2017 private saas company 2 survey results annual · • this report provides an analysis of the...
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Pacific Crest Securities is now KBCM Technology Group
KBCM Technology Group combines the technology specialist approach of Pacific Crest Securities with the expanded capabilities
and broader resources of KeyBanc Capital Markets and its parent, KeyCorp (NYSE - KEY).
October 17, 2017
2017 Private SaaS Company
Survey Results 8th Annual
FINAL
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KBCM TECHNOLOGY GROUP 2017 PRIVATE SAAS COMPANY SURVEY
• This report provides an analysis of the results of a survey of private SaaS companies which KBCM Technology
Group’s software investment banking team (formerly Pacific Crest Securities) conducted in June-July 2017
– Represents the eighth such survey Pacific Crest / KBCM Technology Group has completed
– The survey results include responses from senior executives of ~400 companies
– Special thanks to our partners at Matrix Partners and the forEntrepreneurs blog for help soliciting participants and republishing
our report, as well as Intacct, which helped us solicit additional responses
– We made some important changes this year, including: (1) using annual recurring revenue (ARR) rather than GAAP revenue as
a primary gauge of size and growth; and (2) asking respondents to provide precise numbers (vs. ranges) for certain key data
• Representative statistics on the survey participants:
– $8.5MM median 2016 Ending ARR, with over 85 companies >$25MM
– Median organic growth in ARR in 2016 was 47% (37% for companies > $5MM in ARR, and 25% for companies > $25MM in ARR)
– Median employees (FTEs): 78
– Median customer count: 356
– 73% headquartered in the U.S.
– ~$21K median annual contract value (ACV), with 26% of respondents below $5K and 13% above $100K
– 41% use Field Sales, and 27% use Inside Sales as predominant mode of distribution
Our goal is to provide useful operational and financial benchmarking
data to executives and investors in SaaS companies
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SURVEY PARTICIPANT GEOGRAPHY (HQ)
U.S. Regions
Northern California / Silicon Valley 63
Boston / New England 39
Midwest / Chicago 30
New York Metropolitan Area 29
Pacific Northwest 25
Southeast U.S. 23
Texas 22
Colorado / Utah 17
Southern California 16
Mid-Atlantic / DC 15
Other U.S. 14
TOTAL U.S. : 293
Other Locations
Europe 42
Canada 33
Latin America 11
Australia / New Zealand 8
Asia 7
Israel 5
TOTAL Non-U.S. : 106
TOTAL: 399
7
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293
42
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SURVEY PARTICIPANT SIZE DISTRIBUTION
Respondents (2016 Ending ARR): 390
Respondents (Ratio of ARR to Revenue): 384
Median = $8.5MM
ARR
2016 Ending ARR
2016 GAAP Revenue
≈ 100%
Median Ratio of ARR to Revenue
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EMPLOYEE BASE
Respondents (FTEs): 397
Respondents (ARR per FTE Efficiency): 389, <$500K: 25, $500K-$750K: 24, $750K-$1.25MM: 18, $1.25MM-$2.5MM: 35, $2.5MM-$5MM: 46, $5MM-$7.5MM: 35,
$7.5MM-$10MM: 26, $10MM-$15MM: 45, $15MM-$25MM: 50, $25MM-$40MM: 37, $40MM-$60MM: 14, $60MM-$75MM: 8, $75MM-$100MM: 9, >$100MM: 17
Respondents (ARR per FTE Efficiency, excluding companies <$5MM in 2016 Ending ARR): 241
Overall
Median
= $100K
Median
= $137K (Excl. companies
<$5MM in 2016
Ending ARR)
Median = 78
FTEs
ARR per FTE Efficiency
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GROWTH RATES
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100%
54% 52%
54% 49%
31% 27%
20% 21% 22%
0%
20%
40%
60%
80%
100%
120%
<$2.5MM $2.5MM -$5MM
$5MM -$7.5MM
$7.5MM -$10MM
$10MM -$15MM
$15MM -$25MM
$25MM -$40MM
$40MM -$60MM
$60MM -$75MM
>$75MM
2016
Org
anic
AR
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row
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2016 Ending ARR(1) Excludes respondents with <$5MM in ARR
(2) Excludes respondents with <$25MM in ARR
Respondents: Total: 361, <$2.5MM: 78, $2.5MM-$5MM: 45, $5MM-$7.5MM: 33, $7.5MM-$10MM: 26, $10MM-$15MM: 46, $15MM-$25MM: 49, $25MM-$40MM: 37,
$40MM-$60MM: 14, $60MM-$75MM: 7, >$75MM: 26
The median growth rate
drops to 25% percent for
companies with over $25
million in ARR and just
one-in-five companies
with over $25 million in
ARR experienced growth
rates over 50 percent.
Median(1)
= 37%
HOW FAST DID YOU GROW YOUR ARR IN 2016?
Median
= 47%
Median(2)
= 25%
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Nu
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2016 Growth in ARR (%)
(1) Including the 123 respondents with <$5MM in ARR increases the median to 47%
238 respondents
Once you screen out
the smallest
companies, the chart
resembles the right
side of a bell curve.
(EXCLUDING COMPANIES <$5MM IN 2016 ENDING ARR)
HOW FAST DID YOU GROW ARR ORGANICALLY IN 2016?
Median = 37%(1)
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178 respondents
This year, for the first
time, participants
provided precise
values for ARR,
allowing us to
present a true size-
growth visualization.
(Note that this chart
includes only
companies over
$10MM in ARR and
collapses the scales
at the high ends for
presentation
purposes).
HOW FAST DID YOU GROW ARR ORGANICALLY IN 2016?
$150+
350%+
(SCATTER VIEW OF COMPANIES >$10MM 2016 ENDING ARR)
Median
= 31%
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(1) Annual Contract Value (ACV): annualized monthly run rate in recurring SaaS revenues, excluding professional services, perpetual licenses and related maintenance
Respondents: Total: 189, <$5K: 43, $6K-$15K: 27, $16K-$25K: 28, $26K-$50K: 30, $51K-$100K: 30, >$101K: 31
Median
= 38%
It’s difficult to draw any
conclusions regarding
whether avg. target
contract size influences
growth.
MEDIAN GROWTH RATE AS A FUNCTION OF CONTRACT SIZE
(EXCLUDING COMPANIES <$5MM IN 2016 ENDING ARR)
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36% 38%
41%
59%
40%
5%
15%
25%
35%
45%
55%
65%
Field Sales Inside Sales Internet Sales Channel Sales Mixed
2016
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row
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Primary Mode of Distribution (3)
(1) Discrepancy from 37% median on slide 6 due to smaller set of respondents answering both questions
(2) Results may be skewed by small respondent sample size
(3) Primary Mode of Distribution defined by determining the greatest contributor to new sales and confirming that it is at least a 25% point higher contributor than any
other. If no mode satisfies these conditions, then it is Mixed
Respondents: Total: 219, Field Sales: 103, Inside Sales: 48, Internet Sales: 11, Channel Sales: 12, Mixed: 45
Median
= 38%(1)
All other things being equal,
the data show no
discernable advantage (as
measured by success
growing) for Field-dominated
vs. Inside-dominated
distribution. Interestingly,
though the data is
somewhat sparse, Channel-
dominant strategies show
some real strength.
MEDIAN GROWTH RATE AS A FUNCTION OF SALES STRATEGY
(2)
37%38%
41%41% 40%
5%
10%
15%
20%
25%
30%
35%
40%
45%
Field Sales Inside Sales Internet Sales Channel Sales Mixed
2016
Org
anic
AR
R G
row
th
Primary Mode of Distribution(3)
(EXCLUDING COMPANIES <$5MM IN 2016 ENDING ARR)
(2)
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DISTRIBUTION STRATEGY & CAPITAL EFFICIENCY
Field Sales
Inside Sales
Field Sales vs.
