VC Deals in 2024 Are The Most Expensive Ever

So there’s something strange happening in venture capital today.  It’s roaring back.

But this time, it’s very specific. VCs are mainly investing in:

• AI deals
• SaaS deals that are true outliers.  Triple Triple Double Double or Better.
• Seed deals everywhere with strong teams or interesting products

Yes, everything else is kind of a venture wasteland. And many have seen growth radically slow since 2021 — but not all.  Not the outliers.

And the outliers? The thing is, they are being funded at very similar revenue multiples as 2021. Even higher in AI.

Why is this a problem? The problem is just that actually, in many cases, these rounds were cheaper in 2021. Because public multiples were just so much higher.

The top one for me is when they don’t embrace the goals given to them. I see this again and again:

• A VP of Sales that just sort of ignores the plan for the next quarter or two.
• A CMO that focuses on the types of marketing she or he likes to do, ignoring what’s worked in the past, and ignoring a commit to sales
• A VP of Product that builds what they think should be built, based on lots of internal discussions, but without talking to enough customers
• A VP of Customer Success that doesn’t want to be responsible for driving up NRR, CSAT, etc.

A tough part of being a VP is you have to try to hit the goals you are given. But it’s the job.

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

Stripe Sessions brings together business leaders and builders to discuss the most important internet economy trends. In 2024, we’re focusing on what’s possible—and what’s inevitable—as technological advancements change the world and the global economy with it.

So I’ve been doing SaaS long enough to remember when Dropbox was a super hot SaaS startup.

Fast forward to today, it’s settled into a very mature leader, with slow growth but impressive efficiency … at a stunning $2.4 Billion in ARR.

Operating Margins are a wildly impressive 33%, but revenue growth has slowed to a very mature 6%, and paid customer count actually dropped last quarter.  Added together, it does equal “The Rule of 40”.  But Wall Street doesn’t just want profitability.  It wants efficient growth.  And as a result, DropBox’s market cap is $7.8 Billion today.

It trades at just 3x ARR.  And that includes $1.4B in cash.  Net of cash, it trades at just over 2x ARR.

Profitability matters, but it isn’t everything.

At SaaStr’s AI Day, George Kreitler, Global IBM Embeddable AI Sales Leader, talks about the paradox of AI, three equations that relate to the world productivity and AI, a little math to help guide the next decade, top use cases, and the importance of responsible AI. 

Most startups just wait way too long to get finance right:

• They wait too long to get collections right, and have to write off a lot of bookings.
• They wait too long to get ARR measured right, and have to restate revenue.
• They wait too long to measure churn properly, and measure it wrong.
• Etc. etc.

So what are some rough rules?  

This is probably close enough:

• At $2m ARR, you start to get too many things wrong for it to be 100% outsourced. Most outsourced finance resources aren’t great at collections, and aren’t perfect at SaaS revenue recognition.  Hiring a real controller / seasoned “finance person” here at least a part-time one will often pay for itself, especially on collections.
• At $20m in VC money raised — irrespective of ARR — the excuses sort of end for the metrics being wrong. You need someone experienced to own this all full-time. Ideally earlier, but at least by then. If the VCs have invested this much, the metrics and numbers need to be at least 98% correct.  Not just what some outsourced resource that doesn’t really know your business says they are.
• At $20m in ARR, it’s not too early for a CFO or more practically at least a real VP of Finance. That when you start to put all the systems and processes in place you need to scale to $40m, $80m, and more ARR. Yes, maybe a CFO you hire at this stage won’t be the CFO that takes you public. But that’s OK. A VP of Finance might be better, someone with deep experience but perhaps that full CFO package.  That’s OK. The IPO here is still a ways off.

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

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