Hey everyone -

We’re less than 11 days away from the biggest SaaS event of the year and tickets are NEARLY GONE.

With just over 12,000 SaaS founders and execs set to join us in-person, in just a few weeks on our massive 40+ acre campus - SaaStr Annual 2023 is one event you won't want to miss. 

• What you can expect at this year's SaaStr Annual:
• 3 Full Days: Sept. 6,7,8 at the San Mateo County Events Center
• 12,000+ SaaS founders, execs, revenue leaders and VCs will attend
• 271+ of the Best speakers in SaaS and Cloud
• 1,000+ Braindates and Workshops
• SaaStr Fan Favorites
• From Tunguz to Kellogg, from Mehta to Janz, From Sacks to Belsky. Fan Favorites are Back
• Indoor + outdoor sprawling campus, festival style
• The Big Party with Cheat Codes!

So we’ve been saying for a while that the back half of 2024 could be good for SaaS IPOs, we just needed a few of the break-out winners to IPO to get the engine rolling again.  The SaaS IPO window really closed in late 2021 with HashiCorp as the last great one to IPO in December 2021.

And now we have that first great IPO filing since 2021 — Klaviyo.

You may not have heard of Klaviyo if you are outside of e-commerce, but in the e-comm world, it’s the #1 B2B player.  It dominates the Shopify marketing ecosystem and others as well.

And it’s got the full package:

• True Scale:  Almost $600m ARR
• Epic Growth:  Still growing 57% at $600m ARR — wow!
• Top Tier NRR: 119%
• Profitable:  Klaviyo has gotten leaner, and has been profitable the past 6+ months.

There’s nothing to knock here, folks.   And … it was essentially incredibly capital-efficient as well.  Borderline bootstrapped (more to come here on SaaStr).  They only burned $15 million to get to $585m in ARR and an IPO filing!

So VCs are seen by most founders these days as almost commodities.  Folks with money that you get money from.  And maybe that’s a good thing, in many ways.

I see fewer and fewer founders care if VCs make money, and the Go Go days of 2020 and 2021 are probably part of it.  No one cared if they raised at 100x ARR.  

Everyone just wanted to be a unicorn.

Even better if they could take millions out.

So be it, and I’d rather live in a world where VCs aren’t quite respected than one where they hold all the power, like when I started as a founder.

Still, there’s one scenario I just quietly wanted to address here. Because I think most — not all, but most — founders aren’t grateful to VCs in one specific scenario.

This edition of the SaaStr Daily is sponsored in part by Mission Cloud

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Bad advice is everywhere these days. Hundreds of thousands of experts are telling you how to succeed in SaaS. Many of those voices are incredible, yet terrible bits of advice pops up again and again.

On top of that, founders are full of excuses preventing them from scaling.

SaaStr Founder and CEO Jason Lemkin shares the 10 worst pieces of SaaS advice, excuses, and mistakes founders make, and what to do instead. 

Unfortunately, as a non-CEO, non-founder of an acquired start-up … you have almost no ability to really negotiate.

Especially below the VP level.

Overall, your ability to negotiate in M&A in any context, in any job, is based on your ability to walk for something better, or just walk.

Unless you are the CEO, you have limited options here.  Most acquirers will be OK if you walk.  Right or wrong.

Acquirers will generally divide the employees into four groups:

• Group #1: Need to keep, individually. This will be a handful of key employees. They will likely get special retention packages that stretch out over 2-3+ years. You can ask for more here, but it’s hard to do too much here. Most acquirers have a general set of rules with what they want to do here. The CEO of the startup being acquired can try to rejigger things with the acquirer before the deal is signed. But after that, it’s often close to impossible to make any material changes.
• Group #2: Need to keep as a group. Beyond the key employees, the acquirer may require 80-90% of a group to agree to employment contracts (e.g., all engineers). You can say No. That may give you a tiny bit of leverage. Or you may just say No, and lose your job. As long as the acquirer gets their 80-90%, that’s all they’ll care about. Not you individually.  This “keep as a group” incentive usually only happens in smaller deals that approach acqui-hires.
• Group #3: Don’t care if they stay. Another group the acquirer won’t care much if they stay or not. Non-critical product managers, customer support and success, etc. This varies by acquirer and type of deal. They pretty much never get any really incentives to stay, maybe some standard stock options as new hires.
• Group #4: Don’t even want. Often, G&A (finance, legal, etc.) and in some sad cases, sales and marketing — the acquirer doesn’t even want. They may not even be offered jobs; may be offered short-term transition positions; or be kept on, but with a vague status (“You’re Now Reporting to Idaho”). You can’t negotiate nothin’ much here. Don’t expect anything at all, unfortunately.

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

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We were fortunate enough to return to 20VC to help support the new format with multiple guests, and the deep dive on venture was a good one.

Per Harry:

“VC markups have corrupted VC. We will see a rise of mega-funds once again and RIFs should be an embarrassment for all SaaS founders.

Not enough discussions are direct and honest.

Here are my 10 biggest lessons from our 20VC today with Jason M. Lemkin and Rick Zullo. 

How much optionality do you give up when you raise venture capital?  Your VCs may be hoping to make 50x-100x their investment, but they are expecting to make at least 3x.

So each time you raise money at a certain valuation, you’re raising the price you have to sell for, and in that sense, decreasing optionality.Every time, think at least 3x:

 If you raise a seed round at a $10m valuation, can you sell for at least $30m?  Maybe, maybe not, but that’s not so high you usually need to worry too much.

If you raise a Series A at a $40m valuation, now you have to sell for at least $120m for the math to work out.  Now it starts to get harder.  There aren’t as many $100m+ acquisitions as you might think.  Now there is a bit of a target on your back.  IMHO, only raise a Series A round once you’re sure you have something good, with real value.

If you raise a Series B at a $100m valuation, now you have to sell for at least $300m for the math to work out.  This starts to get pretty hard.  These deals happen, but you probably have to hit $30m+ ARR for real to have a real shot at it.  Do you see that coming anytime soon?  If not, maybe don’t raise the round.

And here’s the thing … at any price much more than $100m valuation, you start to enter … IPO or Bust land.  There just are so, so few acquisitions at $500m+ out there in SaaS to deliver that basic 3x or more.  You have to just be planning to IPO, period.

So let me boil it all down to at least one point:  I don’t think you need to overanalyze exit options and optionality if you just raise a small seed round.

I’ve thought about this a lot. I’ve walked from acquisitions where I, to be honest, did want the money but still walked. And I’ve taken several offers, too, sometimes when it turned out to be the wrong choice.

You have (at least) 4 constituencies in an acquisition:

• You and your co-founders.
• Your employees.
• Your investors. And …
• Your family.

All four may have different views. (Your customers are also a constituency, but it’s hard to include them in this dialogue).

If your gut say you 95%-100% should sell, then sell.  That’s a strong signal.

If your gut says you don’t want to sell, but probably rationally should — talk to all 4 constituencies and see what they say. This will likely push you a tiny bit in one direction or another.

The toughest scenario is when you feel differently from the other 3 constituencies. Sometimes, your family can really benefit from financial security. Sometimes, your investors may push you hard one way or another.

And finally, your management team’s views can vary widely. Sometimes, they are tired and love the idea of an exit where they can make some money.

Other times, they are just getting started and really do not want to sell.

As you can see here from our deep dive with Ben Chestnut, CEO of Mailchimp, their acquisition by Intuit took over a year — and only happened after another deal didn’t happen!

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