Inside Sales Focus
Capital Consumed
through 2016(1)
$0MM
$50MM
$100MM
$150MM
$200MM
≥$250MM
350%+
$150+
(1) Capital consumed defined as total primary cumulative equity raised plus debt drawn minus cash on the balance sheet (adjusted for dividends / distributions)
104 respondents
(SIZE-GROWTH SCATTER VIEW OF COMPANIES >$10MM IN 2016 ENDING ARR)
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38%
32%
40%39%
32%
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
Enterprise Enterprise &Middle Market
Middle Market &SMB
SMB & VSB Mixed
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Median
= 37%
(1) Target Customer – At least ~67% of revenues come from designated customer base; “Mixed” defined as respondents who didn’t select at least ~67% for any
designated customer base
Note: Enterprise customers defined as primarily targeting customers with >1000 employees, Middle market as 100-999 employees, SMB as 20-100 employees, and VSB
as <20 employees
Respondents: Total: 234, Enterprise: 74, Enterprise & Middle Market: 81, Middle Market & SMB: 34, SMB & VSB: 29, Mixed: 16
Companies focusing
either (1) mainly on
the high-end or (2)
mainly on the mid-
and low-end (Mid-
market, SMB &
VSB), grew modestly
faster than mixed or
Enterprise / Mid-
market companies.
Comparison with
Previous Surveys
Last year, there was minimal
correlation across these groups
MEDIAN GROWTH RATE AS A FUNCTION OF TARGET CUSTOMER(1)
38%
32%
30%
40%
32%
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
Enterprise Enterprise & MiddleMarket
Middle Market & SMB SMB & VSB &Consumer
Mixed
2016
Org
anic
AR
R G
row
th
(EXCLUDING COMPANIES <$5MM IN 2016 ENDING ARR)
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32%
30%
33%
37%
48%
51% 51%50%
0%
10%
20%
30%
40%
50%
60%
<10% 10-20% 20-30% 30-40% 40-50% 50-60% 60-70% >70%
Med
ian
201
6 S
ales
& M
arke
tin
g S
pen
d a
s %
of R
even
ue
2016 ARR Growth Rate
Not surprisingly, the
fastest growing
companies spent more
on sales & marketing.
Median
= 37%
Comparison with
Previous Surveys
In line with previous years’
survey results
Respondents: Total: 205, <10%: 23, 10-20%: 31, 20-30%: 27, 30-40%: 25, 40-50%: 17, 50-60%: 17, 60-70%: 7, >70%: 58
SALES & MARKETING SPEND VS. GROWTH RATE
31%29%
30%
36%
47%
50%51%
48%
0%
10%
20%
30%
40%
50%
60%
<10% 10-20% 20-30% 30-40% 40-50% 50-60% 60-70% >70%
Med
ian
201
6 S
ales
& M
arke
tin
g S
pen
d a
s %
of R
even
ue
2016 ARR Growth Rate
(EXCLUDING COMPANIES <$5MM IN 2016 ENDING ARR)
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GO-TO-MARKET
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(1) See definition on page 10
147 and 223 respondents, respectively
Smaller Companies <$5MM in 2016 Ending ARR
Larger Companies $5MM+ in 2016 Ending ARR
PRIMARY MODE OF DISTRIBUTION(1)
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Note: Initial ACV of a contract
(1) See definition on page 10
Respondents: Total: 327, <$1K: 21, $1K-$5K: 71, $6K-$15K: 53, $16K-$25K: 50, $26K-$50K: 56, $51K-$100K: 41, $101K-$250K: 24, >$251K: 11
Comparison with Previous
Surveys
More confidence in Inside Sales
in the $1K-$25K range
Analyzed by contract
value, Field Sales
dominates for
companies with
median deals over
$50K. Inside Sales
strategies are most
popular among
companies with $1K-
$25K median deal
sizes.
PRIMARY MODE OF DISTRIBUTION(1) AS A FUNCTION OF
MEDIAN INITIAL CONTRACT SIZE
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$6K-$50K Median Annual Contract Size
Field-Dominated Inside-Dominated
Median
2016 Ending ARR $17MM $19MM
2016 Organic ARR Growth Rate 30% 47%
2016 Ending ARR per FTE $106K $150K
S&M % of Revenue 37% 44%
Median ACV per Customer $25K $16K
Average Contract Length 1.5 Years 1 Year
Professional Services Attach Rate 7.2% 2.6%
Commissions for New Sales to New Accounts - Direct 10% 10%
Annual Gross Dollar Churn(1)
8% 13%
% of New ARR from Upsells & Expansions 23% 26%
Net Dollar Retention Rate(1)
104% 100%
CAC Ratio for New Customers(1)
$1.26 $1.06
Capital Consumed / ARR Ratio(1)
1.50 1.15
(1) See definitions described later in this presentation
Respondents: Total: 62, Field-Dominated: 33, Inside-Dominated: 29
Among companies
selling $6K-$50K
average ACV, we
compared those
favoring Field vs. Inside
and found: (1) Inside
Sales driven
companies had higher
growth and were more
capital efficient; (2)
Field Sales driven
companies had lower
churn and higher net
dollar retention rates.
(EXCLUDING COMPANIES <$5MM IN 2016 ENDING ARR)
DISTRIBUTION STRATEGY – ANALYSIS OF FIELD VS. INSIDE SALES IN
KEY CROSSOVER DEAL SIZE TIERS
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0 5 10 15 20 25 30
<$0.25
$0.25-$0.50
$0.51-$0.80
$0.81-$1.00
$1.01-$1.20
$1.21-$1.40
$1.41-$1.60
$1.61-$1.80
$1.81-$2.00
$2.01-$3.00
>$3.00
Median ≈ $1.15
(1) CAC Ratio: Includes the fully-loaded amount spent on sales & marketing for the win, over multiple periods, if necessary
195 respondents
Respondents
(excluding the
smallest companies)
spent a median of
$1.15 to acquire
each dollar of new
ARR from a new
customer.
Comparison with Previous
Surveys
Similar to last year’s results
of $1.13
(EXCLUDING COMPANIES <$5MM IN 2016 ENDING ARR)
CAC RATIO(1): HOW MUCH DO YOU SPEND FOR $1 OF NEW ARR
FROM A NEW CUSTOMER?
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(1) Capital consumed defined as total primary cumulative equity raised plus debt drawn minus cash on the balance sheet (adjusted for dividends / distributions)
120 respondents
CAC & CAPITAL EFFICIENCY
$150+
<$0.25
$0.25-$0.50
$0.51-$0.80
$0.81-$1.00
$1.01-$1.30
$1.31-$1.50
$1.51-$2.00
$2.01-$3.00
>$3.00
CAC for a New
Customer
350%+
Capital Consumed
through 2016(1)
$0MM
$50MM
$100MM
$150MM
$200MM
≥$250MM
(SIZE-GROWTH SCATTER VIEW OF COMPANIES >$10MM IN 2016 ENDING ARR)
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$0.75
$0.23
$0.07 $0.06
$1.65
$0.97
$0.62
$0.36
$1.15
$0.57
$0.30
$0.15
$0.00
$0.25
$0.50
$0.75
$1.00
$1.25
$1.50
$1.75
New ARR from New Customer Upsells to Existing Customer Expansions Renewals
(1) Upsell defined as selling additional products / modules / functionality to an existing customer; expansion defined as expanding sales of existing products to
existing customers
Respondents: New ARR from New Customer: 195, Upsells to Existing Customer: 123, Expansions: 112, Renewals: 132
The median cost to
acquire $1 of new
upsell ARR ($0.57) is
50% of the cost to
acquire $1 of ARR
from a new
customer. The cost
to acquire $1 of new
expansion ARR
($0.30) is 26%, and
the cost for $1 of
renewal ARR ($0.15)
is 13%.
Comparison with
Previous Surveys
This year's group is spending
substantially more on CAC for
upsell dollars -- last year,
upsells CAC was $0.27, or 24%
of new customer CAC
25th
percentile
75th
percentile
Median
(EXCLUDING COMPANIES <$5MM IN 2016 ENDING ARR)
CAC RATIO ON NEW CUSTOMERS VS. UPSELLS, EXPANSIONS, AND
RENEWALS
(1) (1)
0
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$1.04
$1.08
$1.27
$1.08
$1.37
$1.24
$-
$0.20
$0.40
$0.60
$0.80
$1.00
$1.20
$1.40
$1.60
$5MM-$7.5MM $7.5MM-$15MM $15MM-$30MM $30MM-$50MM $50MM-$100MM >$100MM
Med
ian
Rat
io fo
r N
ew A
RR
fro
m N
ew C
ust
om
ers
2016 Ending ARR
Respondents: Total: 195, $5.0MM-$7.5MM: 30, $7.5MM-$15MM: 59, $15MM-$30MM: 53, $30MM-$50MM: 21, $50MM-$100MM: 19, >$100MM: 13
Difficult to assert that
there is significant
correlation between
size of company and
CAC ratio, although
there appears to be a
modestly higher
tolerance among
larger companies to
spend more on CAC.
