{"id":300861,"date":"2024-07-17T06:04:04","date_gmt":"2024-07-17T13:04:04","guid":{"rendered":"https:\/\/www.saastr.com\/?p=300861"},"modified":"2024-12-13T09:48:33","modified_gmt":"2024-12-13T17:48:33","slug":"what-it-takes-to-get-funded-in-2024-with-saastr-ceo-and-founder-jason-lemkin","status":"publish","type":"post","link":"https:\/\/www.saastr.com\/what-it-takes-to-get-funded-in-2024-with-saastr-ceo-and-founder-jason-lemkin\/","title":{"rendered":"What it Takes to Get Venture Funded Today with SaaStr CEO and Founder Jason Lemkin"},"content":{"rendered":"<p>What does it take to get funded in 2024? Jason Lemkin shares the answer during Workshop Wednesday, held every Wednesday at 10 a.m. PST. Some of this stuff you\u2019ll know, and some of it you won\u2019t. What\u2019s driving VCs today? Let\u2019s find out.<\/p>\n<p><img data-recalc-dims=\"1\" decoding=\"async\" class=\"alignnone size-medium wp-image-300884 lazyload\" data-src=\"https:\/\/i0.wp.com\/www.saastr.com\/wp-content\/uploads\/2024\/07\/IMG_6246.jpeg?resize=600%2C327&#038;quality=70&#038;ssl=1\" alt=\"\" width=\"600\" height=\"327\" src=\"data:image\/gif;base64,R0lGODlhAQABAAAAACH5BAEKAAEALAAAAAABAAEAAAICTAEAOw==\" style=\"--smush-placeholder-width: 600px; --smush-placeholder-aspect-ratio: 600\/327;\" \/><noscript><img data-recalc-dims=\"1\" decoding=\"async\" class=\"alignnone size-medium wp-image-300884\" src=\"https:\/\/i0.wp.com\/www.saastr.com\/wp-content\/uploads\/2024\/07\/IMG_6246.jpeg?resize=600%2C327&#038;quality=70&#038;ssl=1\" alt=\"\" width=\"600\" height=\"327\" \/><\/noscript><\/p>\n<p>Venture capital is the same as before but different. It\u2019s a weird world where seed valuations are at an all-time high. It\u2019s always been hard to raise venture capital, but if you\u2019re in the group of folks VCs do want to fund, it\u2019s like 2021 in some ways.<\/p>\n<p>You won\u2019t see a new unicorn a day, but insiders are writing their third or fourth check. These unicorns are often different from the 2021 unicorns. We all mocked those 100x revenue deals as the market crashed, especially when the average public company was trading at 5-6x. But those kinds of deals are back and only in the segment of AI.<\/p>\n<p>Why are they being funded? VCs aren\u2019t dummies. They\u2019re bet-makers.<\/p>\n<p><iframe title=\"VC Fundraising Workshop: What it Takes to Get Funded in 2024 with SaaStr CEO Founder Jason Lemkin\" width=\"1080\" height=\"608\" data-src=\"https:\/\/www.youtube.com\/embed\/daakrQavsU4?feature=oembed&#038;enablejsapi=1&#038;origin=https:\/\/www.saastr.com\"  allow=\"accelerometer; autoplay; clipboard-write; encrypted-media; gyroscope; picture-in-picture; web-share\" referrerpolicy=\"strict-origin-when-cross-origin\" allowfullscreen src=\"data:image\/gif;base64,R0lGODlhAQABAAAAACH5BAEKAAEALAAAAAABAAEAAAICTAEAOw==\" class=\"lazyload\" data-load-mode=\"1\"><\/iframe><\/p>\n<p>&nbsp;<\/p>\n<p><iframe title=\"Spotify Embed: SaaStr 750: What it Takes to Get Funded in 2024 with SaaStr CEO and Founder Jason Lemkin\" style=\"border-radius: 12px\" width=\"100%\" height=\"152\" frameborder=\"0\" allowfullscreen allow=\"autoplay; clipboard-write; encrypted-media; fullscreen; picture-in-picture\" data-src=\"https:\/\/open.spotify.com\/embed\/episode\/4Obf6Fqm87zIEwlpTIlKdw?si=FjX3nnkcTg-95xZ0pGCQYg&#038;utm_source=oembed\" src=\"data:image\/gif;base64,R0lGODlhAQABAAAAACH5BAEKAAEALAAAAAABAAEAAAICTAEAOw==\" class=\"lazyload\" data-load-mode=\"1\"><\/iframe><\/p>\n<h2>The Index of Top SaaS and Cloud Companies<\/h2>\n<p><img data-recalc-dims=\"1\" decoding=\"async\" class=\"alignnone size-medium wp-image-300883 lazyload\" data-src=\"https:\/\/i0.wp.com\/www.saastr.com\/wp-content\/uploads\/2024\/07\/IMG_6247.jpeg?resize=600%2C325&#038;quality=70&#038;ssl=1\" alt=\"\" width=\"600\" height=\"325\" src=\"data:image\/gif;base64,R0lGODlhAQABAAAAACH5BAEKAAEALAAAAAABAAEAAAICTAEAOw==\" style=\"--smush-placeholder-width: 600px; --smush-placeholder-aspect-ratio: 600\/325;\" \/><noscript><img data-recalc-dims=\"1\" decoding=\"async\" class=\"alignnone size-medium wp-image-300883\" src=\"https:\/\/i0.wp.com\/www.saastr.com\/wp-content\/uploads\/2024\/07\/IMG_6247.jpeg?resize=600%2C325&#038;quality=70&#038;ssl=1\" alt=\"\" width=\"600\" height=\"325\" \/><\/noscript><\/p>\n<p>The Bessemer Venture Partners Index of top SaaS and Cloud companies is shown in blue on this graph, which is a basket of the best. The red is NASDAQ&#8217;s top performers. From 2018 to the end of 2021, a weird thing happened. Cloud stocks were on a tear.<\/p>\n<p>Salesforce bought Slack for 27x revenue, which made sense because, overall, SaaS and Cloud companies traded at a premium. That meant that, as a group, they were all great investments.<\/p>\n<p>\u201cAnything with a pulse that could go public in SaaS was a great investment,\u201d Jason says. Even more than that, arbitrage was going on in the public market just by investing in the best SaaS companies.