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How to Survive and Thrive

in the New Software Industry

Laura Sachar, General Partner, StarVest Partners


Paul Turner, Director, NetSuite


Jim Holtzman, CFO, FieldGlass



2010 Financial Benchmarking
Survey
 By SIIA & OPEXEngine

 Confidential Financial Benchmarking reports
covering R&D, Sales, & Marketing expenses,
EBITDA, customer acquisition & maintenance
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• Pricing for SIIA Members: Free
• Pricing for Non-Members: $999

 http :// bit . ly / benchmarkingsurv
ey
NetSuite Revenue Recognition
Seminar
 June 10, 2010

 Catch the expert panel with Deloitte,
Protiviti, Proformative and NetSuite!

 Four Seasons, Silicon Valley
 East Palo Alto

• http://bit.ly/revenuerecognition
SIIA OnDemand Europe Steering Committee / Speaker
October 18 - 20 , London Opportunities
www . SIIAOnDemandEurope . net Rhianna Collier , + 1 . 408 . 884 . 3834 or
rcollier@siia . net
Save the dates and plan to join us at the
European
software industry ’ s most comprehensive annual ISV
Sponsor Opportunities
conference for understanding the business Brian Rosenberg , + 1 . 917 . 267 . 8858 or
drivers around SaaS and Cloud Computing . brosenberg@siia . net
Agenda
Introduction

Laura Sachar, General Partner, StarVest Partners


ØHow to Survive and Thrive
in the New Software Industry

Paul Turner, Director, NetSuite


ØAligning Sales, Finance, and Service
for the New Software Economy

Jim Holtzman, CFO, Fieldglass


ØGetting the Groundwork Right for Growth

ØQ&A
HOW TO SURVIVE AND THRIVE
IN THE NEW SOFTWARE
INDUSTRY
Presented by
Laura Sachar

HOW TO FIND A NICE SAAS


COMPANY
StarVest Partners

•New York City based venture capital firm


•Expansion - stage companies with $2 − $15
million in revenues
•Actively investing throughout the U . S .
•$400 million under management ; $245
million fund closed Q1 2009
•Typical initial investment $4 − $8
million ( up to $15 − $20 million in
total )
•15 SaaS companies since 2000 ; Lead VC in
NetSuite ( NYSE :“ N ”): $1 . 6B IPO

7
Investing in Technology - Enabled Business Services
Companies for over a Decade

•Software - as - a - Service

•Internet Marketing Services


•eCommerce

•Data - as - a - Service , Info - as - a -


Service
•Security Software Services

8
Select Leading Investments

Led Series B round;


Lead VC in NetSuite (NYSE:“N”): $1.6B On-demand product innovation
IPO in 2007. Highest VC–backed tech and management software.
IPO since Google.
Led ‘07 Series B and ’08 follow-on: The
technology leader in on-demand customer
collaboration.
Led the Feb ’09 Series C round: The
leader in on-demand business Led Series B round; fastest growing
intelligence (BI). corporate performance management (CPM) on-
demand software company.
Early investor in iCrossing: The
largest privately held Internet Early investor: ins.com is now the #1 auto
marketing services company. insurance agent online.

Led Dec ’09 Series B round; First on-demand, application security solution
invitation-only online sample sale that provides automated application security
shopping community testing through SaaS delivery model.

Early VC investor in leading on-


demand email solution provider Data-as-a-Service provider:
(acquired by Dell for >$150m ). The largest farm equipment transaction
information database.

Human Capital Management SaaS solution;


leader in its sector.

9
Demand for
SaaS is
Increasing

POSITIVE SAAS
TRENDS
Market Growth Forecast

Source: Gartner; Market Trends: Software as a Service, Worldwide 2008-2013,


Update
11
SaaS Trends

•SaaS CAGR is forecasted to grow at 5


times the total application market
•The market reached ~ $7 . 5B in 2009
•The SaaS landscape continues to evolve as
vendors extend regionally and
increasingly offer vertical - specific
solutions
•The largest proportion of SaaS revenue is
attributed to customer relationship
management ( CRM ), content and
communications and collaboration ( CCC )

Source: Gartner; Market Trends: Software as a Service, Worldwide 2008-2013,


Update
12
What Makes
a Winner

PUBLIC SAAS
COMPANIES
Pure - Play Public SaaS Companies
EV / TTM Revenue

0
01
/2
21
5/
Source: CapitalIQ
Note: Pure-Play SaaS Companies tracked through 5/21/10 and include
ATHN, CNQR, CRM, CTCT, DMAN, KEYN, KNXA, LPSN, N, RNOW, SFSF, SLRY,
TLEO, ULTI, VOCS
14
Pure - Play Public SaaS Companies
SaaS Public Comparable Metrics

