ย Nick: Today, Mamoon Hamid joins us from Palo Alto. Heโs a general partner at the Social+Capital Partnership, VC firm based out in the Bay Area. And Mamoon has invest in iconic SAS companies such as Box, Yammer, Slack, Greenhouse, Intercom, Castlight Health, Act-On software, and dozens of others. Mamoon, thanks so much for the time, and for joining us today.Mamoon: Thank you, Nick!Nick: So, can you walk us through your background and how you got into venture?Mamoon: Sure, yeah. So I moved to the Bay Area in 1997 right out of college. I had studies electrical engineering at Purdue, so naturally the place to go was Silicon Valley in 1997, when all the rage was chips and SGI at Intel, so I came out here to work for a Silicon Valley based, Semiconductor Company called Xilinx and joined as an engineer. Did that forโฆthree years, and got to learn and go right through the first internet boom more on the sidelines as a guy who built chips for the networking and telecomm industry. So I got to see that really play out over the course of a few years.
And then I knew I didnโt want to be an engineer forever, so I started to think about my next steps and got recruited to a team that was tasked to find new growth areas for the company right as the bubble was bursting. And for my company, most of our revenue was from the telecomm and networking space, so we had to quickly find a way to get out of that, or at least find new areas to grow from. And so I was part of this new startup within a larger company, which is kind of my taste of a startup being when things werenโt so great. So actually got some pretty awesome responsibility to go after consumer and automotive for our company and grew that to be a real businessโbecame a hundred million dollar business over the course of three years that I was responsible for. Kind of an amazing leap to make from engineer to like starting a little business and taking leadership of that business and growing that into a real revenue stream for our company.Nick: Sure.Mamoon: Yeah, soโand that was sort of like my operational career as an engineer and operator in the Valley. And I was fairly young at the time still. I graduated college when I was nineteen so by that time, I was like twentyโtwenty-three/twenty-four when I started thinking about sort of my next thing. And one of the things Iโd been doing at that company was also helping evaluate some investments out of our corporate venture fund. So we had this seventy-five million dollar corporate venture fund that was investing in semiconductor startups but also like ETA start-ups, and networking startups, and so got a little taste by helping them evaluate a number of companies and that was sort of my first foray into venture investing.
And that was in the back of my mind as I was thinking about sort of the next thing I could think about doing in my career, which led me to thinking about going to business school. Less so about the learning, and more about having time to be away from the valley for a couple years. So applied to one school, got into that one school, moved to Boston to go to Harvard for a couple of years to think out of the valley echo chamber, knowing that Iโd want to come back to the valley and do something in technology. And really, in venture capital, that came to be. So I had my eye set on venture capital for, I guess, a long time, and made sure I spent that summer between first and second year of business school in venture capital.
So I find myself an internship at a small VC firm in the valley. Got a chance to look at some interesting companies during that summer, and really sink my teeth into what it means to evaluate companies and what it meant to due diligence and what it meant to be at a VC firm. I liked it enough to really consider it as a full time thing post-business school, and set my sights on finding a job at a business school inside of venture capital. And that lead me to US Venture Partners, which at the time was probably close to a thirty-year-old firm that had done a lot of semiconductor investing over the course of the twenty years prior. And some of the best semiconductors in the business were actually at USAP, so what better place to join as a guy who had a semiconductor background to join USAP and learn from some of the best in the industry? And thatโs what lead me to USAP and sort of lead me to my first venture capital job.Nick: As a student out in Boston, did you get a sense for the venture environment out there and the mindset and how it was different from the Valley?Mamoon: You know, at the time, Boston was still very relevant in the venture world, and since 2003/04/05, when I was thereโฆand I frankly didnโt spend much time thinking about staying in Boston, and it wasโit already had changed over what networking and telecomm really did have a bust, and the next generation of Boston companies were really not starting in Boston anymore. We really were moving toโthis is like, you know, Mark was starting Facebook, and that was in โ04. I think he actually tried to raise money in Boston based firms and I donโt think he got too far and he moved out to the Valley.
