Index description

The Land & Expand Leaders Index ($LENNY) targets business-to-business (B2B) software as a service (SaaS) companies that have best-in-class go-to-market models as represented by annual Net Dollar Retention (or Net Revenue Retention) rates of 120% and higher. 

Developed by Lenny Rachitsky, a growth-focused digital product leader who spent 7 years working at Airbnb and creator of Lenny’s Newsletter focusing on all aspects of product-led company growth, the Index is designed to track the performance of companies that are world-class at “land and expand” business models. Most software industry analysts and product experts consider Net Dollar Retention the single most important metric of future company performance and growth.

The Index consists of a portfolio of globally-listed companies that meet our best-in-class Net Dollar Retention metric. Follow $LENNY on Twitter.

Thesis

The Land & Expand Leaders Index is a best-in-class software company index that is designed to capture the performance of securities with elite sales models targeting SMBs, midmarket, and enterprise customers. Net Revenue Retention (NRR) or Net Dollar Retention (NDR) measures how much revenue a cohort is generating in each period relative to its original size. Dollar Retention takes expansion revenue into account and the better sales models are greater than 100% if expansion exceeds churned and contracted revenue. The very best SaaS companies have 120%+ annual Net Dollar Retention. To capture this, the Land & Expand Leaders Index:

• Selects the highest performing software companies based on NRR execution
• Excludes companies with less efficient sales and marketing approaches, by design
• Is based on proprietary research and product expertise designed to take advantage of both “bottoms-up” self-service and “top-down” direct-selling motions

Index creators

Lenny Rachitsky is an entrepreneur and product leader, with over 20 years of experience building successful technology products. In 2019 he created Lenny’s Newsletter, a weekly newsletter about product, growth, and career advice. It has since grown to be the #1 business newsletter on Substack, with over 120,000 subscribers. Lenny’s extensive research into the business practices of hundreds of software companies gives him a unique perspective on what traits and practices lead to companies that create outsized value.

Outside of his newsletter, you can also follow Lenny on Twitter (130k followers), take his 3-week course on product management, and find your next gig in his Talent Collective.

The Land & Expand Leaders Index was also created with help from the investments and technology team at Thematic.

Index characteristics

Index weighting methodology

Index constituent weighting is determined by the constituent company’s NRR, giving greater weight to companies with the highest NRR. Companies are separated into bands, and a weighting methodology is applied to each band.

The weight of a component in a given band is computed such that the weight of a constituent in the 2nd band is one third (⅓) the weight of a constituent in the 1st band. Similarly, the weight of a constituent in the 3rd band is one sixth (⅙) the weight of a constituent in the 1st band.

Mathematically the weights are solved as such:

First, the bands are defined as:

• Band 1 = NRR > 150%
• Band 2 = 150% > NRR > 130%
• Band 3 = 130% > NRR > 120%

Then, to compute the weight of a component in band1, w

w = 1a + 3b + 6c

Where

• a = # of constituents in band1
• b = # of constituents in band2
• c = # of constituents in band3

Weight of a constituent in band2 = 3w

Weight of a constituent in band3 = 6w

In the future, additional bands may be added, and the exact thresholds for each band are subject to change as seen fit by the Index Committee.

Eligible security criteria

All companies in the index must be involved in some aspect of the technology industry (which is broadly defined as software), and publicly traded securities that meet the following conditions:

Additional eligibility requirements

• Eligible security types generally include common stocks, ordinary shares and depositary shares.
• Only long positions are permitted. 
• One security per issuer is permitted. If an issuer has multiple securities, the security with the highest three-month average daily dollar trading volume (ADDTV) will generally be considered for possible inclusion in the Index.
• A security must be listed on an Index Eligible Global Exchange.
• If, at reconstitution, Thematic becomes aware that an issuer or security will soon undergo a fundamental change that makes it ineligible, it will be removed from consideration. This includes entering into a definitive merger or acquisition agreement or other pending arrangement that would make it ineligible for Index inclusion, or a filing of bankruptcy or similar protection from creditors.

Returns

The index is inclusive of total returns - dividends and other returns will be reinvested into the index or held as “cash value” until the next rebalancing date. The index return does not account for fees or tax withholding. 

Index operations

Index calendar

Constituent selection 

Constituent selection process

All securities that meet the applicable Eligible security criteria are considered for inclusion in the Index. The quarterly Reconstitution is carried out by the Land & Expand Leaders Index committee. Potential index constituents are provided for final verification, verified by the committee, and changes are made accordingly to index membership.

For a security to stay in the Index, the security must:

For securities that have fallen below the $250M market cap threshold (calculated as average mkt cap during the quarter) during rebalance sessions, are given a 1 quarter curing period for evaluation and recovery above $250M before removal.

