2024 SaaS Landscape: Why 2024 Could be Pretty Darn Good for SaaS IPOs with SaaStr CEO Jason Lemkin

Okay, so for a few minutes what I wanted to talk about, and you'll see some of these slides if you came to the opener with David Sacks yesterday, but I want to go deeper, especially because maybe me and David have a slightly different perspective on this. Nick from ChartMogul did a little thing where he called this a cautious recovery, so I'm going to steal that. I think we're absolutely in a cautious recovery in SaaS, and I think folks should be modestly bullish today. This is what I think, and I'll show you just a few examples, but what I think is everyone Everyone has different terms. I don't think we went through any recession. I certainly don't think we went through a downturn. I mean, unemployment in this economy is like 2.8%, right? This is the weirdest downturn and recession in the world if the economy is fully employed. I think we had a shock. I just call it a shock. We just had a shock. We— everyone spent way too much money in 2021. The markets were crazy. Buyers were crazy. And there had to be a shock. You know, we saw the biggest with Zoom, which went from $1 to $4 billion in one year. Shopify almost did the same thing. It couldn't go 1, 4, 16, 64, 128, 256. It couldn't happen. There had to be a shock. And I think we're done. And a few things that are happening that I want to chat about, you know, on the B2B side, Klaviyo, as you know, I think last week filed for the first great SaaS IPO since December 2021. Since December 2021. They're at $650 million in ARR, I think growing almost 60% and they're profitable. And that's about as good as it gets. And they may go public as soon as next week or the week after. So we'll dig into this. But there's been almost a 24-month drought gap without any IPOs. Once they start rolling in, we're kind of over the shock, right? Again, the economy overall is good. And then a few things I put on the right. You know, there were lots of both people and app layoffs. I want to talk about them both, but I think they're both over. I think they're both over and they're different, the app and people layoffs. The app layoffs I think were more brutal and that I think is what a lot of folks went through. If you haven't worked in a big Fortune 500 company or tech company as a VP as I have, at least for a little more than a year, you've never seen this. But what happens in the big companies, it's not like— our economy has been going strong, but everyone got more conservative in 2022. Every big company cut back in IT, cut back in spend. They overreacted, which we'll chat about. What happens is, all the VPs get together in a room. I've been there, okay? And they do it with people and they do it with apps and they get together and they go around the table and they say, you got to get rid of one. Okay, you got to get— what app are you not really using? And the reality is a lot of— there was a lot of explosion, especially in sales and marketing, but in HR and other categories that people bought a lot of stuff in 2021 to grow, grow, grow, grow, grow. And they went around the table and some of those got cut. It just happened. The same thing happens with people. It's not like most of our end customers didn't have great years in 2022. They did. But everyone tightened the belt. They went around the room and they laid off some people. Salesforce did layoffs. Almost every— I'll talk about Salesforce here. Almost every leader did some layoffs. A big public company, 4%, 5%, 6%. They did it to get fit, which we'll talk about. They did layoffs to get more efficient. Okay. Everyone did people layoffs and everyone did app layoffs, and they're all done. They're all done. I don't know any big companies that are sitting around in September of 2023 saying we're going to do another round of app layoffs. Okay, it's not happening. Salesforce just said they're not going to do— I put it up here. They just said this week they're not going to do any more layoffs and they're hiring for critical roles. Samsara, the chief product officer, was yesterday. We'll talk about them. They just in their earnings last week, they said they don't have enough sales capacity. Now they're hiring salespeople as fast as they can. It's all coming back. It will never be like 2021. But we are over outside of spot issues for the leaders, for the public leaders, the successful ones. We're over the app and people layoffs and hiring at least is slowly resuming. So net-net, I don't know what the next 12 months will look like, but I'll bet you dollars to donuts it's better than the last 12. If for many of you, if you're in an impacted category, if things were hard, they may only be 10% better. It may be 50% better, 36.4% better. But we're done with this cycle of cuts and efficiency, which I want to, I want to dig into just a little bit more. So here's two examples. And I briefly touched on these yesterday, but I want to dig in