So at the time, in Boston โ04/โ05, things were not very techcentric at all. In fact most of my classmates didnโt want to have to do anything with tech. and I was among the very few who come from tech, who definitely wanted to go back into tech. so tech was definitely not hot. And to sort of give you a sense of timing, this was when Google was going public, and the people who were going to Google at the time, at the ninety-seven dollarโpeople were like โYou guys are kind of sillyโ for going to this company thatโs fully priced at a public company. And thatโs obviously had a 10x since then. One lesson there is, uh, business school studentsโฆplacards when it comes toโin fact theyโre a leading indicator of whatโs potentially to go down. [both laugh] Myself probably included.Nick: Did you have exposure to Mark? Iโm curious if you had an opportunity to investโyou know, one of my special investor questions I ask a lot of folks is why I passed and I can only dream about talking to a Boston VC that passed on Facebook.Mamoon: Yeah, so I was at Harvard when Facebook got started, but I was at the Business school where it wasnโt really a thing. So when I did my summer in โ04 here in the Bay Area, one of myโthe partner I worked for, his kids were at Stanford. And they started using it. And he told me โHey, this Facebook thing is blowing up. You know about this? Youโre at Harvard, you should know about it.โ Andโฆthatโs the first time I actually heard about it, was from my partnerโs kids. And I got onto it, and there was like no one from the business school on it. Thereโs a couple people I think I connected with as friends, who were not my real friends, but they were at Yale, and Penn, and a couple other places. Soโฆitโs not until after we graduated from Harvard did the Harvard Business School students get on Facebook. [both laugh]Nick: Laggards.Mamoon: Again, like I said, not early adopters of great stuff.Nick: Thatโs awesome. So Iโm a Hoosier myself, and Iโm pretty glad I didnโt tell you that when I asked you for the interview or you might have passed on that. SoโMamoon: Well, Iโm sorry for you.Nick: Yeah, itโs a tough basketball year. But Iโm curious, how does one graduate college at nineteen?Mamoon: Okay, so, the way it works is, you skip a bunch of grades. So I grew up in Frankfurt, Germany, and I started my academics in German school, actually. First grade was German school, and sort of the end of first grade, my parents decided โWouldnโt it be great for you to go to an English speaking school instead? Because who knows if weโll continue living in Germany.โ My dadโs job was in Germany, but there was always this thing in the back of their head, sort of x spots in Germany, that we may move. We may go to another country, and itโs better to have English speaking education than to have a German speaking education so itโs more transferable.
And so, I interviewed at a couple of American speakingโEnglish speaking schools, and I donโt know. This thought crossed my mind, and my parentsโ mind, like โHey, why donโt you just skip second grade and go to third gradeโ only because it seemed so easy. The curriculum and the second grade curriculum I was testing through seemed so straight forward and easy. SoโฆI just skipped second grade by switching schools. And ended up in third grade. And then we actually ended up moving when I was in fifth grade, and we moved to Pakistan, where school starts off a cycle every six months. So instead of moving from fifth grade to fifth grade, I moved to sixth grade. Gained a year.
Then we moved back to Germany later in life, and instead of going to ninth grade, which I shouldโve gone to, I went to tenth grade. So I got two half years, that got me another year, and then I skipped a year in college because I test out a bunch of AP courses in high school. So thatโs how you get three years.Nick: Wow. Iโve never heard that before, but thatโs pretty incredible. So alright, sorry for getting into the weeds, today the topic is SAS. I was thrilled to come across your slide share content that you put together. It was robust and so thoughtful. So very pleased to have you on the show today to help us walk through this topic. But weโve talked about it before on a number of shows, and I wanted to get in your words the definition of SAS, and if you could give us an example of what is and what is not SAS?Mamoon: So, SAS is software that is delivered for rent and paid for monthly, or annually, without installing any software behind your own firewall. So, itโs not a license, itโs not the professional services that go along with installing something or getting something deployed, itโs purely software that you pay for and you get some direct benefit from as a service. So Box is SAS. What their SAS solution offers is storage as a service, with an application around that storage. Yammer is a SAS company, it offers enterprise social networking to every single employee in a company, rather than deploying it behind a firewall with something like Jive, which wasnโt SAS for many years. This was SASโYammer was SAS.
Whatโs not SAS, for example, isโare companies that take a percentage of revenue, theyโre delivering software, like Stripe, but they take a percentage of that gross transaction value as their revenue. Thatโs not SAS to me. A company that has advertising or leech-end revenue, is not SAS. So technically Zenefits today is not a SAS company because the revenue that they generate is from health insurance brokerage fees. So they are the broker of record, for even a company like ours. And the revenue that they generate comes not from the companies like ours, but it comes from health insurers that write them a check for getting them customers for their health insurance. So those are not SAS companies to me. But that gets into the technicality of the revenue that companies generate.
