Why The Era of Efficient Growth is Now: The State of the Market with SaaStr CEO Jason Lemkin

There's no founder community like this. 8 annuals and 3 Europas. This is the best of the best in SaaS. CEOs who may even compete with the next generation all want to share and help. We all need mentors, and the whole point of SaaStr— thousands of pieces of content, years of events— is to be your virtual mentor. And that's what I needed. SaaStr isn't a conference, it's a community. It is a work of passion at this point. Overinvest in customer success. Make your friggin' customers happy. Job number 1, 2, and 3 is to add value to your community each year. The kind of value for everyone to feel like some part of SaaStr they have to be a part of. If SaaStr grows about 70% bigger, then we kind of enter the stratosphere. The world of cloud will be here. That's a great vision. If it's helpful to kind of set the tone for where I see things in SaaS today, where we're at, and then later we can pick it up for the very last session tomorrow. We'll do a Q&A at the very end during happy hour until I pass out or until you don't have any more questions. But I just, for what it's worth, I'll share my thoughts about where we are. And it's funny, how many folks were in Barcelona last year at SaaStr Europa? Okay, a lot. I did these slides and I'll tie it to this. And basically my message last year in Barcelona is stop whining. And it was, look, obviously last year things were easier for most folks than 2021 when buyers would buy anything, uh, when in some cases there was a lack of discipline in the markets, which was fun, it was good. But last year there was there was still so much budget going to SaaS and cloud that I challenged everyone, work harder. Stop, stop pining for 2021 and the late half of 2020. Those days aren't coming back. They were crazy. Times are still pretty good. Go out there and friggin' sell something. And I still think that's the right advice today. But I want to talk about how things are different this year than a year ago. Last year was challenging, but I thought a lot about this and I didn't figure this out until a couple of weeks ago. Like, why are things so different in 2023 than 2022? They're obviously very different than 2021. I think for most of us during the crazy lockdown era, it was just nutso. And this is what I know. This sounds obvious, but or maybe it doesn't. This is what someone who's been doing SaaS since 2005. This is the first time in the last 10 years that SaaS has gotten harder. Okay, it has gotten harder. And let me just talk through it for a minute because it took me a while to really understand this. And there were some bumps. And this is just— I took from the BVP Cloud Index, just the overall growth of the markets and the top ones. I know I'm colorblind, is it blue or black, or someone tell me. The top one anyhow is all the public cloud stocks and their stock prices. And what you can see is that, look, there were a few bumps, and if you squint, I know there's a little line, there have been some downturns. At the SaaS Annual in 2016, most people don't even know this or remember it, there was a flash crash in 2016. There was a flash crash, and it was worse than anything other than 2008, 2009. For about 4 months, people stopped buying anything in SaaS. It's nothing like today. Literally every CIO stopped buying it. It was so crazy that LinkedIn, even though they were profitable in public, panicked and sold to Microsoft. Like, why this? The markets panicked, okay? The markets also panicked, as we'll remember, around March of 2020. But what happened then is they were short, right? The nuttiness of the lockdown didn't last, right? 3 months later, Zoom exploded, Slack exploded. We had a tear in SaaS purchasing like we'd never seen. Even though it was a rough 4 weeks or 8 weeks or 12 weeks, it was so short. Even that, you can almost squint and see that downturn. Even though that 2016, Downturn was rough, it didn't last a year. It lasted 6 months or 7 months. The weird thing is now we're in year 2 of a tougher cycle, year 2. And I put this up, 2011 to 2016, outside of that bump, SaaS went from really hard, like no one would buy your product unless it changed the world and no one would pay anything, but each year it got a little bit easier. People knew a little bit more about SaaS. And then Box went public in 2015, one week before the SaaS Test, you know, and people still didn't understand SaaS, but at least they would buy a little bit more. And if you were lucky enough to get to IPO $100 million in revenue back then, like HubSpot or Box, you could IPO, right? Things were smaller. And then between about 2016, 2018, after that, that little crash came back, everything got easier. It wasn't easy, it was always hard, but it just got easier. Deal sizes went up. Folks that used to know how to sell a product for $3K could figure out how to sell it to $10K to more stakeholders, and more budget opened up, and SaaS went from weird to mainstream over these years. Then right before lockdown, it got pretty good, okay? 2018 and '29 were like, wow, there's unicorns now. When, when HubSpot IPO'd, it was worth $800 million. When Box IPO'd, it was worth $900 million. Public companies weren't even unicorns, okay, back then. All of a sudden startups could be unicorns. And so it started to get easy. It started to get easy. We started to hire, started in some cases to lower the bar on hiring. And more importantly, it all became kind of mainstream. Normal people went into SaaS. It wasn't quirky people that did startups. It wasn't crazy people that did this. It