Scaling Late-Stage SaaS, 2024 Metrics

Each year, ICONIQ, a prominent VC fund, analyzes financial and operating data from (mostly) its portfolio of startups — primarily SaaS companies — to uncover insights into scaling such businesses. Their recently published 2024 report, “Scaling SaaS: Forging Excellence Through Fundamentals”, highlights key findings worth sharing.

ICONIQ categorizes startups by scale based on ARR: (i) Early-stage: under $25M in ARR; (ii) Growth-stage: $25-100M in ARR; (iii) Late-stage: over $100M in ARR. Here, I will focus on the late-stage segment, as it aligns with Fabrica Ventures’ focus.

* Median YoY ARR growth has dropped to its lowest point in eight quarters, falling from ~40% in 2022 to 19% in 1H 2024. This slowdown is largely due to a significant reduction in new customer acquisition. Companies are facing mounting challenges in securing new logos, driven by a more selective purchasing environment

* Over the same period, net dollar retention has seen a modest decline, from 116% to 108% (top quartile). This decrease is primarily due to weaker customer expansion, while churn rates have remained steady

* With topline growth becoming harder to achieve, late-stage companies have increasingly prioritized bottom-line preservation. This shift has resulted in consistent improvements in FCF margins, rising from -15% to 4% (median)

* Despite these efforts, the Rule of 40 has remained stagnant at around 28%, suggesting that cost adjustments have not been swift or substantial enough to fully offset the slowdown in growth

* In terms of sales efficiency, the net magic number (current quarter net new ARR / prior quarter S&M OpEx) shows no signs of improvement (now at 0.9x), underscoring the headwinds late-stage SaaS companies continue to face in driving net new ARR growth

* While headcount productivity (ARR per FTE) has improved from $206K to $249K, headcount efficiency (OpEx per FTE) has declined, rising from $214K to $232K. The increase in OpEx per FTE may also be attributed to inflationary pressures, competitive compensation strategies, and a relative increase in spend on strategic initiatives, including AI

Conclusion

Great companies are usually forged during challenging times.

Hopefully, the macro environment will improve soon and late-stage tech startups with solid fundamentals will undoubtedly thrive once again.