Over the last ten years, ICONIQ Growth has partnered with over 90 companies, seeing them grow through critical phases. The venture capital firm’s mission is to be “entrepreneurs backing entrepreneurs.”

Doug Pepper, General Partner at ICONIQ Growth, has invested in software and SaaS companies for 22 years, from seed to growth stage. Christine Edmonds, Partner & Head of Analytics at ICONIQ Growth, joins Doug to share insights from the company’s latest growth and efficiency report. They highlight aggregate trends over the past five to ten years, particularly how to think about these in today’s business environment.

Best-in-class growth 

It’s hard to get to $10M ARR and sustain that growth to $50M and beyond. How do the best-in-class companies perform when ARR is treated as a growth metric? The top quartile companies from ICONIQ’s portfolio show two consistent trends in their journey of growing ARR. 

  • They initially double their ARR each year in scaling post $10M. This means they reach $100M in ARR within 3-4 years of reaching $10M in ARR.
  • Post $100M, they maintain a meaningful double-digit growth ($50M+ net new ARR). Adding to that, the net new ARR doesn’t flatline and increases by $15M-$20M every year.

What is driving this growth? For most of these companies, expansion and upselling make a significant part of new ARR in the growth stages. Their net dollar retention (NDR) is consistently above 120% post $10M ARR.

However, the road to this expansion is laid out by building a robust go-to-market motion early on and acquiring new logos at every stage. Companies need an existing customer base to upsell in the later stages of growth. Although churn and down-sell rates are relatively consistent during growth, this ability to capture new logos consistently can help to avoid client concentration in a volatile market.

Best-in-class efficiency 

Rule of 40 is the standard for efficiency, but one of the ways to look at building efficiency is on a per-employee basis. For most SaaS startups, 60-75% of the costs are personnel related. ICONIQ’s best companies have maintained a constant annualized OpEx per full-time employee (FTE) while growing ARR per FTE. The revenue per FTE surpasses the spending around the $100M mark in ARR, and the trend continues to IPO where revenue growth doesn’t lead to an inflation of per-employee spend. 

“Productivity and efficiency are not mutually exclusive.” – Christine

Breaking it down by functions, the R&D spend sees a decline in the share of operational expenses year after year. On the other hand, the sales expenses form a larger share of operating expenses as the GTM motion is leveraged.

Another metric to measure efficiency is Burn Multiple, a simple but effective way to measure the growth efficiency of a business. Burn Multiple is the ratio of every dollar spent to what is being added in net new ARR.

When a company adds $10M net new ARR, it typically burns about $20M (2X). This trends downward over time. By year five, companies are adding $50M net new ARR and burning about $50M.

Many companies that ramped up their Burn Multiples to 3-5X in response to demand are now in a position where they need to reorient based on the current market situation. 

“We typically recommend companies have a Burn Multiple under 2x while scaling.” – Doug  

Navigating the current environment 

Public market investors have focused on growth at all costs in the last two years. They’ve returned to the pre-pandemic outlook of efficient growth. In the context of today, focusing on growth alone does not work. Instead, focus on managing efficiency along the way. Revenue goal achievement and staying within budget are two key parameters to grow efficiently.   

Every company is being impacted differently by the current economic environment. Given rising interest rates, lower evaluations, and less demand, most companies aren’t experiencing aggressive growth rates this year. Here are some insights on how top-tier companies have adopted to navigate the current market situation: 

  • 20% of companies are doing layoffs, 20% have hiring freezes, and 60% are slowing hiring.
  • Companies are thinking not just of the current year but forecasting demand and growth for the year ahead; this will influence hiring decisions. 
  • Companies are realizing that to fare better, they need to do less—cut international expansion, hold back product launches, focus on high-propensity-to-buy segments, etc. 
  • Companies are ironing out value-based selling issues to ensure they continue to be perceived as must-haves rather than nice-to-haves.
  • Companies are evaluating their teams critically to have the right executives and second layer in go-to-market to reach $10M and beyond. 


Updated slides HERE

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