So for me itโs pretty clear when we look at a SAS company, what the kind of metrics and what the kind of revenue quality weโre looking for to call it a SAS companyโand thereโs a lot of SAS companies. Thereโs lots and lots of SAS companies. Last count, thereโs probably like, I donโt know, ten thousand SAS companies?Nick: Yeah. Plenty of SAS companies out there. It sounds like the way that you look at it is sort of an intersection between the fundamental offering, the technology, as well as the business model, or monetization.Mamoon: Correct.Nick: So can you give us an overview of the SAS segment? And you talked about how many SAS companies there are, can you talk about what the constituents are within that greater SAS segment, and a brief history of its evolution and growth.Mamoon: Sure. So, maybe Iโll start with theโtechnically what a SAS company requires you to be in ordered to be classified a SAS company. But thereโwhat predates me is a SAS company used to be called an ASPโan application service providerโand thereโs all kinds of lingo that was used in the earlier 2000s to classify SAS companies, and one of the key requirements was always this notion of a multitenant architecture. Which essentially meant you had a version of your software running somewhere in the cloud that could scale infinitely to the number of customers. So you didnโt have to install another version to satisfy the needs of anther customer. It was one version with a single configuration that scaled across lots and lots of customers. And that was sort of what definedโdefines a SAS company.
And so the evolutionโฆreally if you go back the last fifteen years, if I look at the first SAS company, this again predates my experience, I look back at companies like Concur and Salesforce and SuccessFactors as among the sort of first SAS companies. Companies that started out in the late nineties, maybe like โ99/2000 era. And they were the ones to first exploit this notion of have one version of the code in a cloud based service, or in a public data warehouse, where you could offer it to lots and lots of customers. And so, if I can recall, Salesforce started in 1999. I think Concur was maybe before that. But those really I think are the first generation of SAS companies. And then the next generation of SAS companies really fell into this camp of almost like consumerization enterprise, and thatโs when I think about Box and Yammer and Zendesk. I call it sort of the consumerized SAS companies where the application doesnโt look like your NetGear router screens and it looks more like consumer software they now use inside of the enterprise.
The next generation as I see now is like the third generation, the things weโre kind of investing in right now, or the last few years, we have are the likes of Slack and Greenhouse Intercom, theyโre almost like theโeven more so focused on the daily use case of the office worker, the knowledge worker, more than anything before that. If you look at even the transition, across the first and second and third, they start to look more and more like consumer companies than enterprise companies in terms of the product look and feel. So if you look at the sortโoverarching, then if the software industry worldwide is four hundred billion dollars, SAS is only still like close to twenty billion dollars today, plus or minus. So thatโs like five percent of the overall software revenue in the world are still only SAS. Which, obviously, we see as a lot of opportunity for our companies and for ourselves.Nick: Right. So, itโs transitioned over time for more infrastructure and security to a lot more consumer offerings.Mamoon: Yeah, I would say kinda the nuts and bolts of running large companies. You know, whenโletโs say you looked at the Siebel deployment and youโre a small company and you have to spend two million dollars for your fifty person company to deploy Siebel, youโre scratching your head like โWhat the ROI of this? Am I ever gonna use it?โ and thatโs why Salesforce came to be. Itโs like โWell, I can offer it to you for a hundred dollars a set per month per salesperson.โ So you have twenty sales people, okay. Thatโll be two thousand dollars a month. Twenty-four thousand dollars a year instead of the two million probably that you wouldโve spent for licenses and deployment and all kinds of other crap that didnโt make any sense and by the time you deployed it, the features might be obsolete. And a lot of enterprise software, license software became obsolete by the time it was deployed.
