How to Select an Investor in 2023

Preparing to raise capital in 2023 might feel daunting given the market, but it doesn’t need to be. For great businesses, there are investors (like Insight) who are ready to invest.

Before thinking about raising money, we’re going to assume founders have checked off some of the basics listed below:

  1. Know your specific business needs for the investment. This should be deeper than the amount of money you need to raise. Founders/CEOs seeking funding should have a well-defined business plan that outlines company growth goals, target market, financial projections, and competitive advantage. This helps articulate the value of your business to potential investors and demonstrates an understanding of the industry and market.
  2. Prepare your leadership team. Fundraising takes time away from running the business, which means your leadership team must have the skills, experience, and dedication to execute the business plan and drive the company’s growth. Assemble a team that has a diverse range of skills and expertise needed to achieve the company’s goals.
  3. Have a clear plan for using the funding. Investors want to see a clear plan for how the new funding will be used to drive the company’s growth and generate a return on investment. Be prepared to present a realistic, detailed plan for how the investment will be used to achieve specific milestones and grow the business.
  4. Finally, map the market of potential investors. Asking other entrepreneurs for advice and introductions is a great way to start the fundraising process.

Once these steps are done, you’re ready to begin seriously contemplating your next fundraising partner. Deciding to bring someone new onto your cap table can significantly strengthen your business for the years ahead and inject the capital needed to move from a startup to a scaleup.

Some tips for founders:

Prenup discussions on the second date.

Being prepared with your goals and expectations for raising capital is great, but in today’s market, it’s important to have an open mind and willingness to have a conversation. In the negotiation of final documents, there is always a clear set of rights regarding rules of engagement if things go right — and if things go wrong. While this can feel as off-putting as discussing a prenuptial agreement early in a relationship, it is important all sides understand rights and agreements for all scenarios. Consider your position if things go wrong. What happens when things go wrong is as important as the conditions when things go right.

Consider dilution in addition to valuation.

You’re obviously seeking out capital, but don’t simply fixate on your company’s valuation number or the specific amount of money you want to raise. The more important consideration in the long run will be understanding the percentage of the cap table you are hoping to raise. While value is always important, if you are only raising primary capital you should consider dilution more than the post-money value. For example, if you are hoping to raise $25M at a $125M post (20% dilution), you can offset a 25% price disappointment by lowering the amount of capital raised. You can raise at $80M while limiting the raise to $20M. This is also 20% dilution. The only difference between the two deal structures is $5M on your balance sheet. The point? Valuation matters, obviously. But it’s only one of the variables. You can control the impact of valuation by adjusting the investment amount.

You want a partner that has enough capital to ideally support you through your next few rounds, and ultimately, deliver enough value to scale your business in meaningful ways beyond a sky-high valuation or fundraising amount.

Have conviction in what a new investor can do to add value.

This means two things. Firstly, what does the investor’s investment horizon look like? Do they have the capital and patience to be able to support you long-term? Secondly, how will the investor work with you and your team? It’s critical to know the skillset of your lead investor and ensure that they understand your industry, business, and goals for the years to come.

Besides the financial support of your investor, different firms will have different levels of deeper support available. At Insight, for example, there is a large team set up to support each individual portfolio company, streamlined through a portfolio management function. This ensures impactful, personalized support is delivered when and where it is needed most for each portfolio company.

Most CEOs and founders who choose to work with Insight are particularly excited by having access to Insight Onsite, a team of more than 130 of the software industry’s best operators, dedicated to supporting portfolio companies as they scale up. Understanding what resources different investors have available to you will help you strategically map out your board and partners to best support you at your stage of growth.

Select an investor with a network you can leverage through your journey.

Investors can be incredibly valuable partners and bring a unique perspective to the boardroom. However, being a CEO (or another C-Suite role) at a growing business in today’s climate can be an intimidating and lonely job. Insight’s portfolio of 600+ companies provides CEOs with an unparalleled peer network to lean on and learn from. Having a pool of people who are in your shoes and navigating the same challenges can be one of the most transformational assets for CEOs when building their business.

Insight’s portfolio experience programming is one of the most robust in the industry, made possible because of the global breadth of the portfolio. In 2022 alone, executives accessed nearly 80 intimate digital roundtables and webinars, and over 30 in-person events. Many of Insight’s CEOs choose to participate in the MINDSET CEO Summits, where, alongside their peers, they’re able to dive deep into the leadership and operational challenges they’re facing today and walk away with trusted advice on what to do next. Insight’s portfolio events are all designed to forge strategic connections and actionable tactics.

Raising money can be a challenging process, especially in 2023. But prepared with the proper guidance and expectations, finding the right partner can be transformational to the future of your business.

Six Best Practices for Your First 90 Days as a Data Leader

For newly hired data leaders, the first 90 days are crucial. For existing data leaders, it’s prudent to take a step back at least once a year, think about the business with fresh eyes and ask: What would a new data leader try to address in the next 90 days?

Regardless of title, CxOs of young and established organizations realize their ability to make excellent data-driven decisions is a must to achieve the company’s business goals. In the current resource-stretched climate, the CTO, CIO, or CxO often wears the data leader’s hat. This is especially the case at early-stage companies too small to have this position. But while the role of the data leader is still often shared, a data leader’s acumen and approach for data-driven decisions can be adopted by many leaders to have a significant impact on revenue and growth.


