VC Fundraising Workshop: What it Takes to Get Funded Today with SaaStr CEO Founder Jason Lemkin

For this week's workshop Wednesday. How's everybody doing? Thanks for joining us. I'm joining from South Lake Tahoe and one of the things I love about workshop Wednesdays is you can literally join from anywhere. So drop in the chat where you're tuning in from, because Jason and I would love to know. We've got a very exciting and special workshop Wednesday this week with our very own Jason Lemkin. And one of the things he's going to be talking about, we've had a couple of VCs the last few weeks giving an overview of the landscape and what they've been seeing. Um, so we thought we'd bring Jason's perspective and he's going to talk about how it's the same, but how it's also different. So some great insights to share. Of course, we love to get the interaction and our goal here is to get your questions answered, so get them ready in the chat. Once he runs through his slides, we will pull some people up to the stage to have some Q and A. Without further ado. Jason, welcome and thanks for joining us.

Thanks, Caitlin. Yeah, put your. Put your questions in the chat. We will if. If people. If people last. I will try to answer almost all of them. We can go a little bit longer today if folks wanted. So this will be some of the stuff you'll know, some of it you won't, but this is a version of a presentation I was going to put together at Saster Europa the other day in London, but we ran out of time. But I didn't set it. And the idea was to kind of synthesize everything that's happening in venture capital so you can really understand what's happening today mechanically, what's really happening, what's driving VCs, how our investors are thinking. There's a ton of great content, if you want to understand sort of the mechanics of the industry. Logan Bartlett, who's a managing director, Redpoint, did a great session last week. In fact, it was the presentation that he. They made to their own investors. VCs actually have their own VCs. Basically, if you did not know this, they're called limited partners. They give them the money, they have to suck up to them. They have to constantly be fundraising themselves and they do their own presentations and rarely do you get to see one. But Redpoint published their own. So I asked one of their managing director, Logo Bartlett, to share what they told their own VCs. And it was great. It was a 10. It's on our live chat. It's on saster.com this week. You can go read it, you can watch the session. It's a 10 and it will tell you how VCs think about the how multibillion dollar funds think about the world and timing and AI and it's great. But I wanted to go a little bit deeper and explain what's just happening at a nuts and bolts level for founders because I see a lot of crummy advice on Twitter. A lot of woe is me is a lot of this and that and I wanted to step back and say just what's really happening in venture and fundraising and again, ask your, ask your questions and I'll go through it. And I kind of wrote this summary tweet a few weeks back and I think this is why folks are confused that VC in 2024 is like a prime version of 2021. It's like Jason 2 and dark matter. Like it's like sort of what we saw before, but different. And we're going to talk about what's happening. It's a weird world where seed valuations are at an all time high. Carta data mostly ties to this. So if it's always hard to raise venture capital, we can chat about why that is and we will get into why. Why actually raising venture capital is hard in. But if you're in that group of folks that VCs do want to fund, actually seed activity and valuations are at all time high. So it seems like 2021 in some ways. You also see a ton of it's not a unicorn a day like it was in 2021, but you see a lot. But it's not the tiger globals and the others that we saw in the day. It's often insiders doubling down and we'll talk about why that is. A lot of these hot AI deals are not really brand new money. They're either from corporate money that has different goals, right? They're from Microsoft or Amazon or Apple or others or they're insiders writing a second or third or fourth check. So it's, it seems similar these unicorns, but these unicorns actually are often very different than the unicorns of 2021. And then we have, we all mock these undred times error, 100 times revenue deals in 2022. As the markets crashed in 22 we made fun of it. How could someone be so dumb as to do hop in and all these deals at 100 times revenue when the average public company today is trading at five to six times but actually they're back but they're not back in regular SaaS. They're only back in a segment of AI. And we're going to talk about. But why is that? Why are these crazy deals happening? Why are all these AI deals being funded? Why is Harvey Legal today doing around at 1.3 billion when it's got a tenth the revenue of another legal company