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Shripati Acharya

4 Podcast Episodes

Latest 28 Jan 2023 | Updated Daily

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How to measure and value a SaaS company? With Shripati Acharya, Prime Venture Partners

Use Case

If you’re a data driven professional, in all likelihood this episode is for you. There are also some interesting analysis techniques I came across this week, that I thought I’d share. Check them out at the end of this email below !!!Do subscribe to the newsletter if such topics interest you! No Spam, ever!On the show today JPK and I got a chance to speak with Shripati Acharya, Managing Partner at Prime Venture Partners on how to measure various SaaS Metrics and why valuations are a geometric function of growth. An astute mind, I’m just surprised how calm successful people like him are and they way they structure their thoughts so well. Of the many cool things Shripati shares, here were my top 3 learnings from him:A better way to measure LTVAs common as this metric is, it is also the most mistaken one. Broadly Lifetime Value or LTV is a measure of how valuable a product is to a user. At the very basic level it can be defined as the Average Revenue Per User (ARPU) divided by the churn. The numerator is a signifier of how much value the product has to the client/user over an average contract period. Shripati argues that instead of using revenue, one should use contribution margin in the numerator. Using ARPU would imply a $1000 product with 10% CM and a $1000 product with 20% CM have the same LTV. But this false sense of pegging value to revenue can lead to costly errors in customer acquisition, he argues.Next, the denominator relates to the customer lifetime. The lower the churn, the higher the customer lifetime. As Sripathi puts it, “If monthly churn is 10%, customer lifetime is 1/0.1. = 10 months. Meaning in 10 months substantially all the customers acquired today would leave (pretty bad business).” But there is a problem here. Shripati has written quite extensively on this before:Startups frequently arrive at pretty attractive customer lifetime figures in their initial days. If a service launches and in the first 6 months only 5% of customers churn, it appears like the startup has achieved a 10% annual churn or a 10 year customer lifetime! Calculating customer lifetime by inverting churn can lead to sky-high customer life-times. Early data does not truthfully reflect customer behaviour over the long term and also suffers from skew due to early adopter behaviour being very different from mainstream usersThis can lead to all kinds of disastrous downstream effects such as investing in expensive sales channels that soon prove to be uneconomical. His advice:Early-stage startups should focus more on customer payback, ie the time period for recovering customer acquisitions cost (CAC), than calculated LTV. In the absence of customer data, using a sub-24-month payback to inform the choice of sales and marketing strategies is prudent.Companies A & B have same revenue today, A’s revenue growth rate is 2x of B’s. Why should B be valued 4x/8x/ possibly16x of B? The chart below from a paper by Morgan Stanley, ‘The Math of Value and Growth’ (link here) shows that the relationship between growth and the P/E is convex. Small changes in growth expectations can lead to large changes in the P/E, especially when growth rates are high.The key point is that a company growing faster should enjoy a multiple that grows geometrically with the growth rate, not linearly.This is why SaaS companies that make the same revenue can have very different valuations - and as Shripati notes founders need to recognise this before asking “Why is that company valued so much and not mine?”How much is 20% NDR worth in the long run?In a similar context, JPK also made an important observation of how important Net Dollar Retention or NDR is to SaaS companies. Imagine three companies: one at 120% NDR, one at 140% NDR and the last at 160% NDR. In five years, assuming all else is equal, how much bigger is the last company than the first?The answer is 4.2x - four times bigger! Each marginal 20% of NDR is a doubling of company ARR in 5 years!Some interesting links/ readings to help you do better data analysis:* Using RFM analysis to derive customer insights: RFM analysis is a customer behavior segmentation technique. Based on customers’ historical transactions, RFM analysis focuses on 3 main aspects of customers’ transactions: recency, frequency and purchase amount. These 3 key behaviors can do wonders to analyse the business. Check out this post for how it works: https://towardsdatascience.com/simple-customer-segmentation-using-rfm-analysis-1ccee2b6d8b9* Two Methods of estimating LTV with a spreadsheet: A nice summary of how you can go about modelling complex scenarios to come up with a measure of LTV using simple excel. Linked to within the presentation is a spreadsheet that showcases examples of the models discussed, each built on a data set of 100,000 rows of fake user profiles. Check it out: https://www.slideshare.net/EricSeufert/ltv-spreadsheet-models-eric-seufert This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit turnaround.substack.com

35mins

9 Mar 2021

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14: Lessons Learned From Investing in Public Markets with Shripati Acharya, Managing Partner at Prime Venture Partners

