Building Great SaaS Companies Everywhere with SaaStr and Point Nine Capital

Christoph and I will sit down for a minute. I just wanted to chat about a couple things but you know, we probably met. This is so Bessemer. If you haven't seen this, go to Bessemer Venture Partners website. They have something called the cloud index and they look at where all the public cloud companies have gone and I think this starts around 2013 and cloud stocks and SaaS stocks started to do well. And then in February 2016 there was that, that drop. You remember that?

I do.

It seemed like the world was over.

That was the day of the SASTA conference.

It was, it was. Every VC said the unicorns were dead, the world was over.

I don't know if it was because of you or I don't know.

So. But literally in February 26, 2016 people thought SAS is going to be tough. And that lasted almost three weeks, that downturn, didn't it? Something like that. And then what happened since then?

Yeah, well, first of all, like in so many pitch decks that we're getting, there's no description of what line wins what. But I'll guess that's all right.

It works well for yc.

It doesn't matter exactly. So. But it goes up and to the right so it must be good. I am assuming that the blue one is the cloud index and below is nasdaq.

That's just my fault for making the slides. Yeah. The top is SaaS companies and then.

It'S NASDAQ, NASDAQ, whatever.

Dow Jones or something. Yeah. The top one's the cloud. Yeah.

Yeah. I mean I think it.

So what is that? 550% growth in the last five years.

Yeah, I think that, that is remarkable and I think it's even like, even if you look at the, the multiples.

Yes.

Doesn't look quite like that, but it doesn't look quite like this. But it's also clear that it's an pretty much never seen before all time high.

So let me ask you a question. We had the speaker dinner last night and one speaker who will remain nameless. It's all off the record but. But I suspect he may bring it up again. He said he thought the markets were overvalued from, from a public company. What do you think? Is it overvalued? Where are we? Should people prepare for a huge crash next week? Is. Are the good days going to be over soon?

Super hard to predict. I don't even dare to come up with a prediction. I think it's clearly highly valued in comparison to the past.

Yes.

Is it going to Be expensive compared to the future? Hard to say. I mean history probably tells us that there is going to be a reversion to the mean unless the world has somehow changed. The world has probably changed to a certain extent. But at the same time, like this, this time everything is different. It's also what people use to justify every bubble, I think.

So I'll tell you the funny just because it's all just between us here in the room. When my last company was acquired by Adobe in 2011, I was there through 2012 and Adobe stock has since gone from I think 28 to almost 300. So it was really great, great idea for me to leave. But what was interesting, Adobe has been one of the most successful cloud stocks, I can tell you in 2011, 2012. No one there had any idea. Nobody knew. So. And I think what we didn't. And then, and then I realized why didn't we know? Why didn't we know? And I think what we didn't realize, which we'll chat about in a couple slides, is just how forceful it would be when businesses went to, we can call it the cloud now. When they went to sas and we all knew four or five years ago, we were in the second inning, but we didn't know what second inning meant and we didn't know how big these, these innings were. And I think we didn't realize that, that these markets for these products would grow 100 or even a thousand X. Right. That's what's changing. And I don't know that that trend has, I don't know that we're even that far into that trend.

Yeah, I mean I'm obviously super bullish about the future of SaaS for all kinds of reasons. I think just, I mean I'm not that interested in like the stock prices. So I have no idea if they will go up or down. Maybe they will. I think they can correct by 30 or 50% anytime. Right. And it's like it's a random walk down, maybe not, maybe not Central Road, but Wall street. So. But I think that's also not what we really care about. Like we really care much more about like the really long term potential to build great SaaS businesses. And I think if you talk about it, we'll probably agree that that is far from over.

It is far from this next slide. I think I just had a couple I put together but this was a good one that Ari had the other day. There's 25 SaaS companies that are public, that are not just that are public that are up 40% this year. So when we did that Sasser Annual in 20, the first one is in 2015. Aaron Levy came, he was the warm up speaker. It was one week after box that ipo, the roadshow, he was exhausted. I asked him in that, you can see it on YouTube. What does Wall street think of SaaS? How many folks get it? He's like, well, they're learning. A few folks are getting there, right? That was the first IPO. Now we've had a dozen IPOs this year. The ones that IPO'd since all the ones that were worth a billion, they're all worth 4 billion. All the new relics and the boxes that were billion dollar companies. What's Zendesk? 4 billion? 6. 6. It was 4. HubSpot was like almost 5 the last time I looked. And in a way you blink an eye and that one billion Zendesk seemed crazy to billion. Now it's six. Right. I'm sure you've held on to all your shares so you've benefited from the subsequent appreciation. But you know, total, what's that Total? Total.