growing just as fast? Like, what's happening and why is this happening? Because VCs are bet makers, but they're no dummies. So we're going to talk through all this, and then you can ask all of your questions. But this was a chart. I want to spend a minute on it because I should have known this. But I didn't totally get this until one of the folks at Bessemer highlighted it. So I pulled it up. This is Bessemer Venture Partners put together an index of the top SaaS and cloud companies, the Cloudflares and the Klaviyos, and all these folks, Snowflake, Twilio. And they put together a basket, and it's called mCloud. And now you can actually buy it as a basket. And then the other one is nasdaq. NASDAQ is all the top, top high performers, many in tech qqq. And if you look, and I'm a little bit of colorblind, but I think the Bessemer, the cloud SaaS and cloud companies are blue and QQQ is red. Is that right, Caitlin? Do I got the blue and red right? Okay, so here's the weird thing that happened. From about 2018 until the end of 2021, not only were cloud stocks on a tear, right? I mean, Salesforce bought Slack for 27 times revenue. Slack was a great company, still is. But it bought it for 27 billion. A billion in revenue. But it kind of all made sense because overall, SaaS and cloud companies were trading at a huge premium to nasdaq. Look at that gap between the blue and red line. There was a premium. And that meant that as a group, they were all great investments. Like anything, anything that had a pulse, that could go public in SaaS was a great investment. That's why we had so many unicorns, because all the public companies were great deals. So of course you're going to do the unicorns, because all the unicorns look good. But even more than that, there was an arbitrage going on in the public markets. An arbitrage to the end of 2021, which is that just by investing in the best SaaS companies, you could automatically make twice as Much as Nasdaq, right, There was an arbitrage. And so if you've been doing SaaS a long time, like me, you remember it used to be hard and SaaS was out of fashion and it wasn't cool and everyone wanted to do consumer and they want to do this. And then all of a sudden, around 2018 into 20, everyone wanted to be a SaaS investor. And why? It's because there was an arbitrage. Literally, stick money In a good SaaS company and pound for pound, it will be worth two to three times more. An average tech company, that's the gap between the blue and red. And then look what happened at the end of 2021 until it started to. To normalize like the gap. And then it got inverted. Since 2023, it got inverted and now you're a sucker to invest in the average public SaaS company, not the average startup. I'm talking about the really good ones, the boxes, the dropboxes, the Viva is the salesforce. As a group, it's a sucker bet. It's trading at half of nasdaq. It's traded in half of nasdaq. So this puts a huge amount of stress on venture. Because if you're the LPs giving money to VCs, what's a better idea? Sticking it in NASDAQ where you can sell it tomorrow or give it to a bunch of VCs to take 14 years to give you your money back. Which would you take? Which would you take? Now listen, there's outliers in vet in startups. There's data, bricks and canvas we'll talk about. And there are outliers in venture funds. But the average venture fund investing in SaaS and cloud today is a sucker bet. Because of this. You're much better off putting your money in the public markets for the last year and a half or two years than giving it to a bunch of VCs to invest. And you can imagine that creates stress. And so what, what it kind of. If you watch Twitter, like in 2021, you'd see so many folks on Twitter be like, I just raised a fund. Hooray. I raised 20 million, 50 million, a hundred million for my first fund. It's because of this gap, you don't see a lot of folks bragging about having. There was actually. Dan Primax said, I think last week that Andreessen Horowitz alone raised two thirds of all the venture capital this year. Now, is that a testament to Andreessen and its success? Sure. But it also shows you like. It's hard for everybody else because of this gap. Okay? So Right now venture SaaS and Cloud is a bad venture bet. It was a great, it had a great run and it, I'm, I'm hoping it'll have a great run today. But understand it's kind of a sucker bet today. If you want to see it just slightly differently, here's the last three years. Okay. This is a different way to look at that. Bessemer data, the last three years. Put your money in NASDAQ, you're up 24%. What happened if you put your money in cloud stocks and SAS stocks down 44% right now it's a little better if you do two years and a little better. But just look at it. So it is really. So this means no matter what's happening with any individual company, it's a. We're going. And I wrote this up again on Saster, I think over the weekend. We're in the