As of 5 / 21 / 10 LTM Revenue Enterprise TEV / Rev LTM Projected


( $M ) Value ( $M ) LT EPS Growth
Rate
AthenaHealth $202 $766 3.8x  35%
Concur Technologies 268 1,911 7.1  25
Constant Contact 140 505 3.6  36
DemandTec 79 125 1.6  20
Kenexa 159 247 1.6  18
Keynote Systems 80 89 1.1  20
LivePerson 93 265 2.9  24
Netsuite 169 816 4.8  26
RightNow Technologies 159 389 2.5  29
Salary.com 46 37 0.8  30
Salesforce.com 1,306 9,945 7.6  30
Successfactors 162 1,182 7.3  29
Taleo 205 708 3.5 24
Ultimate Software 204 777 3.8 23
Group
Vocus 86 180 2.1  20

Source: CapitalIQ as of 5/21/10


15
Require 50 % to 70 % More Capital to be Cash
$ Millions
Public Funding to Years to Revenue at EBITDA at
Companies IPO IPO IPO IPO
AthenaHealth $49 10.1 $76  $11
BlackBoard $101 7.1 $92  $9
Concur $30 5.3 $20  ($25)
ContantContact $37 12.2 $50  ($2)
Dealertrack $48 4.9 $121  $34
DemandTec $42 7.8 $43  $1
Kenexa $55 18.5 $66  $12
LivePerson $42 1.5 $1  NA
LogMein $25 6.4 $52  ($0)
Netsuite $85 9.2 $109  $18
Omniture* $67 10.5 $80 $8 
RightNow Tech. $32 7.6 $62  $6
Salary.com $6 7.9 $23 ($3)
Salesforce $65 5.4 $96 $19
Success Factors $55 14.9 $63 ($59)
Taleo $37 6.2 $78 $6
Ultimate Software $25 8.4 $43 ($2)
Vocus $26 6.4 $28  ($1)
Average $46 8.4 $61 $2
Source: River Cities Capital Funds, “SaaS Valuation and Capital Efficiency
Benchmarking Study,” and SEC Filings and Wachovia Securities – May 2008
report on the state of the SaaS market
* Omniture was acquired by Adobe in September 2009
16
Key Metrics

STARVEST SAAS
EXPERIENCE
SaaS Investment Metrics
Key Metrics

Ø
Revenue Periods : $1 - 5M ; $5 - 15M ;
$15 - 30M
ØRevenue Growth
ØCapital Efficiency
ØGross Profitability
ØSales & Marketing as % of
Revenues
ØResearch & Development as %
of Revenues
ØCapital Expenditures as % of
Revenues

18
SaaS Investment Metrics
Public Comparables (AVG)

$1 - $5M $5 - $15M $15 - $30M

Capital 22% 50% 88%


Efficiency
Gross Profit 46% 45% 65%

S&M as % 175% 92% 66%


of Revenue
R&D as % 72% 39% 23%
of Revenue
CapEx as % 59% 18% 13%
of Revenue

Source: River Cities Capital Funds

19
SaaS Investment Metrics
Other Key Metrics
Other Key Metrics

Recurring Revenue as a % of Total > 60 %


Revenue
Churn < 15 %
TCV/ACV > 150 %
% Revenue Forecast Under Contract > 70 %
Customer Payback Period < 2 years
Pipeline Coverage > 4 x
New Bookings as a % of Total  > 70 %
Bookings
StarVest Magic Number  > 0 . 75

Source: River Cities Capital Funds and StarVest


estimates
20
Exits

TOUCH DOWN
SaaS Exit Opportunities
Public Multiples

Me
di
an
En
te
rp
ri
se
Va
lu
e/
Re
ve
nu
e

22
SaaS Exit Opportunities
Software M&A Multiples by Product

Source: Software Equity Group “Software Industry Equity 23


Report,”
Q1 2010
Concluding Discussion

•SaaS is significantly outperforming the


total application market
•Key SaaS indicators include revenue
growth , capital efficiency , gross profit ,
S & M & R & D as a % of revenue
•Additional metrics include recurring revenue ,
churn , TCV / ACV and bookings
•SaaS exit opportunities :
•SaaS companies require 50 - 70 % more capital for
cash flow break even
•Public SaaS companies have partially recovered
valuation since the end of 2008
•Continued increase in SaaS valuations is likely

