4 ms·
I wonder if you have more context or numbers. What companies are you thinking of. I remember companies like WeWork and Coinbase dropping in valuation but what m
by Ataraxic 4y ago
I wonder if you have more context or numbers. What companies are you thinking of. I remember companies like WeWork and Coinbase dropping in valuation but what more traditional Saas companies have run into this sort of hurdle?
I'd argue that ARR is still a good measure just not the growth at all costs, w/e it takes to get toe 100M ARR/Unicorn status anymore. After all, sales is sales and if you don't have repeatable sales you probably don't have much of anything.
- kolbe 4y agoThere are many shenanigans that startups can play to juice ARR to render it meaningless. The idea isn't terrible, but that's why I invoked Goodhart's Law. > After all, sales is sales and if you don't have repeatable sales you probably don't have much of anything. That's right, but you're missing the key that it's a necessary, but not sufficient requirement. When the pool of investments is 90% with ARR are honest and straightforward, then it's good to use ARR as a metric. But when the pool changes to 50% or less who are honest (as Goodhart would predict), the metric loses value.
- jrockway 4y agoWhat are some of the shenanigans to juice ARR? I can think of a few; 1) make 2 year contracts cost the same as 1 year contracts (so you're lowering the price by 50% but get the number you want for your report today); 2) give incentives equal to the value of the contract (our software costs $30k but we'll give you $30k of AWS credits). Anything else to watch out for?
- kolbe 4y agoTwo companies pay each other absurd amounts of money for their (nearly) zero marginal cost services, netting no money transferred, but loads of recurring revenue for each. Your #2 hint at this, but paying more than lifetime value of a customer to acquire the customer.