To keep me honest (in this age of misremembering just which helicopter one was on), I want to continue our small series re: investments where I’ve put more than $1m into a SaaS company, and why I did it as examples of the SaaStr themes and learnings.

rainforest-600x417My most recent investment here is a company called RainforestQA.  Rainforest is a very cool company (not at all a good reason to invest) that does something that I desperately needed when I was at EchoSign (almost a good reason to invest):  it can almost completely automate the roles of a functional web software testing team (QA/QE) with a true service.  No need to hire anyone, source contractors, or do anything on the people side.  You just write a plain-English test (click these buttons on my site, etc.) and then Rainforest leverages via its website or an API an army of 50,000+ Uber-like, tested and graded and ranked testers to test every single part of your site — whenever you want, as often as you want.  This hour, every day, the night before a big release, anytime.  With no complaints 🙂  Wow.

Ok that’s great but the truth is it took them a while to make it work.  They launched out of YCombinator in 2012 having just figured out what they wanted to do, with really barely a line of code written.  The project grew in scope, and really, they didn’t have a true Minimum Sellable Product until Summer of ’14!  A long road to MSP.

Not in fact, on the surface necessarily an obvious candidate for explosive venture growth, at least it wasn’t just a few months ago (now it is).  Due in part to how long it took to develop the MSP, they hardly hit Mamoon Hamid’s metric from The SaaStr Annual of $1m+ ARR in the first 12 months from nominal launch (his awesome deck here) … although they will get to $1m+ ARR in < 12 months from launch of MSP, which probably is all that really matters.

And yet, within 20 minutes of meeting the CEO, I agreed to invest.  Why?

  • Better CEO (and Founders) than Me, Adjusted for Time.  I’ve become obsessed with this extremely non-quantitative metric (more here).  The way I think of it, if I could produce the exit I did in ’11, a CEO better than me, with better unit economics and growth potential … has a real shot at a unicorn.  Obviously, I know a lot now.  So I’m not necessarily looking for CEOs that know more than me, have accomplished more, not adjusted for time.  But I’m looking for CEOs that are much better than I was at their stage.
  • Undermaximized, Very Appealing Unit Economics.  When I first met the Rainforest team, they were just getting to six-figure deals … after starting much more at the bottom of the market with $X00/month customers.  Basically, what they’d done was migrate from a Tool into a Solution.  Now, a little tool that helps with QA?  Might be worth $200 a month, $20 a month, maybe $500 a month, I dunno.  But something that solves my problem shipping software?  That helps me scale QA without having to hire another 1, 2, 10 test engineers?  Wow.  Save me 10 QA engineers at an $100k fully-burdened cost, and you’ve saved me $1,000,000 a year.  And all the hassle with having to manage employees or contractors.  And lets me pay as a variable expense.  Boom!  You’ve solved a big problem for me.  Paying you $100k or $200k a year for that?  Not a huge issue in The Enterprise.  More on that here.  Rainforest isn’t closing million dollar deals yet 🙂  But I can easily see a future where the average deal size is 5-10x what it is today.  In SaaS, that’s a huge deal.  You should do this, too … more here.
  • Sufficient Lead Velocity, Or At Least, Close To It.  Ok Rainforest hasn’t even hired a VP of Marketing yet, so to say they track MQLs and true Lead Velocity yet would be a stretch.  But until just a few weeks ago, they were only calling back about 20% of their inbound contact requests.  We know how that plays out.  Call Them.  With a Trained, Customer-Centric Sales Rep — Not Just a Happiness Officer (more on that here).  And revenue per lead will double.  Period.

I can’t tell you how well RainforestQA will do in 2020.  I’m betting well, but really, there’s a lot that can change by then 🙂

But what I will bet you is Rainforest sees at least 500% growth in 2015.  That’s just the physics of SaaS:

It’s just The SaaS Playbook, my friends.

Anyone want to take the other side of that bet?


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