Sales and marketing are roughly 1-to-1 with revenue growth, and the spent over $100m in 2014 to make $63m in revenue. I don't find these metrics particularly encouraging. Now this is a SaaS business where you're betting on LTV - but these metrics are tough imho.
While I agree regarding the revenue growth, as someone who uses the service heavily in production, there is significant lock-in and the product is great value. If they continue to innovate this could be a good bet (one i will consider making personally)
I just find its one of those products that the more you use it the more you simply cannot live without it. I could see someone copying the product, but personally I'd probably continue with New Relic unless the price difference was significant.
I found their sales team incredibly pushing, bordering on aggressive.
I was happy enough on a free plan and they were trying to get me to go to the next tier up which was $200 a month. Must have received about 10 emails from them trying to 'work out a deal'. I would have just been happy with some pricing in the middle but the jump was far too high. Anyway whole thing left a bad taste in the mouth.
It's a software company. Since there's virtually zero cost of goods, you expect a high margin.
They are burning a large amount of cash on sales/marketing. Presumably this is forward looking, so it's probably not a big deal (ie upfront costs to get long, multi-year contracts).
$37M in sales/marketing to generate $47M in revenue in first 6 months of 2014. Are there metrics for Sales and Marketing expenses for a SAAS company that could be used for comparison? Seems pretty high, but maybe ok for a fast growing startup.
I don't know if you can draw a conclusion from those numbers alone, but it's typical for a SaaS business to measure Customer Acquisition Cost (CAC) and Lifetime Value (LTV) of the typical customer. Sales and marketing seem to be the majority of the CAC, but you can't tell the LTV from revenue numbers alone.
A rule of thumb is that $1 in sales/marketing expense should get you at least $1 in additional gross profit over the next 12 months. Depending on how much of that $47M was new revenue, it sounds like they're in decent shape on that score.
Although I don't know this for a fact, I would assume their free tier is considered part of their sales/marketing expense which may have something to do with that.
Their April round of $100M with a valuation of $1+B so figure that post money on the IPO they will be $1.5 - $2B making 13 new multi-millionaires in the San Francisco and probably take 13 houses off the market[2].
And the roughly 6,000 people in their networks will say "Man I could have been doing that gig, only a matter of time until I find the one that makes me rich!" and the circle continues.
[2] One allowed exemption for insider selling without filing with the SEC is certain types of mortgage expense. (which I think is still intact post STOCK act but I'm not sure so don't trade on that before checking with legal counsel)
Those Directors/VPs/Founder were likely already pulling a decent salary (as execs in any industry do). They could likely afford an apartment in the city, so it should be a zero sum transaction for housing (12 houses might be purchased and 12 lower cost housing options - relatively - will come on the market).
Housing prices in SF will be unaffected by this. The issues are much more nuanced (and mostly regulatory). This trope of "Post-IPO tech people are ruining the housing market" isn't helping anyone, and might serve to confuse some people unfamiliar with the actual housing market issues in SF.
I actually googled around for SEC form 4 exemptions related to mortgage expenses and couldn't find anything, which kind of makes me think there is no such exemption. Are you sure you didn't just dream this up?
- VCs got beat up on this deal. Sounds like he just handed them a term sheet and said take it or leave it. I don't know how you raise $200m and still control 27.3% as a founder and 68.3% as a company. That is great negotiating on his part - very, very impressive.
- Only raising $100m in the public markets is smart as well - small float will mean more chance for the stock to do well (not always obviously).
- Employees (below the Director/VP level) seem likely to be the odd man out here - you've got those guys owning 68.3%, VCs probably own most of the rest. Rank and file likely own very, very little. I'm wondering if that will lead to an exodus of employees.
- I didn't see any mention of their churn rate in any of the documentation - did I just miss it?
Lew and these guys have played the VC/public markets game about as perfectly as you can imho.
Note - the 68.3% includes the key VCs, who are executive directors. The balance is divided up among the other investors and the employees. If you think about it, the founding group/top management team can hope to retain ~30% if they have solid up rounds. Lew, I think, is the sole founder and has a chunk of that 30%. Very impressive indeed, especially given the large fund raise to date.
They will likely raise much more than 100 million. That is the "default" setting for the S1. Also, if the IPO goes well expect the underwrite to green shoe some more.
LTV. That's the key. With interest rates this low, you can pretty much justify any sales and marketing expense so long as customer attrition is low.
If New Relic has a USP (I am not qualified to weigh in on this), then I think they can go public and reward their investors with at least a market level return.
They occupy a niche that Google has a hard time making work for them (too complex) and Adobe so far doesn't really shine there either. Cue a takeover by one of these two at some point in the future.
What they provide is something that would make sense in Analytics. So who knows, maybe some day Google will annound Customer Analytics as a part of Google Analytics... For free!
It's not like they would be starting from scratch.
Founder Lew Cirne still owns 27.3% of the company (wow!). More than any investor or other shareholder. He raised $200M+ and took little dilution. Awesome to see a repeat entrepreneur who knows what he's doing when fundraising.
Looks like they have a run rate of over $100M (25M in subscription revenue last quarter) -- seems like they spent $100M to get to $100M+ in run rate - typical saas model in early days
Keep an eye on New Relic. Not only are they emerging as a really dominant player in the APM space, but their heading into a very interesting space with the evolution of their Insights platform. My $20 is they will push hard into the BI and analytics space and could end up competing with Omniture and similar players (successfully I think). This is a strong company with big dreams and a good long term vision.
I didn't really think of New Relic as "Enterprise Software". They are a SaaS Company. Most of the reason enterprise software has so little R&D is because they spend all their resources customizing deployments for enterprise customers.
i think enterprise and SaaS are orthogonal descriptions. new relic is definitely enterprise - as opposed to consumer (ala, dropbox). That their product is a SaaS offering doesn't really make any difference.
Now I see the rush for New Relic to acquire Ducksboard. Should be good for the team, since they apparently took a large amount of shares through the acquisition.
100k shares at $17 estimated value, it is 1.7MM. Together with 2.3MM in cash, at 4MM it is not really a "exit" but more of an acquihire. There seems to be a performance-based additional 2MM, but still fairly small.
Hmmm... wow I lost my bet that GitHub would have been the first of the hipster Ruby on Rails companies to IPO. Though, I'm still betting they will be next. New Relic is a great company that makes it very easy to keep on top of your application servers. I look forward to this infusion of cash taking them to the next level. Congrats team and good luck with the process!
What exactly is a "hipster Ruby on Rails company"? For better than half their life (founded in 2008, mentioned they made the switch in this 2011 article: http://highscalability.com/blog/2011/7/18/new-relic-architec...) the piece that collects data was ported to Java. Also, I'd think Twitter was far more hipster. :-)
I think it's a great company but their risk factors section in their filing is fairly alarming:
- We have a history of losses and we expect our revenue growth rate to decline. As our costs increase, we may not be able to generate sufficient revenue to achieve and sustain profitability.
- These investments may not result in increased revenue or growth of our business. We also expect that our revenue growth rate will decline over time. Accordingly, we may not be able to generate sufficient revenue to offset our expected cost increases and to achieve and sustain profitability. If we fail to achieve and sustain profitability, our operating results and business would be harmed.
Yes and no. In theory, the SEC's rules[1] require that the risk factors be things that are unique to the company (i.e. not risks that apply to stock offerings generally). The factors you mention are common among new companies but wouldn't be included for more mature companies.
Sometimes these factors are helpful. Sometimes they seem to represent the product of a particularly imaginative lawyer or accountant. RSA once had a risk factor stating that if an efficient means of factoring primes were developed their business might suffer.[2]