third year of a downturn adventure. It's a weird downturn. There are still unicorns, there are still great companies. But in the aggregate. In the aggregate, as you can see, we're in the third year of a venture downturn. So be aware of it. It's a fact. It just is. And it should be harder to raise money and it should be harder for an A than a seed and a B than an A. And it's because of this, like right now, in the aggregate, it's a crummy investment. Doesn't mean you're a crummy investment. Doesn't mean any of you are individually, but. But you're flushing your money down the drain if you try to invest in just all the, just good ones. The good ones aren't good enough. You've got to be great. So it's tough. And here's a little bit more signs. And so because of this, one year is no big deal in venture. Like everything fell off the cliff in the public markets in 22. Like literally like HashiCorp was the last IPO of the last era. It went public I think in December of 2020. And then everyone just stopped going public until Klaviyo, you know, six or eight months ago, it was, it was a two year gap, but, but it took a while. People didn't, people thought maybe it would be a short downturn in the market. SaaS companies were still growing. Good. It's been a while. And if you look at this chart on the left, this is irr, or the internal rate of returns for venture Funds, how do they calculate their returns? And usually they're a derivative of NASDAQ. Here. They've diverged in 2021. It was insane. The top U.S. funds briefly had 80% returns. Who wouldn't put money into 80% return? You got anything better than 80%, Caitlin? That's doing better than 80% a year. So money flooded into venture overall, and look at it the last 18 months. Where is it? It's negative. The IRS are negative. They're negative. So this is just like it will bounce back. This goes all the way back to 2013, as you can see. So, like, you can draw a line and average this, and you can see that the average IRR is pretty decent. It got bonkers in 2021. So of course, there should be a hangover today. Of course it has to be right? It has to. When it. When this curve got. So when this chart got so high in 21, you had to have a hangover in 2023. But the question is, when will it bounce back to those 20% IRR levels? If you can't make 20%. If your LPs can't make 20% in venture, they should stick it in NASDAQ. They should just stick it in Nasdaq because they don't have to wait 14 years or other asset categories. You've got to make 20%, net of fees, net of expenses for venture to make sense for the LPs. And it just. That's not true today. So are folks still investing? Yes. And interestingly, because it's year three of the downturn, and Logan from Redpoint pointed this out last week, it's interesting, actually. It may be one reason some venture investing is ticking up, because people ran out of ideas for a little while. Like Logan said, Redpoint, which is one of the best venture firms out there in SaaS and Cloud, I mean, they're in Stripe. They're either in Snowflake or Databricks or both. They're in so many good ones. Redpoint, their growth fund, did one deal in 2021. He said one the whole year. And I think they did like two or three last year. Now this year, they're at like five or already halfway through the year. So much better. But one reason may be because by not investing because of this chart, like, at some point you gotta. You gotta invest or you gotta give the money back to your LPs, but that doesn't mean it's gonna last. We're still in a downturn, as we saw in the last two slides. And hopefully we'll come out of it next year. And I'll, I'll give you some reasons to be optimistic in a minute. But you should understand this. The founder, so this, the IRRs are stress. There's another stress in the middle which is that folks are giving up on investments. And this isn't all bad. In some cases it lets the pressure off founders if the VCs give up. But this one was a shocker. Pluralsight Vista is one of the top mega funds that buys startups, both public and private that are at scale. They bought pluralsight which is a great e learning company for I think they put in about a billion and a half of equity and the rest was debt they gave up. They're writing off the entire investment because they can't afford to service the debt. This, we've never seen this. SaaS is supposed to be. SaaS isn't supposed to be perfect but with 110, 120% NRR, it's supposed to be kind of an annuity for these bigger private equity and late stage funds. They know like they might ruin the company, they might stop investing, they might lay off half the engineering team. But if you buy something at a billion in revenue with 120% NRR, it was sort of supposed to be an annuity and that fueled a lot of these private equity deals by Vista and Thoma Bravo and Insight and it will continue to it. There's a lot of truth in it which we can talk about. NRR overall for SaaS companies remains