24
Aligning Sales, Finance, and Service
For the New Software Economy
Paul Turner

Director Solutions Marketing


NetSuite

© NetSuite 2010
NetSuite: Quick Take
Background Performance
Founded 1998 6,600+ customers, 750+ software
Publicly traded on NYSE: “N” companies

Offices in 7 countries Top 10 highest growth ERP


solution according to Gartner
$165M+ revenue and IDC
900+ employees NetSuite runs NetSuite

#1 Cloud Business Suite Recognition

5 Star Rating

Fastest Growing Top 10 Cloud


Top 10 FMS Vendor Companies to Watch
Proud Recipient of 3 CODiE Awards

BEST BUSINESS SOFTWARE SOLUTION

BEST RELATIONSHIP MANAGEMENT SOLUTION

BEST CLOUD INFRASTRUCTURE SOFTWARE


750+ Software Companies Choosing
NetSuite to Fuel Their Growth

Scalable Startup Transition Mature Company


Software Companies Face Different
Challenges at Different Growth Stages

Competition for VC funding Financial reporting


Customer acquisition Financial consolidation
and monetization Revenue recognition / EITF 08-01
Managing cash burn rate Multi-currency management
Cost effective business Services management
management Sales alignment

Recurring revenue management


Customer retention and renewals management
Adoption of evolving business models

Scalable Startup Transition Mature Company


The Move to Subscription is Underway


A software industry shift
toward subscription models
will result in a nearly $7 billion
decline in worldwide license


revenue in 2010

30
But Subscription Comes in Multiple Forms

• SaaS is a key driver for growth in subscription


• Some on-premise models also changing to
subscription based models
• Many business operating hybrid models
Of the top 100 software vendors worldwide by revenue,
40% have subscription revenues
For 13% of top 100, subscription is 50%+ of total
software rev revenues
• SaaS-revenues made up 32% of the overall subscription
in 2008 and 33% in 2009.

31
What it Means
 Sales  Finance Service
Structure Order Management Cost-to-serve
Billing / Invoicing
Comp Cust sat visibility
Revenue
Renewals Renewals
Forecasting Recognition
Renewals
Effectively Managing Recurring Revenue
Requires Important Milestones
Metric & Value Tracking
sell & Renewal Management Customer Sat

Multi Quota Forecasting &


+
Renewal
+ Opportunities
Comp Planning

+ Your +
Support Quote/Order
Software
Co

+ +
Usage & Ongoing Client Management
+ Recurring Billing & Revenue Recog
Services Invoice/Rev. Mgmt.
Hard to Achieve When You’re Running This…….
evenue Amortization
Deferred Revenue
Upsell
Renewals
% of Completion Rev Rec Renewals

Forecasting

Rev Rec

Future Billings
Collections
Commissions
Mgt Reports

Prepaids Amortization
Allocations
Positioning Sales for Renewals Success

Achievement Structure Comp Forecasting

High Finance generates No one paid Default in


School invoice contract value

Bachelors Hunters vs. Upsell vs. Revenue


Farmers Renewal forecasting

Masters Client Management Pay on net Incremental


incremental, revenue
difficulty of forecasting
renewal

PhD All Depts. Centered Comp all on Improving


on Renewal Customer Sat accuracy with
(NPS) Customer Sat
overlay
Clear Visibility Required to
Continually Measure Renewal Value
Key renewals management metric, a function of:

Recurring GAAP
Profitability
Reference Level
Vertical
And more
Used cross-company to prioritize

activities
Issue/enhancement requests,
support queues, renewal comp etc.
Visibility across the company via

Dashboards
View into Up-sell vs. Down-sell
- and Comp Structures to Drive Behavior

Big Ideas
Managing Up-sell vs. Down-sell
Sales Management: Key Takeaways

1.Requires flexible sales compensation


•Comp on satisfaction, renewal, up-sell,
down-sell

2.Relentlessly manage customer satisfaction


•Focus entire organization on key
metrics

3.Strong collaboration across sales, service,


development, finance teams

4.
Positioning Finance for Success

Achievement Order Mgt. Invoicing Rev Rec

High Paper order from Manual, Customer 6 million cell


School sales to finance Self-Service spreadsheets

Bachelors Co-terminus ending Automate Revenue


of orders Co-terminus recognition
Quote-to-order-to- Support Usage schedules -spread
invoice Based Billing over contract term

