Board Report
February 9, 2023

The Three Main KPIs Investors are Looking at for Profitability in the SAS Space

The Three Main KPIs Investors are Looking at for Profitability in the SAS Space
Board Report
February 9, 2023

The Three Main KPIs Investors are Looking at for Profitability in the SAS Space

Ignacio Gassó
Co-founder & Chief Operation Officer
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Brian, a CFO in the SAS space, recently sat down to discuss the changing landscape of business metrics with a colleague. They both agreed that the shift from revenue at all costs to more efficiency was a positive trend. However, the number of reporting that you have to do or the currency that you are doing is higher, making it necessary to focus on key performance indicators (KPIs) that investors are checking for profitability.

According to Brian, there are three main KPIs that investors are currently looking at when assessing a company's profitability.

Net Revenue Retention

Net revenue retention is a metric that shows how much revenue a company retains from its existing customer base. Brian emphasized that this KPI has a high focus right now, especially as companies look to become profitable. Investors are interested in companies that have a strong net revenue retention rate since it is a more efficient way to grow, particularly with the current increase in customer acquisition costs (CAC).

Effective Runway

Effective runway is another essential KPI that investors look at, especially in the seed series to series B stage. This metric calculates how long a company can stretch its business based on its current cash and burn rate. Brian noted that the average timeline for a new round has now exceeded two years, which is quite scary for the seed stage. Historically, the timeline was around one year, but it has now increased to two years. Thus, investors want to know the effective runway of a company to assess how long it can sustain itself without another round of funding.

Efficiency Metrics

The third KPI that investors look at is efficiency metrics that encapsulate more than just top-line revenue or ARR growth. Efficiency metrics like burn multiple rules of 40 magic number allow investors to assess a company's holistic approach to profitability. Brian emphasized the need to invest in the growth part of a business while ensuring that it does not go over its skis, i.e., running the cash for an operating business.

In conclusion, the shift towards profitability has brought about changes in the KPIs that investors are checking for SAS companies. Companies that focus on net revenue retention, effective runway, and efficiency metrics have a higher chance of attracting investors looking for profitable ventures.

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