The biggest mistakes to avoid when pitching B2B SaaS revenue to VCs by Steve Barsh, Dreamit Ventures
When pitching B2B revenue, or more specifically B2B SaaS revenue, it’s critically important to present your numbers in a way VCs clearly understand. Associate Elliot Levy shares lessons from his extensive experience with B2B SaaS startups and simple tricks to overcome common mistakes to avoid when transferring revenue to venture capitalists.
First of all, this is the correct calculation of ARR (Annual Recurring Revenue). ARR often implies a signed contract with an enterprise customer that is subscription-based or recurring over a certain period. To the B2B saas investors, ARR means predictable revenue with generally high margins that ideally improve its scale assuming your customers don’t churn.
To avoid incorrect calculation ARR you need segmenting Recurring from one-off Revenue like consulting, hardware and implementation. In the B2B saas model, one-off revenue like this is usually a lower margin and not attractive to investors. Don’t include PoC or pilots and one-off revenue in your ARR. Remember B2B saas signals a converted longer-term contract or agreement. The risk profile of pilot or PoC revenue is distinctly different from ARR and it needs to be segmented as such.
Also, you need to spread out the TCV (Total contract value) annually for a multi-year contract into your current revenue. If you fail to mention this figure represents the total revenue of a multi-year agreement you are overselling. Distinguish revenue that’s not tied to your core product value prompts or go-to-market customers.
During the pitch, investors are keeping two stories in mind. The story of what your product is, who you sell to, and its potential (product, GTM, vision, “the bet”) against the story of your proof, traction, and signs your bet is correct. The mistake of the founders is misaligning these two stories. When both don’t match up you are not helping investors clearly assess and pitches like that are often riddled with confusion.
Clearly define the assumptions backed into your signed contract. Some founders skew their ramp-up timeline and oversell a commercial agreement's likelihood or timing to scale. During QA when investors try to assess realization risk they can’t get a clear picture.
So, we consider the main point of delivering and best presentation of the revenue to B2B Saas investors.