TC+ guest post, he shares five strategies “for capitalizing on the turbulent advertising environment.”
Dear Sophie: Will a doctor get a green card faster than an engineer?
Image Credits: Bryce Durbin/TechCrunch
Dear Sophie,
My wife and I are from India. I’m a software engineer and have an H-1B visa. My wife has a dependent H-4 visa. The company that sponsored me for the H-1B also sponsored me for an EB-3 green card, which was approved about three years ago, but I’m still waiting for a green card number. My wife received her employment authorization and has been working as a doctor since then.
Can she apply for a green card? Will she get a green card sooner given her profession? If she applies for a green card, what happens to my green card?
— Humble Hubby
One to watch: Debut Capital’s Pilar Johnson works to augment funding for overlooked founders
Image Credits: Pilar Johnson
For Pilar Johnson, co-founder and managing partner at Debut Capital, the road to investment started after she responded to a Craigslist job posting in a co-working space.
“That job exposed her to the concept of entrepreneurship, and soon, she started studying how founders scaled their businesses,” writes Dominic-Madori Davis in her new investor profile series.
Johnson, who is based in Houston, shared her investment thesis and strategies and spoke about her efforts to expand diversity in venture capital.
“If anybody is interested in being an investor and doesn’t think they have the skills, I would say, don’t believe that,” she said. “You can completely become an investor, and it’s needed.”
What to look for when hiring a growth marketing agency
Image Credits: MicroStockHub (opens in a new window) / Getty Images
As startups of every size hunt for ways to reduce costs and expand their customer base, the term “burn rate” takes on a new emotional aspect, particularly with regard to hiring consultants.
Growth marketing agencies charge hundreds of dollars each hour, which raises the stakes dramatically for finding one that will address your company’s specific needs.
In a detailed primer, growth marketing expert Jonathan Martinez shares his criteria for the selecting process, presents common fee structures, and includes some of the top questions to ask during the review process.
Pitch Deck Teardown: Wilco’s $7 million seed deck
Image Credits: Wilco (opens in a new window)
Founders with a technical background would do well to heed one of the biggest takeaways from Wilco’s $7 million seed pitch deck: Avoid the trap of focusing too much on the features of a product, rather than its benefits, writes Haje Jan Kamps.
“The ‘how’ will be important, but risks the temptation of getting into more detail than what’s important for a pitch deck. The ‘what’ is too tactical; for this part of the story, it doesn’t really matter what users need to do to gain these benefits. Focusing on the ‘why’ is why this slide is so powerful; it opens the door to more in-depth conversations if needed, but the groundwork is there. I wish more startups got this right!”
How to keep your development team aligned with the company’s product vision
Image Credits: Peter Dazeley (opens in a new window) / Getty Images
As a company grows, it’s common for teams to prioritize changing goals as they increase the scope of their activities.
However, there’s one team that can’t afford to lose sight of your vision for the product: development.
“When you have a development team aligned with the product vision, communication becomes easier, and there is lower dependency on key stakeholders, as it empowers team members with decision-making ability,” writes Sanjoy Singh, VP of engineering at Talentica Software.
“Such teams think more about improving feature adoption, customer engagement and delivering product-centric outcomes, which reduces iterations and production cost, refines time-to-market and helps in achieving business milestones.”
Singh explains his four rules to keep product teams aligned with the product vision:
- Map individual aspirations with product needs
- Follow product mindset principles
- Align business outcomes with team KRAs
- Ensure seamless communication
