There Are Only 58 Acquisitions of $50m+ a Year

So long time friend of SaaStr Tomasz Tunguz, now heading his own VC fund Theory Ventures, has again summarized a lot of data into a few great charts.

This time, on Mergers & Acquisitions.

My biggest take-away: there are barely more than 50 acquisitions of $50,000,000 or more, at least disclosed one, in software of U.S.-based startups each year. And that’s fairly constant for the past decade, outside of the 2021 bubble.

Don’t bother too much with trying to get “corporate development” or the M&A team’s attention.  That’s not their job.

Probably the most important thing to understand is that in 95%+ of tech companies, the “M&A team” does not drive M&A.

Instead, they implement it.

M&A is usually driven by either the CEO, for game-changing acquisitions, or a functional SVP, to accelerate something in her functional area.

So if you want to get bought, don’t waste too much time with corporate development. Take the meetings, be polite, but don’t expect much.

In fact, basically every acquisition requires the M&A/corp dev team to have a “business sponsor” who is driving the deal. Even almost every corporate investment. 

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At the end of the day if your product is SUPER sticky and doesn’t need a big procurement battle to renew, then just have finance or ops handle it.   Basically, automate it as much as possible. Don’t make the renewal an unnecessary source of friction.

I asked Nick Mehta, CEO of Gainsight, the same thing the other day and he agreed:

• If your renewal rate is high, and
• the product isn’t so expensive procurement reviews it for cuts every year — then
• Maybe just have the finance department send the renewal notice,

That’s what I did all the way to $20m+ ARR and beyond.  CS would still get involved on a few occasions, but in general we focused on upgrades happening outside of renewal times.

If you have high churn, then it’s more complicated. Finance / ops isn’t the right choice. A renewal now is real work. Who is it better to give to:

• sales, who may never have talked to them in a year
• a renewals team who may never have talked to them ever at all, or
• customer success who ideally has talked to them a few times, and even more ideally, has added some value?

There is no perfect answer. But .. but ..  if you put sales on it, they will sell less net new and spend more time on renewals. that’s natural. in the end, usually not best use of time.

That’s why I usually think having sales handle renewals is a bad idea.  It’s better for sales to just go sell new accounts.  Otherwise, you sell less.

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It is really, really tough.

While I am sure there are examples of “1099 reps” that have done extremely well, I haven’t seen it work in SaaS.

Pay the reps at least a small base salary, with a large commission. It’s what folks are used to. Otherwise, they sort of drift off when they don’t get a big commission check the first week or two …

The reality is, almost anyone working “commission only” basically tries a few times, and if it’s too hard, gives up and moves on.  They just don’t see the money coming after that.

If you’ve ever worked with a contingent recruiter, you’ll see this. They’ll get you 8-10 candidates fairly quickly. But if you don’t want to hire any of them, they drift away.

So this is a seemingly simple post, and one with a title that is purposefully a bit binary. Yes, sometimes it’s OK to hire a VP of Sales that everyone loves.  But not usually.

At least 9 times out of 10, if everyone on the team loves a VP of Sales, it’s the wrong hire.

And this especially matters because I often see CEOs picking between 2 final VP of Sales candidates. The one that’s more edgy, that’s more opinionated, and/or the one that folks are less unanimous about … loses out. And almost always, that was a mistake. Let’s explore why:

• Your entire existing sales team should NOT love a great VP of Sales candidate. Why?  First, the lower performers will be threatened by someone great. They know they’ll likely be moved out.  And also, top performers may be threatened as well.  Why?  Because things will likely at least change.  And top performers are usually comfortable with the way things are, at least for them.  The best VPs of Sales immediately identify the top performers and make them want to stay when they join.  But this doesn’t eliminate all anxiety or change.  I almost always see the top performing IC sales execs at a startup preferring a “nice” VP of Sales that often doesn’t know the product, pace or industry — but will support them and leave them be.  Logical, but usually the wrong choice for the company.  Still, if they are 100% opposed to a candidate, that is a sign to generally not make the hire.

Ok we’ve never done a SaaStr Fund news update but thought it might be time to try one!

SaaStr Fund manages almost $200,000,000 to invest in Seed and Late Seed B2B startups, from $10k-$200k in MRR. Current and past investments include Talkdesk, Algolia, Salesloft (acquired $2.5B), Pipedrive (acquired $1.5B), Greenhouse, Gorgias, RevenueCat, Owner, and other leaders.

So what’s new?

First off, a micro-trend: small up-rounds from existing investors. These are happening across the portfolio.

RevenueCat is the latest. RevenueCat powers mobile subscriptions in over 30% of all mobile apps (!) and already had 5+ years of cash, or more. But the insiders wanted to invest more, so they took in a modest amount of extra capital ($12m) at a slightly higher price. It’s a token amount of dilution, but can make for an odd headline. Why would a market leader at $20m+ ARR and accelerating raise “just” $12m? Because they can. They don’t need more, and it added some flexibilty to the cap table. More leaders will do these “low dilution” bonus rounds, as insiders want to buy more and more of their winners. Since finding them these days often feels a lot harder than doubling down on the ones you already have. There are so many benefits in 2024 of growing in a capital-efficient fashion. You pick your path.

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