Scaling to $100 million ARR: 3 founders share their insights

Last week at TechCrunch Disrupt, Alex Wilhelm hosted a panel titled “Getting to $100 million ARR” on the Extra Crunch Stage. He was joined by three executives, including Vineet Jain, CEO and co-founder at Egnyte, Michal Tsur, president and co-founder at Kaltura and Sid Sijbrandij, CEO at GitLab.

The panelists discussed their path to building successful companies — all of which could go public in the next year or two.

Here are our five favorite takeaways from the panel. These notions should offer founders some inspiration, and perhaps a little guidance as they scale their own startup. After all, $100 million in ARR is merely the pre-IPO milestone. After that things get even harder.

Everyone faces hard times, but you can work through them

Jain told the story of how his company was just two years old in 2013 when he was trying to raise its Series B and facing rejection at every turn. What’s worse, he was at risk of running out of money in 30 days, the startup death knell.

“In 2011, when I was trying to raise a Series B, I had dealt with 13 rejections from Monday morning partner meetings at all the venture firms that I can think of [there] on Sand Hill Road — and I was thinking, ‘Okay, how will I run my payroll?’ I was 30 days out from running out of cash,” Jain said.

A chance breakfast with a VC he knew from a previous venture led to a meeting with his firm, Kleiner Perkins. Jain said he had figured Kleiner wouldn’t be interested in his startup because it was too early-stage, but the friend told him to give it a shot. He got his Series B term sheet later that week.

What worked there? It was key that the VC knew him, believed in him, and, as Jain said, personal reputation matters. In this case it saved Egnyte, now worth hundreds of millions of dollars.

On the theme of working through hard times, Kaltura’s Tsur said every startup will face a bad quarter or two, but that the best way to cope was to analyze and fix underlying problems.

“If somebody tells you that they did not have such a quarter, they’re probably lying,” she said.

“I’ve been running products and platforms for most of my time with Kaltura, so I’ve always been looking at it from a product perspective. And you know, ultimately whenever we have plateaued, we look very seriously at whether it’s the market, whether it’s the product, whether it’s the people. And, you know, ultimately, adjust as much as we could,” said Tsur.

It’s not the size of your A round that matters, it’s getting it done

Every startup knows that getting from seed to a Series A round is a big leap. Many startups falter at this early point in their existence, but those that clear the Series A hurdle can help set a startup on a clear path.

In 2015, GitLab was four years old. It started as an open-source project, but when it decided to create its commercial arm, the company applied to Y Combinator. It was there that Sijbrandij learned a valuable lesson about raising a Series A: Even if it’s small, take it and move on.

He had actually raised seed capital after YC much faster than he had expected, so he went to his YC mentor, who told him to get the A done as soon as he could. Khosla Ventures ended up leading his A round just a few months after leading its seed investment.

While the A round was small by today’s standards — just $4.5 million — it was enough to let GitLab get it done and move on.

“A lot of companies fail because they can’t raise an A, so if you get the opportunity to raise an A quickly, even if it’s small, take it because it gets you over this hump,” he said. And it did. It’s worth pointing out that the company has raised over $400 million in total, so it didn’t make sense to worry about the size of the round in the end; GitLab never lacked for capital after that.

Jain’s Series A round was a modest $6 million, but he didn’t seem bothered by it. In fact, he regularly stresses that he built his company to use cash wisely. Egnyte has never been about growth over fiscal responsibility.

“I don’t aspire to be a unicorn. The word I like to use is, I want to be seen as the new stallion, and what I mean by that is [building a company] that is fiscally responsible, it’s sustainable, with the margin beyond a certain stage — you know series A and B, probably you are spending more money to grow — but once you pass a certain stage there are three metrics that I really look at,” said Jain.

“The first is top-line growth, even if it’s 25% to 30% to me that’s great, but it should come along with two other metrics: A gross margin of 70% or higher, and finally, are you positive or near-term positive or at least have a path to profitability.”

Always have a plan

Every founder should constantly be thinking ahead about where they want to be. Inevitably, down quarters will impact on those plans, but putting some guard rails in place for the road ahead gives a startup discipline and focus.

“One thing that has always been consistent at Kaltura is that we’ve always had either a three-year plan or a five-year plan,” said Tsur. “And that plan typically looks at addressable markets — what are the markets we want to make sure we go after? Do we want to go after additional industries? What product lines we might want to add? Then that would tie into organic or nonorganic [expansion]. What makes sense for us to expand to with organic versus inorganic, and then also even things like how we go to market.”

GitLab takes that a step further publishing their company’s short- and longer-term plans on the website, letting the world know exactly their three-year plan along with their 10-year and 30-year projections — and even a project date to go public. While not every startup may want to be that transparent, Sijbrandij says it works for his company and it helps attract the kinds of employees he wants who get excited about that.

“We had over 15,000 applications every month, and it’s people that saw our materials, over 5,000 pages of our internal policies [and plans], and they got excited that this is a company run the way I want it run. [ … ] We started the transparency to connect with the wider community around GitLab but it turned out to be super beneficial for attracting great talent as well,” he said.

Churn isn’t something to merely avoid

Returning to Jain, he had what was probably the line of the entire panel when he riffed on managing churn and revenue growth. After explaining that in the early stages of building a SaaS company it’s common to focus more on adding new revenue than “plugging the holes at the bottom,” the CEO added that as a company matures and grows, more focus has to be paid to managing churn and retention.

Jain noted that dollar-based retention is a key metric in the SaaS world that startups are valued by, meaning that after securing a customer, your ability to upsell that same account over a “defined window of time” really matters.

Noting the impacts of the COVID-19 pandemic and the fact that bonuses at Egnyte are tied to retention, “I say, managing churn is the new revenue,” he added. “Focus on that disproportionately more than you would focus on just top-line growth.” That’s a somewhat radical statement given how much emphasis is put on adding new logos and the like by many in the startup advice community.

Egnyte, Jain added, drives to just one or two metrics (net new MRR, or gross MRR adds and churn). “Everything that we’re doing, all of us [at Egnyte] have to be measured with that number to say, ‘How are we doing as a company?’”

So if your startup is post-Series A, listen to what Jain says on managing churn. After all his company reached $100 million ARR, has a few dozen million in the bank, grew 22% in Q2 and is EBITDA positive.

Not every evolution will succeed

During our conversation, we broached the topic of culture. We were curious about how companies approach cultural scaling — as a startup grows, do its stated values need to change? Does a startup outgrow its first set of standards or principles?

Tsur said Kaltura decided “early” on a set of values, which she described as “being open, flexible and collaborative.” Those feel pretty good on the surface and seem attuned to what a startup might need. Being open could lead to good information and idea transference. Being flexible is literally required at a startup given the pace of change and the number of roles that each founder must play. Collaboration is something every company needs, no matter its size.

But sometimes you must evolve to move forward. Kaltura later went through a process of thinking about refreshing its brand and values. According to Tsur, her company “tried that,” announcing a “broader set of values” than its original three.

But the refresh didn’t work out, she said. “Openness, flexibility and collaboration are so natural to the company that you know, [the new values] never stuck and essentially we went back to what we truly believe in, which is being open, flexible and collaborative.”

Kaltura is a successful company, but that doesn’t mean that everything that it has tried went perfectly. Its values reset wound up being one of those odd failures. Of course in this case, Kaltura merely went back to a winning formula, so it’s hard to shake our finger too hard at its story.

But Kaltura’s cultural refresh, and later reversion, show that not every evolution will bear fruit. And that it’s better to go drive in reverse for a block than to drive the wrong direction due to misplaced pride.

The full panel is below: Enjoy!