above a hundred percent. But it didn't pan out for pluralsight. Yesterday they published some data that their gross revenue retention I think fell into the 80s at pluralsight. And so they, the revenue retention wasn't there, so the cash flow wasn't there in this downturn and so they couldn't service that. So they're walking away from everything again. One deal like you've never seen this, you've never seen a private equity firm walk away from a late stage SaaS company. They bought, they bought some pretty mediocre stuff over the years and even if they don't ship one feature or anything, sometimes you're locked into these products or if they're enterprise invested, mostly does enterprise. You're locked in for five years, you can't get out. But walking away is a big deal. One is not the end of the world. But if there's two or three or four of these things, it may create some, some stress. And just a really interesting one on the right is squarespace went private. It went private and you see this happen. Zendesk went private last year for 10 billion. Squarespace is just going private for 7 billion. It sounds good, but it's still only trading at five times revenue. And the reason Squarespace is going private in Zendesk is it's just, it's hard to be public, it's hard to keep it going. So they want to hide from the public markets and try to re, accelerate growth. But ultimately, if everything was going, forget about startups and seed and A and B, if the public markets were working as effectively, if they were growing, these companies like Squarespace and Zendesk wouldn't be going private. They'd stay public. So it's a sign of, this isn't the sign of the end of the world, but it is sign of stress in year three of this venture downturn. And be aware of it. Be aware of it. Okay, and so what's going on? So bad news. We talked about cloud and SAS stocks down 40 something percent the last three years. Bad news where NASDAQ's a better deal, but Venture hasn't changed. Here's the thing. Venture is still hunting Decacorns. And I'll walk through the math for you. Why this is in a couple minutes. I'll actually walk you through the slides. But has VC, a lot of founders are like, well, have VCs modulated their expectations. Things are tougher. Today is $100 million exit. Okay, if everyone makes money, can I sell my company for 50 million? I mean you can and we can talk about that in the Q and A, but it doesn't change the math of how do you turn a billion dollar fund into 4 billion? Okay, how do you turn a $500 million fund into 3 billion? You got to find Decacorns. You got to find decacorns. And in 2021 it seemed easy. And SaaS there were like unicorns became Decacorns. But now let's look this chart in the middle. These are great companies and they're all worth billions. This one in the middle, that goes from Bill at 5.5 to Sprinkler at 3 and 2. These are all worth 3 to 5 billion dollars. But most of these were Decacorns. Before I wrote a great, I had a great interview with Rene Lacert of Bill, one of I think the best CEO founders out there. He's coming to Saster annual be there September 12th in the bay Area. As good as it gets. Bill is as good as it gets, but it's funny when we did the pod in 2021, I think the title of is Bill selling to SMBs at 25 billion. Today it's 5.5 billion now. 5.5 billion. You can make money in venture, but if your fund needs deca corns, if you're hunting Decacorns, none of these make sense. Bill Smartsheet Zoom Info Braze, which is one of our favorites. Box. Look at these Asana. You can't do these deals. They're not big enough. Okay? This is stress, right? And so where do you find the Decacorns? We'll talk about it in a minute. But it seems like the way to find them today is AI. Like, look at the headlines. I mean, OpenAI going to 3 billion, like in 18 months or 24 months. You got to find the OpenAI, right? I mean, this top tweet, Elon Musk launches an AI company with no revenue or customers. Xiaomi, It's. It's. It raises 6 billion. I mean, that's worth more than all of Twitter, I think is today his AI company with no customers or users. Are people idiots for giving them this money? No. They're making a bet. They're hunting Decacorns. And it's stressful. Like, XAI may be worth nothing, but Elon's got a good track record, right? Tesla Space X. Like the guy. The guy's a unicorn creator. Whatever you think of some of his political interviews, he's created unicorns and centicorns and all of these. So you got to make a bet. So, like, you kind of a big deal. It's kind of a big deal, right? And OpenAI, we talked about SoftBank back from the dead, raising 9 billion to do only AI. Only I. Right? Point 72. Steve Cohen, probably the most successful hedge fund manager out there, set up a venture fund, just laid off all their fintech folks to only do AI. Like, is it fatty? A little bit. Are you chasing what's hot? Yes. But when you look at the amount of revenue that an OpenAI has in the amount