The Investments Where I’m Going to Lose All My Money

So when I started writing venture checks in 2013, I didn’t know what I was doing, but I had a strong start:

• First was Pipedrive co-leading seed, then acquired for $1.5B cash
• Second was Algolia leading U.S. seed, now at $200m+ ARR and an IPO candidate
• Third was Greenouse/Parklet, acquired for $800m and now at $200m ARR
• Fourth was Salesloft, acquired for $2.5 Billion cash
• Fifth was Logikcull, acquired for $300m cash

So it was a good start. Since then, I’ve made some pretty good other investments as well. But also, I made some that … weren’t.

For a while, the 2021 Go Go Days masked everything.  Almost everything looked great and had an up-round.  But 2024 unmasked a lot of things.

And now, I’m going to lose money on deals. It’s OK at some level. It’s part of the model. But now I can see clearly why in some deals, I’m going to lose all my money.

The top reasons an investment has turned out to be a Zero.

At last week’s Workshop Wednesday, we brought back one of our most highly requested sessions: an AMA (Ask Me Anything) with SaaStr founder and CEO Jason Lemkin. In it, we cover the SaaS community’s most pressing questions about Artificial Intelligence (AI), pricing, efficiency, and funding. 

The biggest thing on many of our minds is what the future of AI will be in B2B. Some founders fight against AI, and those companies are losing deals to competitors who may have issues but are still AI first. 

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

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So we’ve probably covered HubSpot more than any other SaaS and Cloud leader on this 5 Interesting Learnings series, but there’s a good reason for it:  First, HubSpot is a lot like most of us. It sells sales, marketing, support and more tools.  And second, so many of us use HubSpot.  The majority of the SaaStr community uses HubSpot! So it’s very … tangible.

And despite the overall macro headwinds, which HubSpot has not been immune from, it’s still gone on a tear. It has a $32 Billion (!) market cap, growth is still strong at 24%, and it’s now becoming very, very profitable.

It’s not magic. And it’s not a mystery.  Even though it can seem like it, until you’ve done it yourself.

There are basically two paths, and one predicate step.

The predicate step is your product has to do >one< reasonably important thing that is 10x better than the “enterprise”-proven solutions already out there.

So much better, just this one thing, that it’s worth it for a BigCo to take a risk on using you, not Salesforce-Oracle-Microsoft-Box-SAP-whatever.

If it’s not 10x better, no one is going to take the risk.

This doesn’t mean everything in your product is 10x better than the competition (of course). Just one important piece of it.

Related to this, the risk needs to be measured.

No one is going to rip out Workday or SAP to try your product. The risk needs to be able to be contained. To one small group. One addition to a business product. Somehow — contained.

OK, so you have a feature-poor, insecure, buggy product but it does one interesting, important thing 10x better than all the legacy providers (which could also be paper or Excel) and can be tried without putting a job at risk.

So how do you get those customers?

I had very different experiences in each of my startups.

In my first start-up, we were whale hunting — big, large, Fortune 500 customers. So Customer #1 showed us the path to our future.

My first customer signed a $10k contract (a small pilot) but our second, their competitor, then signed a $6m (multi-year) contract. When you are hunting Very Big Deals from a small number of huge customers, and you close even one — you can see the future. It’s exciting.

The second time, we started SMB. We were hunting thousands of customers. It led to disarray, as we couldn’t agree on our ICP.

As a founding team, we didn’t know what to make of our first SMB customers, as they were very small — from $12 to $99 a month. What use cases did they really represent? How large were their markets? We had disagreements over what verticals they really were in, and how well suited we were to those verticals.

We also didn’t spend nearly as much time with the high volume of SMBs in my second start-up as we did (in person) with the small number of big Fortune 500 customers and prospects in the first one. Because we didn’t spend any time in person or enough time on the phone, we didn’t learn as much about them.

My learning: with very small businesses, you may need 20, possibly even 50, paying customers to have enough data to draw true opinions on what the future holds. There is so much diversity in the types of businesses SMBs run, how they run them, etc.

But with big enterprise customers, even 1 can show you the future. If you just listen. One Fortune 500 customer in a given industry/vertical is a lot like the others, typically.

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

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