Hey SaaStr Community,

So the Wall Street Journal did a great job slicing and dicing IPO data recently. To me, the most jarring statistic was this one: 80% of IPOs since 2020 are trading below their IPO price, or “broken”.

So what, you might think?  Buyer beware?  Hooray for “efficient IPOs” that don’t leave money on the table, some say?

Perhaps.  But the problem is this — when folks don’t make money off startups, everything gums up and slows down.

Most VC investments do need to make money.  Not every one, but on balance, most do.  This is even true at seed stage.  There, even if most “logos” don’t make money, most of the dollars invested do need to make money.  Most.

The 50% line is a big deal at every stage of investing, at least from seed to IPO.  Most of your investing dollars do need to make money.  Not all, but most.

We’re on the brink of one of the biggest technological advancements of our lifetime — AI. For the first time in twenty years, we have a blank canvas, complete artistic freedom to reimagine everything in B2B software. 

At this year’s SaaStr Annual, Mark Roberge, co-founder and Managing Director of Stage 2 Capital, takes the stage to have a bake-off between startups and incumbents when it comes to who will win the AI Go-to-Market race. 

The question entrepreneurs and founders need to ask themselves is…

Is Your Company Still Relevant In A Post-AI World? 

It’s an exciting time to be a visionary, and that’s a founder’s job. As a visionary, you have to think about what a post-AI world looks like 5-10 years from now and imagine what the use case you’re solving for now looks like in that world. 

Otherwise, you’re facing irrelevance. 

We’re also potentially in a hype cycle. There is a close parallel between how the internet disrupted society and software and how AI will, too. If the internet rolled out in 1997, then our current hype cycle is what it was like in 1998. 

The fifth SaaStr Europa in London will attract 3,500+ SaaS executives and investors, a superb selection of speakers, and endless opportunities to network in June of 2024.

As part of the SaaStr community, our partners are an integral part of what makes SaaStr the top resource to help companies of all sizes scale and grow their businesses. We would love for you to join us in London!'

For Europa, we are offering a wide range of exciting opportunities for our partners. Download our prospectus today to learn more about our exciting sponsor opportunities. 

So one thing that has exploded in SaaS in the past decade is the role of Private Equity buying both public SaaS companies (to take them private, “fix” some metrics, and IPO or sell them again), and generally later-stage private SaaS companies. E.g., Vista bought leaders like Pipedrive, Gainsight, Salesloft and so many others for $1B+ or more.

They are generally looking for good but not great deals.  

By that I mean, too good a deal on paper at least … then likely the SaaS company isn’t truly a break-out leader. PE wants to invest in leaders, if not necessarily always #1 in a category. Products that are as close to an annuity as possible, that are amenable to efficiency gains.

So what do they pay on average? Well, certainly it exploded in 2021, in my portfolio at least, if perhaps not as dramatically as in the public markets. The startup I invested in that were acquired by PE in the 2020-2021 Boom were acquired for 8x in one case, 12x in another, and 15x in a third. The prices would be lower today for the latter two I suspect.

Todd Gardner took a look at a series of public “take private” deals from 8/21 to 8/23, spanning the Boom and the Reset. What did he find?

7.7x ARR was the Median acquisition price in a “take private deal”.

So the last time we checked in on Crowdstrike, they were growing a stunning 65% at $1.7B in ARR.  Growth has slowed somewhat as Crowdstrike approached $3 Billion ARR — but only somewhat. 

The company is still growing a jaw-dropping 37% at almost $3B ARR — and it’s generating incredible free cash flow.

Security remains hot.

And in fact, the stock is up 94.7% this year!  It’s market cap is almost $50 Billion.  Woah.

Moving from a traditional SaaS to a pure consumption model was a challenging but fun transition for MongoDB.

At a recent Workshop Wednesday, held every Wednesday at 10 a.m, Meghan Gill, SVP of Sales Ops and Sales Dev at MongoDB, shares different consumption-based compensation models that drive the right behaviors.

Before getting into all the ways to incentivize, you need to think about being able to measure sales impact. This is something MongoDB puts a lot of work into internally and built into the product. They wanted to differentiate organic consumption from growth being driven by sales.

Customers may be growing because their application is growing, but they don’t want to focus a rep on maintaining existing customers. Instead, the goal is to go out and find new workloads.

Sometimes, yes.  But just as often, the ones that complain are the ones that care.  And oftentimes, their complaints help focus you on the gaps you really do need to fix.

One thing most SaaS companies get wrong in customer success is they don’t spend enough time surfacing customers that are truly at risk, but aren’t complaining.

The thing is:

• Somewhat and even very satisfied customers that still want more from you and your product often complain the most.

and

• Unhappy customers that are planning to leave often don’t complain at all.  They just find another solution and leave.  And …
• Once usage drops, it’s too late.  You’ve already lost them.  They’ve already gone somewhere else.  So pure usage meters don’t really work.

So … #1  We all spend too much time on complaining customers and #2  We spend too much time looking at usage and even engagement metrics.  They matter.  But once they drop — it’s often too late.

How do you scale a product organization quickly?

VP of Product at Drata Brian Elmi and Director of Product Management Dana Mauger share five not-so-secret secrets of product velocity at SaaStr Annual this year. Spoiler alert: These are probably things you already know, but they’re much harder to do in action than in theory.

Let’s see how Drata does it — a relatively young company of only 2.5 years, has seen massive growth and over 14 different frameworks, trust center capabilities, Enterprise risk management capabilities, audit capabilities, work center capabilities, over 100 plus integrations, and 350 different features.

As you grow from nothing to $100M and beyond, you will run into a unique set of challenges at every stage. 

Spenser Skates, CEO and co-founder at Amplitude took the stage at SaaStr Annual 2023 to share four key lessons he learned building a great organization and a long-lasting sustainable business. 

Amplitude is a digital analytics platform that started out of another failed startup with three co-founders. They have customers like Intuit, DoorDash, Atlassian, Walmart, Disney, NBC, and more. In 2021, Amplitude was listed on the NASDAQ, but that was just the beginning. Going public isn’t the end goal, and founders must see beyond that to build a generational tech company. 

The four critical learnings of going from nothing to $100M+ in revenue are: 

• Maintain a culture of product innovation
• Treat new products like a mini startup
• Understand the three stages of executive hires
• Make the early-stage to large organization mental switch

• SaaStr 701: The 5 Ways AI Will Transform Creativity with Adobe CSO & EVP Scott Belsky

• SaaStr 700: My Top 10 Failures as a SaaS CEO & What I've Learned with Nick Mehta, CEO at Gainsight

• SaaStr 699: CRO Confidential: The Proven Customer Acquisition Strategies Behind Toast's Record-Breaking Growth with Toast's CRO, Jonathan Vassil and Founders Fund Partner Sam Blond   

Listen on Apple Podcast, Google Podcasts or Spotify

The reality is startups that can iterate the fastest -- win 

Slow startups just get dusted by the competition

But working until 3am in the office generally isn't the answer

It's upgrading the team

Lots of companies at $10m ARR never hit $100m ARR

But I don't personally know any with 80%+ growth and 100%+ NRR at $10m that didn't get there eventually

If that's you at $10m ARR .. Go Long

So bridge rounds aren’t fun, especially when a startup is struggling

Yet, looking back, 2 of my $1B+ exits needed them. 

So you gotta do ‘em.

Some of ‘em.

My learnings:

- If the founders are still 100.00% committed; and

- The bridge gets you somewhere real

Then find a way

© SaaStr 2023

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