was ordinary, regular old people, and it just changed The surface area for we hired, and it just got easier. And then 2020 and 2021, it got almost too easy. Not necessarily for us as founders, but I'll tell you a story. Sometime around June or something of 2020, uh, someone I knew, uh, uh, called me and he said, hey, my, my daughter went into SaaS sales. I'm like, great. She just graduated from college. She went to DocuSign, who I, I knew I used to be with. I'm like, great. How did it go? She closed 5 deals her first day. She's great at sales. Okay, she's great at sales. She's never— this is her first job ever, but she's so good at sales intuitively that she closed 5 deals her first day. Okay. That was a moment in time that we all thought crazily might last forever. But think about it, it makes no sense, right? That was— everyone needed a call center. They needed e-signatures. They needed— they needed to collaborate. And it was crazy. And so be it. We know that that was a unique moment in time. But I think our culture has changed. And it— and I don't mean to sound like someone that's been doing this for a while or almost a fuddy-duddy, but folks on your team and founders that have only raised capital, for example, over the last couple of years, folks don't even know what it used to be like. And so what happened was then we got to 2022 and 2022 in some ways was terrible because it was a huge overhang. The markets actually really peaked just at the end of 2021. And I remember One of my first group of investments from 2013 to 2015 was Salesloft, and I had invested in Salesloft almost pre-revenue. And it was the last big acquisition that happened. They got bought for almost $2.5 billion in cash, and it closed December 31st, 2021. Okay, pretty good number. And they just crossed a little over $100 million in revenue. So at the time when deals were being done at really high multiples, it was like 20x, which seemed like a lot today, but then it actually was a decent deal for a PE workout. But it was interesting because that deal almost fell apart in December. By the time the deal got signed, it was exciting. But by the end, investors were starting to panic. There was questions. Could we, could we get out of the term sheet? It wasn't quite said, but panic had already sort of set in. And that was— that's when I saw it coming down. And then it just— the markets just plummeted, as we know. Right. And so 2022 was Crazy, but we were in kind of a free fall in the public markets. No one knew what happened, right? And we didn't know, would we bounce off the floor and fly back up to the top? What would happen? And so it was a weird year where at the beginning at that, those $2.5 billion deals stopped happening. So the Series F and G and H and IG investors started to slow down, but the D and the C and the B investors were still there. And then by about the end of Q1 of 2022, the D and the Cs were gone, but the Bs and the As were still in the market. And then the Bs started to fade away over the summer as the valuations plummeted. I mean, it kept going, and I would say probably by the end of last year, A's disappeared. Okay, and I actually don't think very many SaaS Series A's are happening, which we can talk a little bit more later. But it took a while, but it was a weird year, right? Because everything was changing before our eyes. We— and we didn't know what— and I wrote a long post of like, it's going to bounce back, but what is the angle of bounce going to be, right? Is it going to be like flat to this, up, or to the right? I personally never thought we would have 2 years of a public company sort of downturn, or what we are. What are we at now? Now, we're in what looks like a flat turn. This was up and down, but now, and I could extend out a little bit more, actually, the public markets are sort of flat this year. Some of them are up a bit, the Snowflakes and CloudFlares and others have actually come back from the bottom. A few others are down, but we're in a world where it's flat in multiples, what public companies are valued at as a multiple of their revenue. Are pretty crummy. There's a handful that are more than 10x— the Snowflakes and CloudFlares, HubSpots— but the average, I think we'll see it on the next slide, I think it's about 5 or 6x. So the average SaaS company, really good ones, public ones, are worth 5 to 6 times the revenue, and they have been. Now we're getting into 2 years of this, 2 years of this, and this is just what it is. And it's so— it— I actually— as some of you will say, oh my God, it's so hard out there, revenue's down, I don't think it's so hard. I just think it got hard again. It basically got as hard as it used to be. It got as hard as it should be. There is not unlimited budget. CIOs, small businesses do not have unlimited money. There's a fixed amount. And if you disrupt something, if you do something better than Salesforce or Zoom or HubSpot or Slack or even UiPath, if you do something that is 10 times better, you will get money, but it's because you're disrupting that budget. You're stealing budget from one vendor to a new vendor. That will always exist even in the tougher times, but We're back. So it's a weird thing. And I think I'm still struggling with this at some level with founders I work with. And even on our tiny little team at Saastr, I think folks are, is like, there's a lot of DNA that changed during this peak in this last year. And there's a lot of bad practices. There's a lot of folks who complain they think sales is hard because you know what, now they have to, they have to close 4 to 5 times their OT when