How to Survive and Thrive

in the New Software Industry

Laura Sachar, General Partner, StarVest Partners

Paul Turner, Director, NetSuite
Jim Holtzman, CFO, FieldGlass
2010 Financial Benchmarking
•
Survey
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NetSuite Revenue Recognition
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SIIA OnDemand Europe Steering Committee / Speaker
October 18-20, London Opportunities
www.SIIAOnDemandEurope.net Rhianna Collier, +1.408.884.3834 or
rcollier@siia.net
Save the dates and plan to join us at the
European
software industry’s most comprehensive annual
Sponsor Opportunities
ISV Brian Rosenberg, +1.917.267.8858 or
conference for understanding the business
drivers around SaaS and Cloud Computing.
brosenberg@siia.net
 Agenda
Introduction

Laura Sachar, General Partner, StarVest Partners

 How to Survive and Thrive
in the New Software Industry

Paul Turner, Director, NetSuite

 Aligning Sales, Finance, and Service
for the New Software Economy

Jim Holtzman, CFO, Fieldglass

 Getting the Groundwork Right for Growth

 Q&A
HOW TO SURVIVE AND
THRIVE
IN THE NEW SOFTWARE
INDUSTRY
Presented by Laura
Sachar

HOW TO FIND A NICE SAAS

COMPANY
• New York City based venture capital firm
• Expansion-stage companies with $2 −
$15 million in revenues
• Actively investing throughout the U.S.
• $400 million under management; $245
million fund closed Q1 2009
• Typical initial investment $4 − $8 million
(up to $15 − $20 million in total)
• 15 SaaS companies since 2000; Lead VC
in NetSuite (NYSE:“N”): $1.6B IPO

7
•Software-as-a-Service
•Internet Marketing Services
•eCommerce
•Data-as-a-Service, Info-as-a-
Service
•Security Software Services

8

Lead VC in NetSuite (NYSE:“N”):
$1.6B IPO in 2007. Highest VC–
backed tech IPO since Google.
Led the Feb ’09 Series C round:
The leader in on-demand business
intelligence (BI).
Early investor in iCrossing: The
largest privately held Internet
marketing services company.
Led Dec ’09 Series B round;
invitation-only online sample sale
shopping community
Early VC investor in leading on-
demand email solution provider
(acquired by Dell for >$150m).
Human Capital Management SaaS
solution;
leader in its sector.
Led Series B round;
On-demand product innovation
and management software.
Led ‘07 Series B and ’08 follow-on: The
technology leader in on-demand
customer collaboration.
Led Series B round; fastest growing
corporate performance management (CPM)
on-demand software company.
Early investor: ins.com is now the #1 auto
insurance agent online.
First on-demand, application security solution
that provides automated application security
testing through SaaS delivery model.
Data-as-a-Service provider:
The largest farm equipment transaction
information database.
9
 Demand for
SaaS is
Increasing

POSITIVE SAAS
TRENDS
Source: Gartner; Market Trends: Software as a Service, Worldwide 2008-
2013, Update

11
• SaaS CAGR is forecasted to grow at 5
times the total application market
• The market reached ~$7.5B in 2009
• The SaaS landscape continues to evolve
as vendors extend regionally and
increasingly offer vertical-specific
solutions
• The largest proportion of SaaS revenue is
attributed to customer relationship
management (CRM), content and
communications and collaboration (CCC)
Source: Gartner; Market Trends: Software as a Service, Worldwide 2008-
2013, Update

12
 What Makes
a Winner

PUBLIC SAAS
COMPANIES
 10
20
/
21
5/
Source: CapitalIQ

Note: Pure-Play SaaS Companies tracked through 5/21/10 and

include ATHN, CNQR, CRM, CTCT, DMAN, KEYN, KNXA, LPSN, N,
RNOW, SFSF, SLRY, TLEO, ULTI, VOCS

14
 As of 5/21/10 LTM Revenue Enterprise TEV/Rev LTM Projected
($M) Value ($M) LT EPS
Growth Rate
AthenaHealth $202 $766 3.8x  35%
Concur Technologies 268 1,911 7.1  25
Constant Contact 140 505 3.6  36
DemandTec 79 125 1.6  20
Kenexa 159 247 1.6  18
Keynote Systems 80 89 1.1  20
LivePerson 93 265 2.9  24
Netsuite 169 816 4.8  26
RightNow 159 389 2.5  29
Technologies
Salary.com 46 37 0.8  30
Salesforce.com 1,306 9,945 7.6  30
Successfactors 162 1,182 7.3  29
Taleo 205 708 3.5 24
Ultimate Software 204 777 3.8 23
Group
Vocus 86 180 2.1  20