How.

Do you have any IDEA how many IPOs can we, can, we can get out? How many can everyone here IPO? Do you think we can have 100 or 200 SaaS companies, IPO?

I mean it depends on the timescale I would say, right? I mean, I don't.

Well, everyone here is committed for 10 to 20 years, so that's okay.

I mean, I think would be statistically quite unlikely that all of you in the room will eventually have a billion dollar ipo. Sorry, but I think some will. And yeah, like how many more billion dollar SaaS unicorns can we have? I think depends on manufacturers. Like, depends on like where do the tens if not hundreds of billions of market cap that are currently still captured in SAP and Oracle, IBM? Like what is going to happen to them? Will, will some startups be able to disrupt these markets or will this, where will this on premise software spend move? Because I think it can't stay there forever.

It's true. It is true. Yeah, it's pretty crazy.

And then I think just to add to that, you have the existing software spend which I think will eventually move over to the cloud and maybe while doing so, maybe some of that will be compressed. But at the same time with things like automation and AI, I think the market will also expand because software will just do more things which today are done by humans. So the value creation done by software will, will increase.

I think I leave the quantitative Math to folks like you and Tomas Tungas. But my gut is there's another hundred SAS IPOs to come. We'll hear from Meltwater after this. We'll hear from Datadog today. We'll hear from folks that what that can IPO whenever they want. And there's gotta be a hundred of them. There's gotta be a hundred companies, we may be at 14 today, that can IPO when they want, whether they'll be worth 400 million or 4 billion or 40 billion. But Aiden Aydin, how do we pronounce it? Yeah, aiden Aydin, that IPO, 20 billion. Market cap.

Aiden. Yes.

20 billion, right? Pretty great. So one question on this and then let's talk just for a couple minutes because we could do it forever about coming to San Francisco in 2018. But a quick question. We saw the markets crazy. We saw that Zendesk, which was a billion a couple years ago, was 6 billion, all of them. But my view is that the bar has also gone up. This is, this is a bit of as the cloud has grown. And look at these Okta, which had a crazy IPO. I think there were 6 billion today too, but at 83 million in revenue. So I'm getting already tired. What's that? Almost $400 million run rate, but they're growing 60% a year. Shopify, which is worth like 14, 15 billion, which is crazy, but they're growing 75%. And even good old Atlassian, and we all use Atlassian, and they're at a billion dollar run rate, growing 40. So let me ask you a mean question. If I'm a SaaS founder at a million ARR, growing 100% year over year, which is probably where I was at a million, is that good enough today? Does this raise the bar on me? How fast do I have to be growing if I want to be the next Okta or Shopify?

I think that's good enough. Although it's not quite on the famous like triple, twice, double, three times.

Do I have to be on the triple, quadruple, double to the triple, triple, double, double. What do you think?

I think for some investors, you have to. Those that are really just using a framework like this, but I think if you're at a million ARR and you're doubling and it's a good team and a great opportunity, then I think you'll be able to raise a Series A round. Be able to raise. I think so.

So don't let these numbers, they intimidate me. Don't let them intimidate you, these growth rates?

Totally. I mean it's, I mean growth rates tend to go down over time. So where do you have to start if you want to end with 75% year over year while you're at hundreds of millions? So yeah, I mean I think there is a select Small number of SaaS companies that are just growing through the roof and I think we're seeing like winner takes it all dynamics which we've seen in consumer Internet 20 years ago with Amazon and ebay and I think we're seeing some of this now with SaaS that you just have a small number of winners that are pretty much unstoppable and they just get outsized rewards and returns and everybody knows them and they get all the mind share and word of mouth and so on. And that is maybe unfortunately what all VCs, at least later stage VCs are focused on. And you can't blame them because that's how their model works. But all the SaaS companies that are just a little bit below that but are still viable businesses growing fast, maybe not more than 100% but still like 80% and can be very profitable businesses currently, I think for them it's somewhat hard to raise because like for. Yeah, yeah. But maybe that will change with different types of the private equity or different kind of asset classes because I think there will be like, let's put it that way. I think if you're saying that there will be $100 billion SaaS companies, for each one of them there will probably be 10 or 20 or more viable businesses that will be, will make tens of millions of revenues and millions in profits. So I know, I think it's good to have these incredible success stories as an aspirational goal. But it's not like if you're not part of this cohort, like the world is over.