Median
≈ $1.15
(EXCLUDING COMPANIES <$5MM IN 2016 ENDING ARR)
CAC RATIO ON NEW CUSTOMERS AS A FUNCTION OF SIZE OF COMPANY
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(1) Results may be skewed by small respondent sample size
(2) Primary Mode of Distribution defined by determining the greatest contributor to new sales and confirming that it is at least a 25% point higher contributor than any
other. If no mode satisfies these conditions, then it is Mixed
Respondents: Total: 195, Field Sales: 94, Inside Sales: 41, Internet Sales: 10, Channel Sales: 9, Mixed: 41
Other than Internet
and Channel Sales,
where CAC appears
significantly lower
(but data is sparse),
there is no significant
correlation between
go-to-market
approach and
median CAC – nor is
there a meaningful
difference between
the distribution of
responses.
Table TBU
(EXCLUDING COMPANIES <$5MM IN 2016 ENDING ARR)
Median ≈ $1.28
Median ≈ $1.11
Median ≈ $0.29
Median ≈ $0.86
Median ≈ $1.14
Field Sales Inside Sales Internet Sales Channel Sales Mixed
Less than $0.25 $0.25-$0.50 $0.51-$0.80 $0.81-$1.00 $1.01-$1.30
$1.31-$1.50 $1.51-$2.00 $2.01-$3.00 >$3.00
(1) (2) (1)
CAC RATIO SPEND BY PRIMARY MODE OF DISTRIBUTION
0
51
102
51
153
102
104
162
191
153
204
255
150
150
150
153
153
255
152
182
138
51
102
204
51
51
51
205
37
43
1
2
3
4
5
23
Median ≈ $1.34
Median ≈ $1.21
Median ≈ $1.06
Median ≈ $0.93
Median ≈ $1.16
Enterprise Enterprise &Middle Market
Middle Market & SMB SMB & VSB Mixed
Primary Target Customer
Less than $0.25 $0.25-$0.50 $0.51-$0.80$0.81-$1.20 $1.21-$1.50 $1.51-$1.80$1.81-$2.00 $2.01-$3.00 Over $3.00
(1) Target Customer – At least ~67% of revenues come from designated customer base; “Mixed” defined as respondents who didn’t select at least ~67% for any
designated customer base
Respondents: Total: 191, Enterprise: 58, Enterprise & Middle Market: 72, Middle Market & SMB: 25, SMB & VSB: 23, Mixed: 13
Not surprisingly, the
median CAC ratio for
companies targeting
larger enterprises is
higher than that for
those targeting VSB,
SMB and middle
market companies.
(EXCLUDING COMPANIES <$5MM IN 2016 ENDING ARR)
(1)
CAC RATIO SPEND AS A FUNCTION OF TARGET CUSTOMER
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Enterprise Enterprise / MiddleMarket
Middle Market / SMB SMB / VSB Mixed
0
51
102
51
153
102
104
162
191
153
204
255
150
150
150
153
153
255
152
182
138
51
102
204
51
51
51
205
37
43
1
2
3
4
5
24
70% 71%67%
25%
68% 66%
30% 29%34%
75%
33% 34%
0%
20%
40%
60%
80%
100%
Overall Field Sales Inside Sales Internet Sales Channel Sales Mixed
Sales Marketing
Overall, the median
company devotes
30% of their S&M
expenses to
marketing, with the
remainder allocated
to sales. However,
Internet Sales-driven
companies have a
much greater
reliance on
marketing at 75%.
(1) Results may be skewed by small respondent sample size
(2) Primary Mode of Distribution defined by determining the greatest contributor to new sales and confirming that it is at least a 25% point higher contributor than any
other. If no mode satisfies these conditions, then it is Mixed
Respondents: Overall: 215, Field Sales: 103, Inside Sales: 46, Internet Sales: 10, Channel Sales: 12, Mixed: 44
Comparison with Previous
Surveys
Results are largely consistent
with previous years' results
Sales vs. Marketing Spend of Companies by Dominant Sales Strategy
(1) (2) (1)
S&M COMPOSITION: SALES VS. MARKETING COST %
0
51
102
51
153
102
104
162
191
153
204
255
150
150
150
153
153
255
152
182
138
51
102
204
51
51
51
205
37
43
1
2
3
4
5
25
S: 62% / M: 38%
S: 69% / M: 31%
S: 60% / M: 40%
S: 20% / M: 80%
S: 61% / M: 39%S: 58% / M: 42%
S: 75% / M: 25% S: 76% / M: 24% S: 75% / M: 25%
S: 44% / M: 56%
S: 73% / M: 27%S: 70% / M: 30%
70%
71%
67%
25%
68%66%
0%
20%
40%
60%
80%
100%
Overall Field Sales Inside Sales Internet Sales Channel Sales Mixed
The survey data
shows a greater
conformity in sales
vs. marketing spend
for field-sales driven
organizations than
for inside sales.
Internet sales
organizations exhibit
even greater
diversity in balancing
sales vs. marketing
spend.
(1) Results may be skewed by small respondent sample size
(2) Primary Mode of Distribution defined by determining the greatest contributor to new sales and confirming that it is at least a 25% point higher contributor than any
other. If no mode satisfies these conditions, then it is Mixed
Respondents: Overall: 215, Field Sales: 103, Inside Sales: 46, Internet Sales: 10, Channel Sales: 12, Mixed: 44
(1) (2) (1)
MIDDLE-THIRD DISTRIBUTION OF SALES VS. MARKETING COST %
(1) (2) (1)
Sales vs. Marketing Spend of Companies by Dominant Sales Strategy
67th percentile
Median
33rd percentile
S: Sales %
M: Marketing %
0
51
102
51
153
102
104
162
191
153
204
255
150
150
150
153
153
255
152
182
138
51
102
204
51
51
51
205
37
43
1
2
3
4
5
26
5
4
1
9
3
9
4 4
3
4
5
3
7
9
7
10
6 6 6
9
7
3
2
1
4 4
3
5
3
2
1
6
22
0
2
4
6
8
10
12
14
16
18
20
22
Nu
mb
er o
f C
om
pan
ies
CAC Payback Period
(1) Implied CAC Payback Period: Defined as # of months of subscription gross profit required to recover the fully-loaded cost of acquiring a customer; calculated by
dividing self-reported CAC ratio by subscription gross margin
177 respondents
Respondents
reported an implied
median CAC
payback of ~18
months, though there
was a wide
distribution of
responses.
How long does it take to recover CAC, based on gross margin subscription dollars received?
(EXCLUDING COMPANIES <$5MM IN 2016 ENDING ARR)
CAC PAYBACK PERIOD(1) (GROSS MARGIN BASIS)
Comparison with Previous
Surveys
Results are largely consistent
with previous years' results
Median ≈ 18 months
1 year 2 years ≥ 3 years
0
51
102
51
153
102
104
162
191
153
204
255
150
150
150
153
153
255
152
182
138
51
102
204
51
51
51
205
37
43
1
2
3
4
5
27
9%
15%
19%
26%
29%
24%
37%
32%
0%
5%
10%
15%
20%
25%
30%
35%
40%
<$2.5MM $2.5MM-$5MM $5MM-$7.5MM $7.5MM-$15MM $15MM-$30MM $30MM-$50MM $50MM-$75MM >$75MM
% N
ew A
CV
fro
m U
pse
lls
& E
xpan
sio
ns
2016 Ending ARR
Respondents: Total: 366, <$2.5MM: 105, $2.5MM-$5MM: 46, $5MM-$7.5MM: 33, $7.5MM-$15MM: 64, $15MM-$30MM: 60, $30MM-$50MM: 25, $50MM-$75MM: 10,
>$75MM: 23
Median
= 19%
The median
respondent gets 19% of
new ARR sales from
upsells and
expansions; larger
companies rely more
heavily (up to 2x more)
on upsells and
expansions.
WHAT PERCENTAGE OF NEW ARR IS FROM UPSELLS & EXPANSIONS TO
EXISTING CUSTOMERS?