Source: CapitalIQ as of 5/21/10

15
$ Millions
Public Funding to Years to Revenue at EBITDA at
Companies IPO IPO IPO IPO
AthenaHealth $49 10.1 $76  $11
BlackBoard $101 7.1 $92  $9
Concur $30 5.3 $20  ($25)
ContantContact $37 12.2 $50  ($2)
Dealertrack $48 4.9 $121  $34
DemandTec $42 7.8 $43  $1
Kenexa $55 18.5 $66  $12
LivePerson $42 1.5 $1  NA
LogMein $25 6.4 $52  ($0)
Netsuite $85 9.2 $109  $18
Omniture* $67 10.5 $80 $8 
RightNow Tech. $32 7.6 $62  $6
Salary.com $6 7.9 $23 ($3)
Salesforce $65 5.4 $96 $19
Success Factors $55 14.9 $63 ($59)
Taleo $37 6.2 $78 $6
Ultimate Software $25 8.4 $43 ($2)
Vocus $26 6.4 $28  ($1)
Average $46 8.4 $61 $2
Source: River Cities Capital Funds, “SaaS Valuation and Capital Efficiency
Benchmarking Study,” and SEC Filings and Wachovia Securities – May 2008
report on the state of the SaaS market
* Omniture was acquired by Adobe in September 2009

16
 Key Metrics

STARVEST SAAS
EXPERIENCE
• Revenue Periods: $1-5M; $5-15M; $15-
30M
 Revenue Growth
 Capital Efficiency
 Gross Profitability
 Sales & Marketing as % of Revenues
 Research & Development as % of
Revenues
 Capital Expenditures as % of Revenues

18
 $1-$5M $5-$15M $15-
$30M
Capital 22% 50% 88%
Efficiency
Gross Profit 46% 45% 65%

S&M as % of 175% 92% 66%

Revenue
R&D as % of 72% 39% 23%
Revenue
CapEx as % 59% 18% 13%
of Revenue

Source: River Cities Capital Funds

19
Other Key Metrics

Recurring Revenue as a % of Total > 60%

Revenue
Churn < 15%
TCV/ACV > 150%
% Revenue Forecast Under Contract > 70%
Customer Payback Period < 2 years
Pipeline Coverage >4x
New Bookings as a % of Total  > 70%
Bookings
StarVest Magic Number  > 0.75

Source: River Cities Capital Funds and StarVest

estimates

20
 Exits

TOUCH DOWN
22
Source: Software Equity Group “Software Industry Equity
Report,” Q1 2010 23
• SaaS is significantly outperforming the
total application market
• Key SaaS indicators include revenue
growth, capital efficiency, gross profit,
S&M & R&D as a % of revenue
• Additional metrics include recurring revenue, churn,
TCV/ACV and bookings
• SaaS exit opportunities:
• SaaS companies require 50-70% more capital for
cash flow break even
• Public SaaS companies have partially recovered
valuation since the end of 2008
• Continued increase in SaaS valuations is likely

24
Aligning Sales, Finance, and Service
For the New Software Economy
Paul Turner
Director Solutions Marketing
NetSuite

© NetSuite 2010
 NetSuite: Quick Take
Background Performance
Founded 1998 6,600+ customers, 750+
Publicly traded on NYSE: “N” software companies

Offices in 7 countries Top 10 highest growth ERP

solution according to Gartner
$165M+ revenue and IDC
900+ employees NetSuite runs NetSuite