<\/p>\n<p>You could automatically make twice as much as NASDAQ. If you\u2019ve been in SaaS for a long time, it used to be hard and was out of fashion. Around 2018, everyone wanted to be a SaaS investor because there was arbitrage. That\u2019s the gap you see between blue and red.<\/p>\n<p>Then, the end of 2021 hit, and it started to normalize. And then it got inverted. Today, you\u2019re a sucker to invest in the average public SaaS company, even the good ones like Dropbox, Salesforce, and Veeva.<\/p>\n<p><img data-recalc-dims=\"1\" decoding=\"async\" class=\"alignnone size-medium wp-image-300882 lazyload\" data-src=\"https:\/\/i0.wp.com\/www.saastr.com\/wp-content\/uploads\/2024\/07\/IMG_6248.jpeg?resize=600%2C319&#038;quality=70&#038;ssl=1\" alt=\"\" width=\"600\" height=\"319\" src=\"data:image\/gif;base64,R0lGODlhAQABAAAAACH5BAEKAAEALAAAAAABAAEAAAICTAEAOw==\" style=\"--smush-placeholder-width: 600px; --smush-placeholder-aspect-ratio: 600\/319;\" \/><noscript><img data-recalc-dims=\"1\" decoding=\"async\" class=\"alignnone size-medium wp-image-300882\" src=\"https:\/\/i0.wp.com\/www.saastr.com\/wp-content\/uploads\/2024\/07\/IMG_6248.jpeg?resize=600%2C319&#038;quality=70&#038;ssl=1\" alt=\"\" width=\"600\" height=\"319\" \/><\/noscript><\/p>\n<p>As a group, it\u2019s a sucker bet and trading at half of NASDAQ. This puts a tremendous amount of stress on venture. If you\u2019re a Limited Partner giving money to VCs, what\u2019s a better idea: sticking it in NASDAQ where you can sell it tomorrow or give it to a bunch of VCs that take 14 years to give you your money back?<\/p>\n<p>If you put your money in NASDAQ over the last few years, it\u2019s gone up 24%. In Cloud and SaaS, it\u2019s down 44%. This means that no matter what\u2019s happening with any individual company, we\u2019re in the third year of a downturn in venture.<\/p>\n<h2>VCs are Investing, But There\u2019s Stress in the System<\/h2>\n<p><img data-recalc-dims=\"1\" decoding=\"async\" class=\"alignnone size-medium wp-image-300881 lazyload\" data-src=\"https:\/\/i0.wp.com\/www.saastr.com\/wp-content\/uploads\/2024\/07\/IMG_6249.jpeg?resize=600%2C328&#038;quality=70&#038;ssl=1\" alt=\"\" width=\"600\" height=\"328\" src=\"data:image\/gif;base64,R0lGODlhAQABAAAAACH5BAEKAAEALAAAAAABAAEAAAICTAEAOw==\" style=\"--smush-placeholder-width: 600px; --smush-placeholder-aspect-ratio: 600\/328;\" \/><noscript><img data-recalc-dims=\"1\" decoding=\"async\" class=\"alignnone size-medium wp-image-300881\" src=\"https:\/\/i0.wp.com\/www.saastr.com\/wp-content\/uploads\/2024\/07\/IMG_6249.jpeg?resize=600%2C328&#038;quality=70&#038;ssl=1\" alt=\"\" width=\"600\" height=\"328\" \/><\/noscript><\/p>\n<p>One year is no big deal in venture. Everything fell off a cliff in the public markets in \u201822. Hashicorp was the last IPO in the last era, and everyone stopped going public until Klaviyo. People thought it would be a short downturn, and SaaS companies were growing well.<\/p>\n<p>The chart on the left is IRR, the Internal Rate of Return in venture funds. In 2021, it was insane. The top U.S. funds had 80% returns. Who wouldn\u2019t put money into 80% returns? Money flooded into venture, but if you look at the past 18 months, IRRs are negative.<\/p>\n<p>This will bounce back. The average IRR is pretty decent and got bonkers in 2021, so it\u2019s natural for there to be a hangover in 2023. The question is: will it bounce back to 20% IRR levels?<\/p>\n<p>If LPs can\u2019t make 20% in venture, they should stick it in NASDAQ. You have to make 20% net of fees and expenses for venture to make sense for LPs, and it\u2019s not true today.<\/p>\n<p>Are folks still investing? Yes. Because it\u2019s year three of the downturn, some venture investing is ticking up because people ran out of ideas. Redpoint is one of the best out there, and their growth fund made one deal in 2021, 2-3 last year, and now 5-6 in the first half of 2024.<\/p>\n<p>Eventually, you have to invest or give the money back to LPs. Hopefully we\u2019ll come out of it by next year.<\/p>\n<h3>Pluralsight<\/h3>\n<p>Vista is one of the top mega funds that buy public and private startups at scale. They bought Pluralsight for a billion and a half of equity; the rest was debt. They gave up and are writing off the entire investment because they can\u2019t afford to service the debt.<\/p>\n<p>SaaS isn\u2019t supposed to be perfect, but it is supposed to be a kind of annuity for these bigger private equity and late-stage funds. Overall, NRR in SaaS remains above 100%. It didn\u2019t pan out for Pluralsight. Yesterday, they published that GRR fell into the 80s, so revenue retention and cash flow weren\u2019t there.<\/p>\n<p>\u201cI\u2019ve never seen a private equity firm walk away from a late-stage SaaS company,\u201d Jason said.