really it was like 2x when the market peaked, right? Or marketers really have to develop pipeline and other things happen. And so it's just, harder. And so I don't— we're gonna— it's by the end of this year, either multiples may rebound, or I think we will have churned through a whole generation of folks who closed 5 deals the first day on the job. So anyhow, that's my tone of— I still challenge you, and we'll go through this— things are not that bad. Like, things are down overall about 30%. I wrote it up on SaaStr. We had data from Altimeter, we had data from ChartMogul, we had data from Andreessen all of the last 2 weeks. Things are about a third harder. Growth is down by about a third, but growth is not down 100%. It is down by about a third from when it's easier. So everything's 33 to 50% harder. Maybe that's the way it should be. So that's how I think about it. But the craziest thing isn't really the growth. The craziest thing, if you don't study this, in one year, and Daniel kind of talked about it actually before, how UiPath did, I don't know if you just heard him, UiPath went from losing $400 million in a year to being almost break-even the next year. That was unprecedented. Now it's precedented. Because every public company has done this, and people have been wondering for 10 years, can SaaS be profitable at scale? And no one knew. Now everyone is efficient, right? And I'll show you just a couple of examples. Here's HubSpot. And HubSpot, obviously a hero company for all of us, right? A lot of us love the founders and, and Yamini, and it's a lot like our companies. They just crossed $2 billion in revenue, okay? And all the way up to $2 billion, HubSpot selling to SMBs at a $10K price point, They thread a needle. Like, they didn't, they didn't go, they wanted to invest in the business. They wanted to invest in sales and marketing and engineering and product. And so their net margins were pretty low, as you can see on the left. Like, they were positive back to 2017, but they weren't much, right? They were investing almost everything back in the business. And then look what happened over the last year. Radically more profit, from almost nothing to 13.5% margin. Now I think this is non-GAAP. We don't have to talk about, we can let the CFOs and others, we can talk about the differences. But HubSpot is radically more profitable than it was a year ago, and we're seeing this everywhere. And like, here's another fascinating one, monday.com. I mean, monday.com is crazy. It's growing. I just wrote up, I forget, I think it's growing 50%. It's $640 million in ARR. Pretty good, right? Pretty good. But look what they did on the left. Here's Monday's headcount. Grow, grow, grow. And then what did they do for a year? Flat, right? So they held the headcount flat. They've just restarted some hiring, but mostly for engineering. But they grew 50%. So if headcount's flat and you grow 50%, what happens to the bottom line? It gets a lot better. So look at this radical change from Monday. Radical change. Investing in growth, investing in growth all through Q2 of 2022 as the world changed, right? Negative, negative margin. That was okay. They had tons of money. They went public. That's what the cash is for, right? To grow quickly like Daniel talked about. But then the world changed and Monday became radically different from -16% margins to 24% in one year. 24% is really hard to do. Now, again, And this is non-GAAP, I'm not going to get into this in a short session, but 20% is pretty darn hard to do, 30% is what Salesforce is trying to do, very mature. So look at that rate of change. Like we've never seen this rate of change in our lives in SaaS of companies going from everyone being okay about being inefficient as long as it's growth to radically efficient. And almost, there are a handful of folks that are public that haven't done this, but almost everyone else that you analyze has gone through this radical efficiency change. And this may be the most— we'll see, it may not stick. Okay. It may be that multiples reflate and good times are back and capital flows and we get back to the slightly drunk levels of the past. Maybe. I don't know. Or maybe for the first time ever in SaaS, ever in our working lifetimes, efficiency actually matters. That it actually matters. It hasn't really mattered. People complained about SaaS during the early IPOs. Box of the next generation and on Salesforce of the prior generation. They complained why they weren't profitable enough, but the market still tolerated it. People tolerated that. SaaS was always kind of investing in the future, like the Amazon model. Jeff Bezos was always be patient. And in a way, Marc Benioff and others were like that. But maybe we're done. Maybe we're done with inefficiency. And at the end of the day, software used to be incredibly profitable. Adobe, Adobe today almost 50 cents of every dollar goes to pure profit. It's 40-something percent of every day. That's the way software used to work. A bunch of folks would write some code, you'd burn it on a DVD-ROM that cost like 50 cents, and you'd sell it for $50, okay? So yeah, it was kind of expensive to get the engineers, but the old classic software companies were so profitable, like your eyes would cry, and SaaS never got there, but SaaS can be. SaaS can be. Maybe we can't spend as much on sales and marketing and G&A and maybe even product engineers. We used to— maybe we just all have to spend 33% less forever. And it's doable. Like Monday did it in one year, HubSpot did it in one year, a lot of you did it in one year. But most startups are just thinking