Ceiling Investment Criteria: Building Irreversible Lock-In

Ceiling investments are the traditional domain of growth equity, but the bar has risen. With the middle dying, Ceiling companies must demonstrate genuine irreversibility, not just enterprise sales motion.

Must-Have Criteria (All Required)

• NRR > 120% (proven, not projected) — Must have cohorts demonstrating actual expansion. NRR of 100-115% is middle territory and insufficient.
• Switching cost > 24 months ACV — Calculate total cost including migration, retraining, integration rebuilding, and business disruption.
• Average integrations per customer > 5 — Each integration is a thread binding the customer to the product.
• Services mix > 20% of revenue — Implementation, customization, and training create organizational embedding.
• Multi-year contracts > 60% — With 5-8% annual contractual escalators demonstrating pricing power.
• Enterprise sales motion working — Quota attainment > 70%, average deal sizes > $100K.

Positive Signals

• Logo churn < 5% annually
• Customers expanding 2x within 3 years
• Partner ecosystem developing (ISVs, SIs, resellers)
• Premium pricing accepted without discounting
• Customers requesting deeper integration and more modules

Valuation Framework

• Series A: 15-25x ARR
• Series B+: 10-15x ARR
• Exit: Strategic acquisition ($500M-5B) or IPO
• Target return: 10-30x with lower risk

This is part of a comprehensive analysis. Read the full analysis on The Business Engineer.