Growth buyout/software investing case study- help!
Hi!
I'm currently preparing for a case study at the growth buyout/ B2B software investor. General tips would be appreciated (how to structure my revenue and operational build-up - should be based on CAC or more detailed?), COGs, cap R&D etc. My task would be to build a simple LBO model and prepare a short investment paper over c.4 hours. What are the usual risks associated with software investing that I could mention in the key risks section? Any other tips?
If someone is willing to trade some case studies, do let me know I have a few (i.e. Apax, TPG, Duke Street among others). Ideally looking for case studies from Thoma Bravo, Francisco Partners, Silver Lake, Hg, CVC, Vista etc.
Do you recommend any newsletters/podcasts about B2B software investing? Trying to read up as much as possible.
If you have any other material worth sharing, please do let me know! Really want to nail my case study!
Thanks!
Found this site to be a very useful resource: https://www.forentrepreneurs.com/saas-metrics-2/
I never recruited for an investing role in the space but do currently work in Product Marketing at one. Happy to try to answer questions you might have at the company level although that's probably too nuanced/unnecessary for an interview process
Also if you're looking for somebody who knows their shit in software investing and publishes, I've found https://softwarestackinvesting.com/ to be pretty good
that's helpful- thank you!
Anyone here working for a software investor? PM :)
TAM
Magic number
Revenue cube/ARR build
Retention KPIs
Capex/CapSW
The above are basically the building blocks for understanding and analyzing any software business.
Layer onto that a more qualitative assessment around competition from the software platforms, point solutions, and emerging ankle biter.
These are good callouts. I would also, respectfully, add customer cohorts (e.g., vintage, customer size) if that information is provided to give meaning to things like churn and NRR.
Also, renewal analysis if needed.
Thanks! Apologies, what do you mean by magic number?
Magic number is a metric that measures the efficicency of sales expenditure in generating ARR
(New quarter revenue - Old quarter Revenue)*4/ quarter sales expense
If your magic number is 1.0, your CAC payback period is 1 year
Following
Revenue should come from an ARR “Snowball” / “Waterfall” if you have the data. BoP ARR - churn - downsell = constrained retention, + upsell = unconstrained retention, + new = EoP ARR. Drive churn/downsell off of a constrained retention %, base upsell and new bookings off historical figures. Recognized revenue should just be the average of EoP and BoP ARR (can weight the latter more heavily given quarters’ end are usually higher bookings).
Definitely split out subscription and services COGS (and thus gross margin) if you can. The former should see nominal, if any, improvement (and perhaps slightly degradation if horizontal). The latter shouldn’t go above 20% or so and can very defensively be flatlined at 0% (lots of PS orgs are breakeven or even loss leaders).
S&M should be a function of Bookings / S&M (sales efficiency). Don’t assume much uptick there, especially if a horizontal software solution.
R&D should be in then 15-20% range, skewing higher if horizontal and thus a greater need to invest in product to compete.
This website called vFinal has a practice case study you can use for software interview prep. It's probably 80% of what you're going to see in the interview process for any B2B SaaS associate/VP role. I know the site is free to use as well if you have an ARR cube / snowball -- it will do all the analysis for you, or you can just use it to check your work.
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