So SAS really allowed, you knowโand this is completely amplified nowโis that those who couldnโt really afford it, the TCO, the total cost of ownership, made so much more sense for smaller companies to go this SAS way by paying by the seat by the month, rather than buying the license for your whole company. So what happened was a lot of the basic stuff like Human Capital Management or HR Software, Financial Planning Software, Expense Management software, Sales Flow Automation, CRMโthatโs the kind of stuff that was the first generation that really when the way of SAS. And, you know, we got a number of ten plus billion dollar companies that come out of it including Workday and Concur, sold for eight-point-something billion, and we all know how much Salesforce is worth. And thereโs a couple of companies at SuccessFactors which got acquired for about three something billion. Iโm sure it wouldโve been a much bigger company todayโor even Omniture which was the first sort of SAS based analytics company that got acquired forโฆnot a number, relatively speaking, in the couple billion dollar range, would be worth a lot more in 2015. But a lot of consolidation did happen towards the end of the last decade where a lot of the first movers either consolidatedโand some are still standing aloneโare standalone companies.Nick: As Iโm thinking about it here, I imagineโI used to run product for aโฆabout a hundred and seventy million dollar vision of a conglomerate, and Iโm thinking about how easily adaptable SAS would be as opposed to some of our offerings. We had a mix of software and hardware, of course, but the authority required and, to your point, the ROI required to justify that expense decision, or that capital expenditure, is a huge hurdle and makes for really long sales cycles. But if you can ramp up on a per seat basis for a monthly fee, and always pull back if itโs not delivering any ROI, I imagine itโs a much better option.Mamoon: Yeah, and thatโs the point aboutโweโve moved from a world of top down to bottoms up. Where it used to be the CIO would sanction the adoption of a particular application, like Box, if itโs storage for every single employee, it would be a CIO decision, but what happened was instead you had individuals inside of marketing adopting it because it made their life easier as they were working with their marketing agency, their ad agency, and then they started to share with them and also share with their colleagues internally. And then it spread from marketing to product, and the whole business unit adopted it. And then, instead of just the business unit, you had people from other business units starting using it with the people from the initial business unit, and then the whole company adopted it. And thatโs the kind of success that companies like Box had, was this bottoms up adoption, where people could justโyou know, the premium just worked to get lots and lots of people into their funnel and then they converted by using their own credit cards, eventually leading to paying on their credit card even for their department. And over time, someone on the IT side actually getting involved to do a whole company wide deployment.
Thatโs the case with lots of Fortune 500 companies, where adoption sort of happened through this bottoms up mechanism. And thatโs been the beauty of SAS is the ability to also grow with your customers, and also grow the complexity of a product with your customers. A company like Box probably couldnโt have closed Proctor and Gamble in its first year of existence, but by the time there were ten thousand users on Box from Proctor and Gamble, we had all the features necessary to appease the need of an IT buyer from a security and control standpoint. Thatโs been the other beauty of it. The ability to grow with your customer base over time, and thatโs sort of something that doesnโt get talked about a lot. But you just canโt, on day one, close these massive, long sales cycle customers just because they have different ways of making decisions than individuals do.Nick: Itโs like real virility instead of faux virility, right.Mamoon: Yeah, yeah.Nick: More like a productivity pill that permeates the organization.Mamoon: Yeah thatโs something we think about a lot, is rather than selling shelfware and making lots of money off of no used of a product and zero ROIโour intent even as investors, and Iโm sure people who build the products, is โHow do I build a product that people will actually use and love and get value from?โ And thatโs really a determining factor in how we make our investments, is we think about daily active use products. The tools that employees at companies use on a daily basis, itโs the first thing they open up, just like with the email in the browser window when they get their day started. Itโs the last thing they close down. What is that tool if youโre a product person, a marketing person, a sale person, a customer support personโwhatever your role might be? What is that one tool, or two tools? And so thatโs what weโre looking for when we invest in these thingsโin these companies.Nick: This companyโI do consulting for a variety of companies, and one of which that I have a large engagement with right now, is using Slack. And Iโve seen this thing just proliferate throughout the organization. Everyoneโs on it now and itโs kind of a necessary tool.Mamoon: Yeah. I mean, thatโs just an unprecedented growth story. Iโd be happy to talk it, but yeahโitโs, uhโIโve never seen anything like it.Nick: Iโm curious, I donโt want to get too far off the script, but this is good stuff. So, when you invest in a SAS company, and youโre advising them, looking for their sort of hockey stick growth, are you also looking for them to sort of build out that offering and upsell and exploit adjacent opportunities around that core offering, in order to move the needle on the monthly per seat dollar amount that they can capture?Mamoon: Yep. So, yeah, I would say the way it typically works out, if itโs a freeman business, if itโs a free version of a product, and thatโs the case with Box and Yammer and Slack. They all had free versions of the product. And the paid version, in the case of Box, more storage. With the case of Yammer, you got some more security and control. In the case of Slack, you get search integrations. So thatโs the next layer up, and then, the layer up from there is like typically enterprise grade features. Certain certifications, things that make the CIO and CIS feel good about deploying software. And so thatโs sort of the very linear way of ratcheting up pricing per seat, and it works pretty well. And I donโt encourage my companies to sort of fan out too much from there. Because thereโs enough market size to service 1.5 billion knowledge workers with a content management solution, what Box does. Or if you want to deliver enterprise message and collaboration tools via slack to 1.5 billionโthereโs enough market size there. So yes, lots of features get built in over time, but thereโs quite tangential as opposed to orthogonal to what theyโre already working on.