about this as a temporary thing. The board said get more efficient, like we can't— we're not sure we can raise another round, so we're going to pause, we're going to slow down. That's very different than fundamentally changing all of the metrics and numbers we've looked at for 10 or 15 years, that everything's going to have to change, everything's going to get 33% more efficient and maybe 33% harder. Quotas will have to actually be met. Everything will have to be more disciplined. So will this stick? I don't know. But again, we're coming into 18 months into this change time. Maybe it's not a downturn, but it's a side turn. It's a re-flattening. And if we end up 24 months into this and multiples are sort of the same, I think we are in a new efficient world for the first time in SaaS. We will not go back. People now know You can't say, hey, well, we're always in debt, that we can't be profitable. Monday doesn't want to be profitable. HubSpot doesn't need to be profitable. Now we've proven they can be. The exact same companies with the exact same products and the exact same management were able to become radically more efficient in a year. And net-net, it's doing more with not that many more people. That's the change, right? Not the flood of people you have. That's the new world. So a couple related points, two different ways to look at this data. I like this one. ChartMogul just put this together the other day. I put it up on Saastr, and I thought it summarized a lot of things briefly. And they looked— I don't know how many customers they have, but maybe 1,000-something. I wrote it up on Saastr. But this was super interesting. They tracked the overall growth of their companies from 1 to 30. And anyone that's tracking direct metrics, it's super interesting. And so what do they see? Their top quartile— now everyone may have different top quartiles and medians, but it's still very interesting because it's probably consistent. Their top quartile in 2021 hit 100% annual growth from 1 to 300. Obviously there are outliers, there are, there are Riplings that'll be here later and UiPaths and Looms that are all speaking today that grew faster than 100%. This isn't top 1%, but this is top quartile, okay, that they could double in 2021. And this is interesting because if you double at this rate, it also means roughly you can raise venture capital. Roughly at this rate, you know, triple, triple, double, double. If you're doubling, you can raise venture capital. If you're growing 65%, that's still pretty good growth, you can't raise money. So one, all these companies became unfundable over the course of this year, right? And two, what really happened is the best ones still grew, um, but they grew 33% less than they did at the peak. And I think this is— remember, and less than 2020. So similar things happen with the median startup, but this is where we're at. And so There's a bunch of lessons from this, but one of this is it's not like the top quartile is growing zero. Is growing zero. And I don't mean to be direct, but with a few exceptions, I don't have any empathy for startups that had decent growth during 2021 and have slowed to zero. Okay, I don't have any empathy. You really have no customers? Really? None? No. What it really means is your product wasn't valuable enough. It means you no longer have product market fit. It means you fell out of product market fit. It means In 2021, when a director of sales had budget and can buy your product, but now the VP of sales or CFO doesn't see value, that's on you, right? That's not the market. You didn't build a valuable enough company. Go change your product, go tilt, go iterate so that there's enough value. If your growth is slow, 33% since the peak, I got a lot of empathy. If this is you, I have, I have a lot of empathy. You're not alone because these are the top quartile. There are macro impacts, not for everybody. I would say 20% or so, and we'll see some other data in a minute, 20% or so of SaaS companies are not impacted at all. They have no macro impacts for a lot of reasons, but on average you're down to third. So here's where I have empathy, and below that it's cry me a river. Like, this isn't meant to be easy, okay? Everyone already has bought 200 SaaS products. No one needs yours too, okay? Most businesses out there work just fine. Do we need the 11,000th prospecting tool or the 58,000 payroll system? We do not. The tools are okay that we have today, build something disruptive, build something amazing that will get someone to switch and you'll unlock the budget. So anyway, I thought this was super interesting to see. And here's another variant that Jamin Ball from Altimeter put up. He's got a great blog on Substack. He looked at all the public companies and there's a lot of data in here. But if you look at the left in red, the median public company growth is down 35%. So it's interesting that sort of ties to the ChartMogul data. It's not like any public companies have no revenue. Right. But overall, it's down. It's down about 35%. Monday is growing 50% at $640 million, which is stunning. But I think at $400 million, it was growing like 80%. Okay. And so new bookings are down a third, but the new bookings are still coming in. And if you look at the left, I said about 20% of SaaS startups are unimpacted. You can kind of see that on the left. Those are folks that are, that have, that are growing faster than they were before in ServiceNow. And a few others, HubSpot, Dynatrace. You can see these are the ones that are having no macro impacts for, for different reasons. So it's harder, but it ain't so hard that