Box. Yammer. Slack.
What do all three of these insanely successful startups have in common?
Besides billion-dollar valuations, Venture Capitalist Mamoon Hamid also invested in all three.
Hamid is a General Partner at Social+Capital, an early-stage VC firm. He focuses specifically on Enterprise Software-as-a-Service companies, and has found his most successful investments not by luck, but by the careful application of data analysis.
Hamid has become well known in VC and startup circles for creating the incredibly valuable SaaS metric: the Quick Ratio. This simple yet powerful metric guides every investment that he makes, and separates the companies with less potential from the startups with the ability to skyrocket.
Hamid explained that he came up with the calculation because he wanted more insights into his SaaS investments.
“I was always looking at this one metric, Monthly Recurring Revenue – how much monthly revenue you get from your SaaS customers,” he said. “However, I wanted to know more. I was reminded of something from business school and accounting called the Quick Ratio. It’s a ratio between assets and liabilities. I took that concept, and applied it to SaaS.”
This calculation takes all Monthly Recurring Revenue, adds the upsells and upgrades from existing customers, then divides it by all the customers that churned or existing customers who have downgraded their service.
But what does the SaaS Quick Ratio actually tell you about your business? In this exclusive interview, Hamid explains why he relies on this specific metric for every investment and why he chose 4 as the threshold that he will not cross.