Funded vs Bootstrapped: Comparing the Metrics of 37 SaaS Companies

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Editor’s Note: This post first appeared on Point Nine Capital’s Medium publication, which you can visit here.

I’ve been tracking what’s going on in the SaaS world for some time now and I’ve definitely noticed the rise of bootstrapped SaaS startups in our industry. This trend is not new but I have the feeling it’s accelerating. I meet and speak with more and more founders who run these kinds of businesses (and are very happy about it).
So naturally, when I saw that Nathan Latka’s public SaaS metrics spreadsheet showed 12 such companies, with a breakdown of their core metrics, I decided to make a comparison with the VC funded startups on the same list.

And here are the results:

Public SaaS companies

Note: Just a quick note to insist on the fact that I don’t pretend this a representative sample nor that this list is 100% accurate. I’ve received some emails from founders of companies on that list and already made some corrections (which didn’t change the metrics dramatically).

MRR

This is probably the data point which surprised me the most. The average MRR of the bootstrapped startups on this list is $364K and the median value is $227K, compared to $599K and $329K for the funded ones, knowing that the median value raised by funded businesses is $1.2M (and average = $5.8M).

I have to admit that I was expecting lower figures, for instance if you take the data from open SaaS startups I get an average MRR of $40k and a median value of $8k (which is also what I generally observe when I speak to bootstrapped SaaS founders).

With a $227K MRR you are already at $2.7M ARR which is above the $1.5M threshold that JML defines as the “self sustaining engine”. Serious businesses. Many funded SaaS don’t reach that point.

Churn

As expected no big difference in terms of churn (both groups are around 5% of monthly customer churn) as both funded and bootstrapped startups target the same type of customers (small accounts rather than enterprise). More money doesn’t guarantee a stickier product.

Sales Model

When you compare the LTV and average number of customers you understand that the vast majority of these 37 SaaS companies sell to small accounts and are not selling to the enterprise world (there a few in the list though, all VC backed).

SaaS Sales Model

In terms of customer base the bootstrapped startups are doing a great job with a median value of 2788 customers (which is impressive).

Team Size

This data point was also surprising to me with a median value of 13.5 teammates for bootstrapped SaaS companies versus 16.5 for funded ones. Not a big difference again.

Observations

1. The different metrics might be close for several average and median values but if you look at the 14 companies which have reached $500K of MRR only 2 are bootstrapped.

I cannot say that this is a representative sample (many more bootstrapped SaaS with higher revenue exist) but I think it’s realistic to think that past a certain ARR (around $5M -$6M?) bootstrapped startup are clearly outnumbered by VC funded startups.

2. The core SaaS metrics (churn, LTV etc…) are really close when we look at companies targeting the same group of customers. Clearly being funded doesn’t help that much when it comes to lowering your churn or improving your LTV (unsurprisingly).

3. That being said, VC money helps companies scale faster. In our top 14 of SaaS with MRR > $500K the two bootstrapped startups were founded in 1999 and 2007. It took 16 years for Aweber to reach $2M of MRR. It took 5 years for SeamlessDoc to reach almost the same stage. The majority of funded companies with a MRR > $500k were funded after 2010. Money doesn’t buy better core metrics but it buys growth speed. Profitability is another important topic but I cannot speak about that as we lack data. It’s easier to reach a certain revenue if you don’t care about profitability and just burn but we don’t know how far from profitability are all these startups.

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4. Many bootstrapped founders face a choice once they manage to reach several hundreds of $ in MRR: continue to grow at their own pace or to accelerate growth by taking money from VCs.

5. I bet we’ll see an increasing number of great bootstrapped SaaS grow past $500K in MRR. Reasons:

  • Market maturation: the market is much more mature and it’s easier to target a vertical or a niche and to build a healthy bootstrapped business.
  • Distribution: there are more and more platforms (mature ones like SalesForce or promising like segment.com, Zapier, Slack…) that ease distribution / word of mouth.
  • Education. It’s one of the advantages that VCs have: access to a portfolio of companies from which they can detect patterns and create playbooks that they share among their companies (and use to select their investments). This knowledge was not accessible to bootstrapped founders but as more and more people share this knowledge online and as the bootstrapped community is structuring (see Microconf for example) this advantage is disappearing.

Another consequence is that not only we’ll see more great bootstrapped startups emerge but the cycles will also shorten. Just look at companies like Converkit which could reach $240k of MRR in less than 3 years. This wave is already coming. The issue for them will be to scale beyond $1M in MRR with such high churn.

6. The majority of the bootstrapped startups listed here (and that I know myself) are targeting SMBs / small accounts. Maybe “enterprise grade” bootstrapped startups are under the radar or rarer or maybe this is a model which is inherently more capital intensive. I don’t have a clear explanation but if you do please share it in the comments.

Here is a insightful answer from Timothy B. Jones (or in the comments below)

Conclusion

From a founder POV it’s a great time because they probably never had so many options available. I currently see three models of SaaS companies growing:

  • Micro SaaS: company that are operated by only 1–2 person and can be extremely profitable.
    Bootstrapped SaaS: which are operated by real teams and can reach multiple hundreds of thousands of $ in MRR. Of course multi-million $ MRR bootstrapped companies exist, but these are more the exception than the rule. I think that reaching a couple of hundreds thousands $ of MRR without outside funding will not be an exception at one point.
  • Funded SaaS: the path if you want to take VC money.

From a VC POV it’s also a very interesting time. Early revenue (and early revenue growth) is probably less meaningful than it was a couple of years ago. You can invest in a fast growing early SaaS (in terms of revenue) but if the core metrics (churn, LTV etc…) are not great it will be hard to scale the business at one point, and this path is not VC friendly.

  • Fred Yee

    Great post. Do you have a theory to why LTV is lower for bootstrapped?

  • Scott Nelson

    As a founder of an enterprise bootstrapped SaaS startup, I can tell you it’s an entirely different sales approach than those selling into the SMB market. Longer sales cycles? Yes. But the LTV is off the charts – especially if you have your CAC & churn dialed in. To your point 6 in Observations, I can get to the median MRR with just 14 customers vs. the 2,788 for the SMB startups.

  • I think there are several differentiators that are not often acknowledged.

    – To serve a B2B niche you need deep domain knowledge – this largely rules out younger founders (hence incubators) and so called smart investment (frankly minimal attention span investors are not welcome).
    – The above makes strategic investment and partnership much more likely (which tends to fly below the radar – not out of policy but largely to avoid distraction)
    – Value propositions are generally more deeply defined / nuanced (not just another app) to serve a specific valuable problem. This means timing is harder to get right (a slow long take-off) so early funding and burn is more damaging.
    – Learning by failing is a thing of the past for older founders – they want a sure thing – so greedy term sheets by a typical VC are just offensive.
    – breakeven with a repeatable organic model beats growth every time – funding growth should be an option not a hail mary pass!
    – Large Enterprise sales are still sold off relationships more than web-pages (think field sales rather than inbound) – this means far fewer higher value clients, an intuitive ABM apporach, and real (not pretend or logo seeking) partnerships etc – all of these point to slower initial growth and results that are less well modelled by metrics – so the founder team must steer by knowledge/ gut feel / seat of pants without external dependencies (or psychological support ie belief ) for longer.

    This promotes bootstrapping until traction is clear.

    If a truly scalable profitable model is found and proven – suddenly funding and growth become less of an issue

    So IMHO below the very few successful tips we can see of enterprise SaaS huge icebergs are calving, In time these will take Inbound App oriented, high growth/burn dilute and fail/fast funded startuos to the cleaners a few years down the line.

    But I may be wrong ! 🙂