either the startups or the public companies can't still get there. But, but they are now radically more efficient than they were. So this is kind of— I want to synthesize everything that I'm seeing. It should be a third harder for most of us, not all of us, but, but go sell something. And then to tie it together, I know you folks have seen this and maybe the point I made before is merchanting. We'll talk about this, we'll get threaded through tomorrow. Where we have a ton of VC content, VC-type content, and I can talk more about it if people want to. I know people have seen different charts of— but I like this version from Carta that showed through Q1, you know, you can just see the peak of venture and then it's just plummeted, right? It's just plummeted. Capital fell 80%. And I know everyone knows this, but if I had to give you one takeaway, it ties back to the prior slide. I hear a lot of founders are like, okay, I want to raise I want to raise an A round or a late seed round or something. And I'm like, how are you doing? I'm like, well, we're at $2 million ARR, we're growing 40%, but last year we were growing much more quickly. It's just harder today. I'm like, I get it, but you're not going to get funded. And if I had to give you one— we can talk more about this tomorrow— if I had to give you one takeaway is if you are, if your revenue, if it's 33% harder than it was last year, You're not alone, right? But it doesn't change the math of fundraising. You're not going to get a pass from new investors. Now, your existing investors may give you extra money, may give you a bridge or an extension because they understand the 33% impact, right? If you were doubling last year and you're great founders and the growth is a little bit down this year, they may give you another million dollars or half million or $5 million because they know, because they're already on your cap table, they're already invested, and they will cut you some slack for that 33%. But new investors, they can't. And this is why there's so much stress across venture today, because you need to get to $100 or $200 million in ARR in 7 to 10 years for venture to work. And if you're not growing at a rate that can compound to $100 million in that journey, you simply can't make VCs enough money for them to make money. Founders don't get it right. And so there's this old math that Niraj from Battery put together a while ago, triple, triple, double, double. You know, you gotta triple after $1 million, 1 to 3, triple again, 3 to 9, then 9 to 18, 18 to 36. Not everyone quite does triple, triple, double, double, but the reason it's such a useful heuristic is that gets you to $100 million in 7 to 8 to 9 to 10 years. That's what it takes. And if you fall below that line, it doesn't mean you're a bad human or a bad startup or your customers don't love you. It just means venture capitalists can't make enough money to invest in you. Right, so a deeper topic, but just realize your, your existing investors may cut you slack if growth is slowed, but new investors are just going to pass, right? They're just going to pass. And this is why the markets have, have frozen. And I will tell you simply, um, I've talked to so many folks, and, uh, I met, I met with one of the best SaaS VCs, growth, multi-stage, $10 billion, $20 billion under management, done so many of the so many of the great SaaS companies through IPO. And I met with him last week before I came out here. Like, what do you— how are you guys thinking? And like, well, you know, first of all, our investment pace is down 80% from where it was at the peak, which is kind of like this data. And so, but what do you think? What if I gave you a triple, triple, double, double company? He's like, even that we don't even know if we want to— unless it's AI, we're not even sure we want to invest today. Okay. The markets are just sort of paralyzed and frozen. And again, you're not going to get cut any slack. And I've already had this conversation like 6 times this morning. I want a raise and my growth is down. Well, you know, it's cry me a river. The math has to work out. Anyhow, I wrote this tweet the other day. There's essentially zero interest in ABC SaaS VCs or anything that isn't AI. A version of the story I just told, zero interest, but pretty darn close. We'll talk about that. But you know, this is Dan Shaiman, one of the most successful angels, you know, top angel and board member for Zoom. He owns like 1 point something percent of Zoom personally. SentinelOne, so many other, I mean, probably the best angel track record, but just a reminder, the pendulum will swing back, which will be kind of the last point we talk about. And I'll have to go through this a little bit quickly because the prior session went long, but I want to hit a couple other points. And I write up the Gartner data a lot on SaaS. I used to be a skeptic of Gartner when I was a CEO years ago because it always seemed like you kind of paid them to get the research and it was pay-to-play and there's a lot of stuff. So be it. In terms of the research. But the great thing about Gartner is there's no one that talks to as many in the enterprise, CIOs and buyers, as they do. Okay, they're constantly surveying hundreds and hundreds and hundreds of buyers. So even when their numbers change a little bit, I generally find it's always some of the most directionally correct data that we can access as founders and executives. So what does Gartner say? Well, you know, SaaS is still going to grow 18% in spend this year and another 18% next year. People are still going to spend almost $200 million in