The next generation of software-as-a-service startups need to go beyond “vanity metrics” and demonstrate plans for sustainable growth if they want to gain the trust of B2B customers, according to the managing director of an accelerator whose application process closes Friday.
L-Spark, which has launched 29 startups since 2015 and is about to select 10 firms for its fall cohort, focuses exclusively on growing SaaS companies. Based in Ottawa, L-Spark originally ran an incubation program for early-stage firms but is now focused on an acceleration program for firms that are already gaining customers and revenue.
“The financial metrics required to scale a SaaS startup and fund them are dramatically different” than those that might have made sense for companies offering on-premise software, Leo Lax told B2B News Network.
Whereas on-premise application providers might have sold software once and then focused on getting revenue through support and maintenance, for example, SaaS firms need to concentrate on monthly recurring revenue (MRR), customer lifetime value (LTV) and customer acquisition cost (CAC).
While B2B professionals might not pay much attention to how startups scale, Lax said the role of accelerators like L-Spark are critical in making sure they have a good experience once they take the leap to purchasing from an unknown entity. Its mentorship and coaching programs are particularly focused on areas like onboarding, he said, as well as “customer success” roles and processes.
L-Spark alumni include FileFacets, which allows companies to find and move unstructured content from multiple sources across the enterprise. Lax pointed to FileFacets’ CEO, Chris Perram, as an example of the kind of founders that fit well with the accelerator’s objectives.
“(He was) a consultant in the information governance industry for over 20 years,” he said. “Chris was ready to consolidate his years of knowledge and experience into a SaaS product but he lacked the experience to take the product to market at scale.”
L-Spark worked with FileFacets to develop a way to sell its service through a channel program of value-added resellers (VARs) that grew the firm’s revenue more than 10 times during the nine months of the program.
“What we have recognized through the experience of our previous three programs is that we are primed to work with companies that have an established product in the market and have had early market validation from customers,” Lax said. “(We’re) most effective with companies that have grown beyond the ideation stage.”
Accelerators like L-Spark are working in a market that’s only becoming more challenging for new entrants. Just last month 500 Startups, a U.S. VC firm, shut down its Canada fund following the departure of its co-founder amid a sexual harassment scandal.
Image: Still from L-Spark’s 2017 Cohort video
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