Some rules of thumb for evaluating startups

This is an ongoing compilation of metrics for tracking and benchmarking tech startups…

SaaS Growth Benchmarks

T2D3 – The expectation that companies should triple the first two years after reaching $1M ARR and double the next three years comes from this article

Mendoza Line for SaaS Growth – Bad things happen when a company’s growth rate falls below the Mendoza Line

The Growth Rate Mirage – Different formulas can produce a wide range of growth rates making it difficult to compare early stage companies. (Growth rates converge over time as companies get bigger). Here, the Scale iCAGR is introduced:

SaaS Sales Efficiency Benchmarks

These efficiency scores compiled by Bessemer Venture Partners are similar. Here’s how I think about them from most relevant to least:

• The Rule of 40 (slide 30)

  

• Efficiency Rule (slide 35)

  

• Efficiency Score (again, slide 30) should be above 75% for pre-IPO companies.

  

Evaluating Marketplaces (Qualitative)

All Marketplaces Are Not Created Equal – Bill Gurley distils success for marketplaces into 10 key factors:

4. New Experience vs. the Status Quo

8. Economic Advantages vs. the Status Quo

12. Opportunity for Technology to Add Value

16. High Fragmentation

20. Friction of Supplier Sign-Up

24. Size of the Market Opportunity

28. Expand the Market

32. Frequency

36. Payment Flow

40. Network Effects

20/20/20 Rule – This rule of thumb provides a quick gut-check regarding the viability of the much simpler, back of the napkin approach to evaluating marketplaces: Do they provide…

• 20% cheaper services for consumers with same utility?

• 20% more income for service providers?

• 20% margins?

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