There are many reasons to enjoy investing at Series A. One factor is purely human: it’s uniquely gratifying to support founders at this inflection point, as they progress from early product-market-fit to sustainable long-term growth. Another is the diligence process itself, which calls for a blend of right- and left-brained thinking. One has to be:

• thesis-driven, i.e. how will the world look 5-10 years from now, and can this company play an important role in shaping the future?
• metrics-driven, i.e. is there clear evidence of outstanding execution so far? Do the early KPIs suggest that the founders’ dream is beginning to be realised?

At Mosaic, we take a thesis-driven approach, where we focus on building conviction from first principles. This prepares us to invest pre-emptively in the markets and founding teams that excite us.

By the same token, metrics naturally play a key role in our diligence process. In this post, we’ll lay out some of our methods transparently, for the benefit of founders and peers who interact with us. Here’s what we have learned from our financial and operational evaluations of many Series A SaaS companies.

‍The “cheat sheet”

We apply this set of benchmarks to the majority of SaaS companies we evaluate at Series A:

We've come across a small handful of companies that stand out in multiple areas – but it's important to say that evaluating early-stage businesses can't be done using off-the-shelf frameworks alone. For example, a company that's breaking new ground may not show amazing growth efficiency in its early days, as it spends upfront to evangelise and educate its audience – but then reaps the rewards of this over time, as it ends up leading the way in its category.

Meanwhile, a company that looks like an outlier may be reliant on a few big deals, rather than building a sustainable sales strategy. Serving these customers may call for complex sales processes, heavy product customisation, and one-time services work. This often leads to a risky concentration of revenue, and consumes the founding team’s energies – taking up time and effort that might instead be spent developing a more repeatable sales motion.

‍If there’s one metric we care about more than most investors, it’s net dollar retention. We believe this is the best empirical way to gauge the health of a product. If you can see that your existing customers love your product and are willing to spend more on it, it provides genuine confidence in the future growth plan.On the other hand, there are some metrics which we tend not to weight strongly as others:

• LTV (and hence LTV:CAC) is rarely presented in a way that is helpful at Series A. Cohorts are typically immature, and rarely allow for confident extrapolation of their lifetime duration. Secondly, CAC is seldom represented in a ‘fully loaded’ manner, i.e. with all relevant apportioned overheads, discounting, and other costs that contribute to acquiring customers.
• NPS is an unreliable witness to your customers’ love. It’s very sensitive to the subset of customers you survey, and the time at which you ask them. Sadly, we’ve seen cases where it has been calculated unscrupulously (e.g. by selectively surveying customers who renewed their subscription, and conveniently excluding those who churned).
• Logo acquisition and churn is rarely meaningful, as it’s often decoupled from revenue. A page of blue-chip logos may look attractive – but can attract more scrutiny than praise if these are small pilots or one-time contracts. 10% logo churn may be tolerable if that represents only 2% of revenue, but fatal if it represents >50%. We have seen both in recent memory!

‍Notes on methodology.‍

• The table above is most relevant to mid-market SaaS companies, i.e. those with a roughly $25K-100K ACV, and typically a largely inside sales motion. For top-down enterprise field sales, we naturally expect longer CAC payback and sales cycles, and higher gross dollar retention. Conversely, for SME / more product-led approaches, we would tend to expect shorter CAC payback and sales cycles, and tolerate higher churn.
• These categories are based on our own historic data, which we’ve sense-checked against benchmarks shared by a handful of peer firms (to whom we are grateful).

‍Does the GTM strategy fit the ACV?

At series A, many SaaS founders are honing in on a repeatable go-to-market motion. The right approach tends to vary by contract value – this is how we typically see things:

In the early days, B2B founders may spend a lot of time to win small or preliminary contracts. This is naturally not a recipe for success at scale. The key question we often debate is: can we imagine a lighter-touch motion and/or an increasing ACV over time? Crucially: do today’s metrics paint a reliable picture of how easy it will be to navigate this market over time?

‍Conclusions

In early-stage VC, financial and operational metrics can tell only a small part of the story. We have a house view of which ones are most predictive of long-term success – but these are often outweighed by our (more subjective) evaluations of teams, products, and markets. In this post, we’ve deliberately not dived into the structural characteristics of SaaS companies we like (i.e. vertical vs horizontal, platform vs point solution, enterprise vs mid-market). These are topics which we’ll discuss in future writing.If you have feedback on our approach, we’d love to hear it. Which metrics are we over- or under-emphasising? If you’re a SaaS founder, which “north star” metric(s) do you spend most time thinking about? We look forward to the conversation: get in touch here.

‍Acknowledgements. We’d like to thank the many friends and peers who have shared their own data and evaluation frameworks publicly. These include (and are not limited to) the teams at Point Nine, OpenView, Speedinvest, KeyBanc, a16z, Scale, and Craft.