Inc - Forgot the SaaS Gloom and Doom

The message in 2022 was to keep going. You couldn’t raise at 27x ARR anymore because that era ended. Last year, the message was that it’s harder, so what is the theme for many SaaS companies this year?

Just build.

SaaStr founder and CEO Jason Lemkin shares his take on the current SaaS landscape midway through 2024 and what might be coming next in 2025 at the opener to this year’s SaaStr Europa.

There’s a lot of doom and gloom on social media, so it’s important to look at the facts as much as possible. Many people are doing great, even private companies like Netskope, which are growing over 30% at $500M in revenue. Canva is growing at 40% and has a revenue of $2.3B. So, yes, things are hard for some people, but companies are all over the place, and all you can do is keep building.

You can’t control public multiples, but you can control your competitiveness. You can control becoming more customer-centric, and you can keep building. Things ebb and flow, and if you keep your head in the game and increase your competitive position, things will come back.

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

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So I’ve seen a trend among many startups these days which is to sort of have a VP or Director of Business Ops instead of a VP / Director of Finance. They handle the cash too, but also go deep on the business in a way a “finance person” usually simply can’t.

These folks often come from strategy consulting or banking backgrounds. And they are often great hires, often very smart.

But here’s the thing: ops folks (vs. true finance folks) build GIGO financial plans. Garbage In, Garbage Out.

What do I mean?  The smart folks at Bain, at McKinsey, at Morgan Stanley, etc. will build a financial plan to tell you what you want to hear. E.g.:

• If our CAC just goes down, we can stretch the cash 2 years.
• If our sales efficiency just goes up, our cash lasts 30 months.
• And most dangerously, if growth accelerates just a bit, then … well … we hit the plan!

This type of modeling is what you do when you are selling.  You sell various scenarios, and the ex-consultants and ex-bankers and ex-VC analysts are great at it.  They tweak things, the inputs and variables, to achieve the desired outcome.

True finance folks (e.g., Controllers, CFOs, VP of Finance) usually don’t do this.  In fact, they usually don’t know how.  Instead, they tend to build financial and operating models that are very much driven in the present.  In today’s burn, and today’s revenue, and today’s issues.

Scaling a company from 0 to 100 employees is no small feat. Markus Lang, Partner at Speedinvest shares the top 10 golden rules for doing just that at this week’s Workshop Wednesday, held every Wednesday at 10 a.m. PST.

While these top ten tips may seem obvious, many founders overlook the importance of some of them as they scale their businesses. To start, let’s set some context for the startup lifecycle.

This edition of the SaaStr Daily is sponsored in part by QA Wolf

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There’s only so much that a small team can handle.

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So one Cloud and SaaS leader that has held up well in today’s environment is GitLab.

They’re at almost $700m in ARR, growing 33%, with 129% NRR, and 22% free-cash margin.

That’s the full package right there. Overall, everyone is still building a lot of software, some AI-native, some not, but almost all of it in theory benefitting GitLab.

And what’s it worth? Just under $7 Billion. Just about 10x ARR.  That’s criminally low if you ask me. It’s hard to do much better than GitLab.  But that’s 2024.

Having been there, a few reasons the trend has accelerated — to a point:

• More anchor “limited partners” willing to fund to partners that want to spin out. LPs are willing to double down on the top partners when they start their own firms.  Not all partners, but they will fund the top partners in each firm when they want to go out on their own.
• More generational change issues. Funds just plain got bigger over the past 10 years, and in many cases, the original GPs and Old Guard aren’t 100% ready to hand over economics and control. It’s complicated.
• Fund sizes shrinking = headcount reductions. Not everywhere, but in just enough places so you can see it and feel it.

Overall it’s nothing new but the massive growth of the industry, combined with the stresses of the past 24 months in the post-ZIP Hangover, along with LPs being willing to back the top spin-outs … equals more transition.

© SaaStr 2024

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