So focus as you know is a core thing to any successful startup and you can get pretty massive just off of one thing, and as Salesforce has proven, you can be pretty big as just a CRM company. And obviously theyโve done a lot of things that are outside of the CRM, but thatโs because they wanted to continue to grow thirty to forty percent year over year, and you canโt just grow that fast at multibillion dollar scale at just CRM.Nick: Yep. Sometime down the line, itโd be nice to have a reflective conversation about sort of where we end up withโI know Iโm using Google Drive, and Oscona, and Slack, and Salesforce, and email of course, Trelloโyou know, thereโs all these tools and they are complimentary and they all fit in the ecosystem in a good way, but it becomes a bit hard to manage everything when youโre working in such a wide landscape of different platforms. But Mamoon, can we talk about some of the metric for SAS? You touched on earlier how a business may look like a SAS company, but the business model is a fundamental component. And I imagine thatโs important because as a venture investor, youโre able to analyze in a more repeatable and structured way. So can we talk about some of the metrics that SAS companies need to manages and optimize and also what you guys as the venture capitalists look for in terms of what the metrics are and where they need to be?Mamoon: Yeah. So, given that weโre sort of fifteen years into the world of SAS, thereโs a lot of data now around whatโs best in class and what are the right metrics to track, and thereโs terms that have been coined like โthe magic numberโ and I came up with this thing called the โquick ratio.โ So thereโs a lot of precedent for numbers and metrics now, but Iโll distill it down to the ones I think are super important for the companies I look at, especially at the early stage we look at them.
The number one thing is whatโs your monthly MRR growthโor in a given month, whatโs your monthly recurring revenue look like? And typically, the month recurring revenue is decomposed into โWhat are the new logos you signed up that month?โ โWhat are the existing logos that signed up for more seats or went to a higher plan so they expanded?โ Subtract that by the number of existing logos that actually either decided to downgrade or go down in their plan. And then subtract finally by logos that completely churned and went away. So to add all that up and you get your net new monthly MRR. And I think every single company should maniacally track that on the monthly basis, and look at it month. If it increases, thatโs great. If itโs decreasing as a startup, it may be because your sale cycles are longer and itโs a bit lumpier of a business than a transactional business where things should kind of continue to grow up into the rightโbecause presumably youโre in a space thatโs sort of untapped and you are continually getting better at marketing yourself and increasing the top of the funnel which should mean that youโre getting more qualified leads, and youโre adding more sales people to close those leads.
So your net new MRR should always increase. If itโs not increasing on the month to month, it should definitely be increasing on a quarter basis. And thatโs sort of the one thing that I definitely look for. A key metric, net new monthly MRR growth.Nick: And, Mamoon, MRR itself is typically an absolute dollar? Units in dollars, is this metric also in dollars or are you looking at it in like a percentage or a delta?
Mamoon: typicallyโyeah, I look for dollars. Thereโs two ways to look at it, is customersโlike number of customersโor dollars. The better thing to look at is dollars, rather than number of customers.
Nick: Got it. And Iโm sure that that scale changes sort of as the startup progresses from seed to A to B.
Mamoon: Yeah, so I would say a seed stage company, like just completely ball parking it just to give a sense to the audience, isโa seed stage companyโs probably batting anywhere from 5 to 10k a month, or in that 5k a month range. A Series A companyโs batting 10/20k a month of recurring. So annualize that, right, youโre adding 10k a month of MRR, that means youโre adding 120k a month of annual recurring revenue, and if you added that every month for the whole year, youโd be adding 1.44 million of annual recurring revenue. Soโฆif you did that just on a flat basis and you didnโt even grow, at the end of a year, youโd be at one half million of revenue. So Series A companies start to add more of that a year, and then you scale that all up. And I would say weโre seeing companies add anywhere fromโIโd say our Series A companies are adding that 10/20/30k a month, and weโve got some companies that are adding 500k a month.
