Edison Partners, a leading growth equity investment firm, today announced the results of its fifth Edison Partners Growth Index. The report, a study of the firm’s portfolio of growth-stage technology companies, finds that fast growers—or companies with 30 percent or more annual growth—share seven key characteristics associated with their growth.
“While focused investment in sales and marketing continues to be the primary catalyst for achieving 30-plus percent growth, here in our fifth edition of the Edison Partners Growth Index, customer success, pricing model sophistication and strong corporate cultures also emerged as key growth drivers,” said Alex Symos, Vice President, Go-To-Market Center of Excellence at Edison Partners. “Fast growers also tend to take a more holistic and disciplined approach to acquisition and retention of their customers and, interestingly, employees alike. They spend with the intention to build a business model for scale, one that will bear exponential returns as the company grows.”
The 2019 Edison Partners Growth Index found that fast growers share seven traits across operating and financial dimensions. Among the key attributes, fast growers prove to:
Spend significantly more dollars on Sales and Marketing. Fast growers saw 100 percent higher Sales and Marketing spend with a primary focus on customer acquisition. They invested 50 percent to 60 percent of 2018 revenue on Sales and Marketing, which is in line with Edison’s recommended range.
Invest more in Customer Success. New this year, the Growth Index found that fast growers spent 6x more to onboard and retain customers. As a result, they grew ARR with existing accounts by 35 percent, retained revenue at 17 percent higher rates, and saw net dollar retention of 102 percent. Fast growers also enjoyed Net Promoter Scores that were 40 points higher than slower-growth peers.
Hire faster and retain employees longer. Fast growers grew headcount by 22 percent in the year. Even with rapid hiring, fast growers drove revenue per employee more than 3x higher than slower growers. Fast growers also prove to have a keen focus on what Edison Partners refers to as the people equation, meaning they are better at building distinct corporate cultures with strong disciplines for employee engagement, performance management and making difficult people decisions early. This enables fast growers to retain more employees than slower-growth peers in nearly every functional area.
Record higher EBITDA losses. Bottom line losses of roughly 86 percent were higher for fast growers, fueled by rapid hiring practices, higher spend in sales, marketing, product, and general administration expenses. While higher operating costs were necessary to fund their business strategy, fast growers still drove gross margin expansion more efficiently by simplifying product, limiting service dependencies, reducing hosting costs, and capturing more value.
The Edison Partners Growth Index study was conducted in the first quarter of 2019 to identify the characteristics in common among companies with 2018 GAAP revenue growth rates of 30 percent or higher. The firm’s portfolio companies from fintech, healthcare IT and enterprise solutions sectors participated in the study. These are companies, ranging from $5 million to more than $50 million in revenue, that have moved beyond startup mode and are focused not only on top-line growth, but also market and product expansion growth for scale and long-term customer value.
The Growth Index is a program of the Edison Edge operating platform, designed to help Edison Partners portfolio companies navigate, accelerate and scale growth. Through functional Centers of Excellence, executive education programs, and the largest board director network and development program in the country, the Edison Edge platform provides the expertise and resources that matter at each stage of a company’s growth journey.
About Edison Partners
For more than 30 years, Edison Partners has been helping CEOs and their executive teams grow and scale successful companies. The firm’s investment team brings extensive investing and operating experience to each investment. Through a unique combination of growth capital and the Edison Edge platform, consisting of operating centers of excellence, the Edison Director Network, and executive education programs, Edison employs a truly integrated approach to accelerating growth and creating value for businesses. A team of experts in financial technology, healthcare IT and enterprise solution sectors, Edison targets high-growth companies with $5 to $25 million in revenue; investments also include buyouts, recapitalizations, spinouts and secondary stock purchases. Edison’s active portfolio has created aggregated market value exceeding $10 billion. Edison Partners is based in Princeton, NJ and manages more than $1.4 billion in assets throughout the Eastern United States.