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Why net revenue retention matters

The power of customer stickiness

Author

Michael Morgenstern
March 12, 2024

This newsletter is coming to you from Austin this week as our team is boots on the ground at SXSW. As always, the entrepreneurial spirit (and breakfast tacos) here can't be beat.

Net Revenue Retention (NRR) - helps you understand how well your company retains and grows its existing customer base. It's a powerful indicator of customer satisfaction, product-market fit, and the effectiveness of your upselling and cross-selling strategies. A high NRR means customers are not only sticking around but also spending more over time. That's a strong signal of a thriving business!

For Series A investors, seeing a 140% NRR is like spotting a rare, gleaming future 🦄. Why? Because it suggests incredible growth potential. A 140% NRR indicates that your business is not just retaining customers, but significantly expanding revenue from them, even after accounting for churn. This is a hallmark of a scalable, resilient business model, highly attractive to investors looking for a robust return on their investment. Remember, investors are on a quest for companies that don't just survive but thrive - and a stellar NRR is a beacon that guides them to your door.

NRR = [(Starting Revenue + Expansion Revenue - Churned Revenue) / Starting Revenue] x 100

  1. Starting Revenue: The revenue at the beginning of the period (usually the start of the year or monthly) from existing customers.

  2. Expansion Revenue: Any additional revenue gained from these existing customers during the period. This includes upsells, cross-sells, and any upgrades.

  3. Churned Revenue: The revenue lost due to customers downgrading or leaving during the period

Growing together, Michael Morgenstern

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Startup of the Week 🤩 

Brendan Mahony, co-founder & CEO of Sunset

Sunset helps tech startups shut down. As the one-stop-shop for dissolutions — their team of lawyers, CPAs, and operation specialists manage and execute the entire dissolution process on a founder's behalf. Started by a YC alum who had to shut down a previous company, their goal is to help founders immediately move onto what's next rather than spending months calling 25+ state agencies and dealing with the IRS.

Ambassadors Perspective: Since starting over a year ago, their team has successfully helped dozens of vc-backed startups compliantly and quickly dissolve - removing all fear of tasks falling through the cracks and founders being hit with unforeseen fines.

Venture Capitalist Spotlight 🤩 

Drive Capital is a Columbus-based multi-stage venture capital firm that is focused on investing in the world’s next generation of market-defining companies. The firm started in 2013 and has raised over $2B of funds to invest in startups solving problems in large markets.

Drive's Atlanta Seed office is led by Avoilan Bingham (ex-Techstars, Goodie Nation, Republic), where he invests in pre-seed and seed stage startups building in AI/ML, LLM infrastructure and Healthcare Service powered by AI. Drive's Seed Fund was launched in 2022 in 5 markets including Atlanta, Chicago, Columbus Denver and Toronto, with physical offices in Atlanta, Chicago and Columbus, Ohio.

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