Metrics That Matter: Cash Burn 💸🔥
insights, news, and updates from bloom venture partners
Happy Friday Founders & Friends!
We are back with another week of The Weekly Bloom newsletter! We hope that you enjoyed last week’s newsletter on Sales Efficiency.
Continuing on the theme of SaaS metrics, we wanted to share our insights on another vital metric for SaaS companies……. Cash Burn 💰💰
What is Cash Burn?
Cash burn refers to the change in a company’s cash position from the beginning to the end of a period.
Investors often further break down cash burn into “gross” and “net” to understand the correlation between operating costs and revenue generated from customers.
Gross Cash Burn: The total cash spent, not accounting for cash collections from revenue
Net Cash Burn: The total cash spent, accounting for cash collections from revenue
How do you measure cash burn?
Cash flows are typically categorized into 3 different buckets:
1. Cash from operations:
The amount of money a company brings in from its ongoing, regular business activities.
This focuses only on cash flows generated from the core business and does not include long-term capital expenditures or investment revenues.
2. Cash from investing
This shows how a company’s cash is affected by its investment activities.
Given that most low to mid-market SaaS companies tend to be very asset-light businesses, cash from investing tends to have a minimal impact on their cash changes.
3. Cash from financing
Cash from financing shows the external financing efforts of a company's effect on its cash balance.
Cash from financing could range from venture funding to securing debt.
Factors impacting your cash burn?
There are a ton of factors that have some material impact on a companies cash burn. Highlighted below are some SaaS specific factors
Customer pre-payments
For SaaS businesses that offer customers the ability to prepay for multi-period subscriptions, this leads to a positive impact on their cash position.
Interest payments
Although debt financing can be advantageous given that it is non-dilutive, debt repayments and interest on loans can have a material impact on a companies cash position.
Days Sales Outstanding (DSO)
DSO is the average number of days a company takes to collect payments from a customer.
DSO has a direct impact on a business’s cash position as receivables convert into cash earlier or later depending on this figure.
TLDR; Cash burn is one of the most important metrics to understand for SaaS investors, founders, and operators. Not only is it one of the most closely followed metrics for SaaS founders/operators, but it has a direct impact on the valuation and underwriting capabilities for SaaS investors.
Interested in learning more about SaaS sales efficiency?? Make sure to check out the following below 👇
📚 It's (Not) Rocket Science: The Burn Rate In SaaS
📚How to Manage Your SaaS Startup’s Burn Rate
📚 A Looming Crisis: Selling MRR Contracts to Fund Long-Term Cash Burn
What We’re Reading and Listening To…
📚 B2B SaaS benchmarks: What metrics do VCs look at for signs of Product-Market Fit?
📚 The SaaS market opportunity is way bigger than you think
📚 Five Customer-Centric Retention and Loyalty Strategies for Enterprise Software Companies
News from the Industry: deals, deals, and more deals 💰
Athenahealth to be sold for $17bn in private equity deal
Bain Capital targets $1.5 billion for second tech opportunities fund
McAfee to Be Taken Private in $14 Billion Deal Including Debt
Favorites from the Ecosystem
Investors👇…..
Founders👇…..
Operators👇….
End Note 🔚
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About Bloom Equity Partners
Bloom Equity Partners is a lower mid-market software-focused private equity firm, leveraging deep operational and commercial experience to create enduring market value for the benefit of our investors, founders, and their companies.