Key Insights

Every enterprise and business case is unique, but today’s data leaders have established a set of best practices to chart the digital pathway to profitability:

  1. Unify data and AI strategies
  2. Cultivate an open data culture
  3. Solve customer problems
  4. Capitalize on early opportunities
  5. Align stakeholders on priorities
  6. Inspire the team

Unify Data and AI Strategies

Young organizations often struggle to create meaningful data strategies. The key is to recognize where emerging trends and company needs intersect, and then create a roadmap to fulfill short- and long-term needs with technology that provides a competitive advantage. The data leader is aware of the importance of aligning data and AI strategies to better serve the organization’s overall mission.

A 2022 survey revealed that over half of the data executives surveyed expect AI to become “critical” to multiple facets of their business by 2025. While most companies expect to adopt AI technologies, many data leaders are looking even further ahead to more advanced forms of artificial intelligence. Techniques such as generative AI — capable of creating rather than simply predicting — has a fast-growing number of use cases.

 

Read more: 8 Tech Investors Share Predictions for 2023

 

A sophisticated AI model requires a modern data stack. Companies that can invest in their data infrastructure will be able to more successfully capitalize on emerging AI techniques. A full-stack approach to ETL (extracting, transforming and loading) data, creating data lakes and lakehouses and de-siloing data architectures can give companies a real competitive edge.

Similarly, powerful AI needs DevOps and MLOps tooling to support it. As the role of AI grows within an organization, data leaders will need a more robust foundational toolset if they want to identify which features of their data provide signal (a process known as feature engineering). This also holds true if they want to improve model training, deployment, and monitoring. Additionally, not all MLOps stacks are created equal — AI working with unstructured data requires different pipelines than those working with structured data. The same distinctions exist for generative versus predictive AI.

Today’s data leaders are seeing these AI trends play out in real-time and are adapting their enterprises to take advantage of what AI can offer for data-driven decisions and strategies. This is important not only to promote growth and accelerate innovation but to build resilience during periods of austerity. With the global economy in a period of stagflation (stagnation and inflation), the ability of business leaders to extract value from data could be a deciding factor in how well a company weathers the storm.

Cultivate an Open Data Culture

How a strategy is defined is up to leadership, but how well it is executed is often a function of company culture. Executives are reshaping their organizations to become more data-oriented, but the vast majority still point to culture as the greatest challenge in becoming a data-driven organization.

Successful data leaders hit the ground to build a data-driven culture by identifying stakeholder needs and responding to them with data-driven decisions. Bear in mind that the ultimate stakeholder is the customer. Organizations invest heavily in research to identify who their customers are, what their needs are, and how they differ by region and culture. Expanding these data sources and creating channels where data can be translated into actionable insights is a fundamental part of a data-driven culture.

The organization itself has hurdles to overcome: diversification of customer base, changing business priorities, and infrastructure and scalability concerns. External regulators demand certifications and scrutiny to ensure compliance with standards.

To succeed amid this tangled web of expectations, data leaders have established a practice of identifying objectives that are mission-critical to meet — those actions or failures that could cause a loss of stakeholder confidence.

Solve Customer Problems

Without data, there is no visibility in customer buying patterns, adoption, and behavior. For SaaS companies in particular, identifying a common enterprise data model is foundational to learning about their customers and fulfilling core business responsibilities. This is especially critical in the wake of multiple mergers and acquisitions, when customers may have to deal with multiple quotes, orders, contracts, and invoice formats that don’t match.

At the heart of all data is customer identity data, and your process for customer identity conflict resolution will be key. Unified data models allow businesses to integrate multiple data streams into enterprise resource planning pipelines. How to create and interpret information gleaned from data models might be beyond the technical capabilities of the data leader. However, data gleaned from the data model can provide an easily accessible wealth of information about how well the organization as a whole is able to fulfill customer needs.

Read more: 7 Habits of Effective Data Leaders

Merging these data streams provides much better visibility into customer buying behavior. This includes better insights on lead generation, sales conversions, annual recurring revenue (ARR), customer acquisition cost (CAC), net revenue retention (NRR), and more. More insights allow for better decision-making in every department of the organization. As with software quality and usability for an engineering department, this is a case of operational details determining strategic success. For companies growing through mergers and acquisitions, this is especially important.

Capitalize on Early Opportunities

Understanding where the business’s data organization performs against key performance indicators (KPIs) is an important part of a data leader’s job. Data leaders use a series of self-assessments to understand the strengths and weaknesses of their organization’s data strategy and capabilities. To really deliver value, however, executives often chart a series of phases for their data strategy — the so-called “Crawl, Walk, Run” progression.

As with any “baby steps first” approach, the essential “crawling” phase sees the development of the initial capability by building out the data stack and analysis pipeline. Once a process is in place, leaders can advance to the “walking phase” — fixing the parts of the process that are present but broken. The good news is the switch from walking to running is the easiest, as process fixes eventually become process optimizations.

It’s also important that this process is iterative. At some point, a process can no longer be optimized. In strong data-driven organizations, there is a point at which the team will look for more advanced technology to build, introducing more capabilities than previous optimizations could accomplish. This is also where the data leader’s leadership in building a data-centric culture, their attention to instituting policies for governance and security, and their investment in technologies such as generative AI and MLOps pay off.