more. And I picked— I want to pick a couple, three different categories, categories that were heavily impacted the last two years, some that were slightly— that were not impacted at all, and then some that were modestly impacted. And let's just slow down a minute and look at a few charts that I borrowed from Jam and Ball here. What happened? And I picked ZoomInfo on the left and Zoom on the right. Why did I pick ZoomInfo? I mean, it's one of my hero companies. Henry is one of my hero CEOs, basically bootstrapped to a billion something in revenue, profitable every year, pretty good one. But ZoomInfo is a leader in sales and marketing. It's a public pure play leader. So we can look at ZoomInfo and say, hey, if you're in sales and marketing, you're probably a little bit like them. If they're booming, you should be doing well. If they're struggling, maybe you should be struggling. And what happened, let's look at this chart for new net new error, new bookings. And you can see new bookings for them peaked in Q2 of '22. That's kind of what David chatted about last year. Like, things got tough at the end of 2021, but it didn't really show up until mid-2022. So you can see it peaked and then boom, like all the way down. And then Q1 '23 was tough. It was their first deceleration in net new bookings, but it bounced back. It bounced back. And if you folks will have different nadirs, different low points, but for most folks in SaaS and cloud, it was the sometime around the first or second quarter of this year, and they've bounced off the bottom. That's ZoomInfo. You probably like ZoomInfo. Again, ZoomInfo isn't back to the go-go days of 2021, but it's a lot better than it was at the bottom of this shock earlier this year. The one on the right is Zoom. Look, Zoom is crazy. Zoom never intended to grow the way it did during that nasty bug that we had. It never intended to grow. It grew like crazy, so it couldn't last. Zoom had the biggest overhang of all. Zoom was crazy before for March 2020 because it was almost the only product I knew that sold single-seat SaaS that had over 100% NRR. Like, that's crazy. It doesn't happen that way. People love their Zoom and they didn't churn and they didn't go. But then everyone in the world bought Zoom, right? Every— people started selling flowers and things and yoga and things on the internet that were not meant to be done on the internet. They're meant to do in the real world. So of course churn peaked up and Zoom went and it kind of peaked at this Can't quite read it. 3.6% churn, which is actually not terrible for SMB, but it's a lot, a lot higher than none. None. No net churn. And it's down. It's down to 3.2. It's still— that's normal. But it's a pretty, it's a pretty big drop. And then look what happened to Zoom. Zoom went from $1 to $4 billion in ARR in one year. So it had to have— it had to have a hangover. And it did. And you can see this hangover has lasted quarter after quarter after quarter. And again, it bottomed in Q1 of 2023, like -617% deceleration. But what happened this last quarter? It's the first quarter Zoom has reaccelerated since in the last 18 to 24 months. Now, is it epic? Is, again, is Zoom going to return to triple-digit growth? No, it's too big, it's too mature, but it is back. ZoomInfo is back, and these are ones that are in these impacted categories. Um, so then I just picked two more. I briefly touched on these yesterday, but It's more just a challenge to folks. Not every category is impacted. This is why I don't think it's any recession or depression or downturn. There are areas that are impacted. There were app layoffs that, that really hurt a lot of individual vendors. But we are still— this, the US economy is a global powerhouse right now. Unemployment is at an all-time low. Automobile sales still are close to an all-time high. Maybe we'll have issues with real estate, with interest rates and everything, but this economy is humming. So if you look at SaaS companies that sell to the real world, that don't just sell to other tech, In many cases, they didn't miss a beat. I mean, Toast had a little bit of impact, but look at Toast. Toast just had a record quarter. We had Aran, the co-CEO of Monday here. You saw they had seat contraction, which a lot of us saw, right? They didn't— folks did see some seat contraction, but overall the business did not miss a beat any of the last quarters because Monday doesn't sell— only 30% of Monday is to tech for project management and CRM. 70%, as he said, is to churches and real estate and other normal businesses. And so they didn't miss a beat. So it's not everyone. And then the third one I just wanted to show, I call these somewhat impacted categories. I picked two that are somewhat impacted. And I picked Samsara, which if you don't know, I mean, at a specific level, it automates fleet management and more. It's a quiet but big category of vertical SaaS. And it's interesting that you can see it's a hot one. We've