Growth Investor Carter Griffin on Why the Best SaaS Companies Are Obsessed About Brainstorming

Fundraising is a numbers game, and many SaaS founders expect their financial metrics to show signs of investment potential. But sometimes SaaS founders focus too much on gross merchandise value (GMV) or balance sheets and not enough on the metrics that really matter to VC investors.

In a recent interview for the #CIBCInnovationEconomy podcast series, Carter Griffin, General Partner at Upda Partners, shared the metrics he really cares about as an investor. He also explained why the best SaaS companies are obsessed with using brainstorming metrics to guide operational decisions.

Because SaaS's valuation is based on future revenue expectations, Griffin said he cares less about early-stage profits and more about late-stage efficiencies. With that mindset, he uses the same framework to analyze every single deal, focusing on the efficiency of capital spent on R&D, sales and marketing.

"SaaS is incredibly profitable to scale," Griffin said. "But it's often not profitable on a sub-$100 million scale."

The first metric in the Updata framework is the cost of acquiring customers (CAC). Griffin said it starts with a relatively simple calculator: Take the sum of expenses in sales and marketing and divide by the number of customers he received in a given period. The key to a good CAC calculation, Griffin said, is to "fully burden" the cost side of the equation beyond marketing advertising spending, which includes all staffing costs, office administration for marketing and sales, and even more. That includes lunches or facilities for marketing members of the sales team.

Along with a good CAC calculation, Griffin dives deeply into two additional metrics: Gross Margin Payback Period (GMPP) and Return on CAC (R-CAC). GMP shows how long it takes you to earn back the dollars you spent on customer acquisition, Griffin said. The R-CAC is the number of dollars you earn over a customer's lifetime (LTV) divided by the dollars you spent (CAC).

But Griffin doesn't care only about revenue efficiency metrics. He also wants to know about Manthan, which he said the founders don't understand deeply enough. Their concern is that many founders focus on surface-level churn metrics—such as maintaining the same number of customers or net dollar retention—when they are asked by sales reps to conduct in-depth cohort analysis by time (quarter and year). should, and by acquisition source. Only then can you understand which actions bring you the most or least profitable customers, which in turn guide future decision making.

To illustrate his point, Griffin shared an example from his previous work as a startup CEO. The marketing director asked for a budget for attending a conference where all his competitors with many potential customers would be. On the surface, it looked like a good opportunity. However, Griffin not only wanted to know whether the conference would attract new customers, but he also wanted to compare the costs of the conference with the costs of other channels, such as hiring a new sales representative or launching a paid advertising campaign. .

"It's those tradeoffs that are incredibly important as an entrepreneur," Griffin said.

Finding answers to those key questions lies in brainstorming cohort analysis. If you have a cheap client funnel that brings in terrible clients that churn out quickly, you'll always be holding out to replace lost revenue. The best SaaS companies are obsessed with conducting thorough brainstorming cohort analysis.

"You need to see the comrades," said Griffin. "You can see good growth years and bad growth years. This allows for greater data fidelity and great decision making."