This step is important for new data leaders. The average tenure of a data leader is 30 months, significantly shorter than for other executives. Data leader turnover, driven by a gap between expectations and results, often happens because leaders do not seize these early opportunities. This applies equally to data leaders hired to build data departments, and to those hired to make structural architectural changes (especially after a big data breach). Data leaders that fail to deliver demonstrable improvements — both in the department’s operations and overall business impact — struggle to make it past the two-and-a-half-year mark.

Align Stakeholders on Priorities

Balancing a host of competing priorities — investing in emerging tech, building culture, and process optimization — is difficult. Today’s data leaders have adapted by creating a prioritization framework along two axes:

  1. Importance to the business
  2. Difficulty of implementation

Understandably, data leaders often pursue the low-hanging fruit first, consisting of high-priority and low-difficulty items. Although those characteristics seem mutually exclusive, there are changes data leaders can make to secure easy wins. Achieving success for these items can be as simple as instituting transparency policies to keep the board updated on data-driven processes, such as the company’s data privacy and security efforts.

In 2021, less than half of surveyed corporate boards received reports about cybersecurity risks. Another survey revealed progress continued to be slow — only 37% of surveyed board members felt confident that their company was secure. Providing transparency and clear reporting can be on the lower end of the required-effort scale, while it boosts the board’s confidence in the company’s data initiatives and security posture.

Data leaders can use clear reporting to secure buy-in from board members and other stakeholders, demonstrating that their leadership and priorities are leading the company to a better place. Creating this continuous feedback loop helps keep board members, other executives, vice presidents, directors, and even customers, on the same page. It also smooths the way for future initiatives.

Inspire the Team

Finally, every data leader is a team leader. Inspiring the data team to reach new heights provides a force multiplier for growth. Storytelling using data and visuals can serve as a way to lead by example to inspire the team, ultimately changing the company’s trajectory from being a follower to becoming a leader — even a disruptor — in an industry segment.

Investing in technologies like generative AI not only unlocks new capabilities for the company but also provides opportunities for employee growth. It creates better data scientists and engineers.

It also ensures that, as the company grows from early-stage to ScaleUp, the data department remains competitive from a talent standpoint. Data leaders today are capitalizing on the investment in new trends to attract diverse and capable data professionals.

Taking charge of an existing data department — or taking on the role of building one — is a daunting challenge. But data leaders are tackling that challenge with careful prioritization, an eye on the technological horizon, and attention to the intersection of customer problems and business opportunities. They identify low-hanging fruit and communicate their early successes. Make that your plan for your first 90 days, and you’ll be off to what everyone can see is a great start.

AWARD: Venture Capital Journal Rising Stars of 2023

Insight Partners Managing Director Jon Rosenbaum has been named to Venture Capital Journal’s Rising Stars of 2023* list.

Read the article and complete list of winners on the VCJ website here.

*The award referenced herein is the opinion of the party conferring the award and not of Insight Partners. Venture Capital Journal (“VCJ”), an independent third party that is not affiliated with Insight, issued the award. Insight submitted a nomination on behalf of certain of its personnel and did not pay a fee in connection with submitting its application. VCJ’s recognition is not indicative of Insight’s future performance and was not based on evaluations of clients or investors of Insight. There can be no assurance that other providers or surveys would reach the same conclusion as the foregoing.

2022: Year in Review at Insight

2022 is (nearly) a wrap! Insight Partners concludes 2022 with more than 750 investments over the firm’s history, over $50 billion in all-time commitments, and over 400 M&A transactions to date for the portfolio.

Insight Partners by the numbers 2022

Notable 2022 Milestones

Additionally, in 2022 the firm announced its largest fundraise to date, with $20 billion raised in Fund XII (inclusive of the Fund XII buyout fund). This year’s fund represents one of the largest global fundraises to date dedicated to investing in high-growth technology and software companies driving transformative change in their industries.

2022 also introduced the first ScaleUp event from the firm, drawing over 1,700 registrants and featuring presenting partners Citi and Nasdaq. 2022’s event focused on the future of AI technology. Stay tuned for the announcement of 2023’s ScaleUp event.

Portfolio Company Engagement in 2022

Other 2022 highlights include a focus on portfolio company engagement with some of Insight’s key sectors, including IT infrastructure, cybersecurity, fintech, e-commerce, and DevOps. Especially notable is the engagement with early- and growth-stage companies focusing on scaling up.

number of portfolio companies Insight engaged with in 2022

 

2022 Awards and Recognition

Insight received multiple firm awards* showcasing individual investor and firm achievements, including:

Insight’s Secret to Scaling

Finally, 2022 highlighted the impact of Insight’s Onsite team, a group of 130+ experts in sales, marketing, product, and talent dedicated to helping the Insight portfolio scale up. The Onsite and portfolio experience teams logged countless hours supporting over 450 companies, contributing nearly 800 guides, benchmarks, and handbooks to the exclusive Insight portfolio GO community platform, and hosting 200 digital and in-person events in 2022.

insight onsite impact numbers 2022

 


Read more: Here’s what makes Insight’s portfolio experience different.