Well, here's the funny paradox and then I want to make sure we have time to do the next two. But Tomas Tungas did a meetup at our office like you did with Mathilde and he presented some data and bless him for assembling the data because I just don't have time. But interesting. His point with the data was his view is that SaaS companies, after 10 million ARR as a cohort, the good ones that are venture backed are actually growing more slowly than a few years ago because of competition in particular, like there's so many vendors and yet. So on the one hand there are forces that may pull your growth down. On the other hand, if you have these Network effects around brand, especially brand, you can grow faster than ever. So I think it's tough as a founder because I think you have to, you have to, you have to drag the team to success up the hill. So you have to realize that there's going to be challenging quarters or years. And I think quietly, as a CEO, quietly. And you can't stress your team out. You have to ask, should we be doing better? And maybe five years ago you didn't know. Like, you didn't, should I box had an IPO work. You didn't know should I. The numbers were. But now you have to quietly say, look, am I doing 100% as good as I can? And that's maybe for most of us that's pretty good. Or can I torture my team without killing them so that. Because maybe there's more revenue than I think there is in 2018 than there was in 2012. That's my gut. I think there's more revenue that you can get. It's just harder than ever to get it. But there's more there. Right.

And I mean, I think you actually tweeted about this tonight. Some. I don't know if you had any sleep, couple hours. But I think, I think, yeah, I think I saw a tweet from you. It's like how fast you have to grow also depends on your competition, right?

It does.

If there are others who you think are outgrowing you, that's something obviously you should try to avoid. But if that's not the case, then maybe you shouldn't burn that extra whatever millions just to get the last couple of percent of growth, which obviously are the most expensive ones.

They are. Yeah. I remember when, when, when Thiago from Talk to Us did an event at our co selling space, he. That was the first company, they went from 1 to 15 in 15 months. So that was the first company I was involved with that grew at that, at that 1 to 15 to 15 month rate. But I'd forgotten for two years they had zero in revenue. I never would have survived for two. So if you can, if you can, if you can keep making it happen and competition doesn't kill you, what matters is getting to that, to that inflection point. So we will run out of time, I want to make sure because we got a little bit of a late start. But I want to chat about this one slide with you for a minute and I got this a little bit wrong. So I apologize. I'll get this on the blog post and fix these columns. But I was Trying to. How, how important is moving to the bay area in 2018, and you've been a strong proponent of it. I've worked with probably over 20 SaaS companies, many of whom here today that move to the Bay Area, at least in part. But I got a little burned out on the Bay Area this year myself with churn and inflation. I got this chart a little bit wrong. But the turnover rate for employees and the cost of an employee is more than 2x in San Francisco than Paris. That's crazy, right? And rents are insane. Office rent. Your employees in San Francisco are going to live four to an apartment where maybe they'd have a nice, maybe even a house in other places. And people quit jobs more quickly in the barrier than ever. Like they quit. If you can get someone to stay a year these days, a lay employee, sometimes you're lucky because they're gonna go from pipe drive to stripe to whatever. And you just don't see the turnover here. And then the last interesting thing is I think there are finally more veterans here in Europe. But then let's talk about the trade offs. And at the dinner last night, we were talking with Zora and Anaplan and both those you can hear from Mark and Maria today, they're both saying their last because they're veterans from sas, their last teams. Three or four years ago, their European teams were okay, but now they're great. There's veterans. Right. But yet the Bay Area is better than ever, isn't it? By the same token, I mean, I.

Agree with all of the downsides that you have in the Bay Area, but I think there are probably like 20 reasons that make your life hard in the Bay Area. And There are also 20 reasons that make your life very hard in Europe. And it's also, it's a bit of like the grass is greener on the other side thing, I think, because everybody complains about the issues where they are.

I think that is a very fair point.

Yeah. I think at the end of the day, I think there are unique advantages that you have in San Francisco that you just, at least for now, do not have here. At the same time, there are unique advantages that you have in a place like Paris or Berlin or Krakow or Barcelona or many European cities. And like my favorite model, and I know it comes with a big tax in terms of basically CEOs spending lots of time on planes, but one of my favorite models, maybe the favorite model, is really to combine both, like Algolia, for example, which you know very well, they got to a certain Stage build a fantastic culture and a magnet for engineering talent here, where they can get the best engineers from Paris and beyond and keep them. And then they have moved to San Francisco. One, they have two founders, which is ideal for this. So one founder stays here, takes care of the team here, and the other founder goes to San Francisco and builds the commercial team there. I think maybe that is even a better model compared to a native San Francisco startup. That would be kind of like the first time in history that a European company actually has an advantage over a company out of San Francisco.

