There are over 100 SaaS unicorns. How long did it take them to get to $100 million in ARR?

A few days ago I wrote that there’s more than one path to $100 million. I argued that while it’s awesome to see that some companies are able to get from 0 to $100 million in ARR in 7-8 years or even less, trying to grow that fast may not be the best choice for most companies.

That raises the question: What are your chances of growing a little slower and still achieving massive success? Considering that most investors are pretty obsessed focused on finding companies that follow the legendary T2D3 growth path (directionally confirmed by the responses to our SaaS napkin survey earlier this year), you might expect that your chances are low.

To answer the question, I took a look at the historic revenue development of ~70 of the largest SaaS companies. A couple of notes (and some caveats) on the data sources and methodology that I’ve used:

• Most of the companies are publicly listed, in which case it was easy to get accurate revenue data from YCharts or from the companies’ SEC filings.
• For private companies, I used various online data sources, including Wikipedia and various blogs. For these companies, the numbers are by their nature less certain.
• All revenue figures are based on GAAP revenue as reported by public SaaS companies, i.e. the numbers do not show a company’s ARR. In most cases, this doesn’t make a huge difference (if all revenue is subscription based, GAAP revenue trails ARR) but note that for companies with a larger percentage of setup fees, revenue from professional services or other non-recurring revenue sources, the difference is bigger.
• Some companies use different fiscal years. As I didn’t want to look into monthly revenue numbers in order to get the exact revenue numbers for each calendar year, I used some simple rules in these cases: If a company’s fiscal year ends on March 31, I allocated the revenue of that fiscal year to the previous calendar year. If the fiscal year ends on October 31, I allocated it to the same calendar year.
• In most cases, the “founded” date corresponds with the year in which the company was founded, but there are a few exceptions, like Slack, which started in 2009 with a completely different product and didn’t launch Slack as we know it today until 2013. In that case, I used 2013 for the “founded” year.
• This is not a scientific project and the data hasn’t been double-checked by anyone so far, so it’s well possible that there are some bugs in there.

Here are my findings:

1.) I estimate that there are over 100 SaaS unicorns
The list contains almost all public SaaS companies and some of the largest privately held ones that I could find public data for. In total, the list contains 70 SaaS companies. All of them are at $100+ million in ARR, and with the exception of one company (Domo), all of them are worth more than $1 billion. I can think of at least 10-20 other SaaS companies that should be added to the list (Talkdesk, Pipedrive, Intercom, OneLogin, AirTable, InVision, Procore, Canva, Asana,...), and I’m pretty sure there are at least 20 further ones that I’m not aware of. That makes it a pretty safe assumption that there are now 100 SaaS unicorns.

2.) The average time-to-$100-million is 10 years
There you have it! :-) Even if you look at a selection of the best of the best SaaS companies, getting to $100 million in 7-8 years is not the norm.

3.) Growth has accelerated in the last decade
If you only look at companies that were started in the last 15 years, the average time-to-$100-million drops to an impressive 8 years. That’s not too far away from the T2D3 path and it shows that it is indeed possible to grow that fast; however, there are also several companies in this cohort that took 10 or more years.

4) Growth rates significantly drop as companies pass through $100 million
In the bottom right corner of the sheet you can see the average y/y growth rates for the year in which the companies hit $100 million and for the following year. As you can see, the average annual growth rate drops from around 75% going in to $100 million to around 50% coming out of $100 million. This is not surprising – as Rory O’Driscoll of Scale Venture Partners explained in this post, growth rates almost always decrease with increasing absolute numbers.

The problem with month-over-month growth rates

Most fundraising decks contain a slide with a chart that looks roughly like this:

Chart #1

Or this:

Chart #2

I’ve also seen charts that look like this:

Chart #3

Or this:

Chart #4

Chart #3 and #4 are good for a LOL (or a “WTF!”, depending on your sense of humour), and fortunately we’re not getting too many of these (if you don’t know what I’m talking about, take another look at the charts). A chart that looks similar to #1 or #2 is something we look at on a daily basis, though.

What all of these charts and their headlines have in common is that they’re trying to convey exponential growth. Since traction is the #1 factor that determines fundraising success, it’s understandable that founders try hard to show exponential growth (which talking about a m/m growth rate implies). This is especially true if you’re one out of 50 startups that present at a “demo day” and you have three minutes to get investors excited. At some of the demo days that I’ve attended, I felt like this led to an arm’s race for the highest growth rates and sometimes made me feel like this:

Let’s look at the numbers behind chart #1 and #2.