 

 

*The awards referenced herein are the opinions of the parties conferring the awards and not of Insight Partners. These parties, which are not affiliated with Insight, issued the awards. For the awards given to individuals, Insight submitted nominations on behalf of certain of its personnel. The parties’ recognitions are not indicative of Insight’s future performance and were not based on evaluations of clients or investors of Insight. There can be no assurance that other parties would reach the same conclusion as the foregoing. Insight paid a fee in connection with its applications for Inc. award consideration, as well as to secure award receipt from GrowthCap after being notified of the selection of certain of its personnel for awards. In general, the receipt of compensation influences, and is likely to present a potential material conflict of interest, relating to any granted award.

AWARD: GrowthCap Top 40 Under 40 Growth Investors

Insight Partners Managing Directors David Spiro and Thomas Krane have won the Top 40 Under 40 Growth Investors Award* from GrowthCap.

Read the article and complete list of winners on the GrowthCap website here.

*The award referenced herein is the opinion of the party conferring the award and not of Insight Partners. GrowthCap, LLC (“GrowthCap”), an independent third party that is not affiliated with Insight, issued the award. Insight submitted a nomination on behalf of certain of its personnel. After being notified by GrowthCap of the selection of certain of its personnel for the award, Insight paid a fee to secure award receipt. In general, the receipt of compensation influences, and is likely to present a potential material conflict of interest, relating to any granted award. GrowthCap’s recognition is not indicative of Insight’s future performance and was not based on evaluations of clients or investors of Insight. There can be no assurance that other providers or surveys would reach the same conclusion as the foregoing.

Move Over Quiet Quitting: These are the 2023 Trends to Watch for Talent Acquisition and Human Capital

2022 was another wild year. From the “Great Resignation” to inflation, talent acquisition and human capital professionals were left navigating a workforce that was consistently in flux. Looking to the year ahead, anticipate continued ambiguity and more change management given the evolving nature of the workplace, as well as the current economic climate.

So, what does this mean for the people and talent acquisition space? Here are the top trends to watch in 2023.

Hiring will be less about speed and more about rigor.

Companies will prioritize hiring a few specific roles versus growing at any cost. Recent Insight Partners’ data shows that leadership hiring is down 36% over the last year. The volume of executive hiring hasn’t been this low since Q4 of 2020. This indicates that companies are being more thoughtful in their approach to hiring and we expect this consideration to continue throughout 2023 – at the executive level and beyond.

There will be a greater focus on pay parity.

Over the past year, we saw compensation packages skyrocket. According to Hired, in 2022, the average tech salaries for roles at mid-market-sized companies (300-1K employees) increased significantly in the US (~$164K) and the UK (~£85.3K). The same report indicated that “average local salaries for candidates in mid-sized markets (medium-tier cities like Boston, LA, and Seattle) caught up to larger tech hubs.” This increase in salaries has caused greater pay discrepancies between new hires and more tenured employees. With new pay transparency laws coming online, there will be a greater focus on pay parity. Companies will need to reexamine their compensation philosophies and ensure alignment on compensation bands and leveling.

Deeper insight: Pay Transparency is Here to Stay. How Can You Build Salary Ranges in Good Faith?

How we define and measure productivity will evolve.

This past year we heard a lot about “quiet quitting” and employees feeling less engaged in their work. As a result, leaders have been evaluating how to manage productivity without micro-managing or using “big brother” types of tactics (i.e., pulling data on Teams or Slack usage). In the next year, we will continue to discuss not only how we manage productivity but how we define it. Productivity will be less a measure of time spent in a seat and more based on a mix of creating value, outputs, and relationship building.

Manager upskilling will be a must.

This was a wild year for the workforce. Some companies went from hiring surges to reductions in force, leaving employees to take on more with less. Remote and hybrid work isn’t going anywhere, which has left many leaders to ponder how to build culture and connectivity without in-person face time. To help employees navigate through all this change and combat continued fatigue and burnout, managers will need to elevate their skillset. They won’t be able to apply the same in-person tactics they did before.

 


Recent Insight Partners’ data shows that leadership hiring is down 36% over the last year. The volume of executive hiring hasn’t been this low since Q4 of 2020.


 

Stability will sell.

Given the market, candidates and employees are more risk-averse than earlier in 2022. People will be wearier of changing jobs or working for less-established organizations. It will be harder to woo candidates solely based on culture, swag, and fun. Instead, companies – and specifically, recruiters – will need to be able to clearly articulate what the business is and how it is positioned to win in the market. Additionally, companies will need to focus on the stability of the role, salary, and benefits – anything that feels concrete and tangible to help employees weather the uncertainty of the current climate.

The era of the Chief People Officer will continue.

Gone are the days when “human resources” could act as an administrative function. Heads of People are now expected to take a more strategic, forward-looking lens, especially as we evolve our workplace cultures and manage through continued ambiguity. This will require greater rigor and focus on getting processes and structures right, so companies are prepared for when hiring – and the market – picks up speed again. Human capital leaders will be expected to have an innovative mindset and develop true cross-functional, executive partnerships to meet the increased demands of the role and help elevate all business functions at the organization.

If the past several years have taught us anything, it’s that companies and leaders need to be agile. While we can’t predict everything the future holds, we foresee that 2023 will be the year of focus, flexibility, and foundations. Leaders will need to take a more thoughtful, strategic approach to talent acquisition and human capital overall to attract and retain top candidates, as well as ready organizations for scale long term.