the US alone on SaaS just in the enterprise, $200 billion and $230 billion next year. Now, a lot of that's going to go to incumbents. A lot of it's going to go to price raises and inflation. Okay. But it sure, it sure ain't going down. So change the world and you can access some of that incremental $30 billion, just an incremental $30 billion that next year is still going. And this is only enterprise. This isn't even SMB that's still going in this year. So overall, things are trending good for SaaS. People are buying more and more of our products. They're just buying different with more scrutiny than they did 18 months ago as we all know. Anyway, I thought this was a good summary with Twilio. This is one of their classic billboards in the Bay Area, and it just shows how buying has changed, right? So for like 10 years, basically, Twilio had versions of the same one on the right, ask your developer. Ask your developer, you need to add voice, you need to add SMS, what do you do? Ask your developer, they'll make the decision. This was empowering the line to buy which benefited so many of us in the peak. Now, it's reducing costs by 65%. Now this is something you can go show your CFO on your phone. Hey, if we use Twilio, our costs are going down 65%. So for all of Twilio's first decade or so, ask your developer, ask your developer, ask your developer. Now this is the theme of the day. PagerDuty had a very similar one, and I thought it was just— and so, net-net, my last point is, and so many— I think founders have adjusted to this, but it took folks a while. Folks are complaining, oh my God, now the CFO has to approve my deal. Now I have more stakeholders. Now I have to go through scrutiny. Now I have to go through an extra layer of procurement. And I'm like, cry me a river. This is the way it used to be until 2020. It used to be everything had to be approved by the CFO. It used to be you had to do 7 things and you had to do a pilot and you had to resell it after the pilot and you had to do all of it and you had to go through all of it. And then all this budget, everything became about investing in growth through SaaS. And it all, it all got lost in '20 and 2021. And people went to VPs and directors and gave them a reasonable amount of budget to just go spend, just go buy the apps you need to grow even faster. And that's gone. They no longer have those budgets. Their bosses have those budgets, as you can see from the Gartner data. It's not like the budgets disappeared, but those folks that could just buy your app without the CFO's approval, that's just been— that's just gone in most businesses. But it's just like it used to be. It used to be this way until about 2018. So we're just kind of back to the future or something like that. So if I— I think this is my last slide. Let me go back, or close to it. This is my last point, and I'll try to wrap up in 2 minutes because I lost a little bit of time. But for founders and others, the biggest challenge through the rest of the year and into next year is really just multiples. It's just multiples, revenue multiples. And I, as a founder, I never really thought about what multiples were. I never really looked them up. Even when I started investing, I didn't really care. What are you going to do as a seed investor? You're going to worry about the multiples? Just, just invest in the company. An early-stage company, hope it gets big, you don't worry about it. But because it so much impacts bind, it so much impacts every round from A on, you— everyone needs to be an expert on multiples, on multiples, right? And this is sort of low growth, mid-growth, high growth, again from Altimeter. You know, there has been a bit of— it's probably that this— I think this is last week— there has been a bit of a bounce at the end. But some folks in the stock market, I'm not sure I love this term, they call it a dead cat bounce. I don't know if you hear the term. It's like even when the market drops a lot, like it may bounce off the bottom, but it doesn't mean that it's, that it's really anything real. It's not such a big bounce. So some people think it's back a little bit. But again, until we're above— to simplify this for folks— until the average good public SaaS company, and maybe this is mid-growth, is above 10x, there's stress. There's stress. It's almost impossible for late-stage investors to make money, right? If, if, if, if the, if the average public company is doing $300 million and trading at a billion something in revenue, who's going to do a unicorn? There's no room to make money. You've got to triple your money, at least as a late-stage investor. How can you invest in a billion if the company, after all this hard work, IPOs at $2 billion and there's more dilution? So it's just broken. If we stay here and we've been here, as you can see, since, since we came off this peak, we've been here for a while. We've been in this 6x, 7x world for a while, and depending on how you look at it, it may be the lowest multiple since 2017, 2018, maybe longer depending on how you cut the data. But will we stay in this world? It's a world we've been in before. It's a world where you can be efficient and profitable, but it's not— it's hard. It's hard to raise capital. It's hard to get anywhere. Or will we reflate even just 20 or 30%? That's like— we need to study this as founders, and everything will change if it gets just a little bit easier. But we've been here for a while, guys, and it's— there's no evidence. You got it. We got to live in the real world as founders and leaders. And right now there's no evidence that it's going to get