of time it has, the revenue growth, it's what you got to chase, right? And there's some. There's some fake AI out there, which we'll chat about, just calling adding AI to your. To your. To your URL, it's not going to work, okay? A lot of this stuff is either just parody or it's fake. But there is reality. Look at Palantir, $480 million AI deal with US Army. There is reality there. And so you Got to find unicorns. You almost got to be in the AI game as a vc or you got to sit out the game in a sense. Okay, now having said all that, we can be cynical about some of these deals and I think maybe 70% of folks are growing much more slowly than two years ago. But let's not forget there's still outliers out there. These are two from the last couple of weeks. Databricks just said they're crossing 2.4 billion in revenue, growing 60%. 60% at 2.4 billion. Is this partially fueled by AI? Sure. And all that. But that's crazy. Canva, Interestingly, is also 2.4 billion in ARR. 2.3, 2.4 billion. I've seen two different numbers. They're not public. Whether it's 40 or 60% growth like in this article. It's crazy for Canva. Right? It's crazy. So these are also decentralized, worth more than 10 billion. These will be worth 20, 30, 40 billion. And so this is what VCs are still, are still hunting. And then lastly, even though those great ones, the boxes that we love and the brazes and the zoom infos and the bills that used to be worth tens of billions and now worth single digit bill still a lot with single digit billions. It's just not what it was at the peak. They're still there. Okay. And I pulled up this list. It may have fluctuated slightly. They're still there. Is Snowflake worth 150 billion today? No, it's still worth 52 billion. Atlassian still worth 43 billion. Datadog 40 billion. Some of these are down from their peaks for sure. They're still there. So there's still the belief that the Samsaras and the cloud players and the Mongos and the HubSpot, one of our hero ones can do it. HubSpot still were 30 billion, but it looks a lot harder. But the net effect of this is that if you are one of these massive amounts of capital is flooding the winners. They're flooding the winners because it feels like harder and harder to get the winners. But if you do have a Monday or a hub spot as a vc, you're going to flood it with capital, which we're talking about. So again and then we'll see this. So perplexity been in the headlines for a lot of reasons lately. But you know, valued at over a hundred, at 20 million. ARR. Sorry, this is slightly blocked on my screen, but valued at 3 billion, this is over 100XAR deal isn't it? But my guess is I don't have their data. My guess is they went from about 1 to 20 in one year. Right, that's, that's the joke. And so this interesting. I stole this one from the Redpoint deck we talked about at the beginning. Our AI deals have insane multiples. Does it seem unfair to folks that aren't AI native? Maybe. But here's the nice thing that Redpoint put together. It's not free, folks. They're expecting 464% growth not early, but between the B and the C. And we'll show how hard that is statistically to do. They're not expecting you to go from 1 to 5. They're expecting you to go from 20 to 100 million in one year. If you can go from 20 to 100 million in 1 year and the next year go from 100 million to 300 million, are you worth 3 billion today? Maybe. Right? Maybe if that happens, you're worth 3. That's the bet. These crazy 100x AR deals in AI are expecting crazy, crazy, crazy OpenAI like growth. Will it happen? We'll see. But that's the expectation. And then listen, I wanted to tie this back so again you can understand what's going on. Is, are people nuts? No. While the average cloud has radically underperformed nasdaq, look at the big guys for the most part. Look at how Azure I, I copied these from Jamma Ball and Ultima. Look at how Google Cloud has done Google Cloud's net new ARR. Because this is all fueled by AI spend. Azure, AI, Google Cloud. Look at this. Azure 83% net new ARR growth. Azure at this scale, Google Cloud a hundred and who. Raise your hand on, on the Zoom if you want, if you be, if you'd be happy with 175% growth this year. And I think all of us, and none of us are at Google Cloud scale. Amazon's kind of in third place in growth non scale. But even look at how much their growth is accelerated because of AI. Right? And then this chart on the right is, you know, the biggest beneficiary all is Nvidia. Right. Peter Thiel, you know, the other day actually said he if this is an AI bubble because only one company is getting all the benefit. Nvidia. Right. In fact, that's what's fueling nasdaq. Right? Are these companies right? Nvidia, Microsoft, it's all this AI spend that maybe isn't creating enough revenue. But when you see numbers like this, this is why folks are VCs are excited about AI because this is massive amount of dollars that Nvidia, Google Cloud, Azure, and AWS are. So you