written them up at Saastr since the beginning when people didn't know about it. We had the chief product officer here yesterday, but you can see You can see actually they hit their low point a little earlier than we saw with Zoom and ZoomInfo and others. They hit it actually in Q2 of 2022 where this high flyer's growth sort of came down to earth. They stopped accelerating growth. But what happened the last 4 quarters? Slow reacceleration, right? Then I picked just 1 more or 2 more, and then I'll try to summarize it. Okta. Okta is a market leader in identity, in app management. And, and so they're kind of a derivative of everything happening in cloud and SaaS spend. This is a CIO purchase. And what do you see? Well, Okta, Okta, it's not like Okta bookings went to zero. Their ARR didn't go to zero, but it was— it did hit its biggest impact again Q1 of 2023 and then boom, boom, Q2, Q2 last quarter, but only by a smidge, mind you, only by a smidge. But their, their highest quarter in new bookings on record. OK, highest quarter of new bookings on record. Just, just past again, that Q2 '22 was the tail end of the, of the good times showing up in numbers. But they're back now. That, that isn't like twice Q2 of '22. It's not like the best of times or it's not the very best of times, but it is Okta's best quarter ever. OK, it doesn't mean that the annual growth rate is the highest ever, right? Because we have the law of large numbers. We'll talk about that. In a few minutes, but their best quarter ever. Samsara, not back to Q2 of '21 when the world was crazy, but clear slope to higher and higher new bookings. I call these folks somewhat impacted, somewhat impacted. Then I just picked one for fun. You can watch this, but MongoDB, which is another one, they just had their best quarter in 6 years. They're just rocking it. They're rocking it. Some of their strongest revenue growth they've seen since IPO. Somewhat impacted. People, Mongo, Once you're running your app on a database, pretty hard to migrate off. It's pretty hard to start using the database, but you can somewhat manage your spend. You can try to manage workflows, you can try to slow the scale and deployment, you can do other things. So Mongo saw that. Mongo saw folks trying to slow the pace of spend and then they saw it end this last quarter. So again, it's going to take 20 years to have a bubble like we saw in 2020. It will happen again, but it's going to take 20 years. Times are pretty good, even if they don't feel like it. And if nothing else, they're clearly better for almost everyone than a year ago. And then maybe just a couple of ways to look at this data. Maxio that's here, they surveyed all of their customers. It's just this is more of a look at startups. And you can squint here and you can see that like Q2 was again, it's a little bit, but the first reacceleration they've seen in the last 5 to 6 quarters. Right. And ChartMorgul and others have similar data. It's not epic. It's not like Q2 2023 was like you know, 2021 or Q2, but you can see the first turn up in overall growth across all of their customers. So whatever, whatever data you look at, whether it's startups, public companies that are heavily impacted like a Zoom, somewhat impacted like the Samsaras that we saw, everyone is coming off lows. Maybe we'll crash again in a quarter or two. It's possible. Maybe, maybe the Fed will raise interest rates to 20% or 80% or 2000%. It could happen. Maybe inflation will reflate, as David alluded to yesterday. Maybe. But I think our core plans, we have to assume things are getting a smidge, a smidge better. Right. And the last point, just talking about people, because there's so much— it's so visceral, especially on LinkedIn. And layoffs are painful. Layoffs are tough. They're tough on all of us. And I really think as founders, we should do everything humanly possible to have no non-performance layoffs. I mean, we have recurring revenue. You should be able to predict the next quarter or two. You should be a little embarrassed if you have to do layoffs, even though a lot of us do go through it. But it's over. And if you saw Aron from Monday yesterday, we— I actually didn't have this slide in the presentation. I thought I did. This is the one I wanted to show you. It was happening with Monday because it's kind of what's happened with so many leaders is, look, they, they hit headwinds. Their NRR went from epic to pretty good. Okay. Just because seats didn't expand as much. So they just said, you know what, we're just going to slow down hiring. And they actually did, I think, a small layoff and replace, which is what a lot of big tech companies did. they might do a 3%, 4%, 5%, 6% layoff, but then they would hire those same people back and end up at the same number. Frankly, a lot of those layoffs were for underperformers. You can see Monday did that and they grew headcount fairly aggressively from '21 to '22, and then Q4 of last year, it actually