Masters Multi-channel order Multi-Currency, Currency


Multi-Tax fluctuations, Tax
schedules

PhD Multi-Subsidiary, Multi-Country, Real-time view


Simplify Contract Management and Renewal
Co-Terminus Contract Management

Multiple renewals / customer One renewal / customer


Dec Jun Nov Dec

Initial Sell Initial Sell

Up-sell #1 Up-sell #1

Up-sell #2 Up-sell #2
Flexible Billing is Required To Avoid
Spreadsheet Hell
 One time invoice from order  Milestone billing
On-premise software product Implementation project work
Training materials, user 

manuals
 Time and materials
Fixed bid implementation
Implementation project work

Custom user training


 Schedule based on calendar 

Subscription
 Usage-based billing
Maintenance
Pay per call customer support
Support
Subscription


Finance: Key Takeaways

1.Co-terminate orders whenever possible


•Reduces internal complexity
•Increases customer satisfaction due to
streamlined billing

2.Automate the quote-order-invoice-rev rec


process
•Reduce data entry, manual errors, revenue
restatements, tremendous cost

3.Proper Revenue Recognition depends on activities


of every department throughout
the company
Remember This?
evenue Amortization
Deferred Revenue
Upsell
Renewals
% of Completion Rev Rec Renewals

Forecasting

Rev Rec

Future Billings
Collections
Commissions
Mgt Reports

Prepaids Amortization
Allocations
NetSuite Provides a Cloud Single
Business Suite for Software Co’s
Customers

CEO CFO

NetSuite SINGLE NetSuite


ECOMMERCE DATA CRM+ Sales Rep/
SOURCE
Manager
Ecommerce
Manager
NetSuite
FINANCIALS / REV REC
Support
Manager

Vendors

Partners
Drive Recurring Revenue Management Globally

LOCAL GLOBAL
Currency Consolidation
Quota Sales
Forecast Revenue
Orders Dashboards
NetSuite SINGLE NetSuite
Taxation
ECOMMERCE DATA Currency
CRM+
SOURCE Management
Partners
Compliance
Language NetSuite
FINANCIALS Control
Website
Many Websites

12 Languages, 170 Currencies


Cost of Operation Aligned with New
Software Company Reality

Up to

50%
Lower TCO

46
Delivers Hard Benefits to
Software Companies
Improvement area Business Result Company

Accounting Monthly close reduced


efficiency from 15 to 8 days
Reduced bookkeeping
costs by 20%
Financial close from
weeks to 4 days
IT expenses Saves approximately
$250,000 annually
Employee Services revenues lifted
Productivity by 20 percent
Eliminated need to hire 4
FTE’s saving approx
$300K / year
Why NetSuite for Software Companies

Powers 750+ software companies

Run by recent key software IPO’s

Specific “Software Edition”

Dedicated PS team

NetSuite runs NetSuite

Real, proven, tangible benefits


Getting the Groundwork Right for Growth

Jim Holtzman, CFO



Fieldglass Background

• Founded in 1999, Fieldglass’ technology enables


enterprises to effectively manage contingent workers
and outsourced services engagements
• Used by Global 2000 companies such as
GlaxoSmithKline, J&J, Monsanto and Verizon
• 100+ blue chip customers
• 120+ employees
• Grew 30%+ last year,
on track to grow 40%+ this year
Key Initiatives to Support Growth
• Improve financial controls and
gain a predictable monthly close

• Gain streamlined invoicing process,


FINANCE and move away from manual processes

• Drive transparency and rapid access


into key financial and operational information

•Obtain visibility into the sales pipeline
SALES

•Maximize renewals by improving customer


SERVICE
service and customer management
51
Deployed NetSuite Starting in Jan 2005
- across Finance, Sales, Service and R&D
• Reduced financial close time from 15 days to 9 days
• Improved visibility with easy web based access to
financial, sales and service performance
• Cost visibility with budget reporting across business
• Gained a proactive renewals process
• Clear visibility into key business performance metrics:
Average toll rate, revenue and costs per person,
new business and total user count and more
• Deployed customer service to manage issues, provide
self service, manage to service SLAs and drive
renewals

52
Best Practices

Selling low volume high value enterprise accounts


Ø As in Fieldglass’ model, requires business systems and


processes that are flexible enough to accommodate
the ongoing needs of large clients on an individual
basis “The business of unnatural acts…”
Selling high volume B2C or to small businesses

Ø Requires highly integrated automated business systems


and processes that scale across thousands of
customers

© NetSuite 2010 53
Resources
Upcoming Event Available Whitepaper

Thursday, June 10th


Four Seasons Hotel
Silicon Valley

http://tinyurl.com/NetSuiteRevRec SIIA.NET  Documents & Resources

54
Q&A
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