So as growth decelerated rapidly for many in SaaS in 2022-2023, one of the first things cut was marketing.

It’s not always ideal, but I get it. It’s a variable cost. Cut marketing, you’re often cutting future growth. But it’s a “simple” place to cut to at least stabilize the ship and survive to fight another day. And it doesn’t require layoffs.

So be it.

If you cut your marketing budget too far, and now pipeline looks, well … light … that’s on you.

What did you expect?

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.

So just a little while back, Lenny Rachitsky had me on his hyper-popular podcast to talk about scaling sales, from the perspective of a founder who hasn’t really done sales.

It ended up being super popular, and a fresh take on a lot of topic we talk about a lot on SaaStr.  I still regularly get emails about it, and the full deep dive is above. It’s great.

What I missed was Lenny’s own summary of his Top Takeways from our deep dive.  They really are a great checklist when you are starting to scale sales in SaaS:

#1. Hire your first salesperson when you have closed the first 10 customers and are spending more than 20% of your time on sales. Don’t be swayed solely by impressive resumes or acronyms; instead, seek out those individuals who you would personally buy your product from.

This edition of the SaaStr Weekly 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.

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.

I’ve had a few founders over the years think I was upset or frustrated with them. That’s on me — I can be direct at times. Maybe, often.

But no great investor wants anything other than for their founders to succeed. Wildly. Every founder I’ve invested in, I want it far more for them than for me. I want them to not just win, but be truly great.

No, where I might seemed “upset”, it was more worried for them.

Worried about mistakes that can be averted now. Mistakes that are both clear and hard to see. Mistakes that are truly actionable, and important.

Mistakes that are hard to see for founders, but easier to see for investors, top mentors and advisors.

If you work on anything related to Artificial Intelligence, you know we’re in the age of language models. But when it comes to Enterprises specifically, language models can change the way we work, and they have very big issues.

At SaaStr AI Day, Contextual AI’s CEO, Douwe Kiela, deep dives into what it takes to build AI products for the Enterprise.

You might be familiar with some of the common language model issues. 

• Hallucination with very high confidence — making up stuff that isn’t true but seems true. 
• Attribution — knowing why these language models are saying what they’re saying. 
• Data privacy — we send valuable data to someone else’s data center. 
• Staleness and compliance — language models must be up-to-date, compliant with regulations, and able to be revised on the fly without having to retrain the entire thing every time.

• SaaStr 735: How to Navigate the Shift to Generative AI with PagerDuty’s CEO Jennifer Tejada

• SaaStr 734: The Latest in Series A Rounds, AI Growth Rates and More with SaaStr CEO and Founder Jason Lemkin

• SaaStr 733: Advice Every SaaS Founder Needs to Know in 2024 with Sam Blond and Jason Lemkin

Listen on Apple Podcast, Spotify or Google Podcasts

There's just about nothing I respect more

Than a post-revenue founder that just never quits

The best SaaS companies just move faster

It gets done this quarter

The feature gets rolled out now, not late in the year

The hires get made this quarter. All of them.

This compounds at an epic rate

Most VCs: Times are tough, IPOs are broken, liquidity is rare

Blackbird: oh yeah btw we sold $800,000,000

of shares for cash the other day

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