Inc - The SaaS Decacorn is Back

So, so much has changed since the peak crazy days of 2021.  For some, actually, like Palantir, Cloudflare and more — these are actually still the best of times.  Other are deeply struggling.

One thing though that everyone learned was wrong from the Go Go Days is that there’s no such thing as Free Capital.

What seems free, when times are good?

• Raising a high-priced round, just to raise it
• Raising a lot of extra money on SAFEs
• Raising too much “non-dilutive” capital

Used right, these tools all can work well.  We’ll get to that next.  But what are the cons?

I think the #1 thing to think about is context.

Software all sort of all, rough-and-tough, costs the same to build and ship.  Why is Calendly $10 a month, when Salesforce is $200 a month per user?  Why can Workday charge $20,000,000 a year for something that might be the same amount of work to build, ship, and serve as something that costs $20,000 a year?

It’s not just value. 

It’s not just how big a problem you are solving — although that’s a very large part of it. It’s not just competition and costs.

It’s the context. If your product is like Salesforce, but 5x more important, and that is clear to customers — then yes, you probably can charge 5x as much as Salesforce, or at least as much . Once you figure out how to really sell.

And context is also budgets.  There are often rough fixed budgets for certain product categories.  You can get more than this if you truly redefine a category.  But otherwise — it’s tough.

Most first-time SaaS CEOs price too low and don’t drive ACVs up quickly enough because they don’t quite yet understand the context of the product. 

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

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So Okta is one of our favorite SaaS and Cloud leaders.

The story is super inspiring.

Founder CEO Todd McKinnon was VP of Engineering at Salesforce and left to start Okta in the depths of the last downturn. Salesforce and Marc Benioff at first said the core market, security identity, was too small of a market.  Then, they brought out a competing product :). That mostly failed.

Today, Okta is at ~$2,500,000,000 in ARR! 

What’s the difference between a VP of Marketing and a VP of Demand Gen?

Perhaps nothing. Perhaps. A lot of demand gen leaders want to be a “VP of Marketing” next, and that can be a great hire, and a great title to give them.

But in most cases, likely everything. Most VPs of Marketing cannot do demand gen. Most. They simply cannot.

A classic VP of Marketing will do 4-5 things (although of course, no one is great at all 5):

• Brand and Corporate Marketing. You need very little of this in the early days, but it’s much more important when you cross $50m ARR or so. Gets the color of the logo right. Does stuff for the brand. Manages press. Manages inbound (vs outbound) PR. Works with the analysts in the space (which is important, but gets more important over time). Big companies have a lot of these folks. So if you hire a VPM from a big company, this is the primary skill set you often get. Do you even need that today? A little yes. But not 40+ hours a week.
• Product Marketing. This is confusing. Ultimately, product marketing and demand gen have >>nothing<< to do with each other, but in big companies, product marketing is closely tied to brand and market positioning, so is part of “marketing”. It’s not always even clear this should be part of “marketing” in a start-up. A Director of Product Marketing often reports to your VP of Product and isn’t even directly part of the marketing team in many organizations.
• Field Marketing. Events, steak dinners, supporting a field sales team. This is a specialized and important skill set. But if you don’t do bigger deals, you won’t actually need a ton of this in the early days. Good field marketers do demand gen, in the sense that their events are responsible for a pipeline commitment out of the events.  But they don’t know how to get you a ton of higher velocity, inbound leads.
• Demand Generation. This is something that many marketers have never done, believe it or not. This means two things. It means getting you leads. And it means managing the leads you do get through the funnel. But most importantly, what it really means is holding a true lead commit. 95%+ of “VPs of Marketing” have never held a lead commit.
• Growth Marketing. A cousin of Demand Generation, but often with little experience supporting a sales team, and much more experience support a self-serve or product-led motion.  This can be good too, but bear in mind they often aren’t interested in supporting sales.  And they’re often particularly good at digital marketing and other similar motions. Make sure that the most fruitful channel for you before you hire a Head of Growth instead of a Head of Demand Gen.

So the first ever SaaStr APAC in 2023 was a huge hit!  We had over 1,200 founders, execs and VCs get together in Singapore. From Figma to Peak XV, from Xero to Bessemer Venture Partners, from Databricks to Slack.

So much is going on in 2024, we needed a bit of time to plan APAC v2, but we will be back in February 2025 for the second SaaStr APAC! 

Catch up on a ton of the sessions here.

In my first start-up, I was mostly hunting whales — seven figure and eight figure deals.

I had no experience doing any of this.

For our First Big Customer, we’d been negotiating a $6m/year contract for quite some time (they always take time). We finally had the “all hands” meeting with all the C-level and VP execs involved. And they told us the deal was completely approved, AND they’d back us in the market, AND they’d even give us $1m in additional financing to help us. At 0% interest! And that we didn’t even really need to pay back for a long time!

We’d be on the map, and in business. But. There was a but.

The effective price would have to be 60% of what we’d been discussing for the past 8 months.  And all future upside was capped.  Still a great deal for sure.  But not enough.  Not enough.

I couldn’t get the model to work in my head. Yes, it was a huge contract, and we’d make payroll, and we’d have a business — but at that pricing, we’d never ultimately have a sustainable company.

I >> politely << walked. I told them I was 1000% committed to their success, and the relationships. That I would do whatever it took to make them win in the market. But at that price point, I couldn’t stay in business. I needed them, but still, I had to politely decline.

Absolutely.  A lot.

There is no question “too high” of a valuation can discourage an acquisition.

Acquirers will generally assume they have to pay more than the last round price to buy you, and often 2x-3x more:

• Visa almost buying Plaid at $5b was 2x the last round price.
• Adobe almost buying Figma at $20b was 2x the last round price.
• Credit Karma at $7b was ~2x the last round price.

and some 1x-ish deals:

• Salesforce bought Vlocity for $1.2b, a smidge more than the last round price of $1b.
• Loom was bought by Atlassian for $975m, just under the last round price of $1.2b.

So yes, your valuation really becomes your floor price in many ways for an acquisition — in both bad ways (it’s hard to get acquired for less than last round price) and good ways (a floor for negotiation, like Figma, Plaid, etc.).

Are there ways to make an acquisition work at a materially lower price than the last round? Yes, and the legal docs and preferences account for this.  But it’s tough. And painful.

So whatever you do, don’t raise a round at a higher price than you are willing to sell for!

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

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