Nick: Wow!
Mamoon: Yeah. So, a lot of MRR being added.
Nick: Good bet there, Mamoon.
Mamoon: Yeah!
Nick: So, this last metric, it sounds like itโs a bit of a hybrid between the MRR churn and some of these other things to really arrive at a metric thatโs very useful for you guys. Before we get into the quick ration, can you talk about some of the other traditional metrics that a lot of VCs will look at and a lot of SAS companies will measure and manage?
Mamoon: Yeah, so for me the net new MRR number, it really encapsulates everything about a business. It encapsulates how youโre able to enclose new deals, how youโre able to manage your existing deals, and how happy your customers are or unhappy they are because theyโre churning away completely. So it encapsulates the whole essence of a company into one metric. And thatโs why I like it so much.
And so, other things you can look at, and theyโre great things to track, are growth churn and net churn. Growth churn sort of varies by the type of end customer youโre selling to. If youโre large enterprise company, your growth churn is typically much lower because typically youโre earning annual deals and in your first year you may not have any churn, and the second and third year, the sale cycle is longer, and itโs harder to get in, but itโs also harder to get out. So the growth churn on enterprise deals is lower. But if youโre selling to SMBs, itโs easy to get in, itโs just as easy to get out of the software, the churn gets to be higher.
And when you look at this thingโnet churn, everybodyโs looking for a negative net churn. Which means that for every dollar that Iโm generating today for my customer, then next year Iโm generating more than a dollar. Iโm actuallyโmy cohorts are expanding their revenue over time. And thatโs something that ever good SAS Company has, negative net churn. And again, itโs something we always look for in a company that is able to show net churn. Because in an early stage company, if youโre a one year old company, itโs really hard to show expansion of your MRR from your existing customers because most have only been with you for months. So it only makes sense if youโre looking at year two three and four of a company. But itโs certainly something that you want to track.
Other things that you track are average deal size. You know, average ACBโaverage contract value. Weโll look at price per seat per month. Then I start tracking things like sales efficiency. So how many reps do you have? How much quota does each rep carry? You multiply those two and you get your quarter capacity. Then you find out how much of that quota was attained by them, and thatโs the percentage of sales efficiency. As companies get more mature, we start looking at things like LTV and KAK. But Iโm not a huge fan because LTV and KAK typically assume a lot of things. And you can start to show a lot of really attractive things with LTV and KAK, but really thereโs so much embedded into those numbers that a lot of times you really lose sight of where things are. So I try not to focus on those two things.
Nick: I feel like Iโm reading David Scopeโs blog all of a sudden. [Both laugh] Alright, can we talk about the quick ratio, and/or the new and additional metrics that you guys look at?
Mamoon: So yeah, the quick ratio is justโwhenever I eyeball a companyโs net new MRR chart, but eyes just kind of go straight to this bar that has whatโs above the line and whatโs below the line. And itโs just like a simple heuristic to figure out โHey this is working, or itโs not working.โ And because itโs such a quick thing to do, I call it the quick ratio, and it really is more relevant to companies that have, again, a below the line thatโs significant because theyโre having real customer churn or theyโre seeing customers contract more so than expand. So it become more relevant in you 2+ and beyond really.
Nick: And is it a true ratio? Is the additional MRR over the less MRR or?
Mamoon: Itโs a true number. Essentially, you take whatโs the new logo MRR and the expansion of that existing customer MRR, so thatโs abode the line. And you divide that by whatโs below the line, that contraction MRR from existing customers. And you had to the churned customers who completely cancelled. So letโs just say in a given month, a Series A company got a 15k of new customers, and then you had existing customers, add 5k, thatโs a totally of 20k above the line. And existing customers lose 2k, and then you had come existing customers who completely cancelledโletโs say thatโs another 3k. So below the line youโre got 5k and above the line youโve got 20k. So the quick ration on that is twenty divided by five, so four. And thatโs actually a completely okay quick ratio.
Nick: Got it. So itโsโitโs kind of similar to the original new expansion MRR, itโs just framed as that ratio?
Mamoon: Yes, exactly. Itโsโthat one chart, like I said, it kind of says a lot of stuff. And one of the outgrowths of that chart is the quick ratio.