dipped and they held it flat, and then it started to regrow. If you heard Aron yesterday here say, he said they're probably going to add 25% headcount this year. They're back. To hiring. Salesforce just said they're back to hiring. But importantly, what Aron said is very telling. Monday went from cash flow negative to very cash flow positive in 5 quarters. It's crazy. Again, they went from something like negative 15% free cash flow to positive 25% in 5 quarters. I asked Aron, how much are you going to loosen the belt? How much are you going to go back to the middle because you got so lean? They're like, well, we're going to do everything we can not to. We're going to stay in an efficient world. And I think that is the biggest theme. I think the most important tactical takeaway, and this is just my data and my opinion, I think the most important tactical takeaway is I think we're past that low of earlier this year. A lot of data points to it. It points to it in terms of revenue growth. It points to it in terms of hiring. It points in terms of app layoffs. But the meta question is, what world are we going back to? How efficient a world are you going back to? Um, and I just read a summary last night that for the first time in many, many, many years, the average revenue per public SaaS company is over $300,000. OK, so the average employee, and this is a critical ratio for efficiency, how much revenue per employee. And in the old days, the really epic software companies, the Adobes, the Microsofts, could approach a million because you just wrote some code and shipped it on a DVD or CD-ROM or something. And it got more expensive. But 300,000 is the most efficient all of them have been in recent memory. And this is the meta question. How efficient do we have to be? We've gotten used to certain types of sales compensation. We've gotten used to certain levels of customer success, certain types of coverage, certain types of marketing spend. I don't think we will ever be able to go— we'll never be able to go back to 2021. The question is, will we even be able to go back to 2019 or 2018, or will we need to be more efficient going forward? Right. This is the meta question and we'll see. We'll see. And we'll see. And I think there's two conflicting trends. On the one hand, everyone's learned how to get more efficient. And I'll hit that before we end. All the public companies where people thought, hey, you know, we'll hold off on profitability. We don't need to. Monday grew so fast. If you heard Aron yesterday, when Aron came to his first SaaS training in 2017, they were at $7 million ARR. That was 2017. So this is 6 years later. They're at $700 million ARR. In 6 years, they went from $7 to $700. If you burned a little cash, it wasn't the end of the world. They were efficient, but they were never epically efficient. They were very, they're very tactical. They had an 8-month CAC. They were very analytical, but they didn't have to be uber, and Wall Street didn't care. But now they're super efficient. Salesforce is super efficient. Mongo is, we'll talk about it. So where will we end up being? I think everyone's gonna have to work harder, sell more, close more for the same dollar, the same compensation, the whatever, or we may have to part ways with folks on our team that aren't efficient enough. Like, we may not be able to support those, those, some of those mid-pack sales reps that never get there. I don't know, but we probably will never get that inefficient. But good times are coming back. I really think all the VCs are going to get excited about Klaviyo. It's going to be a monster IPO. I think it'll trade over $10 billion. There's nothing not to like about this company other than that it's 70% dependent on Shopify. You can read more about it faster. I think this will get folks excited in just a couple of weeks. And if you look at it, I just put together a partial list on SaaStr. But Klaviyo is epic, but there's so many good ones waiting to go public. There's Databricks, there's Stripe, there's Gusto. When I put this, I didn't know Klaviyo would file. Rippling, Greenhouse, who's here. So many folks, actually, it's so funny, so many folks from the first SaaStr annual that were little startups. We had a panel of Algolia, Talkdesk, Greenhouse, and I think Salesloft. They're all at $200 million, um, and at least 3 of them I think will IPO next year. So there's going to be a wave of them. And what folks don't realize, what investors know that are decent investors, is yeah, there's some folks that are really struggling. There's some failedacorns, some crashacorns, some deadacorns. But there are a ton of SaaS companies at $200 million or there are more growing 30% or higher. That means you're ready to IPO. As soon as the markets are open, they're ready. They're ready. The Gainsight, Algolia, TalkToUs, Greenhouse, Dataiku, Checker, Rippling, Deal, Brax, Navarre, who's here? They're all ready to IPO. It's just a timing