Comparison with Previous
Surveys
Similar trends to previous years
– however every group seems
to have increased focus and
success with upsells and
expansions – ~5% increases at
every level
0
51
102
51
153
102
104
162
191
153
204
255
150
150
150
153
153
255
152
182
138
51
102
204
51
51
51
205
37
43
1
2
3
4
5
28
16
13
10
1
9
8
9
7
15
15
32
0 10 20 30 40
< (25%)
(25%)-(15%)
(15%)-(5%)
(5%)-(1%)
0-10%
10-20%
20-25%
25-30%
30-40%
40-50%
>50%
(1) Median does not include respondents with no professional services
216 and 135 respondents, respectively
Professional Services
(as % of 1st year ARR) Professional Services Margin
Median = 14%(1)
Professional services
play a minor role for
most, with the
median company
booking P.S.
revenues on new
deals equivalent to
14% of first year
subscription contract
value. Median P.S.
margins are approx.
26%.
Comparison with
Previous Surveys
Professional services
margins increased from
~22% in 2016 to 26%
Median = 26%
(EXCLUDING COMPANIES <$5MM IN 2016 ENDING ARR)
PROFESSIONAL SERVICES ROLE IN GO-TO-MARKET
62
70
38
21
9
7
3
3
3
0 20 40 60 80
0% (no professional services)
1-10%
11-25%
26-50%
51-75%
76-100%
101-150%
151-200%
>200%
0
51
102
51
153
102
104
162
191
153
204
255
150
150
150
153
153
255
152
182
138
51
102
204
51
51
51
205
37
43
1
2
3
4
5
29
22%
12%
9%
8%
13%
0%
5%
10%
15%
20%
25%
Enterprise Enterprise / MiddleMarket
Middle Market / SMB SMB / VSB Mixed
P.S
. % o
f 1s
t Y
ear
AR
R
Primary Target Customer
Median
= 14%
Respondents: Total: 154, Enterprise: 60, Enterprise & Middle Market: 54, Middle Market & SMB: 18, SMB & VSB: 13, Mixed: 9 , excludes respondents indicating no
professional services
As expected,
companies which are
focused mainly on
enterprise sales have
higher levels of
professional
services.
Comparison with
Previous Surveys
Attach rates ticked up for
Enterprise (2016 survey:
Enterprise 18%)
(EXCLUDING COMPANIES <$5MM IN 2016 ENDING ARR)
PROFESSIONAL SERVICES (% OF 1ST YEAR ARR) AS A FUNCTION OF
TARGET CUSTOMER
0
51
102
51
153
102
104
162
191
153
204
255
150
150
150
153
153
255
152
182
138
51
102
204
51
51
51
205
37
43
1
2
3
4
5
30
15
7
5
10
20
26
34
32
38
22
0 5 10 15 20 25 30 35 40
Less than 50%
50-55%
55-60%
60-65%
65-70%
70-75%
75-80%
80-85%
85-90%
Over 90%
“What is your gross profit margin on just subscription / SaaS revenues?”
209 respondents
Median subscription
gross margins are
78%.
Median
≈ 78%
Comparison with
Previous Surveys
Virtually unchanged from the
2016, 2015 and 2014 results
(EXCLUDING COMPANIES <$5MM IN 2016 ENDING ARR)
SUBSCRIPTION GROSS MARGIN
0
51
102
51
153
102
104
162
191
153
204
255
150
150
150
153
153
255
152
182
138
51
102
204
51
51
51
205
37
43
1
2
3
4
5
31
13
9
19
42
30
1516
8
11
15
25
22
1011
0
5
10
15
20
25
30
35
40
45
0-3% 3-6% 6-8% 8-10% 10-12% 12-15% 15%+
Nu
mb
er o
f R
esp
on
den
ts
Sales Commission Paid to Direct Rep (as % of first year ARR)
Field Sales Inside Sales
Respondents: Total: 246, Field Sales: 144, Inside Sales: 102
The survey results
did not point to a
significant difference
in direct and fully
loaded commissions
between companies
that predominantly
use a Field go-to
market strategy
versus Inside Sales.
Field
Dominated
Inside
Dominated
Median Direct Sales
Commission ≈ 10% ≈ 10%
Median Fully-Loaded
Sales Commission ≈ 13% ≈ 12%
DIRECT SALES COMMISSIONS BY SALES STRATEGY
0
51
102
51
153
102
104
162
191
153
204
255
150
150
150
153
153
255
152
182
138
51
102
204
51
51
51
205
37
43
1
2
3
4
5
32
8%
9% 10% 10%9% 10%
9%
9%
7%
13% 12%
14%
13%
11%
14%
11%
0%
2%
4%
6%
8%
10%
12%
14%
16%
<$1K $1K-$5K $6K-$15K $16K-$25K $26K-$50K $51K-$100K $101K-$250K $251K-$1MM
Med
ian
Sal
es C
om
mis
sio
n
Median Contract Size (ACV)
Direct Sales Commission Fully-Loaded Sales Commission
Respondents: Total: 297 and 288, <$1K: 15 and 16, $1K-$5K: 62 and 62, $6K-$15K: 50 and 50, $16K-$25K: 48 and 45, $26K-$50K: 52 and 50, $51K-$100K: 38 and 35,
$101K-$250K: 21 and 19, $251K-$1M: 11 and 11, respectively
Comparison with
Previous Surveys
Similar to previous years’
survey, there is minimal
correlation here
Median Direct Sales
and Fully-Loaded
commission rates did
not vary significantly
across contract sizes
greater than $1K. Fully-Loaded
= 12%
Direct Sales
= 10%
SALES COMMISSIONS AS A FUNCTION OF MEDIAN CONTRACT SIZE
0
51
102
51
153
102
104
162
191
153
204
255
150
150
150
153
153
255
152
182
138
51
102
204
51
51
51
205
37
43
1
2
3
4
5
33
Renewals
3%Median Commission Rate
on Renewals(1)
% of Respondents Not
Paying Any Commission
on Renewals
35%
(1) Among companies paying a commission
(2) Same rate (or higher) than new sales commissions
Respondents: Renewals: 175, Upsells: 194, Extra Years on Initial Contract: 217
Comparison with
Previous Surveys
The most significant change this
year was with respect to how
companies are commissioning
Upsells – with 71% of
companies this year providing
full commissions on Upsells,
versus 59% in last year's survey
results
Commissions on
renewals are either
non-existent or very
low. Upsells this year
command a
commission rate
nearly as high as new
customer sales.
Renewals
34%
Median Commission Rate
on Renewals(1)3%
% of Respondents Not
Paying Any Commission
on Renewals
Additional Commission for
Extra Years on Initial Contract
·No Additional
Commission25%
· Nominal Kicker 29%
· Full Commission 9%
% of Respondents Paying:
Upsells
9%Median Commission Rate
on Upsells
% of Respondents Paying
Full Commission(2)71%
Additional Commission for
Extra Years on Initial Contract
·No Additional
Commission26%
· Nominal Kicker 29%
· Full Commission 9%
% of Respondents Paying:
COMMISSIONS FOR RENEWALS, UPSELLS AND MULTI-YEAR DEALS
Renewals
3%
% of Respondents Not
Paying Any Commission
on Renewals
Median Commission Rate
on Renewals(1)35%
Upsells
9%Median Commission Rate
on Upsells(1)
% of Respondents Paying
Full Commission(2)71%
0
51
102
51
153
102
104
162
191
153
204
255
150
150
150
153
153
255
152
182
138
51
102
204
51
51
51
205
37
43
1
2
3
4
5
OPERATIONAL ASPECTS
0
51
102
51
153
102
104
162
191
153
204
255
150
150
150
153
153
255
152
182
138
51
102
204
51
51
51
205
37
43
1
2
3
4
5
35
Now 3 Years from Now 76% of participants use
third parties
predominantly (2/3 of
which is AWS);
expectations for the
future show a continuing
shift as third-party
application delivery
continues to gain
popularity.
Comparison with
Previous Surveys
The trend toward using
third-party public cloud is
significant (mostly AWS)
– self-managed is down
from 33% last year to 24%
this year
(1) Reported “predominant” mode of delivery
(2) 384 and 383 respondents, respectively
HOW IS YOUR SAAS APPLICATION DELIVERED(1)?
Self Managed
Servers24%
Google Cloud
2%
Salesforce App
Cloud3%
Amazon Web
Services (AWS)53%
Another Third-Party
IaaS or PaaS8%
Microsoft Azure
5%Other
4%
Self Managed
Servers13%
Google Cloud
5%
Salesforce App
Cloud3%
Amazon Web
Services (AWS)63%
Another Third-Party
IaaS or PaaS6%
Microsoft Azure
7% Other
4%
0
51
102
51
153
102
104
162
191
153
204
255
150
150
150
153
153
255
152
182
138
51
102
204
51
51
51
205
37
43
1
2
3
4
5
36
Respondents: Total: 225, $5MM-$10MM: 58, $10MM-$15MM: 42, $15MM-$25MM: 47, $25MM-$40MM: 33, >$40MM: 45
When filtered by
company size,
smaller respondents
reported more
frequent use of third-
party providers as
their primary
application delivery
method, while the
largest companies
were more likely to
use self-managed
servers.