can see it in the big guys. And if you're a little guy and you're part of this trend and most of us aren't, we'll talk about this. Most of us are not benefiting from this part of AI spend. But if you are, you can be a rocket ship, right? You can literally be a rocket ship today. Okay? So we can talk more about that if you want. One thing I wanted to share with you guys is how how venture funds work, because I didn't know this as a founder. I didn't even know this when I started investing. But it sure becomes visceral for VCs in tougher times. This is why you see a lot of VC grouchiness on Twitter, because they're reminded that it's hard now. Okay, so I'm going to give you two examples. I'm going to give you a $2 billion fund, a bigger fund like a Red Point or an Andreessen or a Bessemer, and then I'm going to give you a seed fund. Why did I start with $2 billion fund? Well, let's say you've already raised a seed fund or an A and you want to raise a Series B. Okay, well, the average fund's check size is going to be 1 to 2% of its size. So if you want to raise 20 million or 30 million or 40 million your B, you're going to need probably a $2 billion fund. So they have enough. That's the kind of risk they're going to take. So they have diversity. Okay? There's not that many $2 billion funds out there. First of all, folks, there's not. There's not a thousand of them. But you probably to comfortably give you 30 or 40 million, you probably need a $2 billion fund. And what's interesting is when you do the math, be like 2 billion. What's that? Even $4 billion exits aren't enough. Okay, so I did this math, and this math is flattering. It's hard on this. But let's assume on the right. This $2 billion fund averages 15% ownership. And the truth is, it's going to be lower today. It's going to be lower. They're not going to end up with 15% at IPO. So this flatters how hard it is. But let's say it's 15% because they lead you around and they lean In a lot of. And one company is worth 10 billion. You have that $10 billion exit. How much do they make? 1.5 billion. Well, that. That's a lot of money, isn't it? But it's not even. They haven't even paid the fund back, right? You have to pay for VCS to make any money. First they have to pay back all the money they're given. They make good salaries and fees and we can chat about how that works if folks are curious. But to make profits, VCs don't make a dollar of profit until first they give back all the money that they, that they borrowed. It's almost like borrowing it from the LPs. So you have to give 2 billion back. So you sell one company for 10 billion. Doesn't even get you back. It's only 1.5 billion. Then you have another one that sells for 4 billion. Now that's as much as Braze and Box and Zoom Info and all those leaders we saw finally worth 4 billion. And you get 600 million. What's 1.5 plus 600? It's only 2.1 billion. You've barely broken even on the fund, right? Then you get 1 for 2 billion, 1 for 1 billion, and then 4, a couple other small ones. It all adds up to 2.685 billion. In this scenario, you've only made 1.34 times your money back. And net of expenses and Fees, it's probably 1x1x. And VCs don't expect big funds to have as high a multiple as small funds. But they're still expecting like 2.5x to 3x gross. This is 1.3. Even with the $10 billion, the 4 billion, the 2 billion, the 1 billion, and these nine figure exits, you know, they're less than half the way there in a $2 billion fund. So imagine you're. You're a VC at a $2 billion fund and you had a couple unicorns and were feeling good in 2021. And now one of those unicorns is worth 200 million. One went under and one's doing great. But it's not clear it's going to ipo. How are you going to be feeling today? You're going to be feeling like those first three or four lines on this spreadsheet disappeared on you and your job's at risk. That's going to be feeling as. Unless you run the VC firm, you're going to be feeling like you're. Like you were. You're high on cloud nine and and even, and those are good ones, one of them still going to be worth a billion. You're going to, you feel like your job's at risk because you're not. It isn't. You're not going to get there. Okay, let's do the Math now for $100 million seed fund. And in the old days when I started in all this, $100 million was a large seed fund, but that was when folks did $3 million valuation seed seed rounds. Now seed funds are at 10 million 50 million. If they're YC, they are $23 million valuations. Okay, so it's harder. So let's say you have a hundred million dollar seed fund and you invest super early and you have three if you're lucky. In a seed fund you have $1 billion company, but they have three here. It's not even enough. Okay. In today's world. And let's talk about why. First of all, what happens is everyone is ending up with smaller ownership stakes in the seed and there's a lot of dilution because there's a lot of rounds. So let's