The Latest from SaaStr: 5 Interesting Learnings from UiPath at $1.2B ARR

So few Cloud software companies have had a more interesting history than UiPath. It took them a full 10 years to get to $1m in ARR (!).

And then after that, explosion.  

Robotic Process Automation took off, and they rocketed toward $1 Billion in ARR. Growth then slower after a take-off like we’ve almost never seen before.

So now it’s a new world, where profitable growth is what’s valued.

And UiPath?

It’s kept up, and evolved.  After its last quarter, it traded up, unlike so many of its peers.  

Why?  

Solid 12% currency growth at $1.2 Billion in ARR, and most importantly, 30% growth its recurring revenue business — and now, 22% non-GAAP operating margins.

UiPath has now generated $100 million in free cash flow last quarter. Wall Street is happy to trade somewhat slower growth if it’s paired with even non-GAAP profits and material free cash flow.

For a while in the peak craziness of late 2020-early 2022, VCs in many cases … stopped mitigating risk.  

The upside seemed just so high when public SaaS companies were trading as high as 50x ARR or sometimes more.

But now we’re back.  

To every VC taking risk, yes, that’s the job.  But also mitigating it where practical.

There are a number of slightly subtle things the best VCs do, and the rest often don’t, to mitigate risk:

Getting other investors to carry their “Yellow Lights”.  You’ll end up with investments sort of doing OK, with customers, but really burning too much cash to justify another check.  The best VCs find Another VC to put in 90% of the Next Check here.  You don’t have to write off the investment, but you don’t have to throw much more questionable money into the deal, either.

Selling their underperformers for more than they are worth.  The best firms somehow sell their worst deals for $0.50 on the dollar, or $1 on the dollar, or even $1.50 on the dollar … when, really, they are write-offs.  This helps a lot.  I don’t know how they do it.  But they do.  They get acquirers to buy startups that others can’t engineer.

Minimizing fund politics.  Politics can wreck returns.  Yes, every partner needs to deploy $X per fund.  But returns are rarely consistent across partners.  By making sure investment decisions are as free of politics as possible, fewer “Almost” deals get done, and fewer second and third checks are wasted on the wrong portfolio companies.  The Almost deals never return much, if any, capital.  Partners with little deal flow, or poor deal flow, or fewer relationships, should be doing fewer deals, or playing other roles.

This edition of the SaaStr Daily is sponsored in part by SAP

Your business can thrive with agile and innovative solutions to help automate business processes to scale your business. SAP Cloud ERP is at the core of making these capabilities come to life and helping your business grow.

Back in the early 2000s, people didn’t entirely accept that a virtual machine could be as good as a physical one. Of course, we all know how that turned out. 

Ed Lenta, the SVP and GM of Databricks, had the rare opportunity of scaling three hypergrowth companies — VMware, AWS, and Databricks. All of which were disruptors when they first came on the scene.

Is there a recipe or formula that will predict the success of a pre-growth, high-potential company? Lenta shares his lessons learned through scaling these early-stage companies, so you can too. 

My list:

1. You have to go twice as far on each dollar of venture capital as in 2021. With public market valuations down 70%+ from their peaks, for startups, that means going twice as far on each dollar.
2. It’s 3x-5x harder to raise a Series A, and 4x-10x harder to raise a Series B, C or D, than it was at the peak. With public decacorns now mostly unicorns, that means it’s just harder and harder to raise rounds after the seed stage.
3. Discretionary categories are hard hit. Some categories in SaaS are holding up well, e.g. Cloudflare, Adobe, etc. But a lot of startups that sell nice-to-have products, especially in sales, are deeply struggling right now. That buying has been put on hold.
4. Gross margins matter again. In the peak of 2021, no one cared if your gross margins were 20% or 80%. Now, they care again. So pseudo-SaaS products and other products with lower gross margins are commanding much lower valuations.

We never know how many people exactly will come to our events, but we do have a decade of data now.  But the world is different now, and folk seem to be waiting more to the last minute to buy event tickets.

Whatever we end up at SaaStr Europa 2023 in London 6-7 June … it will be even bigger than last year in Barcelona!

This edition of the SaaStr Daily is sponsored in part by LARK

Lark is a collaboration tool designed to improve team productivity. Get chat, email, video conferencing, calendar, and docs together in one place.

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