any easier. There's no evidence going to get any harder. Like enterprise buying still up 18%. These, these, they're still good companies, but multiples are rough. And that's also why almost every unicorn of the last couple of years isn't worth what they were worth then. The multiples didn't support it when they were up at the top. It was great, right? When companies were worth 40x. The top companies when they're public. Snowflake was worth 80x. It was easy. Now it's just, it just, the math doesn't fit. So that was my last point here. Don't be waiting for a rebound. Um, but just lastly, to summarize, then we can chat more tomorrow and later. I, I thought we're 18 months into this reset. Again, I, I think that's a better term than a downturn. We're resetting to, at least right now, it's, we're resetting to where we were before this big run. We're 18 months into it. And so what I said to you before is let's hope for better I do think as an optimist multiples will be higher. I do think buyers are still there, but we got to plan for more of the same. I think as founders you have to plan that 18 months is a long time. 18 months is not the flash crash of 2016 or the weirdness of 2020. It's a— 18 months is a long time. It's not terrible. It's still growing, but we can't plan for it to get any easier. So I sort of summarized it in 5 points. One, and I know a lot of folks are still grappling with this. A lot of folks in sales, AEs and SDRs, are still freaking grouchy in 2023. They're grouchy because they're all making less money than last year and less money than the year before. And maybe they entered the markets in 2020 and '21 and they think this is way too hard. Like I actually, like Sam said at the beginning, Sam, what I have to do outbound, I have to set my own calendar. I actually have to generate pipeline. Like a lot of AEs I know are complaining. They're still complaining, but the math has to work again. There's not so much venture capital to lubricate the system that sales reps at the end of the day can get away with closing 2x or even one-time multiples. It's— we're back to 3 to 5x OTE. So if a rep wants to make $150,000 a year US, great. But if you're enterprise, you better close 5 times that. Mid-market, 4 times. SMB, 3 times. Otherwise, they're not efficient enough. And we talked about efficiency. So sales has got to get back to real-world numbers that have made sense since the dawn of time. Two, I know everyone sort of gets this, but founders still are too optimistic about venture capital. In my experience, almost every founder knows it's harder, but they still don't realize how hard it is. And maybe we'll chat about it a little bit tomorrow. If nothing else, like the old days until about 2019, assume every round is harder. Assume that the next round won't come, as people are saying. I've written this up many times. It got harder and we went through this weird perversion or inversion of this. From 2019 to late 2021, where each round, if you were a great company, if you were great, not, not for everyone. Venture capital has always been for the privileged few. But if you were in the zone, it actually got easier. Each round got easier. And you would look around, you'd be like, oh my God, weren't they worth $300 million last month? And now they're worth— they're doing another round at $600 and then another round at $1.2. And not only was it crazy, the numbers, but what was crazier is each round got easier. There was so much momentum in the market. So much FOMO that it was crazy that each round got— it's never happened in my lifetime since my first job, and it may never happen again that each round got easier. It's supposed to get harder. It's supposed to get harder as you approach the value of a public company. It's very hard for investors to make 3 to 5 times their money, right? It's very hard. It should be. If you think about it now, VCs need to make at least 3 times— late-stage VCs. Early-stage VCs want to make 100x, Series B want to make 10x, and late-stage want to make 3 to 4x. If you're only, air quotes, only going to be worth $2 billion, how even no matter where you are, how can anyone afford to invest at a higher than a $500 million valuation? Think about it. Just to make 4x, even 3x with some dilution risk, that's going to be about the ceiling, right? And you don't really see any growth rounds being done much more than $500 million today for that reason. They really just don't. One of the best companies I've invested in, it's coming up on $50 million. The growth's pretty good. Not— it's almost profitable, not much to complain about. And one of the leading growth investors really, really wanted to invest. And they're just like, but our ceilings— this is just like 2 weeks ago— their ceiling's $500 million. It doesn't really matter beyond that. They have $10 billion. So just— we just don't— unless you're really going to be worth $20 billion, we just— that's our lines for this math. Like, we don't think we can make more than 3x our money. So no matter what it is, we're just stopping at $500 million. This is for a late-stage investment. So it kind of tied to this point. The third point, which we chatted about, but you can't just cut. And public companies know this. Like, I mean, layoffs were brutal for public companies, but they kind of did— the good ones did this, did this, did this thing of precision. HubSpot did some layoffs, but it wasn't that much. And it let them become radically more efficient here. I think they did 10%. Look, I know it's not easy to do layoffs, but they went from, from somewhat efficient to radically inefficient