But two quick things on this chart and then let's break so we can try and stay on track. But barrier pros, there's still many more veterans. If you need a VP of sales, VP of marketing, VP of customer success, the boxes, the Twilios, the Zendesks, the new relics, the Appdynamics, they're spitting out veterans left and right. Right, because so many of these hundred companies that have gotten to the next level, they're changing over their management teams every couple years, and that's creating hundreds of directors and VPs for you to hire. So I still think huge veteran veterans Capital's a weird one. How much better? Just quickly, because we're out of time. When we started working together, probably access to capital for startups was still 5 to 10x in the US over Europe. What's the gap today? Is it 2x? Is it 1.1x?

I can't really quantify it, but I know that access to capital is no longer reason to move to the US because of the capitalist.

You said nickel from Zendesk. That was a generation ago. He said you had to move for capital. Today you do not need to move. That's a big change.

Definitely not. And both because there are more European funds, but also because funds from the US have become much more open to investing in Europe. So you don't have to move for the capital. Maybe it will help, but it's. That's not the reason for moving. I think talent and access to partners, customers being close to the market. That. That is. That is the reason.

Yeah. And then the last one, Partners and customers are still strong, but I think this last one we were talking about before is the peers being. It's. It's so great being here in Paris and there's so many more great SaaS companies here. There's amazing ones here today. But that both peer pressure and access to peers, you get being in San Francisco and walking down the street. I was walking down four times since we moved To Renovas. I've bumped into Owen McCabe from intercom. I mean, he's just there, right? I'm one block from the Algoli team. The people I bump into on the street and the peer pressure I feel, even myself to do well is that combination, I think drives you to excellence, that sometimes if you're the biggest fish in your pond, it's harder to get that same drive and that same access to people, isn't it?

Yeah, I agree. Like, I mean, maybe sometimes you can also go mad if you live in this echo chamber. Right. And so I think sometimes you also have to leave it maybe to like get to like a different part of reality again. Again, I think it's not binary, but I completely agree that the access to people who have done it before and have seen greatness, like have seen companies like Dropbox that went from zero to a billion in 10 years, or consumer companies like Pinterest and Airbnb and Snap and so on. There aren't that many, if any companies in Europe that have gone that path and are spitting out as many talent. So I think the ability to learn from these people, maybe hire some of them, that is really still what makes the Bay Area unique.

All right, last one because we're out of time. And then I definitely want to get the meltwater story kicked off. But my, my sort of, I'm trying to synthesize my learnings from the last six years, I think for Europe to us and then just challenge me to tell you what you. I think if you're going enterprise and you can come to San Francisco, don't go to New York. New York's, I love it. But come to San Francisco. There are, if you need to hire someone that knows how to close 100k deals, million dollar deals, 50k deals even. Not only that, you can hire a VP, but he or she can bring a team with them that they can go out and find, find you 10 or 20 enterprise reps, you have a huge weapon being in San Francisco. And if you're doing enterprise, more of the big deals, if you're in tech, are gonna be in tech is still in is centered around there. But if you're SMB, if you're growth hacking, if you're doing processing lots of inexpensive inbound leads, $100 deals, thousand dollar deals. I think the benefits are real, but maybe they're smaller, right? Maybe you can do an SMB. You can build a billion dollar SaaS SMB company from anywhere today. That's my thinking. I think the advantages are fewer, but still there. Any quick thoughts on SMB versus Enterprise? On that?

I agree in the sense that the VP of Sales is like one reason for going to the Bay Area, which if you're in SMB, maybe, maybe not quite as important. I think it's not the only trigger that might want to lead you to go to the us I think another one is a VP of Marketing or Great Product Management or maybe in some cases even. Even tech. So I think it depends on what exactly you're. You're doing and what the key talent is that you need for that company. Yeah. So let's say for a developer tool, for example, maybe you don't need the VP of Sales, but you still want to, like, eventually be in the tech community. But I think pipedrive, which you're an investor in, is a, as far as I can tell from the outside, an incredible success story. Where most of the team, I think, is still in Tallinn. Right. And they have people in New York, but they. And they are selling mostly to SMBs. So there is not only one playbook.

There isn't only one playbook. All right, Christophe, thanks for this.