Why No VC Wants to Fund a Startup With So-So Growth

Ok some of this post I’d hope would be blindingly obvious.  But it isn’t, so I’m going to try to help by being brutally direct:

No VC on Planet Earth Wants to Invest in a Startup with Mediocre Growth.

None.  No one.  Zero.  I can’t tell you how many emails a week a month that go something like this:

• “It’s been a challenging year with 30%-50% growth, but with some funding, we can grow much faster next year!” or
• “Our customers love us.  While growth has slowed the past few months, with just a bit more capital …” or
• “We’d be growing faster, but we don’t have the capital” or …
• Well you get the point.

I get it, I hear you. and trust me, I’ve been there.  I’ve had a Year of Hell.  So have most of us.

But listen, to save you energy and some breath: literally no VC wants to fund anyone with mediocre growth.

What’s that?

• From say $100k-$1m ARR, growth less than 200%
• From say $1m-$5m ARR, growth less than 125%
• From say $5m-$15m ARR, growth less than 100%
• From $20m-$40m ARR, growth less than 60%-80%
• From $50m ARR, growth less than 60%
• From $100m ARR, growth less than 40%-50%

Jeff Lawson, founding CEO of Twilio, has been part of SaaStr and SaaStr Annual almost since the beginning.

As he retires after an epic run scaling Twilio to $4 Billion+ in ARR (!), we wanted to update a Quick Look Back.

He was scheduled to speak at the second SaaStr Annual in 2016, but Twilio’s IPO forced a change in plans!  We were so excited to have him in 2017 and beyond.

A look back at some of his contributions to SaaStr:

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I think it’s pretty neutral / not much change from 2023.  So far.

IPOs: VCs are predicting more IPOs in 2024 than 2023, for sure. 2023 was the lowest number of SaaS and tech IPOs on recent record. But … multiples are still at multi-year lows. So the prices won’t be great, and while some will just say “it’s time to IPO already”, there may not be a big rush. And it may be tough for all best the best to IPO.

M&A: VCs are worried about anti-trust and the Figma/Adobe deal being blocked in the U.K. especially. But, the bigger issue again is multiples. There is plenty of appetite for M&A today. The issue is prices in general remain low as public multiples remain stuck at 6x ARR average.

No, but there are … laments.

The thing is, successful entrepreneurs generally speaking, can only do that — be successful entrepreneurs.

Why? Why can’t they go work for someone else, collect a huge paycheck, whatever — afterwards? I think the reason is that being a successful entrepreneur actually re-wires your brain. Literally.

I believe the stress of owning all the issues, all the challenges, of almost failing a dozen times over a dozen years, does change you. In many ways for the better, but changes your brain.

I was/am an accidental entrepreneur. I never thought I was good enough to be a founder. No YC told me I could do it, nor did any mentors.

However, when I joined a venture-backed start-up that had raised $50m+ but had $0 in revenue and was close to going under … I felt I had no choice. I had to help somehow. We couldn’t fail. So I licensed some of its technology, grabbed the best co-founder on the planet in that space (who also had no dreams of being a founder), started our own company around that technology … and became a founder for the first time.

As we gear up for 2024 SaaStr Europa in June in London and 2024 SaaStr Annual in September in SF Bay Area, we’re taking a look back at some of the top sessions from years past.

Tomasz Tunguz, now Managing Director of Theory Ventures (and then MD with Redpoint Ventures) took us through a quantitive analysis of 600 Freemium and Free Trial companies to really look at the data. How long should free trials be?  Should the sales team follow up?  And should you take a credit card up front?  Tomasz digs into the real data.

Ok, hopefully you’ve built a careful, thoughtful financial plan for the year.

You have your base plan, your stretch plan, a thoughtful approach to spending and burn rates, and more.

And yet … I know many of you haven’t started, or have only done a cursory job of financial planning.  That’s a mistake for several reasons.  First, without a strong, data-driven model, your goals for next year will be much harder to hit.  Second, even small amounts of mis-spend and over-spend can compound over the course of the year to a much higher burn rate. And third, and most importantly, you need to know how far to stretch.  Without a strong plan, doing even better is just … a hope.  You won’t know where to spend, how many to hire, and what the plan for each month should be.  Your team won’t know, either.

And in fact, you need three plans to run your SaaS business for next year.  Especially these days, when venture capital is so much tighter.

“My App Stack” is a new series where we dig in with top CMOs, CROs, CTOs and CEOs on just what apps they’re really using to run their business.  I always learn a lot from these — they are in essence a best practices list from each leader.  Last week we had a great one with Neeracha Taychakhoonavudh, Global Head of Customer Experience at Asana, check it out here.

This week we have Tifenn Dano Kwan, CMO at Amplitude!

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