Growth Persistence is “not a thing”. Join Scale Venture Partners Partner, Rory O'Driscoll as he shows you how to remain on track for VC dollars and a successful exit. His session will focus on the Mendoza Line for SaaS growth, giving founders and CEOs a numerical answer to the frequent question “How fast do I need to be growing to be interesting to a venture investor?”.

1. THE MENDOZA LINE FOR
SAAS GROWTH
IS YOUR COMPANY GROWING FAST ENOUGH TO
IPO?
RORY O’DRISCOLL
Partner
Scale Venture Partners
@rodriscoll

2. Rory O’Driscoll
Partner
Scale Venture Partners
@rodriscoll
The Mendoza Line for SaaS Growth -
Is your company growing fast enough to IPO?

3. The
Question
Every founder asks:
• How fast do we need to grow
to eventually IPO?
• Can I raise venture dollars
along the way?

4. The
Answer
The Mendoza Line for SaaS growth:
• Answers those questions at
any revenue stage
• Uses just 3 assumptions
backed by data from successful
SaaS exits

5. The
Disclaimer
“It’s me. Not you.”

6. VC’s are upside junkies
The Mendoza Line for SaaS Growth
Assumption One

7. Assumption One: Pretty Well Understood
What this means for you:
The main value to a VC of a $1MM
to $10MM ARR company is its
potential to scale to $100MM+
Venture investing
• Ultimately the great deals drive the fund return
• We cannot know beforehand which investments
will be great
• So we have to only do deals that have a chance
to “return the fund”
There is no value investing in venture

8. The low-end threshold for a successful IPO is:
• Reaching $100MM+ ARR
• With next year’s ARR growth of >25%
The Mendoza Line for SaaS Growth
Assumption Two

9. Assumption Two: Pretty Clear from the Data
0%
20%
40%
60%
80%
100%
120%
0 100 200 300 400 500 600
GrowthRateatIPO
ARR at IPO
2016-2018 SaaS IPOs

10. The Mendoza Line for SaaS Growth
Assumption Three
Growth rates decline as revenue increases
but in a somewhat surprising way

11. Assumption Three: Not as Obvious
*Within a range of between 20% and 100%
We call this “Growth Persistence”
It implies that the future growth of a SaaS company
can be estimated from its past growth rate times Growth Persistence
Revenue growth rates decline
Y/Y as revenue increases…
Obvious
At a fairly predictable rate…
Not so obvious
And that rate is
independent of the growth rate*
Not obvious at all

12. Turns Out to Be True: Growth Persistence Is a Thing
y = 0.82x
R² = 0.77
-20%
0%
20%
40%
60%
80%
100%
-40% -20% 0% 20% 40% 60% 80% 100% 120%
Year2GrowthRate
Year 1 Growth Rate
SaaS Comps – 2011 to 2016

13. Growth Persistence Allows Us to Estimate
Future Growth
Company A
100%
Year 1 Growth Rate
82%
Year 2 Estimated Growth Rate
0.82
Growth Persistence Factor
Company B
80%
Year 1 Growth Rate
65%
Year 2 Estimated Growth Rate
0.82
Growth Persistence Factor

14. Predicting Long-Term IPO Trajectory Using
Growth Persistence
Core assumption:
IPO threshold is $100MM+ ARR with forward growth >25%
Example: Starting at $10MM ARR
Yr -1 Yr 0
Company A
ARR ($ MM) $5.0 $10.0
Trailing Y/Y
Growth (%)
100%
Yr 1
$18.2
82%
Yr 2 Yr 3 Yr 4 Yr 5 Yr 6 Yr 7
$30.4 $47.2 $68.6 $94.0 $122.6 $153.1
67% 55% 45% 37% 30% 25%
Yr -1 Yr 0
Company B
ARR ($ MM) $5.6 $10.0
Actual Y/Y
Growth (%)
80%
Yr 1
$16.5
65%
Yr 2 Yr 3 Yr 4 Yr 5 Yr 6 Yr 7
$25.4 $36.6 $49.9 $64.6 $80.3 $96.3
54% 44% 36% 30% 24% 20%

15. We call this the Mendoza Line
Mendoza Line for SaaS Growth
The Definition
At any given revenue run rate there is an associated minimum forward growth rate
required to be attractive to VC investors

16. The Mendoza Line for SaaS
Next Year’s ARR Growth Rate %
Current ARR ($ MM) $1 $5 $10 $20 $30 $40 $50 $60 $70 $80 $90 $100
Mendoza Line Growth Rate 140% 94% 77% 62% 51% 46% 40% 36% 33% 30% 28% 25%
Years to $100MM ARR 8.5 7.0 6.0 4.5 4.0 3.0 2.5 2.0 1.5 1.0 0.5

17. Keeping Above the Mendoza Line Is the Surest Track
to IPO
This plot of top SaaS IPOs gives us confidence that the Mendoza Line
is a reliable rule of thumb… but there are exceptions

18. A Useful
Heuristic.
Not a Law
of Physics.
Public SaaS Comps
Only 30% re-accelerated for 1 year
Only 10% re-accelerated for 2 years
Consistent with other VC concepts
like “Triple, Triple, Double, Double,
Double” but more realistic
It’s possible to raise VC $ below
the Mendoza Line, just a lot harder
Diagnosis is not death…
but change is hard
Growth re-acceleration
doesn’t happen all that often
(Growth Persistence >1.0)

19. Diagnosis Is Not Death:
Change Is Possible with Concentrated Effort
Diagnosis is not death…but insanity is repeating the past
and expecting the outcome to be different
2010
2012
2010
2009
Potential levers:
Improving churn
Hiring/replacing execs
Retooling the
GTM model
Product execution

20. Summary
The Mendoza Line answers the question:
At any stage, how fast should a SaaS company
be growing to raise VC money?
It’s a prediction not a law but it has a R2 of 77%
You can
ignore it entirely
if you generate cash
(e.g., Atlassian)
You can
beat the odds
with improved execution
But you have
to assume it is how
most VC’s will think
Your $10MM, cash burning, 50% growth SaaS
company could struggle to raise VC $

21. THANK YOU