Prime Venture Partners Podcast

Shripati Acharya (https://www.linkedin.com/in/shripatiacharya/) and Amit Somani (https://www.linkedin.com/in/thesomani/) , Managing partners at Prime Venture Partners (https://primevp.in/) sit together to discuss Shripati's early investment picks, lessons learned from investing in public markets, how founders can prepare themselves to build a successful company and more.Shripati Acharya, throughout his career, be it as a business lead at Cisco or as a co‐founder of Snapfish, the world's largest photo site acquired by HP or at Transarc, which was acquired by IBM, Shripati has combined his passion to build great teams, an extraordinary desire to excel and a keen eye for spotting the tales.Shripati has also worked alongside Mr Nandan Nilekani on the UIDAI project. Having spent substantial parts of working career in the United States and India addressing worldwide markets, Shripati brings a global management perspective. He enjoys the great outdoors and has hitchhiked through Europe and trekked the windswept mountains of the Himalayas and the Andes.Listen to the podcast to learn about0:52: How Shripati started investing in public markets1:55: Early picks & lessons learned from them4:15: Investing in Amazon & HDFC Bank8:15: A company's advantage is not just it’s product. There’s more to it...9:20: Lessons learned from public market investing that helped in private market investing10:30: Why public markets took long to realise the potential of SAAS companies?15:05: Product vs Service. What Scales?16:30: Lessons startup founders can learn from public market companies17:45: Why reading transcripts is a must for startup founders18:30: Amit's experience of MakeMyTrip’s transition from a private company to a public company21:20: How a company changes its strategy when it transitions from a private company to a public company23:00: Role of luck in investingFor transcript of this episode click here (https://primevp.in/content/podcast/lessons-learned-investing-public-markets-shripati-acharya-managing-partner-prime-venture-partners/)Enjoyed the podcast? Please consider leaving a review on Apple Podcasts/iTunes.Follow Prime Venture Partners:Twitter: https://twitter.com/Primevp_inLinkedIn: https://www.linkedin.com/company/primevp/This podcast is for you. Do let us know what you like about the podcast, what you don't like, the guests you'd like to have on the podcast and the topics you'd like us to cover in future episodes. Please share your feedback here: http://primevp.in/podcastfeedback

24mins

20 Feb 2020

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Shripati Acharya, Prime Venture Partners

100x Entrepreneur

#100xEntrepreneur #Podcast with Shripati Acharya, Managing Partner, Prime Venture Partners“I’ve more patience than the average person, because life is a marathon, not a sprint” - Shripati AcharyaComing from a very humble background, Shripati did his schooling in Kendriya Vidyalaya, Bhopal. Later took admission in IIT Madras, then went to Stanford to pursue his Masters and finally did his MBA from Harvard.In 1999, he Co-founded Snapfish (now part of HP) - One of the largest online photo services in the world with over 70M members. In his later career he worked at Senior Management roles at Cisco & UIDAI Aadhaar.In 2011, he Co-founded Prime Venture Partners, one of India's Premier Early Stage Funds, focused on creating disruptive, category creating technology companies out India for local and global markets.His Portfolio Companies include - Ezetap, Happay, and MyGate among others.In this podcast, Shripati shares his deep insights of the SaaS opportunities in India & the core fundamentals of Early Stage Investing.Notes - 00:36 - His Journey from Kendriya Vidyalaya in Bhopal to Stanford01:47 - How did he start Snapfish?03:10 - From being the Founder of Snapfish in the US, what brought him into the Indian Startup Ecosystem?04:17 - How was Prime Venture Partners started?06:06 - “Being a VC you should meet every entrepreneur with an open mind and not have preconceived notions” 08:24 - Operating Thesis at Prime Ventures15:45 - Meeting existing Portfolio companies regularly for discussing Strategic Actions 17:27 - His thoughts on Wealth Creation & Public Marketing Investing19:14 - What are the parallels between Early Stage Investing & Public Market Investing?22:17 - Potential in Indian SaaS companies to go for an IPO25:28 - Unfortuante failures or hurdles occur when Entrepreneurs are caught up in hindsight32:54 - Is it possible to build breakout companies like Whatsapp in India?Also, try out a 30-day free trial of Zoho Payroll, and simplify your Payroll journey as an entrepreneur! https://zoho.to/zoho-payroll

36mins

15 Dec 2019

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440th 1Mby1M Entrepreneurship Podcast With Shripati Acharya, Prime Venture Partners - 1Mby1M Entrepreneurship Podcast

1Mby1M Entrepreneurship Podcast

Shripati Acharya is Managing Partner at Priven Advisors, advising Prime Venture Partners, a firm focused on core technology ventures in India. Unlike most VCs, Prime does do concept-stage investments.

31mins

30 Apr 2019

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