Sammy is the Managing Director and Cofounder of Blossom Street Ventures. Email him directly at email@example.com, especially seed to Series C founders.
JFrog recently went public, so we did a deep dive on their prospectus. In conclusion, they’re a fantastically run company and there are a number of tidbits in their prospectus about how to run your own SaaS company. For instance, having engineers on the CS team, using CS to drive revenue, focusing on product so well that it sells itself with no outbounding, etc. A Our notes are below.
Incredible Stats. 5800 customers, 139% NDR, 98% GDR, 50% YOY revenue growth, 286 customers over $100k ARR, <$1mm net loss, 5 years of free cash flow positive. $162m raised, but $171mm of cash on the books. $105mm revenue in 2019. Net loss of only $5mm while FCF was $8mm. Q4 is biggest bookings Q given budgets of customers. CEO and founders make $315k to $431k but didn’t get options in 2019. Founders own 24%.
What they do. Frog provides universal DevOps Platform to achieve Continuous Software Release Management, or CSRM. Frog continuously delivers software updates across any system. Frog allows organizations to build and release software faster and more securely while empowering developers to be more efficient.
Software release paradigm. The increased pace and volume of new software and updates have made releasing software in monolithic, discrete versions (e.g., v1.0, v2.0, v3.0) too slow to adequately address dynamic customer demands. Continuous delivery is the new paradigm. Updating a feature of a software application, rather than releasing a new version of the entire application, ensures that current software is brought to market faster. Updates today are released incrementally and with greater frequency.
CS has engineers. Our customer support team is differentiated by the number of team members who have engineering backgrounds, which allows our customers to have consistent access to individuals with intimate technical knowledge of our products.
CS also drives revenue though. “Increased engagement with our products provides our support and customer success teams opportunities to work directly with customers and introduce them to additional products and features, as well as drive usage of our products across large teams and more broadly across organizations.” (cohort data below).
Freemium and self-serve. To date, we have not deployed a significant outbound sales force, relying primarily on our self-service and inbound sales model. Moving forward, we are building a small, high-touch strategic sales team to identify new use cases and drive expansion and standardization on JFrog within our largest customers. Our free trial subscription options, freemium product offerings, and open source version of JFrog Artifactory increase software developer and IT operator familiarity with our products.
The lack of sales team is badass. “JFrog was born as a company with JFrog Artifactory as the world’s first software package management product. Importantly, we’ve never sold it. It’s always been bought, and to this day we haven’t made a single field sales outbound call to a prospective customer.”
Pricing falls. “The sales prices for our products may decline for a variety of reasons, including competitive pricing pressures, discounts, anticipation of the introduction of new products, or promotional programs. Competition continues to increase in the market segments in which we participate, and we expect competition to further increase in the future, thereby leading to increased pricing pressures. Larger competitors with more diverse offerings may reduce the price of offerings that compete with ours or may bundle them with other offerings and provide for free.”
But ARR grows due to deeper penetration. “As of June 30, 2020, 286 of our customers had ARR of $100,000 or more, accounting for 48% of our ARR. As of December 31, 2018, 131 of our customers had ARR of $100,000 or more.”
Covid hurt sales cycles. “as a result of COVID-19 we have experienced and expect to continue to experience an increase in the average length of sales cycles to onboard new customers, delays in new projects, and requests by some customers for extension of payment obligations.”
But leads are at a high. “We also generated a record number of new business leads during the second quarter of 2020, and our 2020 virtual swampUP conference attracted a record number of attendees.”
Pricing is not per user. “Self-managed subscriptions are priced based on number of servers, while SaaS subscriptions are priced based on consumption of storage and data transfer. SaaS subscriptions come with minimum annual usage commitments, while SaaS JFrog Pro and JFrog Pro X subscriptions also come with a minimum monthly fee, which includes basic usage. We offer an unlimited number of user seats for every subscription tier and deployment type, in order to encourage usage and align pricing with tangible value delivery.”
Billing in advance. “Our self-managed subscriptions are offered on an annual and multi-year basis, and our SaaS subscriptions are offered on an annual basis, with the exception of certain SaaS subscriptions, which are also offered on a monthly basis. Our self-managed subscriptions are billed primarily in advance. Our SaaS annual subscriptions are billed in advance for the minimum annual usage commitments, and if exceeded, monthly thereafter.”
Free trials and providing value up front is key. FROG offers limited free trials, freemium products, and open source products. “We have a bottom-up, community-focused approach to driving increased usage of our products, in which we focus on demonstrating the value that our products can provide to software developers and IT operators before their respective organizations become customers.”
Integrations matter. “We invest heavily in integrating our products with the major package technologies so that our products can be easily adopted in any development environment.”
Champions allow for land and expand. “We are a company founded by developers, for developers. We have a bottom-up, community-focused approach to marketing that prioritizes increasing the effectiveness of software developers and IT operators. We empower software developers and IT operators to release software faster and more securely, and in the process create champions of our products who naturally demonstrate the value of JFrog to their broader organizations.”
11 patents, but innovation is what matters. “Although we rely on intellectual property rights, including trade secrets, patents, copyrights, and trademarks, as well as contractual protections to establish and protect our proprietary rights, we believe that factors such as the technological and creative skills of our personnel, creation of new modules, features and functionality, and frequent enhancements to our platform are more essential to establishing and maintaining our technology leadership position.”