SAAS APPLICATION DELIVERY METHOD AS A FUNCTION OF
SIZE OF COMPANY
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
$5MM-$10MM $10MM-$15MM $15MM-$25MM $25MM-$40MM >$40MM
2016 Ending ARR
Amazon Web Services (AWS) Google Cloud Salesforce App Cloud
Microsoft Azure Another Third-Party IaaS or PaaS Other
Self Managed Servers
0
51
102
51
153
102
104
162
191
153
204
255
150
150
150
153
153
255
152
182
138
51
102
204
51
51
51
205
37
43
1
2
3
4
5
37
78% 78%
70% 70%
80% 75% 77%
0%
20%
40%
60%
80%
100%
Amazon WebServices (AWS)
Google Cloud Salesforce AppCloud
Microsoft Azure Another Third-PartyIaaS or PaaS
Other Self ManagedServers
2016
Su
bsc
rip
tio
n G
ross
Mar
gin
Respondents: Total: 380, Amazon Web Services (AWS): 202, Google Cloud: 7, Salesforce: 11, Microsoft Azure: 19, Other Third-Party: 32, Others: 17,
Self Managed Servers: 92
Median
= 78%
Median subscription
gross margins did
not appear to vary
significantly when
filtered by SaaS
application delivery
method (note that the
Google Cloud and
Salesforce data is
sparse).
SUBSCRIPTION GROSS MARGIN AS A FUNCTION OF
SAAS APPLICATION DELIVERY METHOD
0
51
102
51
153
102
104
162
191
153
204
255
150
150
150
153
153
255
152
182
138
51
102
204
51
51
51
205
37
43
1
2
3
4
5
COST STRUCTURE
0
51
102
51
153
102
104
162
191
153
204
255
150
150
150
153
153
255
152
182
138
51
102
204
51
51
51
205
37
43
1
2
3
4
5
39
2016 Median
Gross Margin 73%
Operating Expense Margins:
Sales & Marketing 35%
Research & Development 28%
General & Administrative 19%
EBITDA (14%)
FCF (12%)
YoY GAAP Revenue Growth Rate 33%
YoY Organic ARR Growth Rate 36%
Respondents reporting: Gross Margin: 220, Sales and Marketing: 216, R&D: 215, G&A: 216, EBITDA Margin: 201, FCF Margin: 201, GAAP Revenue Growth: 249,
Organic ARR Growth: 245
Comparison with Previous
Surveys
Results are largely in-line with
previous results
(EXCLUDING COMPANIES <$5MM IN 2016 GAAP REVENUE)
COST STRUCTURE
0
51
102
51
153
102
104
162
191
153
204
255
150
150
150
153
153
255
152
182
138
51
102
204
51
51
51
205
37
43
1
2
3
4
5
40
Size of Company (2016 GAAP Revenue)
All Respondents$5MM -
$10MM
$10MM -
$15MM
$15MM -
$25MM
$25MM -
$40MM
$40MM -
$60MM>$60MM
Total Gross Margin 73% 73% 72% 76% 68% 73% 73%
Subscription 78% 76% 77% 79% 77% 78% 80%
Professional Services 27% 30% 40% 28% 20% 35% 18%
Operating Expense Margins:
Sales & Marketing 35% 33% 37% 37% 29% 24% 43%
Research & Development 28% 29% 33% 29% 24% 21% 22%
General & Administrative 19% 22% 19% 19% 18% 16% 14%
EBITDA Margin (14%) (39%) (23%) (13%) (6%) (7%) (8%)
YoY GAAP Revenue Growth Rate 33% 54% 46% 39% 24% 27% 26%
YoY Organic ARR Growth Rate 35% 57% 47% 32% 22% 27% 23%
Note: Numbers do not add due to the fact that medians were calculated for each metric separately and independently
Average Number of Respondents: $5MM-$10MM: 54, $10MM-$15MM: 34, $15MM-$25MM: 48, $25MM-$40MM: 30, $40MM-$60MM: 12, >$60MM: 33
Comparison with Previous
Surveys
Results are largely in-line with
last year’s survey, except for
Professional Services gross
margin, which was 11% last
year for all respondents
>$2.5MM, and is 27% this year
for all respondents >$5MM
MEDIAN COST STRUCTURE BY SIZE
(EXCLUDING COMPANIES <$5MM IN 2016 GAAP REVENUE)
0
51
102
51
153
102
104
162
191
153
204
255
150
150
150
153
153
255
152
182
138
51
102
204
51
51
51
205
37
43
1
2
3
4
5
41
Total Revenue Run-Rate
~$25MM ~$50MM ~$100MM
Median Values
Total Gross Margin 63% 65% 67%
Sales & Marketing 52% 44% 43%
Research & Development 22% 20% 19%
General & Administrative 22% 16% 16%
EBIT Margin (34%) (22%) (18%)
Adj. EBITDA Margin (28%) (12%) (3%)
FCF Margin (29%) (17%) (7%)
YoY Revenue Growth Rate(1) 123% 51% 36%
(1) YoY Revenue Growth compares against previous year’s revenue of the companies at the time
Note: Excludes stock-based compensation (SBC)
Median includes ALRM, AMBR, APPF, APTI, ATHN, AYX, BCOV, BL, BNFT, BOX, BV, CLDR, CNVO, COUP, COVS, CRM, CSOD, CTCT, CVT, DMAN, DWRE, ECOM, EOPN, ET, FLTX,
HUBS, LOGM, MB, MKTG, MKTO, MRIN, N, NEWR, NOW, OKTA, OPWR, PAYC, PCTY, PFPT, QLYS, RNG, RNOW, RP, RPD SFSF, SHOP, SPSC, SQI, TLEO, TWLO, TXTR, VEEV, VOCS,
WDAY, WK, XTLY and YDLE
~$25MM median excludes ALRM, APTI, ATHN, BNFT, CALD, CSLT, ECOM, COUP, CVT, EOPN, FIVN, FLTX, MKTG, MULE, OKTA, PAYC, PCTY, PFPT, QLYS, RNG, RP, ULTI, TWLO, WK
and YDLE
~$50MM median excludes ALRM, APTI, BV, BNFT, CALD, FLTX, N, RP and WDAY
~$100MM median excludes AMBR, APPF, AYX, BL, CALD, CTCT, CNVO, COUP, DMAN, DWRE, EOPN, EVBG, NOW and VEEV
FOR COMPARISON: HISTORICAL RESULTS OF
SELECTED PUBLIC SAAS COMPANIES
0
51
102
51
153
102
104
162
191
153
204
255
150
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153
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152
182
138
51
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2
3
4
5
42
Continuing our theme from last year, we
looked at “The Rule of 40%" index of
{Growth + Profitability} for companies
>$15MM ARR. The median G+P Index
for this group was 17% or a little less
than half the so-called "Rule of 40%"
threshold.
“The Rule of
40%” line
Survey
Median
= 17%
Respondents: Total: 110, {G+P} > 40%: 27, {G+P} < 40%: 83
(EXCLUDING COMPANIES <$15MM IN 2016 ENDING ARR)
MEASURING SURVEY PARTICIPANTS AGAINST “THE RULE OF 40%”
2016 Ending ARR
$10MM
$50MM
$100MM
$150MM
≥$200MM
0
51
102
51
153
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104
162
191
153
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255
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43
Rule of 40%
{G + P} > 40% {G + P} < 40%
(Medians) (Medians)
Scale / Growth / Profitability:
2016 Ending ARR (MM) $29 $33
2016 Organic ARR Growth Rate 62% 22%
2016 EBITDA Margin (3%) (14%)
SaaS Metrics:
Annual Gross Dollar Churn(1)
6.3% 8.3%
Net Dollar Retention Rate(1)
104% 100%
CAC Ratio for New Customers(2)
$1.11 $1.29
CAC Ratio for Upsells(2)
$0.46 $0.67
CAC Ratio for New Expansions(2)
$0.28 $0.26
% of New ARR from Existing Customers 34% 29%
Business Focus / Go-To-Market:
% of Companies with a Vertical Focus 41% 23%
End Customer 22% Enterprise 29% Enterprise
Median ACV per Customer $14K $23K
Inside Sales Dominated 37% 17%
Field Sales Dominated 37% 54%
Capital / Maturity:
Capital Consumed $45MM $48MM
Capital Consumed / ARR Ratio 0.94 1.64
Years in Operation 10 years 11 years
(1) See definitions described later in this presentation
(2) See definitions described earlier in this presentation
Respondents: Total: 110, {G+P} > 40%: 27, {G+P} < 40%: 83
The median results of
those respondents meeting
or exceeding “The Rule of
40%” showed that while the
best G+P performers are of
similar size and age, they
have significantly better
churn, CAC and capital
consumption ratios. Also,
more of the high
performers comprise a
higher percent of vertically-
focused vendors and a
higher tendency to be
Inside-sales driven.