<\/p>\n<h3>Squarespace<\/h3>\n<p>On the right, Squarespace went private. Zendesk went private last year for $10B. It sounds good, but you\u2019re only trading at 5x revenue. These companies are going private because it\u2019s hard to be public and keep it going, so you hide from the public markets to re-accelerate growth.<\/p>\n<p>If public markets were working as effectively, they wouldn\u2019t go private. It\u2019s not the end of the world but a sign of stress.<\/p>\n<h2>VCs are Mostly Still Hunting Decacorns<\/h2>\n<p><img data-recalc-dims=\"1\" decoding=\"async\" class=\"alignnone size-medium wp-image-300880 lazyload\" data-src=\"https:\/\/i0.wp.com\/www.saastr.com\/wp-content\/uploads\/2024\/07\/IMG_6250.jpeg?resize=600%2C328&#038;quality=70&#038;ssl=1\" alt=\"\" width=\"600\" height=\"328\" src=\"data:image\/gif;base64,R0lGODlhAQABAAAAACH5BAEKAAEALAAAAAABAAEAAAICTAEAOw==\" style=\"--smush-placeholder-width: 600px; --smush-placeholder-aspect-ratio: 600\/328;\" \/><noscript><img data-recalc-dims=\"1\" decoding=\"async\" class=\"alignnone size-medium wp-image-300880\" src=\"https:\/\/i0.wp.com\/www.saastr.com\/wp-content\/uploads\/2024\/07\/IMG_6250.jpeg?resize=600%2C328&#038;quality=70&#038;ssl=1\" alt=\"\" width=\"600\" height=\"328\" \/><\/noscript><\/p>\n<p>What\u2019s going on here? Cloud and SaaS stock is down 40-something percent. NASDAQ is the better deal, but venture hasn\u2019t changed. They\u2019re still hunting decacorns. Many founders ask if a $100M exit is ok today. Can you sell your company for $50M if everyone can make money?<\/p>\n<p>You can, but it doesn\u2019t change the math of turning a billion-dollar fund into $4B. You have to find decacorns.<\/p>\n<p>In 2021, it seemed easy in SaaS. Unicorns became decacorns. The chart in the middle shows great companies worth billions, and most were decacorns before.<\/p>\n<p><img data-recalc-dims=\"1\" decoding=\"async\" class=\"alignnone size-medium wp-image-300879 lazyload\" data-src=\"https:\/\/i0.wp.com\/www.saastr.com\/wp-content\/uploads\/2024\/07\/IMG_6251.jpeg?resize=600%2C330&#038;quality=70&#038;ssl=1\" alt=\"\" width=\"600\" height=\"330\" src=\"data:image\/gif;base64,R0lGODlhAQABAAAAACH5BAEKAAEALAAAAAABAAEAAAICTAEAOw==\" style=\"--smush-placeholder-width: 600px; --smush-placeholder-aspect-ratio: 600\/330;\" \/><noscript><img data-recalc-dims=\"1\" decoding=\"async\" class=\"alignnone size-medium wp-image-300879\" src=\"https:\/\/i0.wp.com\/www.saastr.com\/wp-content\/uploads\/2024\/07\/IMG_6251.jpeg?resize=600%2C330&#038;quality=70&#038;ssl=1\" alt=\"\" width=\"600\" height=\"330\" \/><\/noscript><\/p>\n<p>As wild as it is, none of these companies don\u2019t make sense for investors today. You can\u2019t do deals with great companies like Bill, Zoominfo, Braze, Box, or Asana because they aren\u2019t big enough.<\/p>\n<p>Where do you find the decacorns? It seems like the only way to do this is in AI. You have to find the OpenAIs. When you look at the amount of revenue OpenAI has in the amount of time it has, that\u2019s what you must chase as a VC.<\/p>\n<h2>The Best of the Best are Still There in SaaS<\/h2>\n<p><img data-recalc-dims=\"1\" decoding=\"async\" class=\"alignnone size-medium wp-image-300878 lazyload\" data-src=\"https:\/\/i0.wp.com\/www.saastr.com\/wp-content\/uploads\/2024\/07\/IMG_6252.jpeg?resize=600%2C327&#038;quality=70&#038;ssl=1\" alt=\"\" width=\"600\" height=\"327\" src=\"data:image\/gif;base64,R0lGODlhAQABAAAAACH5BAEKAAEALAAAAAABAAEAAAICTAEAOw==\" style=\"--smush-placeholder-width: 600px; --smush-placeholder-aspect-ratio: 600\/327;\" \/><noscript><img data-recalc-dims=\"1\" decoding=\"async\" class=\"alignnone size-medium wp-image-300878\" src=\"https:\/\/i0.wp.com\/www.saastr.com\/wp-content\/uploads\/2024\/07\/IMG_6252.jpeg?resize=600%2C327&#038;quality=70&#038;ssl=1\" alt=\"\" width=\"600\" height=\"327\" \/><\/noscript><\/p>\n<p>Maybe 70% of folks are growing more slowly than two years ago. Databricks just said they crossed $2.4B in revenue, growing 60%. Does AI partially fuel this? Sure. Canva is around $2.3-2.4B, with 40-60% growth. That\u2019s wild. These will IPO for more than $10B.<\/p>\n<p>The Box and Brazes and Zoominfos and Bills were worth 10s of billions and now are single-digit billions. It\u2019s not what it was at the peak. They\u2019re still there, though. Is Snowflake still worth $150B today? No, it\u2019s worth $52B. Atlassian is still worth $43B.<\/p>\n<p>It looks a lot harder, but the net effect is that massive amounts of capital will flood companies like Monday or Hubspot.<\/p>\n<h2>100x ARR is Back for a Subset<\/h2>\n<p><img data-recalc-dims=\"1\" decoding=\"async\" class=\"alignnone size-medium wp-image-300877 lazyload\" data-src=\"https:\/\/i0.wp.com\/www.saastr.com\/wp-content\/uploads\/2024\/07\/IMG_6253.jpeg?resize=600%2C329&#038;quality=70&#038;ssl=1\" alt=\"\" width=\"600\" height=\"329\" src=\"data:image\/gif;base64,R0lGODlhAQABAAAAACH5BAEKAAEALAAAAAABAAEAAAICTAEAOw==\" style=\"--smush-placeholder-width: 600px; --smush-placeholder-aspect-ratio: 600\/329;\" \/><noscript><img data-recalc-dims=\"1\" decoding=\"async\" class=\"alignnone size-medium wp-image-300877\" src=\"https:\/\/i0.wp.com\/www.saastr.com\/wp-content\/uploads\/2024\/07\/IMG_6253.jpeg?resize=600%2C329&#038;quality=70&#038;ssl=1\" alt=\"\" width=\"600\" height=\"329\" \/><\/noscript><\/p>\n<p>Perplexity is in the headlines for a lot of reasons. Recently, they crossed $20M ARR and are valued at over $3B. That\u2019s over a 100x deal. \u201cMy guess is they went from $1M to $20M in one year,\u201d Jason shares.