8 Tech Investors Share Predictions for 2023

2022 was a busy year for the team at Insight. As hype started to build around the use of AI in our everyday lives, Insight held its first ScaleUp:AI conference, featuring top industry speakers and hosting over 1,700 attendees. The firm also grew the Onsite team — Insight’s dedicated ScaleUp engine of Sales, CS, Product, Marketing, and Talent experts — to over 120 operators to better support portfolio companies, help them focus on metrics that move the needle, and prepare them for whatever comes next.

As we wind down the year, eight of Insight’s Managing Directors share some thoughts about what’s top of mind for tech investors going into 2023.

insight partners investors
From left to right:
Ryan Hinkle, AJ Malhotra, Rebecca Liu-Doyle, Thomas Krane
Michael Yamnitsky, Nikhil Sachdev, Lonne Jaffe, George Mathew

We’re going to hear a lot more about AI.

If 2022 was the year of crypto, 2023 will be the year of AI truly breaking into the general population’s awareness.

The shift from analytical AI to generative AI

Lonne Jaffe: “Many had been operating under the assumption that manual labor and simpler knowledge work would be most disrupted by AI and automation, but with large foundation models like GPT-3 and DALL-E, we’re seeing AI systems make enormous progress in highly creative tasks like design, programming, music, and creative writing. This will likely continue in 2023 with the release of systems like GPT-4. At the moment, the reliability of these models is still a major challenge — they often hallucinate answers that are false but still ‘speak’ confidently. This kind of unreliability could be problematic for a lot of use cases, like customer service, education, and healthcare. If you don’t already know the answer, it can be hard to tell whether some AI-generated responses are correct.”

Nikhil Sachdev: “We’re moving from analytical AI (analyzing/parsing data and identifying trends and patterns) to generative AI (creating new content or interactions based on patterns). Applications we’re seeing now are benefiting from powerful (often open source) large language models, cheaper computing costs, and established MLOps platforms. These AI applications are starting to overtake human functions and have the potential to augment and disrupt existing entrenched software apps.”

George Mathew: “More of us should be talking about explainability and bias detection as more large language models (LLMs) get to scale and production. We should all be preparing for what opportunities will emerge with a multi-trillion parameter large language model like GPT-4 being released.”

Lonne Jaffe: “It will be very interesting to watch where the value will accrue and where economic moats will be the deepest. Some believe that the economic moats will accrue to the companies building the large foundation models because they require so much time, skill, and infrastructure spend. Others think that the moats will be with the companies fine-tuning the models for specific use cases because of the feedback data demand-side economies of scale. Still others believe that the value will be in the non-AI software that allows the models to integrate with real-world systems. There may even be a layer of value in between the foundation model creation and fine-tuning, requiring a new set of MLOps tools and skills that focus the foundation model for a specific domain, but in a way that is more involved in modifying the internals of the foundation model than needed during the fine-tuning process.”

Moving from AI in infrastructure to AI in applied real-life situations

lonne jaffe quote

Lonne Jaffe: “One area where we’re likely going to see continued huge progress in 2023 is in applied computer vision AI in healthcare. The tech is already approaching human ability in domains as varied as polyp detection in colonoscopies, diagnosing gum disease in dentistry, breast cancer screening in a mammogram, etc. This can improve diagnostic accuracy, save physician time, surface candidates who would benefit from clinical trials, and even reshape how the industry works.”

The metrics investors care about in 2023 will shift to retention and efficiency.

“More nailing it, less scaling it.”

Ryan Hinkle, Managing Director: “2023 is about more nailing it, less scaling it. 2023 should be a year where it’s efficiency first, additional costs second. It is really difficult to focus on efficiency when you are adding costs. That is the fundamental pendulum shift: it has abruptly shifted from ‘if you believe it, it will come’ to ‘if you can’t see it, it doesn’t exist.’”

ryan-hinkle

Metrics that matter

Nikhil Sachdev: “Customer NPS is always important, even more so in this environment. (Are you nice to have? Or, I can’t live without you?) NPS flows through all the relevant financial metrics in a business. The more customer value/love you generate, the better your logo growth, pricing power, retention, and efficiency. And goes without saying in this market, it’s no longer growth at all costs. Companies and investors are focused on durable, efficient growth.”

George Mathew: “Gross retention — more than ever, you have to be able to retain customers to stabilize your 2023 growth plans.”

george-mathew

Thomas Krane: “Path to breakeven based on current balance sheet, cash burn as a multiple of net-new ARR.”

AJ Malhotra: “It’s all about how you’re investing to drive efficient growth. My key metrics are about the same: previously, it was all about net-new ARR, and now gross profit matters more. Your true gross (and net) retention becomes very, very important as well — this separates strong companies from weak ones. Cash burn also becomes imperative in this environment.”

Rebecca Liu-Doyle: “In this environment, two things investors are watching especially closely are gross margin and gross retention, both of which are prime leading indicators for steady-state free cash flow potential. In steady state, will this be a 15%+, 25%+, or 50%+ FCF business?”

DevOps will prioritize simplicity.

Michael Yamnitsky comments on the developer perspective: “The great vibe shift of 2023 is a return to simplicity! Back in 2017, it was cool to tinker with the nuts and bolts of Kubernetes, but as of 2022, we’ve reached peak complexity and specialization in cloud infrastructure, and the pendulum is swinging back. Developers want to simplify their stack and ship code faster. To this tune, we’ll see a resurgence of PaaS and other developer-friendly services that eliminate the toil while retaining all the benefits of 10+ years of advances in cloud technology.”