Chart 1:

As you can see, chart #1 shows very strong signs of exponential growth: this (fictional) company’s MRR is growing at a relatively steady rate of 18-21% per month, and the amount of net new MRR which the company is adding is growing every month. Mathematically this looks clearly exponential, and yet, since the absolute numbers are still so low, unless you understand the drivers behind the growth you don’t know if there’s real, sustainable exponential growth (e.g. due to product virality) or if it’s just a series of step changes which makes the numbers look like exponential growth.

If this sounds like an academic question to you, think about its impact on the company’s growth projections. If there’s true exponential growth at a rate of around 20% per month, the company’s numbers will quickly go through the roof. If, on the other hand, the growth isn’t driven by inherently exponential drivers, you should expect the growth rate to decline quickly, leading to much lower projections.

Now let’s turn to the data behind chart #2:

If you take a closer look at the numbers, you can see that in contrast to chart #1, in spite of the chart’s headline and trendline, it doesn’t look like something’s growing exponentially here. The monthly growth rate is higher than 10% in all but two months, but it’s fluctuating heavily and the amount of net new MRR is going up and down. You can calculate a growth rate of 40% per month on average or a compound monthly growth rate (CMGR) of 35% without having to lie, and you can have Excel draw a trendline using an exponential regression. But I believe this is highly misleading. A more reasonable way of describing this company’s revenue growth would be to say that the company has been adding between $300 and $700 in net new MRR per month in the last ~ 12 months.

Again, all of this may sound somewhat academic, but I think it has practical relevance in two ways: The first one is about how you communicate your numbers to potential investors when you’re fundraising. The second one is about how you’re projecting growth and what targets you’re setting for your team. Let’s take a closer look at both of them.

1) When you’re talking to investors you of course want to show your numbers in the best possible light, and to say that you’re increasing revenue by $300-700 per month (to use the example from above) may not sound as exciting as a CMGR of 35%. However, keep in mind that experienced investors have very fine-tuned BS antennas, and if an investor gets the impression that you’re getting too creative in your interpretation of your data, that’s a huge turn-off. Therefore I’d recommend the following:

• If your numbers look similar to chart #2 from above, don’t try to read exponential growth into the chart.
• If your numbers look more like chart #1, i.e. your monthly percentage growth is pretty stable and your monthly $ growth (or user growth, if you’re a consumer startup and pre-monetization) is going up consistently, it’s fair to talk about exponential growth. That said, as long as you’re at a very low absolute levels (say below ~ $20k in MRR if you’re a SaaS startup) it doesn’t make too much sense to talk about percentage growth rates, and talking about growth in terms of net new MRR per month may be more useful.
• When you’ve reached what Jason M. Lemkin calls “Initial Traction” – around $1-2M in ARR – consider talking about y/y growth instead of m/m growth. There’s no strong rationale for that, but I think if you’re talking about longer periods of time, y/y growth is more intuitive to understand.

2) As far as your internal goal-setting goes, the problem with an exponential growth assumption is that for early-stage startups it makes short-term goals too easy and longer-term goals too hard (unless you’re one of the 0.0...1% of startups that have a viral growth engine with a viral coefficient greater than 1).

Let’s say you’re starting (almost) from zero and your goal is to be at roughly $80k in MRR in 12 months. If you’re assuming a constant m/m growth rate it looks like this:

Plan #1

The blue line shows the total MRR at the end of the month; the orange bars show the net new MRR added in each month; and the red line shows your monthly growth rate in %. As you can see, you have to add pretty tiny amounts of net new MRR per month until around month 6 in order to reach your goals. Then it goes up quickly, and in the last two months of the year you’ll have to add $20-30k per month. The problem with a plan like this is that if you’re at $8000 after month 6 you think you’re on track, but actually you’ve only achieved 1/10th of what you have to achieve in the year.

You can of course expect that you’re getting better throughout the year as your product matures and as you’re doing more sales and marketing, but I think the slope of plan #1 is too steep. A more helpful and more realistic plan would look like this:

Plan #2

In this version you reach the same result after 12 months, but how you’re getting there is different. In contrast to plan #1, plan #2 doesn’t assume a constant m/m percentage growth rate. It assumes that the amount of net new MRR that you’re adding per month is growing, but on a linear basis. That may make the chart look less exciting, but I believe plan #2 is much more useful. If you use plan #2 and you’re on track after 6 months, it’s much more likely that you will still be on track after month 12.

To sum up, my recommendations for modeling growth:

• In the first 12-24 months or so after launch, plan to get to your target number by assuming a curve similar to the one shown in plan #2.
• After that, start using a m/m or y/y percentage growth target (ideally roughly in line with the T2D3 concept)

As you may have noticed, my recommendations for how you should manage your targets internally are very much aligned with my recommendations for how you should communicate your numbers to investors. Isn’t that nice? :)

[Update 12/12/2015: As a followup to this post, I created a simple (Google Sheets based) calculator which you might find helpful for your planning.]