(EXCLUDING COMPANIES <$15MM IN 2016 ENDING ARR)
COMPARISON OF “THE RULE OF 40%” LEADERS VS. OTHERS
0
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51
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104
162
191
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LTM data and Enterprise Value as of 10/6/17
2017E revenue based on consensus estimates as of 10/6/17
For comparison, public
SaaS companies’ median
growth + profitability was
34.6%. Notably, 66% of the
market cap of public SaaS
was above the 40%
threshold.
Median {G + P} =
34.6%
2017E GAAP Revenue
$100MM
$2,000MM
$4,000MM
$6,000MM
$8,000MM
$10,000MM
EV / 2017E Revenue Multiple
0.0x 5.5x 15.0x
FOR COMPARISON: “THE RULE OF 40%” FOR PUBLIC SAAS COMPANIES
“The Rule of
40%” line
0
51
102
51
153
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104
162
191
153
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150
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152
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1
2
3
4
5
CONTRACTING & PRICING
0
51
102
51
153
102
104
162
191
153
204
255
150
150
150
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255
152
182
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9.12.17v1 46
Monthly33%
1 year9%
Quarterly to <1 year 9%
1 year45%
1-2+ years3%
Month to Month11%
Less than 1 year 6%
1 to 2 years64%
2 to 3 years15%
3 years or more4%
MEDIAN / TYPICAL CONTRACT TERMS FOR THE GROUP
Respondents: Average Contract Length: 349, Average Billing Frequency: 348
Median ≈ 1.4 years Median ≈ 10 months
Average Contract Length Average Billing Frequency
Comparison with Previous
Surveys
No significant change in
contract durations; somewhat
better billing terms (10 months
in advance, vs. 7 months in last
year's data)
The median average
contract length is 1.4
years; and the
median billing term is
ten months in
advance.
0
51
102
51
153
102
104
162
191
153
204
255
150
150
150
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152
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9.12.17v1 47
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
<$1K $1K-$5K $6K-$25K $26K-$100K $101K-$250K >$251K
Median Contract Value (ACV)
Month to month Less than 1 year 1 to 2 years 2 to 3 years 3 years or more
CONTRACT LENGTH AS A FUNCTION OF CONTRACT SIZE
Respondents: Total: 308, <$1K: 19, $1K-$5K: 61, $6K-$25K: 94, $26K-$100K: 94, $101K-$250K: 30, >$251K: 10
Comparison with Previous
Surveys
Largely similar to previous
years' results
The phenomenon of
longer contract terms
for larger contracts is
pretty clear with the
exception of a few
outliers.
0
51
102
51
153
102
104
162
191
153
204
255
150
150
150
153
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255
152
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9.12.17v1 48
Usage or Transactions
29%
Sites8%
Total Employees9%
Database Size4%
Other17%
Seats36%
WHAT IS YOUR PRIMARY PRICING METRIC?
“Other” includes: Data usage, number of apps being tested, inventory volume / SKUs, customer devices and amount of content
348 respondents
Comparison with Previous
Surveys
Largely similar to previous
years' results
0
51
102
51
153
102
104
162
191
153
204
255
150
150
150
153
153
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152
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9.12.17v1
RETENTION & CHURN
0
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9.12.17v1 50
5
4
14
10
16
10
7
4
7
28
16
27
27
39
0 5 10 15 20 25 30 35 40 45
1%
2%
3%
4%
5%
6%
7%
8%
9%
10%
11%-12.5%
12.6%-15%
16%-20%
>20%A
nn
ual
Un
it C
hu
rn R
ate
ANNUAL UNIT CHURN(1)
(1) Annual Unit Churn: Percentage churn of # of paid customers at year-end 2015 that were still customers at year-end 2016
214 respondents
(EXCLUDING COMPANIES <$5MM IN 2016 ENDING ARR)
Median
≈ 11%
Comparison with Previous
Surveys
This median increased slightly,
by 1%, from 10% to 11%
0
51
102
51
153
102
104
162
191
153
204
255
150
150
150
153
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255
152
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9.12.17v1 51
30
16
30
49
26
23
20
12
0 10 20 30 40 50 60
0-2%
3-5%
5-7.5%
7.5-10%
10-15%
15-20%
20-35%
>35%A
nn
ual
Gro
ss D
olla
r C
hu
rn
ANNUAL GROSS DOLLAR CHURN(1)
Median
≈ 8%
Comparison with Previous
Surveys
This result is comparable to past
survey results (8% in 2016, 7%
in 2015 and 6% in 2014)
(1) Annual gross dollar churn is the % of dollar ARR under contract at the end of the prior year which was lost during the most recent year (excludes the benefits of
upsells and expansions
Respondents: Total: 206, Month to month: 18, Less than 1 year: 9,1 year: 87, 1.5 year: 33, 2 years: 16, 2.5 years: 8, 3 years: 23, 4 years: 3, 5+ years: 9
(EXCLUDING COMPANIES <$5MM IN 2016 ENDING ARR)
0
51
102
51
153
102
104
162
191
153
204
255
150
150
150
153
153
255
152
182
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5
9.12.17v1 52
(1) Capital consumed defined as total primary cumulative equity raised plus debt drawn
minus cash on the balance sheet (adjusted for dividends / distributions)
130 respondents
GROSS DOLLAR CHURN & CAPITAL EFFICIENCY
Annual Gross Dollar Churn
0% 8% ≥25%
350%+
$150+
(SIZE-GROWTH SCATTER VIEW OF COMPANIES >$10MM IN 2016 ENDING ARR)
Capital Consumed
through 2016(1)
$0MM
$50MM
$100MM
$150MM
$200MM
≥$250MM
0
51
102
51
153
102
104
162
191
153
204
255
150
150
150
153
153
255
152
182
138
51
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9.12.17v1 53
12.5%
17.5%
12.5%
8.3%8.8%
4.0%
2.5%
1.3% 1.0%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
16.0%
18.0%
20.0%
Month tomonth
Less thana year
1 year 1.5 year 2 years 2.5 years 3 years 4 years 5+ years
An
nu
al
Gro
ss D
ollar
Ch
urn
Rate
Average Contract Length
ANNUAL GROSS DOLLAR CHURN AS A FUNCTION OF CONTRACT LENGTH
Respondents: Total: 206, Month to month: 18, Less than 1 year: 9,1 year: 87, 1.5 year: 33, 2 years: 16, 2.5 years: 8, 3 years: 23, 4 years: 3, 5+ years: 9
Comparison with Previous
Surveys
Largely in line with previous
results
Unsurprisingly,
companies with longer
contracts generally
experience lower
gross dollar churn.
Median
≈ 8%
(EXCLUDING COMPANIES <$5MM IN 2016 ENDING ARR)
0
51
102
51
153
102
104
162
191
153
204
255
150
150
150
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255
152
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9.12.17v1 54
NA
12.5%
7.5%
5.0%
12.5%
8.8%
2.5%
1.1%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
Less than 1 year 1 to 2 years 2 to 3 years 3+ years
An
nu
al G
ross
Do
llar
Ch
urn
Rat
e
Average Contract Length
Non-Renewal Rate Annual Gross Dollar Churn Rate
ANNUAL NON-RENEWAL RATES(1) VS. GROSS DOLLAR CHURN
(1) Non-Renewal Rate defined as the dollar ARR up for renewal in any period which does not renew
Respondents: Total: 206, Less than 1 year: 27, 1 to 2 years: 136, 2 to 3 years: 31, 3+ years: 12
We've broken out "non-
renewal rates" from
gross dollar churn, and
determined that some of
the resulting improved
churn rates -- but not all
-- is explained by longer
contract duration.