Index maintenance 

Deletion policy

If, at any time during the year other than the Index Reconstitution(s), an Index Security that no longer meets the Eligibility Criteria, or is otherwise determined to have become ineligible for inclusion in the Index, it is removed from the Index. This includes circumstances where an Index Security is determined to be ineligible for continued inclusion in the Index due to bankruptcy, delisting, or a definitive agreement that would likely result in the security no longer being Index eligible. We plan to reference Nasdaq’s Corporate Actions and Events Manual – Equities for detailed handling of the aforementioned event types. 

Replacement policy

Index securities deleted at any time during the year other than the Index Reconstitution(s) are not replaced.

Corporate actions

In the interim periods between scheduled index reconstitution events, individual Index securities may be the subject to a variety of corporate actions and events that require maintenance and adjustments to the Index.  Specific treatment of each type of corporate action or event is described in Nasdaq Corporate Actions and Events Manual – Equities, which is incorporated herein by reference.

In certain cases, corporate actions and events are handled according to the weighting scheme or other index construction techniques employed. Wherever alternate methods are described, the Index will follow the “Non-Market Cap Corporate Action Method.”

Index share adjustments

Other than as a direct result of corporate actions, the index does not normally experience share adjustments between scheduled index rebalance and reconstitution events.

Additional information

Announcements

Thematic announces Index-related information via the Land & Expand Index website.

For more information on the general Index Announcement procedures, please refer to the Thematic Index Methodology Policy.

Holiday Schedules

The Index is calculated Monday through Friday and does not close for holidays, as it is a Global Index.

Unexpected market closures

For information on Unexpected Market Closures, please refer to the Thematic Index Methodology Policy.

Calculation types

For information on the Index calculation types as well as the mathematical approach used to calculate the Index(es), please refer to the Calculation Manual – Equities & Commodities. 

Recalculation and restatement policy

For information on the Recalculation and Restatement Policy, please refer to the Thematic Index Recalculation Policy. 

Data sources

For information on data sources and the classification of dividends and associated tax rates, please refer to the Thematic Index Methodology Policy. 

Contact information

For any questions regarding an Index, please contact Thematic at index@gothematic.com.

Index dissemination

Index values and weightings information are available at the Land & Expand Leaders Index website. 

For more detailed information regarding Index dissemination, see the Thematic Index Methodology Policy.

Index calculation and dissemination schedule

The Index is calculated five (5) days a week, Monday through Friday, starting with the earliest time zone (Asia/Tokyo) and closing with the latest time zone (America/New York), 12:30:01 Japan Standard Time to 17:16:00 Eastern Time.

Website

For further information, please refer to the Land & Expand Leaders Index website.

Governance

Index governance

All Thematic indices follow the same governance structure. For a detailed list of this information, please see the Thematic Index Methodology Policy.

Thematic Index Management Committee

The Thematic Index Management Committee approves all new Index Methodologies. This committee is comprised of full-time professional members of Thematic. The committee meets regularly, and reviews items including, but not limited to, pending corporate actions that may affect Index constituents, statistics comparing the composition of the indexes to the market, companies that are being considered as candidates for addition to an Index, and any significant market events.

For a detailed overview of the Index Management Committee, please see the Thematic Index Methodology Policy.

Internal reviews of methodology

For a detailed description on internal reviews of the Methodology, please see the Thematic Index Methodology Policy.

Communication with stakeholders and consultations

For a detailed description on Consultations and Communications with Stakeholders, please see the Thematic Index Methodology Policy.

Index cessation

Thematic has a documented procedure that is followed for Index Cessation that includes termination/retirement of an Index or Index Family.

For more information, please refer to the Thematic Index Cessation Policy.

Discretionary adjustment

This Index Methodology was created by Thematic to achieve the aforementioned objective of measuring the underlying purpose of each Index governed by this methodology document. Any deviations from this methodology are made in the sole judgment and discretion of Thematic so that the Index continues to achieve its objective.

For more information on potential adjustments including Calculation and Pricing Disruptions, Expert Judgment, and Unexpected Reconstitution/Rebalances, please refer to the Thematic Index Methodology Policy. 

Glossary of Terms Used in This Document

For the glossary of key terms, please refer to the Thematic Index Methodology Policy.

Disclaimer

Thematic may, from time to time, exercise reasonable discretion as it deems appropriate in order to ensure Index integrity, including but not limited to, quantitative inclusion criteria. Thematic may also, due to special circumstances, if deemed essential, apply discretionary adjustments to ensure and maintain the high quality of the index construction and calculation. Thematic does not guarantee that any Index accurately reflects future market performance.

Neither the Land & Expand Leaders Index, nor any of their affiliates makes any recommendation to buy or sell any security or any representation about the financial condition of any company. Investors should undertake their own due diligence and carefully evaluate companies before investing. The information contained herein is provided for informational and educational purposes only, and nothing contained herein should be construed as investment advice, either on behalf of a particular security or an overall investment strategy. Advice from a securities professional is strongly advised. All Rights Reserved.