say you buy 10% in a seed fund, but you only can follow on so much. You don't have 2 billion like Andreessen and Red Point. So on average by the time you get to an IPO or an acquisition, you own five. This is more realistic than you might think. Okay. And you have one of the best seed funds, not the best in planet Earth, not, but a top decile seed fund, top 10%. And you don't just have $1 billion exit in the seed fund, you have three. One at 4 billion, one at 2, one at 1 billion. And then amazingly you have three other nine figure exits. One at 453 and 100. And these don't happen every day, folks. You see a lot of rounds on TechCrunch, but how many billion dollar $450 million acquisitions you see? Not many. Okay, but this C fund doesn't just have one, it has six of these. Right? And multiply 5% on this like on the spreadsheet, they end up getting 395 million. That's 4x gross. 4x times 100 million. That's good, but that's the minimum that LPs expect. Forex gross minimum. What if you. How many folks are doing this today in seed reliably? Not that many. Okay, so it's tough, so there's stress. So under what, what are you looking understand here there's stress incident. Understand why VCs have to hunt for what are called fund returners, they have to find investments that can at least give you 1x back. The seed fund has to do 4x back and the growth fund has to do 2 and a half, 3x times back. That means for this to get a $100 million seed fund. What's a. How much does a fund returner have to exit for $2 billion to have. Even for a C fund, you need a $2 billion exit just to get one time your money back. So it's not that VCs are going to put. We can talk a little bit about the pressure VCs put on founders and others. Put that aside. It actually varies over time. But when the first dollars go in, when you go to raise money from a VC pre seed seed ab, they have to believe it's possible to return the fund. Not just that you're a good investment, not that you're doing well, not that you're making money, not that your growth is good. They have to believe you're a fund returner or you'll. They'll never make enough money in this. They have to believe in this C fund that you'll be worth $2 billion for real or they just can't make money. So hopefully this is helpful to folks. We can talk about it more. But understand why if you can't get a fund returner, a multi billion dollar exit, VCs don't make money. And that's why you're gonna. If you're doing pretty darn good and we'll show the data in a minute. If you're doing pretty darn good, you might not be able to raise money if you can't meet this bar. It's just the math. It's just the physics of the, of the business. Okay, so this is. I just wanted to highlight a point we made earlier when you see all these rounds on in the media and you're trying to understand what's going on. First of all, a lot of them are fueled by AI because we're looking for that 5x growth at scale we're looking for. Folks can go from 10 to 50, not 10 to 18, not 5 to 10, but 5 to 20, 5 to 1, 25, 5 to 300. And first of all, a lot of it's an AI. But also when you read these articles, squint and you'll see something that is rather different from the 2021 mania. The AI mania is a lot of it is Inside Lead Grafana Lab 6 Billion Inside Round here's Poolside X git hub CTO that was at redpoint, 450 million inside round. They don't even have a rev a product yet. I don't think in market they don't have any revenue Inside lead scale AI Excel putting more money at 14 billion big funds are have a lot of capital, they're raising money and they got to put it somewhere. And because the average SaaS and cloud company is actually doing worse than 2021, if you are in that top group, that top decile of the portfolio, they will flood it with capital. And I can tell you of my own investments, There have been three up rounds this year so far in 2024. They're all from insiders. They're all from insiders who are like, listen, this company is good. It's very good. It may not be perfect, but I don't have a better idea off the street, I don't have a better idea. The kids that came into my office last week, they're good, but oh man, it's hard out there. So the existing companies are being flooded with capital. It's real, the money's real, but it's not as real as if someone new from the outside hemmed and hawed and said, I'm going to put brand new money in for the first time. So there's some asterisks and daggers, daggers here in terms of whether these rounds are the valuations are really real, the cash is real, don't get me wrong. And I also realize if it's an inside LED round, it's a sign that the company is doing really well because VCs don't put more money into their portfolio companies into doing well. But it's not external, it's not new money. It's different. And it's capital you can't access in some ways unless it's a second or third check. So it's just different than we've seen before. And it's creating confusion