SaaStr founder and CEO Jason Lemkin chats with Box CEO and Co-Founder Aaron Levie to talk about what’s new at Box, SaaS fatigue, hiring a new COO, operating margins and efficiency, the future of AI, and what to expect for 2024.

Let’s jump into Aaron’s advice, hot takes, and of course, What’s New. 

On How to Go Long in SaaS:

There are a variety of factors involved in keeping the energy up to continue building a business in SaaS. Aaron has been at it with Box for almost 20 years. How does he do it? 

“I’ve never been able to come up with something more exciting than software,” he says.

He believes Enterprise software is the most exciting thing. The consumer side is ten times more stressful because you don’t have recurring revenue, and a single change in the platform can alter the entire dynamics of your business model.  You’re dealing with the whim and mercy of the fickle consumer market. But Box has lucked out with 95% recurring revenue. They get to talk to brand-new businesses in completely different industries all the time. 

Aaron’s advice is to have to have a deep passion for continuously trying to solve new problems for people. That’s the part that will change forever and make this industry interesting.

So there’s a quiet SaaS leader you probably haven’t heard of in the financial reporting space that’s doing just fine today. They manage financial reporting, audit, risk and more. Many of you will end up using it as you scale to later stages.  That’s Workiva.

They’ve crossed $600,000,000 in ARR, growing a steady 19%, and are worth a cool $5.5 Billion in today’s world.

That’s a pretty good multiple, so they’re doing something Wall Street likes. Let’s dig in and learn just what.

#1.  5,945 customers, up 7% From 12 Months Ago.

Workiva’s average deal size as you can see is about $100k, and their NRR is 112% with ad-ons.  112% + 8% logo growth = 119% total revenue growth.  That’s not epic customer growth but it gets harder as you approach $1B in ARR.

Currently trending on the SaaStr Podcast - CRO Confidential - a series that skyrocketed in popularity this year where CRO's give their behind-the-scenes takes on what's happening in SaaS.

Hosted by Founders Fund Partner, Sam Blond, Partner at Founders Fund and previous CRO at Brex. In the latest episode, Sam sits down with Jameson Yung, SVP of Sales at Gong to share five tactical ways to get back to growing and hitting revenue targets. 

In this episode, we do a deep-dive into:

• What you can do to start hitting revenue targets
•  How to Approach the Expectation of Tracking Effort
• Diagnosing the Bottleneck to Growing Faster. Fix It. 
• How to be Creative and Stand Out with your pitch 
• Aligning Incentives with Desired Outcomes

Listen on Spotify, Apple, and watch here.

So Sam Jacobs and the team at Pavilion had me join their podcast and it ended up being a pretty fun deep dive into where markets are today, the role of customer success in a tougher market, and much more.

Let’s dive into this episode’s key topics…

The AI Bubble

• In 2020 and 2021, we saw tech companies raising a lot of capital, and beginning in 2022, we saw a decline in performance leading everyone to believe that these organizations have been overvalued.
• There’s concern that valuation trends seemed to mimic previous market bubbles. Despite what we’ve seen post-2020/2021, there has been a surge in AI investments, with AI companies at the infrastructure layer hitting a hundred times valuations at early funding stages.
• There are worries over the persistence of low public multiples. Companies and investors aren’t accustomed to valuations around six times profits. This is a level that hasn’t been commonly encountered since 2017-2018.
• The additional concern is that if this continues, it could place undue stress on the system, hence affecting investment efficiency and productivity in the long run.

One simple thing: complexity.

99% of terms and term sheet should be simple and straightforward:

• price
• the amount invested (and % ownership for investors / cap table)
• pool for stock options and employees
• board construction and seats that are proportionate, roughly, to ownership
• standard venture terms — pro rata, IPO registration rights, etc.
• timing (if/when term sheet expires)
• That should be all there is, 90% of the time. That’s enough. Professional, experienced start-up investors shouldn’t care about too much more than this.

Of course, get a start-up lawyer that has done this 100 times. They know.

But mainly, be on the lookout for anything … too complicated. Because the above 5–6 points should be all that matter. And they are pretty straightforward.

Folks that make problems for you are often the ones that make the most complicated term sheets. With endless tranches, complex terms, complex hurdles, lengthy timelines, excessive due diligence, etc.

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