<\/p>\n<p>It\u2019s not free, folks. Expecting 464% growth isn\u2019t an easy thing to achieve. If you can go from $20M to $100M in one year, then $100M to $300M, are you worth $3B today? Maybe, if that happens. These crazy 100x ARR deals in AI are expecting OpenAI-like growth.<\/p>\n<h2>Why AI is Already Big Money<\/h2>\n<p><img data-recalc-dims=\"1\" decoding=\"async\" class=\"alignnone size-medium wp-image-300876 lazyload\" data-src=\"https:\/\/i0.wp.com\/www.saastr.com\/wp-content\/uploads\/2024\/07\/IMG_6254.jpeg?resize=600%2C327&#038;quality=70&#038;ssl=1\" alt=\"\" width=\"600\" height=\"327\" src=\"data:image\/gif;base64,R0lGODlhAQABAAAAACH5BAEKAAEALAAAAAABAAEAAAICTAEAOw==\" style=\"--smush-placeholder-width: 600px; --smush-placeholder-aspect-ratio: 600\/327;\" \/><noscript><img data-recalc-dims=\"1\" decoding=\"async\" class=\"alignnone size-medium wp-image-300876\" src=\"https:\/\/i0.wp.com\/www.saastr.com\/wp-content\/uploads\/2024\/07\/IMG_6254.jpeg?resize=600%2C327&#038;quality=70&#038;ssl=1\" alt=\"\" width=\"600\" height=\"327\" \/><\/noscript><\/p>\n<p>Are people nuts? No. While the average Cloud company has radically underperformed, look at the big guys. Azure\u2019s net new ARR fueled by AI shows 83% growth. Google Cloud is 175% growth. The chart on the right is the biggest beneficiary of all: NVIDIA.<\/p>\n<p>Is this an AI bubble? When you see numbers like this, it\u2019s why VCs are excited about AI: because it\u2019s a massive amount of money. If you\u2019re a little guy and part of this trend, you can be a rocket ship.<\/p>\n<h2>How a $2B Fund Makes Money<\/h2>\n<p><img data-recalc-dims=\"1\" decoding=\"async\" class=\"alignnone size-medium wp-image-300875 lazyload\" data-src=\"https:\/\/i0.wp.com\/www.saastr.com\/wp-content\/uploads\/2024\/07\/IMG_6255.jpeg?resize=600%2C326&#038;quality=70&#038;ssl=1\" alt=\"\" width=\"600\" height=\"326\" src=\"data:image\/gif;base64,R0lGODlhAQABAAAAACH5BAEKAAEALAAAAAABAAEAAAICTAEAOw==\" style=\"--smush-placeholder-width: 600px; --smush-placeholder-aspect-ratio: 600\/326;\" \/><noscript><img data-recalc-dims=\"1\" decoding=\"async\" class=\"alignnone size-medium wp-image-300875\" src=\"https:\/\/i0.wp.com\/www.saastr.com\/wp-content\/uploads\/2024\/07\/IMG_6255.jpeg?resize=600%2C326&#038;quality=70&#038;ssl=1\" alt=\"\" width=\"600\" height=\"326\" \/><\/noscript><\/p>\n<p>One thing to share is how venture funds work. It\u2019s hard now, and many founders don\u2019t understand the math. Let\u2019s look at two examples: a $2B fund like Redpoint and a seed fund. Why a $2B fund?<\/p>\n<p>Say you raised a seed and want to raise a Series B. The average fund check size will be 1-2% of its size, so if you want to raise $ 20M-$30M-$40M for B, you probably need a $2B fund because they\u2019ll take that kind of risk.<\/p>\n<p>There aren\u2019t many funds at $2B. Even so, a $4B exit isn\u2019t enough. Assume that this $2B fund averages 15% ownership, and the truth is, it will be lower today. One company is worth $10B. How much do they make? $1.5B.<\/p>\n<p>They haven\u2019t even paid the fund back. For VCs to make any money, they must first pay back the money they\u2019re given.<\/p>\n<p>So, you sell one for $10B, which doesn\u2019t get you back. Then one sells for $4B, like Braze, Box, and Zoominfo, and you get $600M. That\u2019s only $2.1B. You\u2019ve barely broken even on the fund.<\/p>\n<p>Then, $2B and $1B and other small ones add up to $2.685B, and you\u2019ve only made 1.34x your money back. Net of expenses and fees, it\u2019s probably only 1x.<\/p>\n<p>VCs don\u2019t expect big funds to have as high a multiple as small funds but expect 2.5x-3x gross.<\/p>\n<p>Now, imagine you\u2019re a VC at a $2B fund. You\u2019ve had a couple of unicorns, and now one is worth $200M. One went under, and the other is doing great, but it\u2019s unclear if it\u2019ll IPO. You\u2019ll be feeling your job is at risk.