Nick: Awesome. I love when you can boil down all these competing metrics and various ways to capture the true value and attempt to put those into something that makes sense in a singular metric. Coolโokay, what advice would you have for founders of SAS companies regarding the way they should structure and present their material to a venture capitalist?
Mamoon: Given that thereโs so much data now on SAS companies, including their own, and thereโs so much public data on public companies now, itโs pretty important to be up on the numbers. Like you want to track every number, you want to present every number. If it makes sense to your business-whatever like, you know, you have to contextualize it to your company. If youโre selling to large enterprise, you may want to include how much time it takes to close a deal because you may not have a lot of sales data and the number of customers may not be that high but the ACVโs relevant, and the ACV growth over time may be relevant because your first like five deals may have been sweetheart deals, and their sixth, seventh, and eighth deal actually may be more representative. It all varies based on your business butโitโs incumbent on you to figure out what to present, but all the basic metrics of a SAS company, thatโs like table sticks. And even if itโs not presented in the main deck of a company, it should be part of an appendix in case someone cares.
Nick: At the very early stage when companies are either at idea or maybe theyโre got some traction, how do you make sense on these metrics and how do you advise them on making sense of the metrics when you donโt really have a whole lot of historical data to work from?
Mamoon: Yeah, I mean, if you have like five customers, itโs pretty hard to draw any conclusion from even ACV or price per seat. Itโs just gonna be all over the map. And thatโs why when weโre looking at a seed stage company, weโre really making a bet on the team in the market, and we donโt do any of those but when we do, itโs because of that. At the Series A, weโre expecting to see dozens of customers if not hundreds of customers and MRR thatโs approaching 100k of MRR, so thereโletโs say your month per customer is a thousand dollars thatโs a hundred customer. Thatโs a lot of customers to actually see what their adoption is like of your product, how many users are actually inside using your product on a daily basis. Thereโs a lot of things you can eke out from a hundred customers, and thatโs again on the entrepreneurs to tell usโpaint the best picture why, or the realistic picture why their product is so great and why people love it so much is because itโs used.
And so itโs important again to go back to what you think is the right metrics to present as opposed to usโweโll ask the same questionsโโWhatโs your MRR? Whatโs your gross churn, net churn, ACV, price per seat?โ and you might just like โWell itโs kind of all over the place right now because weโre just figuring out our pricing plantโ or โThe best comp to us is Box or Zendesk, and thatโs how weโre gonna price it and weโre modeling ourselves afterโ a comp that already exists out there.
Nick: Mamoon, Iโve heard about this Social+Capital Partnership as this partnership of philanthropists, technologists, venture capitalistsโcan you talk a little bit about the firm and what youโre focused on?
Mamoon: Yeah, weโve got a core focus as a firm on addressing multitrillion dollar industries that havenโt been transformed by technology. We do a lot of investing throughout healthcare, education, and financial services, because we think that technology plays a huge role in all of these, and thatโs our core focus. So those three area. And then also enterprise, which is where I spend a lot of my time, as you know. And between those, these are all very deepโlike weโre fishing in really deep waters, solving big problems. Therese are companies that can be multibillion dollarโten, twenty, thirty, if not hundred billion dollarโcompanies, especially some of the companies that we back in the financial services and the healthcare space, like in diabetes for example, can be massive massive companies. So we feel good about investing in companies that truly transform society, and that sort of is kind of embodied in our name a little bit, with the social capital. And we think that the most capital value, enterprise value, can be generated by touching the most humans possible. And so thatโs the social part of it, touching lots of people in society. And thatโs sort of our mission.
Nick: If thereโs any topic in venture that you would like to hear addressed, what would that topic be and who would you like to hear speak about it?
Mamoon: Wowโฆthatโs a good questionโletโs seeโฆ I think you got me on that one. Iโve heard from a lot of peopleโIโm a student of the venture businessโactually, you know, itโd be great to hear from someone who are operating in the venture business in the โ70s and โ80s. Like Don Valentine or Peter Lamont. Like howโs it different from back them? I think actually Peter Lamont is pretty active still. Itโd be great to have Peter Lamont tell us about how things are different.
Nick: Alright, Mamoon, whatโs the best way for listeners to connect with you?
Mamoon: Twitter, email.
Nick: We will link up Mamoonโs Twitter and email in the show notesโMamoon, thanks so much for joining us. I feel like Iโve learned more today than I have in months. So appreciate the time and al your insights.
Mamoon: Thanks, Nick!