#1 Cloud Business Suite Recognition

5 Star Rating

Fastest Growing Top 10 Cloud

Top 10 FMS Vendor Companies to Watch
 Proud Recipient of 3 CODiE Awards

BEST BUSINESS SOFTWARE SOLUTION

BEST RELATIONSHIP MANAGEMENT SOLUTION

BEST CLOUD INFRASTRUCTURE SOFTWARE

 750+ Software Companies Choosing
NetSuite to Fuel Their Growth

Scalable Startup Transition Mature Company

 Software Companies Face Different
Challenges at Different Growth Stages

• Competition for VC funding • Financial reporting

• Customer acquisition
and monetization
• Managing cash burn rate
• Cost effective business
management
• Financial consolidation
• Revenue recognition / EITF 08-01
• Multi-currency management
• Services management
• Sales alignment

•Recurring revenue management

•Customer retention and renewals management
•Adoption of evolving business models

Scalable Startup Transition Mature Company

 The Move to Subscription is Underway

“ A software industry shift

toward subscription models
will result in a nearly $7 billion
decline in worldwide license

”
revenue in 2010

30
 But Subscription Comes in Multiple Forms

• SaaS is a key driver for growth in subscription

• Some on-premise models also changing to
subscription based models
• Many business operating hybrid models
– Of the top 100 software vendors worldwide by revenue,
40% have subscription revenues
– For 13% of top 100, subscription is 50%+ of total software rev
revenues
• SaaS-revenues made up 32% of the overall subscription in 2008
and 33% in 2009.

31
 What it Means
Sales Finance Service
Structure Order Management Cost-to-serve
Comp Billing / Invoicing Cust sat visibility
Renewals Revenue Renewals
Forecasting Recognition
Renewals
 Effectively Managing Recurring Revenue
Requires Important Milestones
Metric & Value Tracking
Upsell & Renewal Customer Sat
Management
Multi Quota
+
Renewal
+ Opportunities
Forecasting &
Comp Planning

+ Your
+
Support Quote/Order
Software
Co

Monitoring Usage+ +
& Ongoing Client Recurring Billing &
Management + Revenue
Recognition
Services Invoice/Rev. Mgmt.
 Hard to Achieve When You’re Running This…….
evenue Amortization
Deferred Revenue
Upsell
Renewals
% of Completion Rev Rec Renewals

Forecasting

Rev Rec

Future Billings
Collections
Commissions
Mgt Reports

Prepaids Amortization
Allocations
 Positioning Sales for Renewals Success

Achievement Structure Comp Forecasting

High Finance generates No one paid Default in

School invoice contract value

Bachelors Hunters vs. Upsell vs. Revenue

Farmers Renewal forecasting

Masters Client Management Pay on net Incremental

incremental, revenue
difficulty of forecasting
renewal

PhD All Depts. Centered Comp all on Improving

on Renewal Customer Sat accuracy with
(NPS) Customer Sat
overlay
 Clear Visibility Required to
Continually Measure Renewal Value
Key renewals management metric, a function of:
Recurring GAAP
Profitability
Reference Level
Vertical
And more
Used cross-company to prioritize
activities
Issue/enhancement requests,
support queues, renewal comp etc.
Visibility across the company via
Dashboards
 View into Up-sell vs. Down-sell
- and Comp Structures to Drive Behavior

Big Ideas
Managing Up-sell vs. Down-sell
 Sales Management: Key Takeaways

1. Requires flexible sales compensation

• Comp on satisfaction, renewal, up-sell,
down-sell

1. Relentlessly manage customer satisfaction

• Focus entire organization on key metrics
1. Strong collaboration across sales, service,
development, finance teams
 Positioning Finance for Success

Achievement Order Mgt. Invoicing Rev Rec

High Paper order from Manual, Customer 6 million cell

School sales to finance Self-Service spreadsheets

Bachelors Co-terminus ending Automate Revenue

of orders Co-terminus recognition
Quote-to-order-to- Support Usage schedules -spread
invoice Based Billing over contract term

Masters Multi-channel order Multi-Currency, Currency

Multi-Tax fluctuations, Tax
schedules

PhD Multi-Subsidiary, Multi-Country, Real-time view

 Simplify Contract Management and Renewal
Co-Terminus Contract Management

Multiple renewals / customer One renewal / customer

Dec Jun Nov Dec

Initial Sell Initial Sell

Up-sell #1 Up-sell #1

Up-sell #2 Up-sell #2
 Flexible Billing is Required To Avoid
Spreadsheet Hell
One time invoice from order Milestone billing
On-premise software product Implementation project work
Training materials, user
manuals
Time and materials
Fixed bid implementation
Implementation project work
Custom user training
Schedule based on calendar
Subscription
Usage-based billing
Maintenance
Pay per call customer support
Support
Subscription
 Finance: Key Takeaways