<\/p>\n<h2>How $100M Seed Funds Make Money<\/h2>\n<p><img data-recalc-dims=\"1\" decoding=\"async\" class=\"alignnone size-medium wp-image-300874 lazyload\" data-src=\"https:\/\/i0.wp.com\/www.saastr.com\/wp-content\/uploads\/2024\/07\/IMG_6256.jpeg?resize=600%2C324&#038;quality=70&#038;ssl=1\" alt=\"\" width=\"600\" height=\"324\" src=\"data:image\/gif;base64,R0lGODlhAQABAAAAACH5BAEKAAEALAAAAAABAAEAAAICTAEAOw==\" style=\"--smush-placeholder-width: 600px; --smush-placeholder-aspect-ratio: 600\/324;\" \/><noscript><img data-recalc-dims=\"1\" decoding=\"async\" class=\"alignnone size-medium wp-image-300874\" src=\"https:\/\/i0.wp.com\/www.saastr.com\/wp-content\/uploads\/2024\/07\/IMG_6256.jpeg?resize=600%2C324&#038;quality=70&#038;ssl=1\" alt=\"\" width=\"600\" height=\"324\" \/><\/noscript><\/p>\n<p>In the old days, $100M was a large seed fund. Now, seed funds are at $10M and $15M, and if you\u2019re YC, they\u2019re $23M, so it\u2019s harder. Say you have a $100M seed fund and invest super early. You\u2019re lucky if you have a $1B company; it\u2019s not enough in today\u2019s world.<\/p>\n<p>First, everyone ends up with smaller ownership stakes in seed, and there\u2019s still a lot of dilution because there are a lot of rounds. So, you buy 10% in the seed fund, and by the time you IPO, you own 5% on average.<\/p>\n<p>Imagine you have three $1B exits. Then, amazingly, you have three other 9-figure exits. If you multiply these by 5%, you end up getting $395M. That\u2019s 4x gross. It\u2019s good, but LPs expect 4x at a minimum.<\/p>\n<p>How many of you are doing this today in seed reliably? Not that many because there\u2019s stress. VCs have to hunt for fund-returners, 4x with seed and 2.5-3x with growth. VCs must believe you\u2019re a fund-returner before they write that first check, or they\u2019ll make no money.<\/p>\n<h2>Big Funds Tripling Down on Winners<\/h2>\n<p><img data-recalc-dims=\"1\" decoding=\"async\" class=\"alignnone size-medium wp-image-300873 lazyload\" data-src=\"https:\/\/i0.wp.com\/www.saastr.com\/wp-content\/uploads\/2024\/07\/IMG_6257.jpeg?resize=600%2C328&#038;quality=70&#038;ssl=1\" alt=\"\" width=\"600\" height=\"328\" src=\"data:image\/gif;base64,R0lGODlhAQABAAAAACH5BAEKAAEALAAAAAABAAEAAAICTAEAOw==\" style=\"--smush-placeholder-width: 600px; --smush-placeholder-aspect-ratio: 600\/328;\" \/><noscript><img data-recalc-dims=\"1\" decoding=\"async\" class=\"alignnone size-medium wp-image-300873\" src=\"https:\/\/i0.wp.com\/www.saastr.com\/wp-content\/uploads\/2024\/07\/IMG_6257.jpeg?resize=600%2C328&#038;quality=70&#038;ssl=1\" alt=\"\" width=\"600\" height=\"328\" \/><\/noscript><\/p>\n<p>When you see all these rounds in the media, a lot of them are fueled by AI. They\u2019re looking for 5x growth at scale. Not $10M to $18M, but $5M to $25M to $125M to $300M. A lot is in AI, and a lot of these are inside-led. Grafana Labs was an inside round, for example.<\/p>\n<p>Big funds have a lot of capital, and they have to put it somewhere. The average SaaS and Cloud company is doing worse than in 2021, so if you\u2019re in the top decile of their portfolio, they will flood it with capital.<\/p>\n<p>It\u2019s tough out there, so existing companies are getting the capital. The money is real, but it\u2019s not outside, brand-new money. So, are the valuations real? If it\u2019s an inside round, it\u2019s a sign that the company is doing well, but it\u2019s not external. It\u2019s different. It\u2019s capital you can\u2019t access unless it\u2019s a second or third check, which creates confusion in the media and markets.<\/p>\n<h2>Come to San Francisco Bay Area to Raise Venture Capital<\/h2>\n<p><img data-recalc-dims=\"1\" decoding=\"async\" class=\"alignnone size-medium wp-image-300872 lazyload\" data-src=\"https:\/\/i0.wp.com\/www.saastr.com\/wp-content\/uploads\/2024\/07\/IMG_6259.jpeg?resize=600%2C326&#038;quality=70&#038;ssl=1\" alt=\"\" width=\"600\" height=\"326\" src=\"data:image\/gif;base64,R0lGODlhAQABAAAAACH5BAEKAAEALAAAAAABAAEAAAICTAEAOw==\" style=\"--smush-placeholder-width: 600px; --smush-placeholder-aspect-ratio: 600\/326;\" \/><noscript><img data-recalc-dims=\"1\" decoding=\"async\" class=\"alignnone size-medium wp-image-300872\" src=\"https:\/\/i0.wp.com\/www.saastr.com\/wp-content\/uploads\/2024\/07\/IMG_6259.jpeg?resize=600%2C326&#038;quality=70&#038;ssl=1\" alt=\"\" width=\"600\" height=\"326\" \/><\/noscript><\/p>\n<p>This chart shows that the Bay area is taking more venture capital again in every round. Almost all of us live in partially distributed or hybrid worlds, so it\u2019s different from pre-March 2020.<\/p>\n<p>VCs, for the most part, are happy to invest in founders in any major tech center. To raise money, you have to be there. People don\u2019t want to write checks over Zoom anymore.<\/p>\n<h2>Growth is Still King<\/h2>\n<p><img data-recalc-dims=\"1\" decoding=\"async\" class=\"alignnone size-medium wp-image-300871 lazyload\" data-src=\"https:\/\/i0.wp.com\/www.saastr.com\/wp-content\/uploads\/2024\/07\/IMG_6260.jpeg?resize=600%2C328&#038;quality=70&#038;ssl=1\" alt=\"\" width=\"600\" height=\"328\" src=\"data:image\/gif;base64,R0lGODlhAQABAAAAACH5BAEKAAEALAAAAAABAAEAAAICTAEAOw==\" style=\"--smush-placeholder-width: 600px; --smush-placeholder-aspect-ratio: 600\/328;\" \/><noscript><img data-recalc-dims=\"1\" decoding=\"async\" class=\"alignnone size-medium wp-image-300871\" src=\"https:\/\/i0.wp.com\/www.saastr.com\/wp-content\/uploads\/2024\/07\/IMG_6260.jpeg?resize=600%2C328&#038;quality=70&#038;ssl=1\" alt=\"\" width=\"600\" height=\"328\" \/><\/noscript><\/p>\n<p>VCs don\u2019t care if you\u2019re profitable. To some extent, do you need to be more efficient? Yes. Do public markets expect you to be efficient? Yes. As you go public, you have to be free cash flow positive, if not profitable. But all VCs care about today is growth.