For instance, MeridianLink which went public in 2021 opens with a 3 year term with auto-renew: “The initial term of our contracts is typically three years but may range from one to seven years. Our customer contracts are typically not cancellable without penalty. Our contracts almost always contain an evergreen autorenewal term that is often for a one-year extension after the initial term, but can extend the autorenewal of the contract up to the length of the original term.”
Some of our portfolio companies have also started to do the same thing. There are a few reasons:
Customer buy-in. long term contracts result in greater customer buy-in. If a customer is committed to pay for something for 3 years, they’re going to make real effort to make the product work for them.
Cache. Opening with a 3 year term says “my product is awesome, and is worth a 3 year term.” Because it is. This creates brand cache in the eye of the prospect.