here. It was, it was a tweak. Right. It was a tweak. Monday, I don't know if they did layoffs, but they did a hiring— basically a hiring freeze. It worked, right? And it made them radically more efficient. That works like, you know, growing your revenue faster than your expenses always works. But just cutting solves no long-term problem. Right. And so you've got to still do marketing. And I think there will be a rebound in marketing by the end of this year. Everyone that cut marketing to zero in the beginning of this year is going to have no pipeline at the end of this year. That is the looming cliff for so many Everyone below the public company stage is not going to have enough pipeline at the end of the year. They're going to have to deal with this. Everyone thought the marketing was dumb. Everyone thought field events were dumb or webinars were dumb or podcast ads were dumb. And basically everything in marketing for many folks, everything in marketing for the last 6, 9 months is you need an ROI measured in like 3 months or less. If you can spend the money, but I need that, I need to deliver that into revenue this quarter. It doesn't work that way in marketing. So you can't just cut your way to growth and we're all going to see this price at the end of the year. But to be efficient, this is like old school math that I did when I was a founder in HubSpot. Maybe for every dollar in new revenue you bring in, I guess that really should be ARR, spend 75%. Instead of spending 2 times what you bring in, spend 75% of it. You'll never fail if you spend most but not all of your new bookings. And then my last couple of points, not to read from a slide, but I think they're useful. Going to the prior point, all of this may be out the window if we see even a modest rebound of multiples. If the average public company reflates to 10x, VCs are going to be able to make more money. That means startups will get more money. That means everyone will spend more money. That means you can overpay people on your teams. You can do whatever. You can overhire. You can make all these— it'll be OK. I mean, it'll get a lot easier if we see a rebound in multiples. Again, it's been 18 months and we haven't seen it, and we haven't even seen the decline. We could all kind of intellectually say, hey, we're just in this crazy freefall period. But now that it's been flat for 6 months, there's just no evidence they will come out. But maybe interest rates will come down if everything in multiple is really just an inverted version of, of, of the Fed. Maybe when the Fed starts to cut, multiples will reflate, but there's no evidence of it yet. And then just kind of 2 final points on the state of everything. For folks that— I don't know what it's exactly like in London. I've only been here 4 days. But to say that no matter— to say, you know, on Twitter you see everyone's talking about AI in the Bay Area in SaaS. They understate it. They understate it. The only thing anyone is interested in the Bay Area is AI. Nothing. Everything they want, AI. They don't want fake AI. They don't want the fact that you did some crappy ChatGPT integration last week. What they really want are companies that can grow at insane rates because they displace human beings. That's what VCs want. They want companies that can go 1 to 10 to 100, like in 2 years, that will just replace hundreds of jobs, that radical efficiency. And that's what every VC in the Bay Area is hunting. And they will throw crazy amounts of money at startups that might be that. But, but as crazy as it's not, there's a mission here. They're looking for folks that can get to $100 million in a radically short amount of time by frankly displacing a huge amount of jobs. Right. And And so that's, that's what we're looking for. But there's too many of them, these $10 million, $20 million rounds in the Bay Area. They can't last, right? Not enough of these companies are going to go from 1 to 100 in 2 years. And so we'll see what happens in SaaS. And then the final point, just to note, and, you know, this year was the slowest year so far for SaaS IPOs. Last year was the second slowest ever, and then 2021 was an IPO a day. It was an IPO a day to nuns. It's nuns right now, it's frozen. But there are so many SaaS companies at $200 million and above waiting to go to IPO. I've invested in 4.5 that are at $200 million from like 2013 to 2015 batch. They're all waiting at $200 million. No one wants to IPO at an $800 million valuation or $1 billion, especially if the last round was higher, and the markets are frozen anyway. But I don't know where to predict this all is, except when things do open. When— if multiples do reflate a little bit, we will see this spring of public SaaS companies like we've never seen, right? There's a whole new wave. There are only a handful in the beginning, and then they seem to flower. But overall, the buying is so big, there's just so many at $200+ million ARR. And then, you know, Canva announced this week that they crossed $1.5 billion in ARR, profitable for 5 years. I mean, just sitting waiting to go public at $1.5 billion, right? I mean, HubSpot is such a great company and it just hit $2 billion. Canva's quietly off in the corner profitable with its PLG plus sales team thing coming up on $2 billion, quietly waiting for the markets to reopen. Now it does sit on a $40 billion valuation, which is a little stressful, which is where some of the press came out. But pretty crazy the amount of high-quality companies that are just waiting for the markets to reopen. So thanks everyone for coming and we'll chat more during the two days.