<\/p>\n<p>No, they don\u2019t want you to burn so much money that you run out, but no VC cares if you\u2019re profitable. Being profitable doesn\u2019t get you to a $2B outcome. Even seed funds need you to be $2B.<\/p>\n<p>If your growth has fallen 30%, but you\u2019re profitable, will that get you a valuation? No. You have to have the same growth as in the past but be more efficient.<\/p>\n<h2>Triple Triple Double Double Still Rules<\/h2>\n<p><img data-recalc-dims=\"1\" decoding=\"async\" class=\"alignnone size-medium wp-image-300870 lazyload\" data-src=\"https:\/\/i0.wp.com\/www.saastr.com\/wp-content\/uploads\/2024\/07\/IMG_6261.jpeg?resize=600%2C324&#038;quality=70&#038;ssl=1\" alt=\"\" width=\"600\" height=\"324\" src=\"data:image\/gif;base64,R0lGODlhAQABAAAAACH5BAEKAAEALAAAAAABAAEAAAICTAEAOw==\" style=\"--smush-placeholder-width: 600px; --smush-placeholder-aspect-ratio: 600\/324;\" \/><noscript><img data-recalc-dims=\"1\" decoding=\"async\" class=\"alignnone size-medium wp-image-300870\" src=\"https:\/\/i0.wp.com\/www.saastr.com\/wp-content\/uploads\/2024\/07\/IMG_6261.jpeg?resize=600%2C324&#038;quality=70&#038;ssl=1\" alt=\"\" width=\"600\" height=\"324\" \/><\/noscript><\/p>\n<p>Do you get a pass from VCs because you\u2019re in an impacted category like sales or marketing? No. Not everyone is in a downturn, and if you are, you can\u2019t get a pass because VCs need that $2B outcome to make any money.<\/p>\n<p>You have to triple, triple, double, double at minimum, or you\u2019ll never get there in the 10-14 year lifetime of a fund. You\u2019ll never get big enough to be worth $10B.<\/p>\n<p>Today, you probably have to do close to $500M in revenue to have a good IPO. But let\u2019s say you could do it at $300M. You can do it earlier, but it\u2019s harder today. 40% IPO is likely the slowest you can grow and have a decent IPO.<\/p>\n<p>You might feel intimidated by this chart. You won&#8217;t get there if you don\u2019t triple, triple, double, double after a million. If it takes a decade to reach a million, that\u2019s a long time. Although, UiPath took a decade to get to a million.<\/p>\n<h2>Growth Slowed?<\/h2>\n<p><img data-recalc-dims=\"1\" decoding=\"async\" class=\"alignnone size-medium wp-image-300869 lazyload\" data-src=\"https:\/\/i0.wp.com\/www.saastr.com\/wp-content\/uploads\/2024\/07\/IMG_6262.jpeg?resize=600%2C332&#038;quality=70&#038;ssl=1\" alt=\"\" width=\"600\" height=\"332\" src=\"data:image\/gif;base64,R0lGODlhAQABAAAAACH5BAEKAAEALAAAAAABAAEAAAICTAEAOw==\" style=\"--smush-placeholder-width: 600px; --smush-placeholder-aspect-ratio: 600\/332;\" \/><noscript><img data-recalc-dims=\"1\" decoding=\"async\" class=\"alignnone size-medium wp-image-300869\" src=\"https:\/\/i0.wp.com\/www.saastr.com\/wp-content\/uploads\/2024\/07\/IMG_6262.jpeg?resize=600%2C332&#038;quality=70&#038;ssl=1\" alt=\"\" width=\"600\" height=\"332\" \/><\/noscript><\/p>\n<p>What\u2019s happening? Emergence Capital gathered data from the best seed funds and all the data on their companies&#8217; growth. They aggregated this data into the elite of business software companies.<\/p>\n<p>The top quartile is growing 100%, which is good, but it\u2019s not triple triple double double. Then it\u2019s falling off a cliff. At $5M ARR, they\u2019re growing 58%. That\u2019s still plenty to compound into something huge, but does it get you to the numbers you need? No, it doesn\u2019t.<\/p>\n<p><img data-recalc-dims=\"1\" decoding=\"async\" class=\"alignnone size-medium wp-image-300868 lazyload\" data-src=\"https:\/\/i0.wp.com\/www.saastr.com\/wp-content\/uploads\/2024\/07\/IMG_6263.jpeg?resize=600%2C328&#038;quality=70&#038;ssl=1\" alt=\"\" width=\"600\" height=\"328\" src=\"data:image\/gif;base64,R0lGODlhAQABAAAAACH5BAEKAAEALAAAAAABAAEAAAICTAEAOw==\" style=\"--smush-placeholder-width: 600px; --smush-placeholder-aspect-ratio: 600\/328;\" \/><noscript><img data-recalc-dims=\"1\" decoding=\"async\" class=\"alignnone size-medium wp-image-300868\" src=\"https:\/\/i0.wp.com\/www.saastr.com\/wp-content\/uploads\/2024\/07\/IMG_6263.jpeg?resize=600%2C328&#038;quality=70&#038;ssl=1\" alt=\"\" width=\"600\" height=\"328\" \/><\/noscript><\/p>\n<p>You need to grow 40% to IPO, and this top quartile at $20M to $50M is only growing 38%, then falling to 22% at $100M.<\/p>\n<p>80% of VC-backed startups aren\u2019t growing fast enough to raise another round. As a founder, you have to ask your investors if you\u2019re fundable. Only 10% of VC-backed startups are on this fund-returner path. So, be aware that it gets harder here.