How fast is fast enough?

Growth is the single biggest determinant of startup valuations at IPO, as my fellow SaaS investor Tomasz Tunguz concluded based on an analysis of 25 IPOs in 2013. Growth (a.k.a. traction) is also the most important factor that attracts VCs and drives valuations in private financing rounds. Of course your team, product, technology, business model and market matter too, but when you’re past the seed stage the expectation is that these factors will have resulted in excellent growth. At the seed stage you can sell your story and vision. At the Series A and later stages, you have to back it up with numbers.

This isn’t surprising. Past growth tends to correlate with future growth, and since tech markets are winner-takes-all (or "winner-takes-most") markets, investors are obsessed about finding the fastest-growing player that has the biggest chance of dominating the market.

If growth is so crucial, how fast do you have to grow?

The answer depends on the market you’re in and the type of company that you want to build. If you’re in a small niche market – let’s say a business solution for a small vertical, localized to one country – maybe you don’t have aggressive, well-funded competitors. In that case it may be sufficient if you’re the fastest-growing player in that market, even if that means you’re growing only 20% year-over-year. There’s absolutely nothing wrong building a company like this, and you could end up with a highly profitable small business (or Mittelstand company). This is not the type of company VCs look for though, and the rest of this post is written based on the premise that you’re a SaaS startup that wants to grow to $100M in Annual Recurring Revenue (ARR).

So how fast do you have to grow in order to become a $100M company? Again using data compiled by Tomasz “Mr. SaaS Benchmarking” Tunguz we can see that the 18 publicly traded SaaS companies that were founded within the last ten years took five to eight years to reach $50M in revenues, with 14 out of the 18 being in the six to seven years range. ⁽¹⁾ Add another one or two years for getting from $50M to $100M, and we can assume that most of these companies took seven to nine years to get to $100M.

$1M, T2D3, 50%?

If you want to get from 0 to $100M in revenues in seven years, your growth curve will likely look very roughly like this: Get to $1M in ARR by the end of the first year, triple to $3M in the next year, followed by another triple to $9M by the end of year three. Double your revenues in the next three years, so that you’ll reach $18M, $36M and $72M by the end of year four, five and six, respectively. Grow by another 50% in the next year and reach $108M in ARR by the end of year seven:

This is very much in line with the “T2D3” formula described by Battery Ventures in this TechCrunch post. If you want to give yourself nine years to get to $100M, your numbers will probably look roughly like this:

Could you also take the slow track?

The big question is now if this strong pattern is merely the result of investment bankers’ and public market investors’ preference for fast-growing companies or if something more fundamental is going on here. If there was a “law” which said that if you haven’t reached something close to $5M after three years, $10M after four years, and so on, you’ll likely never get to $100M, this would obviously have important implications for founders as well as investors.

My opinion is that there’s no hard law – in business you’ll find exceptions for every rule, and I think it’s definitely possible that software companies that grow slowly and eventually reach $100M exist. But I do think that the probability of ever getting to $100M does go down very significantly if you’re growing much slower than pictured above. This is because:

• As companies get bigger, growth rates tend to go down, not up. So if your growth rate in year three is only, say, 50%, it’s unlikely that it will be 200% in the following year. It can happen and does happen, of course, but only if there’s a dramatic improvement in the business - a new product, a new distribution channel, a new business model or the like.
• It’s hard for a slow-growing company to attract the best people. It’s not only about being “hot” as an employer (although that’s part of it, too). If you’re not growing fast, you’ll also have a hard time making compensation packages competitive with those of fast-growing companies. The positive feedback loop that is taking place here is very powerful: Momentum attracts talent and money, which you can turn into more momentum, and so on.
• Not so many founders have the stamina and patience to stick to their company for 10, 12, 15 years - after so many years, many people understandably need a change. And while a company can of course survive its founders, it’s still a loss that doesn’t make things easier in the future.
• Lastly, but maybe most importantly, if you can’t figure out a way to grow fast and you’re in a large market, chances are that someone else will. It also increases the chance of a new, innovative, fast-growing startup entering and possibly disrupting the market before you’ve reached significant scale.

Coming back to the original question, how fast is fast enough? If your goal is to eventually get to $100M in ARR, I think you should try to get there as fast as possible, and getting there by the end of year seven after public launch feels about right to me. This may seem like a very ambitious goal, but it would be boring if it was easy, wouldn’t it?

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(1) Note that there’s somewhat of an outcome bias in these results, as companies that were founded in the last ten years but take more than ten years to go public haven’t been included. So it’s possible that a few companies with slower growth will be added in the future, but that’s unlikely to change the picture significantly, especially if you keep in mind the trend which Tomasz has described in his post: SaaS startups are growing faster than ever before, and it’s taking them less and less time to get to $50M.