(EXCLUDING COMPANIES <$5MM IN 2016 ENDING ARR)
0
51
102
51
153
102
104
162
191
153
204
255
150
150
150
153
153
255
152
182
138
51
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204
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9.12.17v1 55
8.3%
11.7%
8.3% 7.5%
2.5%2.8%
2.5%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
0% (noprofessional
services)
1-10% 11-25% 26-50% 51-75% 76-100% >100%
An
nu
al G
ross
Do
llar
Ch
urn
Rat
e
Professional Services (as % of 1st year ACV)
ANNUAL GROSS DOLLAR CHURN AS A FUNCTION OF
UPFRONT PROFESSIONAL SERVICES
(EXCLUDING COMPANIES <$5MM IN 2016 ENDING ARR)
Respondents: Total: 196, 0%: 56, 1-10%: 62, 11-25%: 36, 26-50%: 20, 51-75%: 7, 76-100%: 6, >100%: 9
Respondents with higher
levels of professional
services reported lower
churn and lower non-
renewal rates.
Median
≈ 8%
0
51
102
51
153
102
104
162
191
153
204
255
150
150
150
153
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255
152
182
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9.12.17v1 56
10.8%
8.3%7.5% 7.5%
5.0%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
<$15K $16K-$25K $26K-$50K $51K-$100K >$100K
Med
ian
An
nu
al G
ross
Do
llar
Ch
urn
Rat
e
Median Contract Size (ACV)
ANNUAL GROSS DOLLAR CHURN AS A FUNCTION OF
MEDIAN CONTRACT SIZE
(EXCLUDING COMPANIES <$5MM IN 2016 ENDING ARR)
Respondents: Total: 181, <$15K: 66, $16K-$25K: 28, $26K-$50K: 29, $51K-$100K: 30, >$100K: 28
Comparison with
Previous Surveys
Similar trends to last year;
however, this year we see less
differentiation by ACV
As contract sizes
increase, gross dollar
churn consistently
trends downwards
(presumably related
to longer term
contracts).
Median
≈ 8%
0
51
102
51
153
102
104
162
191
153
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255
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150
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9.12.17v1 57
8%
13%
25%
8%8%
0%
5%
10%
15%
20%
25%
30%
Field Sales Inside Sales Internet Sales Channel Sales Mixed / Other
An
nu
al G
ross
Do
llar
Ch
urn
ANNUAL GROSS DOLLAR CHURN AS A FUNCTION OF PRIMARY DISTRIBUTION MODE
(1) Primary Mode of Distribution defined by determining the greatest contributor to new sales and confirming that it is at least a 25% point higher
contributor than any other. If no mode satisfies these conditions, then it is Mixed
Respondents: Total: 196, Field Sales: 91, Inside Sales: 43, Internet Sales: 9, Channel Sales: 11, Mixed / Other: 42
Median
≈ 8%
Comparison with Previous
Surveys
Largely similar results to
previous years
Those companies
employing primarily
Field Sales had
lower gross dollar
churn rates than
those employing
primarily Inside
Sales, Internet Sales
or Mixed distribution.
(EXCLUDING COMPANIES <$5MM IN 2016 ENDING ARR)
(1)
0
51
102
51
153
102
104
162
191
153
204
255
150
150
150
153
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255
152
182
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9.12.17v1 58
ANNUAL NET DOLLAR RETENTION FROM EXISTING CUSTOMERS
100%
+ N
et
Rete
nti
on
(upsells
/ e
xpansio
ns
gre
ate
r th
an c
hurn
)
Net
Ch
urn
(Churn
gre
ate
r
than u
psells
/
expansio
ns)
(1) We define this as the “net dollar retention rate”
323 respondents
Comparison with Previous
Surveys
Largely consistent with past two
years’ results (2016: 102%,
2015: 104% and 2014: 103%)
The median annual
net dollar retention
rate, including churn
and the benefit of
upsells and
expansion, is 101%.
The result does not
change materially
when removing the
smallest companies
(<$5MM in ARR)
from the group. Median
≈ 101%
“How much do you expect your ACV from existing customers to change, including the effect
of both churn and upsells / expansions?”(1)
28
28
18
38
57
36
34
42
42
0 10 20 30 40 50 60
<80%
80-90%
90-95%
95-100%
~100%
100-105%
105-110%
110-120%
>120%
0
51
102
51
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102
104
162
191
153
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255
150
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9.12.17v1
CAPITAL REQUIREMENTS
0
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9.12.17v1 60
Median for Participants
Years Total Capital
Threshold Required Consumed (MM) (1)
$5MM ARR 4 $7.9
$10MM ARR 5 $12.3
$25MM ARR 7 $23.7
$50MM ARR 9 $41.0
CAPITAL EFFICIENCY
Time and investment required to reach selected ARR thresholds:
We phrased our survey questions differently this year from years past, requesting true dollars consumed, rather than primary equity capital raised.
(1) Capital consumed defined as total cumulative primary equity raised plus debt drawn minus cash on the balance sheet (adjusted for dividends / distributions)
Responses: 373, $5MM ARR Threshold: 141, $10MM ARR Threshold: 146, $25MM ARR Threshold: 62, $50MM ARR Threshold: 24
0
51
102
51
153
102
104
162
191
153
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255
150
150
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9.12.17v1 61
1.491.43
1.72
1.35
0.97 0.98
0.00
0.20
0.40
0.60
0.80
1.00
1.20
1.40
1.60
1.80
2.00
$5MM to $10MM $10MM to$20MM
$20MM to$30MM
$30MM to$50MM
$50MM to$100MM
>$100MM
Cap
ital
Co
nsu
med
20
16 E
nd
ing
AR
R
2016 Ending ARR
CAPITAL CONSUMPTION RATIO(1)
(1) Capital consumed defined as total primary cumulative equity raised plus debt drawn minus cash on the balance sheet (adjusted for dividends / distributions)
Respondents: 206, $5MM to $10MM: 54, $10MM to $20MM: 66, $20MM to $30MM: 32, $30MM to $50MM: 24, $50MM to $100MM: 20, >$100MM: 10
(EXCLUDING COMPANIES <$5MM IN 2016 ENDING ARR)
Median
= 1.46
Total Cumulative Capital Consumed(1)
ARR Achieved
= Capital
Consumption
Ratio
0
51
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51
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104
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9.12.17v1 62
% Using Median Debt Median Debt-to-MRR
2016 ARR Range Debt(1)
Availability(2)
Ratio(2)
Less than $5MM 34% $1MM 5.0x MRR
$5MM to $10MM 78% $3MM 3.0x MRR
$10MM to $15MM 73% $5MM 5.0x MRR
$15MM to $25MM 77% $7MM 4.0x MRR
$25MM to $40MM 89% $10MM 5.0x MRR
Greater than $40MM 77% $17MM 3.5x MRR
USE OF DEBT CAPITAL AMONG PRIVATE SAAS COMPANIES
We phrased our survey questions differently this year from years past, requesting true dollars consumed, rather than primary equity capital raised. The results should
make it easier for "apples-to-apples' comparisons.
(1) Of at least $1MM in debt
(2) Median among companies with at least $1MM of debt; includes debt outstanding plus availability under existing lines
Respondents: Total: 172, Less than $5MM: 34, $5MM to $10MM: 36, $10MM to $15MM: 27, $15MM to $25MM: 24, $25MM to $40MM: 24, Greater than $40MM: 27
0
51
102
51
153
102
104
162
191
153
204
255
150
150
150
153
153
255
152
182
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9.12.17v1
ACCOUNTING POLICIES
0
51
102
51
153
102
104
162
191
153
204
255
150
150
150
153
153
255
152
182
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9.12.17v1 64
49%
63%
44% 44%
9%
12%
7%11%
24%
11%
32% 19%
16%12%
16%26%
1% 2% 2%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Whole Group 0% (no professionalservices)
0-50% >50%
Professional Services Attach Rate
A few quarters or moreafter signing
A few months aftersigning
Within a month ofsigning
Within a week or two ofsigning
Shortly after signing
SUBSCRIPTION REVENUE RECOGNITION POLICIES
(EXCLUDING COMPANIES <$5MM IN 2016 GAAP REVENUE)
Respondents: Whole Group: 207, 0%: 57, 0-50%: 123, >50%: 27
“When do you typically begin recognizing subscription revenues on a new contract
with a new customer?”
Approximately 49% of the
respondents indicated that
they begin recognition very
soon (within a week or two)
after signing new contracts.