<\/p>\n<p>If you do raise capital, don\u2019t assume the next round is coming.<\/p>\n<h2>Calling Yourself AI (Probably) Isn\u2019t Enough<\/h2>\n<p><img data-recalc-dims=\"1\" decoding=\"async\" class=\"alignnone size-medium wp-image-300867 lazyload\" data-src=\"https:\/\/i0.wp.com\/www.saastr.com\/wp-content\/uploads\/2024\/07\/IMG_6264.jpeg?resize=600%2C331&#038;quality=70&#038;ssl=1\" alt=\"\" width=\"600\" height=\"331\" src=\"data:image\/gif;base64,R0lGODlhAQABAAAAACH5BAEKAAEALAAAAAABAAEAAAICTAEAOw==\" style=\"--smush-placeholder-width: 600px; --smush-placeholder-aspect-ratio: 600\/331;\" \/><noscript><img data-recalc-dims=\"1\" decoding=\"async\" class=\"alignnone size-medium wp-image-300867\" src=\"https:\/\/i0.wp.com\/www.saastr.com\/wp-content\/uploads\/2024\/07\/IMG_6264.jpeg?resize=600%2C331&#038;quality=70&#038;ssl=1\" alt=\"\" width=\"600\" height=\"331\" \/><\/noscript><\/p>\n<p>AI washing or labeling isn\u2019t enough. Logan from Redpoint said he was seeing some deflation in VC activity for these crazy AI rounds. In these three examples, you can see that C3.ai went early on AI, but most people don\u2019t know what they do. They have real revenue but are down 76% from their IPO.<\/p>\n<p>Salesforce\u2019s projected growth will fall to 7% next year, and they\u2019re real AI. Zendesk\u2019s home page says it is an AI-first service, so the fact that AI matters isn\u2019t lost on anyone. But calling something legal AI isn\u2019t enough to fundraise.<\/p>\n<h2>B2B2C, Vertical, Security: Downturn?<\/h2>\n<p><img data-recalc-dims=\"1\" decoding=\"async\" class=\"alignnone size-medium wp-image-300866 lazyload\" data-src=\"https:\/\/i0.wp.com\/www.saastr.com\/wp-content\/uploads\/2024\/07\/IMG_6265.jpeg?resize=600%2C328&#038;quality=70&#038;ssl=1\" alt=\"\" width=\"600\" height=\"328\" src=\"data:image\/gif;base64,R0lGODlhAQABAAAAACH5BAEKAAEALAAAAAABAAEAAAICTAEAOw==\" style=\"--smush-placeholder-width: 600px; --smush-placeholder-aspect-ratio: 600\/328;\" \/><noscript><img data-recalc-dims=\"1\" decoding=\"async\" class=\"alignnone size-medium wp-image-300866\" src=\"https:\/\/i0.wp.com\/www.saastr.com\/wp-content\/uploads\/2024\/07\/IMG_6265.jpeg?resize=600%2C328&#038;quality=70&#038;ssl=1\" alt=\"\" width=\"600\" height=\"328\" \/><\/noscript><\/p>\n<p>While sales and marketing are incredibly impacted, most B2B2C aren\u2019t in a downturn. Zoominfo said NRR is falling to 85% from 110-120% in 2020. In 2024, folks are still getting together in the room to cut more sales and marketing tools. It\u2019s brutal out there. But the rest of the world, the Canvas and Databricks, are doing pretty well.<\/p>\n<p>Samsara sells fleet management software to the real world, growing at 39% at $1.1B. They\u2019re also aggressively hiring. Klaviyo is growing 42% at almost $800M in revenue. Toast is selling to normal restaurants with 32% growth at $1.3B. Monday is growing 34%, coming up on a billion in revenue.<\/p>\n<p>All of the folks selling to the real world are doing pretty ok, even if sales and marketing are in a weird place.<\/p>\n<h2>B2B2C Bounced Back Fast<\/h2>\n<p><img data-recalc-dims=\"1\" decoding=\"async\" class=\"alignnone size-medium wp-image-300865 lazyload\" data-src=\"https:\/\/i0.wp.com\/www.saastr.com\/wp-content\/uploads\/2024\/07\/IMG_6266.jpeg?resize=600%2C326&#038;quality=70&#038;ssl=1\" alt=\"\" width=\"600\" height=\"326\" src=\"data:image\/gif;base64,R0lGODlhAQABAAAAACH5BAEKAAEALAAAAAABAAEAAAICTAEAOw==\" style=\"--smush-placeholder-width: 600px; --smush-placeholder-aspect-ratio: 600\/326;\" \/><noscript><img data-recalc-dims=\"1\" decoding=\"async\" class=\"alignnone size-medium wp-image-300865\" src=\"https:\/\/i0.wp.com\/www.saastr.com\/wp-content\/uploads\/2024\/07\/IMG_6266.jpeg?resize=600%2C326&#038;quality=70&#038;ssl=1\" alt=\"\" width=\"600\" height=\"326\" \/><\/noscript><\/p>\n<p>Revenue Cat manages 30% of all consumer SaaS companies in the mobile economy. The consumer is faster than B2B, and if you squint, you can see a massive slowdown in consumer SaaS.<\/p>\n<p>In 2023, it came back. Now, they\u2019re having a record year. Consumer is usually 2-3 years ahead of B2B, so if consumer SaaS has reignited growth, maybe classic B2B2B will get there. The consumer pattern provides a reason to be optimistic.<\/p>\n<h2>Stress Will Remain Where Multiples Are Low<\/h2>\n<p><img data-recalc-dims=\"1\" decoding=\"async\" class=\"alignnone size-medium wp-image-300864 lazyload\" data-src=\"https:\/\/i0.wp.com\/www.saastr.com\/wp-content\/uploads\/2024\/07\/IMG_6267.jpeg?resize=600%2C326&#038;quality=70&#038;ssl=1\" alt=\"\" width=\"600\" height=\"326\" src=\"data:image\/gif;base64,R0lGODlhAQABAAAAACH5BAEKAAEALAAAAAABAAEAAAICTAEAOw==\" style=\"--smush-placeholder-width: 600px; --smush-placeholder-aspect-ratio: 600\/326;\" \/><noscript><img data-recalc-dims=\"1\" decoding=\"async\" class=\"alignnone size-medium wp-image-300864\" src=\"https:\/\/i0.wp.com\/www.saastr.com\/wp-content\/uploads\/2024\/07\/IMG_6267.jpeg?resize=600%2C326&#038;quality=70&#038;ssl=1\" alt=\"\" width=\"600\" height=\"326\" \/><\/noscript><\/p>\n<p>To summarize the stress in venture, look at the median multiple for public companies. Public SaaS companies are like the NBA. Not everyone is Lebron James, but they\u2019re all really good. The average NBA player or public SaaS company only trades at 6x, and the top performers at 9x.