Thomas Krane, Managing Director: “In DevOps, cost pressure will put new pressure on public cloud workload adoptions and reinforce the need to have interoperability between on-premises IT and cloud services. This creates opportunities for new vendors in the space.”

Rust will be all the rage

Additionally, Michael adds: “Rust is all the rage and demand for rust programmers is growing. The performative nature of this programming language makes it a fit for backend-heavy development, particularly in the infrastructure and developer tooling space where performance can be a key differentiator.”

The overall economic environment will be uncertain for a while, but it’s not all bad news.

Ryan Hinkle: “None of us are used to inflation. Inflation hasn’t been a consideration for literally 30 years. Because of inflation, if you aren’t growing 8%, you are shrinking on a real basis. We enter 2023 with a great deal of known issues — inflation being front and center — but no real ability to forecast what comes next. In 2023, we will need to re-evaluate on a quarterly basis or even more frequently, as a year will feel like an eternity. Years make sense as forecast building blocks when things are well-behaved. These are not well-behaved times.”

Nikhil Sachdev: “Market sentiment is as negative as it has been since the Great Recession. We are seeing a combo of inflation, rising rates, cratering multiples, geopolitical turmoil, and de-globalization, which is impacting our supply chains. On top of that, the demand curve is being whipsawed – first as we lap a period of strong pull forward in digital growth driven by the pandemic period, and now budgets and spend tightening. It’s time to go back to basics — focusing on durable growth and building/scaling efficiently are the fundamentals that will enable companies to succeed regardless of the macro. Just remember that things are never as bad as they seem at the bottom and never as good as they seem at the top.”

Thomas Krane: “Companies that largely sell into tech companies with products linked to headcount will see a significant medium-term downdraft in revenue, but there will be a strong recovery on the other side for those that survive.”

nikhil-sachdev

Survival of the strongest will drive consolidation

Nikhil Sachdev: “So much of the bad news is out and now baked in the cake that on balance I think equity markets will be more constructive over the next year. I think we’ll see more private tech dealmaking. Growth-stage companies will still need to raise money, maybe at different multiples than before. We are also going to see much more consolidation as companies that can’t or don’t want to continue down the standalone path look to partner with strategics.”

AJ Malhotra: “We’ll see consolidation — lots of companies have raised lots of money, with unsustainable burn rates, cost structures that may not be efficient, and that means some will not be able to raise follow-on rounds and will need to sell. The velocity of fundraising that happened in the tailwinds of Covid from 2021-2022 was a unique moment in time.”

Ryan Hinkle: “Whatever this recession will be, it will really test what is ‘needs to have’ vs. ‘nice to have’ and inform what gross and net retention looks like. We have not had a meaningful downturn since SaaS emerged as a dominant trend in digital transformation.”

There are opportunities in uncertainty

rebecca-liu-doyle

Lonne Jaffe offers several examples of how tech, and AI specifically, could help to alleviate inflationary pressure: “The go-to reaction to inflation is to have Federal Reserve Bank raise interest rates and to slow the economy and raise unemployment. But this comes at a huge cost. Despite the anxiety around robots and automation taking jobs, there can be an opportunity for tech to help alleviate inflationary pressure by increasing efficiencies and making us all more productive. In a similar way as collaboration software helped the economy cope with isolation from the pandemic, this kind of AI-powered efficiency improvement, in a way, could become the unsung hero of this inflationary crisis period.”

George Mathew: “Backoffice sectors like supply chain, procurement, and business process outsourcing all have fundamental opportunities to be transformed by generative AI.”

Thomas Krane: “The cost of cloud services will create opportunities to preserve and even expand on-premises IT.”

Michael Yamnitsky: “One of the positives of continued economic uncertainty going into the new year: the spotlight shifts away from the hype-chasers and storytellers and towards the humble entrepreneur who has been quietly owning their craft.”

Rebecca Liu-Doyle: “Certain categories — like beauty in consumer and automation in enterprise SaaS — have counter-cyclical tailwinds, and this may be their moment to shine.”

AJ Malhotra: “New company formation will increase because of layoffs, and lots of talented folks will have new time on their hands to build something new.”

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Hiring might get easier.

George Mathew: “There will be a much more available labor market as hundreds of thousands of tech workers are being laid off at the ‘Big Tech’ firms.”

AJ Malhotra agrees: “Hiring is a big opportunity right now! A lot of good people are in the job market because of layoffs. Hiring may become easier given the talent out there. We have dueling realities — giant tech companies are doing layoffs and hiring freezes, but unemployment is low. We’re still seeing hiring in many industries.”

There’s still a lot to be excited about in tech.

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Nikhil Sachdev: “While I acknowledge we are in a peak hype cycle for AI, I think the secular trend is real and feels like we are on the verge of an explosion here. AI will impact horizontal and vertical segments within software.”

Michael Yamnitsky: “I’m excited about WebAssembly. It has the potential to bring unparalleled levels of efficiency and security to computing and transform the way developers organize and collaborate around code. But most importantly, it’s portable — making it a unique fit for the next wave of distributed applications.”