question. If Klaviyo is going to do well and then they're not going to rush in an hour. But that's why I've said for a while the back half of 2024 should just be full of good IPOs. These are all good companies. These are not fail-a-corns. These are all folks who got north of $200 with good growth, most of whom are probably cash flow positive today. So that will be bullish for the ecosystem with one, with one big caveat. This is really the X factor. I guess it's inflation and I guess it's ZERP and BERP and DERP and WERP, but multiples are not great in the public markets. They're not great. We are not going back to 20x, 40x era. In fact, they're a little bit worse than they were 4 or 5 or 6 months ago. Be thoughtful, be humble about your valuations, be humble about your capital raises because actually multiples are the one hitch. There's great companies waiting to go IPO. We're bouncing off the bottom. Customers are buying more. Maybe it's in— maybe it's interest rates, maybe it's whatever. I'm not— I'm no true economist, but multiples are still mediocre, and that's the quiet drag that's going to make a lot of things harder. Your venture is going to remain tougher than it was. Um, later rounds will keep getting harder and harder, and these IPOs will look great, but if you— if you're at $200 million in ARR growing 30% and you IPO and you're worth $1.5 billion or less than $2 billion, that's amazing, but it's not quite It doesn't really justify unicorns, right? So this is the one only thing I'm worried about is that valuations remain low. We are seeing unicorns back. Apollo's like the first real SaaS data one that's had a true honest non-insider billion-dollar round that I know. So that's a good sign for the ecosystem for this Klaviyo-led resurgence. AI is obviously beyond on fire as you can see on all the Salesforce sessions today. Salesforce is like, Done all of them, as you can see, billions and billions, Salesforce Ventures. AI is back, but it's a bit of an outlier, it's a bit confusing, but the Apollos is a good sign. Unicorns are back, but it's cautious other than AI. Again, this I stole from ChartMogul. It's a cautious recovery. This is what they saw themselves, that it's actually gotten better the last 4 quarters. For most of the public companies, it's gotten better the last quarter and a half. For some folks, it may be the last 45 days, but It's hard. Let's not bet on it. Let's not bet on it getting worse. So quickly, I'll take one extra minute, but I don't want to go over more than that. This is the meta question is in this efficient world, how good will growth be? And what you can see if you look, I briefly put together Atlassian, Monday, Datadog, Mongo, and HubSpot. I mean, these are HubSpot at $2 billion, Atlassian at $3 billion, Datadog at $2 billion. They're all growing at still incredible rates, but there is some deceleration from last year. So what is the bar? What is very good growth? We're not— again, we're not back. To the good, good times. The leaders are mostly growing slower than they were, but they're growing more efficiently and the growth is still there. It's still real. So yeah, just two quick things. I want to summarize this efficiency. If you look at the slide on the left, look at how much more efficient Toast, -19% EBITDA, +6%. Monday, which talked about -16% to 26%. Snowflake doubled its free cash flow. Mongo, -13% to +19%. In a little bit more than a year. HubSpot, 9 to 14. Everyone has gotten much, much, much more fitter. This will be a fundamental change to how we think and build startups. So for me, I'm gonna finish on this and then we'll bring Jack Altman out. Your real job to founders, I say this, it's a kick in the ass, but it's the friggin' truth if you've looked at this data. Your job is to do better than last year, okay? Customers are not doing worse than they were 2 or 3 quarters ago. It is not worse. It is not harder to sell sales automation tools or sales analytics or marketing analytics or customer success tools. Pick yourself off the friggin' ground and do better than last year. I'm not saying you should go from 10% growth to 180% growth in 1 year. Challenge yourself next quarter and each of these next quarters to do better than the last quarter and to do better than 12 months ago. There's no excuse. It is not worse. It is better. It may be a smidge better. It may be a lot better, it may be barely better, but do better and maybe part ways with a few folks that don't believe it, that don't see it, that don't have the confidence, that can't see the future. That helps too. So move on from the underperformers and challenge yourself that there's no excuse to not grow faster as a startup than last quarter and last year. We're lapping, I think, the toughest times for many folks. And how much to do better, I don't know, but if you're not doing better, Challenge yourself. Everyone can do better than 12 months ago. So thanks everybody, really appreciate everything.