0
51
102
51
153
102
104
162
191
153
204
255
150
150
150
153
153
255
152
182
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9.12.17v1 65
As the service is provided
69%
Deferred over the term of the contract
24%
Deferred over the expected life of the
customer7%
PROFESSIONAL SERVICES REVENUE RECOGNITION POLICIES
(EXCLUDING COMPANIES <$5MM IN 2016 GAAP REVENUE)
220 respondents
“What is the predominant mode for recognizing professional services revenues?”
The clear majority of
respondents offering
professional services
indicated that they
recognize that
revenue as the
services are
provided.
0
51
102
51
153
102
104
162
191
153
204
255
150
150
150
153
153
255
152
182
138
51
102
204
51
51
51
205
37
43
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9.12.17v1 66
Recognized upfront73%
Deferred recognition27%
SALES COMMISSION COST RECOGNITION POLICIES
(EXCLUDING COMPANIES <$5MM IN 2016 GAAP REVENUE)
215 respondents
“How do you recognize sales commission costs (deferred or recognized upfront)?”
We also inquired as to
the recognition of sales
commission costs. We
found ~3/4 of
respondents indicating
that they recognize
commission costs up-
front.
0
51
102
51
153
102
104
162
191
153
204
255
150
150
150
153
153
255
152
182
138
51
102
204
51
51
51
205
37
43
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3
4
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9.12.17v1 67
ACCOUNTING POLICIES ACROSS SELECTED ACCOUNTING FIRMS
(EXCLUDING COMPANIES <$5MM IN 2016 GAAP REVENUE)
Respondents: Total: 212, BDO: 10, Deloitte: 18, E&Y: 25, KPMG: 33, Grant Thornton: 9, McGladrey: 9, PwC: 29, Other: 79
Subscription Revenue Recognition Professional Services Recognition Sales Comission Recognition
Within days of
signing a contract
Within a week or
two of signing
Within a month of
signing
A few months after
signing
A few quarters or
more after signing
As the service
is provided
Deferred over
contract term
Deferred over the
life of customer
Deferred
recognition
Recognized
upfront
BDO 50% 0% 0% 40% 10% 78% 0% 22% 22% 78%
Deloitte 44% 11% 33% 11% 0% 73% 20% 7% 16% 84%
E&Y 56% 12% 24% 8% 0% 46% 46% 8% 29% 71%
KPMG 52% 9% 24% 9% 6% 70% 30% 0% 36% 64%
Grant Thornton 22% 11% 22% 44% 0% 80% 20% 0% 50% 50%
McGladrey 56% 0% 33% 11% 0% 67% 22% 11% 33% 67%
PwC 62% 7% 24% 7% 0% 74% 15% 11% 40% 60%
Other 41% 9% 27% 23% 1% 66% 25% 9% 19% 81%
Total 49% 9% 24% 16% 1% 69% 24% 7% 27% 73%
0
51
102
51
153
102
104
162
191
153
204
255
150
150
150
153
153
255
152
182
138
51
102
204
51
51
51
205
37
43
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9.12.17v1 68
2011-2017 YTD SaaS and Software IPOs
Rank Firm Deals Value ($MM)
1 KBCM Tech Group / Pacific Crest 47 $7,055.0
2 Morgan Stanley 37 7,122.7
3 J.P. Morgan 35 6,177.9
4 Goldman Sachs 34 5,990.8
5 Raymond James 26 4,026.6
6 Cannaccord 25 4,498.0
7 Credit Suisse 24 3,258.6
8 JMP Securities 23 4,080.5
9 William Blair & Co 23 3,094.2
10 Stifel Nicolaus Weisel 21 2,742.3
11 Deutsche Bank 19 3,081.2
12 UBS 17 3,664.2
13 Barclays 17 2,601.2
14 Bank of America 15 2,221.8
15 RBC Capital Markets 15 1,772.7
16 Needham & Co 14 1,329.1
17 Allen & Co 11 2,874.2
18 Oppenheimer & Co 9 815.1
19 Piper Jaffray & Co 8 1,179.3
20 Wells Fargo 7 1,856.3
21 Cowen & Co 7 1,607.6
22 Jefferies 7 1,326.1
23 Citi 7 1,299.4
24 BMO 5 879.4
25 Lazard Capital Markets 4 446.2
KBCM TECHNOLOGY GROUP LEADERSHIP IN SOFTWARE TRANSACTION EXECUTION
Corporate Finance Advisory
$215,050,000
Okta
(OKTA)
Senior Co-Manager
April 2017
Initial Public Offering
$86,250,000
Appian
(APPN)
Senior Co-Manager
May 2017
Initial Public Offering
has been acquired by
Not Disclosed
$168,130,000
BlackLine
(BL)
Senior Co-Manager
October 2016
Initial Public Offering
Not Disclosed
has been acquired by
$140,000,000
has been acquired by
$150,535,000
Shopify
(SHOP)
Co-Manager
May 2015
Initial Public Offering
$100,100,000
MINDBODY
(MB)
Senior Co-Manager
June 2015
Initial Public Offering
Not Disclosed
has been acquired by
Not Disclosed
has been acquired by
$85,560,000
AppFolio
(APPF)
Cc-Manager
June 2015
Initial Public Offering
$172,500,000
has been acquired by
$345,000,000
RealPage
(RP)
Co-Manager
May 2017
Convertible Debt Offering
$144,900,000
Alteryx
(AYX)
Senior Co-Manager
March 2017
Initial Public Offering
$39,000,000
Series D financing led by
$70,000,000
Alert Logic
June 2017
Senior Secured Credit Facility
Not Disclosed
has been acquired by
Not Disclosed
has received a
majority investment from
a portfolio company of
$172,500,000
Twilio
(TWLO)
Senior Co-Manager
June 2016
Initial Public Offering
$103,500,000
Everbridge
(EVBG)
Senior Co-Manager
September 2016
Initial Public Offering
$110,400,000
Apptio
(APTI)
Joint Bookrunner
September 2016
Initial Public Offering
$165,000,000
has received an
investment from
Not Disclosed
has been acquired by
$100,000,000
has been acquired by
0
51
102
51
153
102
104
162
191
153
204
255
150
150
150
153
153
255
152
182
138
51
102
204
51
51
51
205
37
43
1
2
3
4
5
9.12.17v1 69
DISCLOSURES
KeyBanc Capital Markets is a trade name under which corporate and investment banking products and services of KeyCorp and its subsidiaries,
KeyBanc Capital Markets Inc., Member NYSE/FINRA/SIPC (“KBCMI”), and KeyBank National Association (“KeyBank N.A.”), are marketed.
Securities products and services are offered by KBCMI and its licensed securities representatives, who may also be employees of KeyBank N.A.
Banking products and services are offered by KeyBank N.A.
The material contained herein is based on data from sources considered to be reliable; however, KeyBanc Capital Markets does not guarantee or
warrant the accuracy or completeness of the information. This document is for informational purposes only. Neither the information nor any opinion
expressed constitutes an offer, or the solicitation of an offer, to buy or sell any security. This document may contain forward-looking statements,
which involve risk and uncertainty. Actual results may differ significantly from the forward-looking statements. This report is not intended to provide
personal investment advice and it does not take into account the specific investment objectives, financial situation and the specific needs of any
person or entity.
This communication is intended solely for the use by the recipient. The recipient agrees not to forward or copy the information to any other person
outside their organization without the express written consent of KeyBanc Capital Markets Inc.
KBCMI IS NOT A BANK OR TRUST COMPANY AND IT DOES NOT ACCEPT DEPOSITS. THE OBLIGATIONS OF KBCMI ARE NOT
OBLIGATIONS OF KEYBANK N.A. OR ANY OF ITS AFFILIATE BANKS, AND NONE OF KEYCORP’S BANKS ARE RESPONSIBLE FOR, OR
GUARANTEE, THE SECURITIES OR SECURITIES-RELATED PRODUCTS OR SERVICES SOLD, OFFERED OR RECOMMENDED BY KBCMI
OR ITS EMPLOYEES. SECURITIES AND OTHER INVESTMENT PRODUCTS SOLD, OFFERED OR RECOMMENDED BY KBCMI, IF ANY,
ARE NOT BANK DEPOSITS OR OBLIGATIONS AND ARE NOT INSURED BY THE FDIC.
If you have questions or comments, please contact David Spitz, Managing Director, KBCM Technology Group:
dspitz@key.com
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