Thomas Krane: “Threat intel will finally get recognition as a critical baseline/foundational priority for a strong cybersecurity stack.”

AJ Malhotra: “It’s easy to be a pessimist but there are a lot of good things happening right now: hybrid work environments are better overall and have provided more flexibility to people, there’s low unemployment. There’s tons of opportunity to do things more productively and more efficiently. Tech dealing with carbon emissions and clean energy transitions, enterprise software selling into financial services, software for the build environment, and tech dedicated to improving healthcare delivery are all exciting areas right now.”

This post was compiled and edited for conciseness and clarity by Jen Jordan.

Pay Transparency is Here to Stay. How Can You Build Salary Ranges in Good Faith?

Pay transparency. It’s a topic on many HR leaders’ minds. With a renewed focus on inequality in pay, many local and state governments are putting laws into place with the intent of positively impacting pay equity for underrepresented groups.


Key Insights

  • With NYC, California, and other jurisdictions passing pay transparency laws, it’s important for HR leaders to be prepared for how to stay compliant in their organizations.
  • Start by looking at your internal salary data by job level, function, and geography to identify the median or average salaries.
  • Avoid publishing salary ranges that are too broad.
  • Be ready to document and explain the reasoning behind the salary ranges and philosophy to create a truly equitable pay culture at your organization.

Most recently, New York City enacted a pay transparency law requiring employers to state the minimum and maximum salary within job advertisements. The law applies to any company that has at least four employees, one of which is based in NYC. It also impacts any jobs that could be performed in whole or in part in NYC – in other words, postings for remote roles are not exempt.

NYC isn’t the first nor the last jurisdiction to pass such a law. California is close behind, launching a state-wide law effective January 1st, and we anticipate more local and state governments following suit through the next year.

As this trend in pay transparency continues to grow, employers need to rethink how they approach their pay ranges to not only meet the demands of these new laws but also to ensure consistency and equity across their organizations.

So how can organizations create salary ranges in “good faith”?

  1. Leverage data. It’s important first to analyze your internal data. Look at salaries by job level, function, and geography to identify the median or average salaries. You should also leverage external benchmarks through a compensation benchmarking tool. Again, you can examine market data by job level, function, and geography to see how your current range compares to the broader market. As one way to potentially calculate a range in good faith, you can calculate a percent below and above those averages or medians based on geography, experience or education, scope, etc. It’s important to note that you should also proactively identify any employees that may be below your identified range. Once these ranges are shared publicly, you can anticipate employees asking why they fall below or on the lower end of said range.
  2. Try not to make your range too broad. As a workaround, some companies originally tried to state excessively large ranges such as $100,000 to $300,000. However, some local agencies – like the Colorado Department of Labor – are fining a few businesses and issuing hundreds of warnings to businesses with too broad of ranges. Broad ranges also can indicate to a candidate that you lack a transparent culture, which can detract from the overall quality of your applicant pool. If you do have a broader range, you need to ensure you have a good faith reason to do so, such as the role is remote and the salary will be based on a candidate’s geography (e.g., on the higher end of the range if based in NYC) or that the role can be done with varying levels of work experience. Additionally, if an employer has no flexibility in the salary being offered for one particular role, it is ok to make your range smaller.
  3. Document, document, document. To truly build a range in “good faith” you will have to put some forethought into those ranges. If you are able to document and explain why you’ve created a range, it will help you mitigate risk. It also helps ensure that you are truly building a more equitable pay culture at your organization and makes it easier to explain to employees your pay philosophy.

Pay transparency is here to stay. If you have employees in multiple states, it’s better to prepare at large for these laws versus trying to manage multiple processes as more laws come online.

At the end of the day, these laws are meant to close the racial and gender wage gaps and generally remove the stigma around talking about salaries. Preparing now not only ensures you stay compliant but also builds a culture of transparency and equity in your organization.

[Recording] Winning in 2023: Sales KPIs for Sustainable Growth

Prediction: “Efficient growth” will be a buzzy phrase for SaaS startups in 2023 – and for good reason. In the new macroeconomic environment, your business will need to focus on sustainable growth more than ever. An effective way to keep efficiency at the forefront is by heading into next year with the right sales KPIs in mind.

Tune in to hear from Operating Partner Pablo Dominguez (Insight Partners) as he shares his learnings from working directly with hundreds of startups and their go-to-market teams. He is joined by CEOs Jordan Rackie (Keyfactor) and Neha Sampat (Contentstack), for the SaaS leaders’ POVs on successfully balancing the goals of growing sales teams and investors.

During this session, our panelists cover:

(4:33) – Why sustainable growth matters in 2023

(11:56) – KPI #1 – Customer Acqusision Cost (CAC) & CAC Payback

(12:30) – How do you optimize sales and marketing spend?

(17:27) – Knowing that CAC efficiency is more important than ever in the current economy, how do you see low touch, product-led sales motion fitting in for B2B SaaS companies?

(20:41) – From a valuation multiple perspective, are there diminishing marginal returns beyond a certain level of efficiency? Should we trade off efficiency for growth beyond a certain number for CAC Payback months?

(23:23) – KPI #2 – Net Revenue Retention (NRR)

(24:20) – How can you use NRR to impact valuation expectations?

(26:42) – What are leading indicators of NRR?