1. Co-terminate orders whenever possible

• Reduces internal complexity
• Increases customer satisfaction due to
streamlined billing
1. Automate the quote-order-invoice-rev rec
process
• Reduce data entry, manual errors, revenue
restatements, tremendous cost
1. Proper Revenue Recognition depends on
activities of every department throughout
the company
 Remember This?
evenue Amortization
Deferred Revenue
Upsell
Renewals
% of Completion Rev Rec Renewals

Forecasting

Rev Rec

Future Billings
Collections
Commissions
Mgt Reports

Prepaids Amortization
Allocations
 NetSuite Provides a Cloud Single
Business Suite for Software Co’s
Customers

CEO CFO

NetSuite SINGLE NetSuite

ECOMMERCE DATA CRM+ Sales Rep/
SOURCE
Manager
Ecommerce
Manager NetSuite
FINANCIALS / REV REC
Support
Manager

Vendors

Partners
 Drive Recurring Revenue Management Globally

LOCAL GLOBAL
Currency Consolidation
Quota Sales
Forecast Revenue
Orders Dashboards
NetSuite SINGLE NetSuite
Taxation
ECOMMERCE DATA Currency
CRM+
SOURCE Management
Partners
Compliance
Language NetSuite
FINANCIALS Control
Website
Many Websites

12 Languages, 170 Currencies

Cost of Operation Aligned with New
Software Company Reality

Up to

50%
Lower TCO

46
 Delivers Hard Benefits to
Software Companies
Improvement area Business Result Company

Accounting efficiency Monthly close reduced from 15

to 8 days
Reduced bookkeeping costs by
20%
Financial close from weeks to
4 days
IT expenses Saves approximately $250,000
annually
Employee Services revenues lifted by 20
Productivity percent

Eliminated need to hire 4 FTE’s

saving approx $300K / year
 Why NetSuite for Software Companies

Powers 750+ software companies

Run by recent key software IPO’s

Specific “Software Edition”

Dedicated PS team

NetSuite runs NetSuite

Real, proven, tangible benefits

Getting the Groundwork Right for Growth

Jim Holtzman, CFO

 Fieldglass Background

• Founded in 1999, Fieldglass’ technology enables

enterprises to effectively manage contingent workers
and outsourced services engagements
• Used by Global 2000 companies such as
GlaxoSmithKline, J&J, Monsanto and Verizon
• 100+ blue chip customers
• 120+ employees
• Grew 30%+ last year,
on track to grow 40%+ this year
 Key Initiatives to Support Growth
• Improve financial controls and
gain a predictable monthly close

• Gain streamlined invoicing process,

FINANCE and move away from manual processes

• Drive transparency and rapid access

into key financial and operational information

• Obtain visibility into the sales pipeline

SALES

• Maximize renewals by improving customer

SERVICE
service and customer management
51
 Deployed NetSuite Starting in Jan 2005
- across Finance, Sales, Service and R&D
• Reduced financial close time from 15 days to 9 days
• Improved visibility with easy web based access to
financial, sales and service performance
• Cost visibility with budget reporting across business
• Gained a proactive renewals process
• Clear visibility into key business performance metrics:
Average toll rate, revenue and costs per person,
new business and total user count and more
• Deployed customer service to manage issues, provide
self service, manage to service SLAs and drive renewals

52
 Best Practices

Selling low volume high value enterprise accounts

 As in Fieldglass’ model, requires business systems and
processes that are flexible enough to accommodate the
ongoing needs of large clients on an individual basis
“The business of unnatural acts…”

Selling high volume B2C or to small businesses

 Requires highly integrated automated business systems
and processes that scale across thousands of
customers

© NetSuite 2010 53
 Resources
Upcoming Event Available Whitepaper

Thursday, June 10th

Four Seasons Hotel
Silicon Valley

http://tinyurl.com/NetSuiteRevRec SIIA.NET  Documents & Resources

54
Q&A
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