5 lessons from analyzing 450+ early-stage SaaS businesses ($1-15m in ARR)

1. Forget R40. Successful SaaS businesses are hitting R80 in the early and growth stages.

The Rule of 40 (ARR Growth % + Net Margin %) is a measure of growth versus burn for SaaS companies.

It can be used to identify sustainable growth for both bootstrapped and venture-backed businesses: VC-backed companies typically have very good ARR growth, but are cash burning, and consequently have negative net margin. Bootstrapped businesses, on the other hand, have positive net margin, but more moderate growth.

To be considered attractive, accepted wisdom is that companies should achieve at least 40% ARR Growth % + Net Margin %—hence “Rule of 40”. However, our analysis shows that top companies achieve at least 80% (R80), skyrocketing to >110% around $5-10m ARR.

Even once they go public, when ARR growth slows down considerably as companies mature, the best performers achieve 60%.

2. The fastest-growing private SaaS companies are growing at twice the rate of their peers.

Top early and growth stage businesses are achieving ARR Growth between 100% and 160%. That’s more than double median performance, which hovers between 40% and 60% throughout the early and growth stages.

If you’re not currently growing at >100%, it’s wise to explore ways that you can improve your ARR Growth and optimize your performance for your next raise before reaching out to investors.

3. Top early and growth stage SaaS companies achieve Gross Margins of at least 80%.

In the current climate, investors are talking about the shift from growth to unit economics.
Our analysis shows that the top SaaS companies are consistently achieving Gross Margins of 80%+.

4. The fastest growing EU companies still lag behind the US.

Europe’s top performers are still not seeing the same growth as their US counterparts. Our analysis shows that past $3m ARR, top US businesses are growing at double the rate of the best European companies.

This trend can be partially explained by the fact that US businesses have a larger initial market that they can go out to. Companies launching in Europe are faced with a more fragmented market, and need to cater to different legislative and cultural norms and needs when looking to grow.

5. Diverse teams grow faster.

Our analysis also showed that the fastest growing companies have 10% more women in their senior leadership teams compared to those in the bottom quartile.

You can view the full dataset here: https://bit.ly/3dEknlO