(34:37) – KPI #3 – Quota Attainment

(35:53) – As a CEO how do you work with your CRO/CFO to come up with a realistic revenue target for next year and balanced targets for your sales reps?

(41:33) – As the head of the company, how do you align the goals between your CRO and your CMO?

 

View ScaleUp by the Numbers: SaaS Sales KPIs for Startups at Every Stage

 

Disclaimer: Insight Partners is an investor in Contentstack and Keyfactor.

Setting Quotas in B2B SaaS Sales When Facing High Exchange Rate Volatility

Key Insights:

  • While typically normal changes in foreign exchange rates (FX) have limited impacts on SaaS companies, 2022 has not been a normal year.
  • Reps closing deals in denominated currencies other than the one applied to their quota should neither gain nor lose due to FX changes.
  • We recommend setting exchange rates at the start of each quota measurement period.

In 2022, the United States (US) Federal Reserve hiked interest rates in order to fight rising inflation. This has made dollar-denominated bonds more attractive versus those based on other currencies. In addition, US assets are increasingly viewed as a safe haven since the American economy has been less affected by fuel price shocks and by the war in Ukraine. Consequently, the dollar has strengthened against other currencies.

Exchange rate impact on company performance

The general impact of a stronger local currency on multinational companies is negative.

Consider a US-based company’s response to a stronger dollar. If the US company raises prices in Europe, then unit sales will likely drop by more than the price increase as buyers switch to cheaper European alternatives.  If the US company leaves its European prices fixed, then the value of each unit sold declines when converted to dollars.

There are some offsets to this lose-lose scenario. First, the stronger dollar lowers the cost of goods and services purchased abroad. Second, producers of differentiated solutions face lower price elasticity; in lay terms, companies can increase prices to some extent without experiencing as much of a drop-off in unit sales as would companies selling commodities.

While the puts and takes described above mean normal changes in foreign exchange rates (FX) will have limited impacts on SaaS ScaleUps, 2022 has not been a normal year. In the 23 years spanning 1999 to 2021, the euro has only fallen more than 10% relative to the dollar three times (see Figure 1). Thus far, the euro is down nearly 15% relative to the dollar.

Begins in 1999 at -15% and ends past 2021 -14.3%.Notes: (1) Change is from start of year to end of year except for 2022 which is YTD through Oct 7th (2) The 24-year average is 0% with a standard deviation of 9.9%. (3) Source: https://www.macrotrends.net/2548/euro-dollar-exchange-rate-historical-chart
Figure 1: €-to-$ Annual Exchange Rate Change
Source: macrotrends.net
Change is from start of year to end of year except for 2022 which is YTD through Oct 7th. The 24-year average is 0% with a standard deviation of 9.9%

Exchange rate impact on quota attainment

Let’s explore the impact of FX on quota attainment for sales professionals. For simplicity, and because it mirrors the current state of the world, we will compare a US-based rep to a Germany-based rep.

For our range of examples, we will assume:

  • Reps start 2022 with quotas based on the Jan 1st exchange rate of 1.1371 €/$. Quotas are thus $1M when denominated in dollars and €880K when denominated in euros.
  • Prices per deal are set at the beginning of the year at $100K or €88K.
  • The Euro/Dollar exchange rate is down 15% YTD.

In the first scenario, imagine each rep only sells domestically. In this situation, there is no FX impact for the reps other than the fact that it will be easier for the German rep to sell against US-based competitors who may have to raise prices (or limit discounts) to make up for the exchange rate impact.

Next, consider a German rep whose quota is in euros but who sells to US prospects using dollar-denominated contracts at $100K per deal. If this rep’s plan applied floating FX rates, then she would receive a credit of €101K instead of €85K for each sale at current rates. Hence, the rep benefits from the floating exchange rate. Had the FX rate been fixed, there would be no impact on quota attainment.

Assuming the company is based in Europe, they benefit as well since the increase in euro-denominated bookings more than offsets the extra commission paid to the rep in the floating FX scenario. If the FX rate were fixed, the company benefits even more.

The reverse is of course true for a US rep whose quota is in dollars but who sells into Germany using euro-denominated contracts.  An €88K deal converts to $87K instead of $100K if quota credit is subject to a floating exchange rate. With a fixed FX rate, the US rep is ‘protected’ and would experience no impact.

The stronger dollar is detrimental to the US-based company whose euro-denominated sales convert to fewer dollars than expected given the pricing set at the start of the year. Allowing the FX rate applied to quota credit to float transfers some of the company’s pain to the rep.

Our recommendation

One of the key best practices in sales compensation design is that reps should be compensated for their direct effort over what they can control. Since FX is out of their control, reps closing deals in denominated currencies other than the one applied to their quota should neither gain nor lose due to FX changes. Hence, we recommend setting exchange rates at the start of each quota measurement period. Fortunately, this approach is also easier for quota administration.

Our recommendation of a fixed FX rate for quota credit concentrates all FX benefits and risks in the hands of management. Even without elaborate hedging, organizations can protect themselves from FX risk by sourcing talent locally and by borrowing in local currency.

The silver lining is that strongly negative FX impacts are rare. They apply to companies with a strengthening local currency who conduct a large amount of business denominated in a weaker foreign currency and who lack the natural hedges described previously. Finally and fortunately, currency swings exceeding +/-15% are relatively rare in developed nations.