<\/p>\n<p>Until they\u2019re 20-30% higher, it\u2019s hard to make money in venture. If the median is 8-9x and the top is 15-20x, everyone can make money in venture. It\u2019s easier to fundraise when everyone is making money.<\/p>\n<p><iframe title=\"VC Fundraising Workshop: What it Takes to Get Funded in 2024 with SaaStr CEO Founder Jason Lemkin\" width=\"1080\" height=\"608\" data-src=\"https:\/\/www.youtube.com\/embed\/daakrQavsU4?feature=oembed&#038;enablejsapi=1&#038;origin=https:\/\/www.saastr.com\"  allow=\"accelerometer; autoplay; clipboard-write; encrypted-media; gyroscope; picture-in-picture; web-share\" referrerpolicy=\"strict-origin-when-cross-origin\" allowfullscreen src=\"data:image\/gif;base64,R0lGODlhAQABAAAAACH5BAEKAAEALAAAAAABAAEAAAICTAEAOw==\" class=\"lazyload\" data-load-mode=\"1\"><\/iframe><\/p>\n<p><iframe title=\"Spotify Embed: SaaStr 750: What it Takes to Get Funded in 2024 with SaaStr CEO and Founder Jason Lemkin\" style=\"border-radius: 12px\" width=\"100%\" height=\"152\" frameborder=\"0\" allowfullscreen allow=\"autoplay; clipboard-write; encrypted-media; fullscreen; picture-in-picture\" data-src=\"https:\/\/open.spotify.com\/embed\/episode\/4Obf6Fqm87zIEwlpTIlKdw?si=FjX3nnkcTg-95xZ0pGCQYg&#038;utm_source=oembed\" src=\"data:image\/gif;base64,R0lGODlhAQABAAAAACH5BAEKAAEALAAAAAABAAEAAAICTAEAOw==\" class=\"lazyload\" data-load-mode=\"1\"><\/iframe><\/p>\n","protected":false},"excerpt":{"rendered":"<p>What does it take to get funded in 2024? SaaStr Founder and CEO, Jason Lemkin, dives deep into what is driving VCs today. <\/p>\n","protected":false},"author":13,"featured_media":301072,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_et_pb_use_builder":"","_et_pb_old_content":"","_et_gb_content_width":"","om_disable_all_campaigns":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":"","jetpack_publicize_message":"","jetpack_publicize_feature_enabled":true,"jetpack_social_post_already_shared":false,"jetpack_social_options":{"image_generator_settings":{"template":"highway","default_image_id":0,"font":"","enabled":false},"version":2},"_wpscp_schedule_draft_date":"","_wpscp_schedule_republish_date":"","_wpscppro_advance_schedule":false,"_wpscppro_advance_schedule_date":"","_wpscppro_custom_social_share_image":0,"_facebook_share_type":"","_twitter_share_type":"","_linkedin_share_type":"","_pinterest_share_type":"","_linkedin_share_type_page":"","_instagram_share_type":"","_medium_share_type":"","_threads_share_type":"","_selected_social_profile":[]},"categories":[24898,31,29,106,30,24894],"tags":[24901,11787,4434,16836,14759,24965,18213,12859,3621,15500,6445,3606,3607,22782],"class_list":["post-300861","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-ai","category-blog-posts","category-early","category-fundraising-topics","category-growth","category-workshop-wednesdays","tag-ai","tag-b2b","tag-box","tag-canva","tag-cloud","tag-databricks","tag-growth","tag-jason-lemkin","tag-saas","tag-salesforce","tag-slack","tag-vc","tag-venture-capital","tag-zoominfo"],"jetpack_publicize_connections":[],"jetpack_featured_media_url":"https:\/\/i0.wp.com\/www.saastr.com\/wp-content\/uploads\/2024\/07\/maxresdefault-6-scaled.jpg?fit=1000%2C563&quality=70&ssl=1","jetpack_shortlink":"https:\/\/wp.me\/p5oib2-1ggB","jetpack_sharing_enabled":true,"fifu_image_url":"https:\/\/www.saastr.com\/wp-content\/uploads\/2024\/07\/IMG_6246-600x327.jpeg","_links":{"self":[{"href":"https:\/\/www.saastr.com\/wp-json\/wp\/v2\/posts\/300861","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.saastr.com\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.saastr.com\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.saastr.com\/wp-json\/wp\/v2\/users\/13"}],"replies":[{"embeddable":true,"href":"https:\/\/www.saastr.com\/wp-json\/wp\/v2\/comments?post=300861"}],"version-history":[{"count":1,"href":"https:\/\/www.saastr.com\/wp-json\/wp\/v2\/posts\/300861\/revisions"}],"predecessor-version":[{"id":305379,"href":"https:\/\/www.saastr.com\/wp-json\/wp\/v2\/posts\/300861\/revisions\/305379"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.saastr.com\/wp-json\/wp\/v2\/media\/301072"}],"wp:attachment":[{"href":"https:\/\/www.saastr.com\/wp-json\/wp\/v2\/media?parent=300861"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.saastr.com\/wp-json\/wp\/v2\/categories?post=300861"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.saastr.com\/wp-json\/wp\/v2\/tags?post=300861"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}