in the media, Tom, and the markets. One other point that I think folks know, but if you don't, I wanted to highlight here, this is a chart. It's a lot. Carter's data has gotten really good in the last year. You should subscribe to their newsletter. But the charts are often so color, especially for the colorblind. So data and, and, and, and really they're hard to parse. But basically what you can see here is in every single round, the Bay Area is just taking more and more venture capital again. And I just wanted to highlight a point that we All, Almost all of us live in at least a partially distributed or hybrid world today, right? The world is so much different than before March 2020. VCs are for the most part happy to invest in founders, at least in any major tech center. Right. The gotta be in the Bay Area thing has died. It's dead, right? It's mostly dead. Not entirely dead, but a lot of it has fallen. But to raise money, you got to be here. People don't want to fundraise VCs don't want to write checks over Zoom anymore. And you got to be here at least part time. And for me personally, I got to tell you, I, you know, about a year ago I saw this, I didn't. I'm a little slow sometimes. About a year ago, instead of getting an email from a founder, they'll be like, I'm raising money. You want to get it on Zoom? Now I get an email be, I'm raising money. I'll be in. I'll be in San Francisco. Because they know it. The single largest sort of tech accelerator creator in the UK is ef. I don't know if you heard ef, but it creates like a thousand new startups from top engineers from Imperial College and others in London. They've now moved the end of their program to the Bay Area. All the best fatters in Europe now have to come to the Bay Area at the end because it's just you gotta be in person to raise money. So whether you're based in the Bay Area or not, it's a different discussion. Again, I'm happy to chat about the pros and cons in the qa. There's certain, I mean, honestly, in my ecosystem, I'd say half of them are moving back or have moved back to the Bay Area. It's worth talking about objectively and not not being on your Miami or Austin or other high horse. It's worth talking about objectively. But if you want to raise money, show up. Show up. Okay, one, a couple more points I want to make for qa. This is one I have made many times, but still, the majority of founders I talk to are confused. VCs don't care about. If you're profitable, they don't care. Now, do you to some extent need to be more efficient than 2021? Yes. Do the public markets require you to be more efficient? Yes. You can look at our five interesting learnings on Saster. Almost every public class cloud leader has strong free cash flow today. Good growth and strong like, yeah. When you AF as you Go public. You gotta be at least free cash flow positive, if not profitable. But all VCs care about today is growth. Just now, they don't want you to burn so much money that you run out. Okay, no one wants that. So no one wants to complete some weird AI deals aside, no one wants the kind of profligate spending that we saw in 2021. But no VC cares if you're profitable. It doesn't get you to that $2 billion outcome that even the, even the seed fund needs you to be worth 2 billion. Now, if it doesn't happen, it's okay. There are other investments that have to believe. The day they write the check, you can be worth 2 billion. And if your growth has fallen to 30% but you're profitable, is that going to get you to $2 billion valuation? No. So too many founders think, listen, growth is slowed, but I'm profitable, I'm raising money. No, it doesn't help. You have to. You have to have the same growth as in the past, but in many cases just be more efficient. But profitability doesn't get you there. It does. It doesn't get you there. VC is about investing. So don't, don't get confused by this trope in the media. And let me just summarize this into one more thing for founders to understand related to this. Do you get a pass from VCs because you're air? Because I'm in sales or marketing, I'm in an impacted category. I'm in a segment. And not everyone's in a downturn. We talked about data bricks in Canva and I'm going to highlight some others. A lot of folks are not at a downturn. But if you are in a category with a downturn, will VCs give you a pass? No. They may give you empathy if they're the subset of VCs that are nice people. But you can't give someone a pass because to get to that $2 billion outcome, okay, especially with public multiples being in the 6x range, you've got to triple, triple, double, double. At least you have to, or you'll never get there. In the 10 to 14 year lifetime of a fund, you'll just never get big enough to be worth 10 billion. You just won't get there. So let's look at this today. It's Tom, it's kind of scary. You probably have to be doing close to 500 million in revenue to have a good IPO. Okay, maybe you could do it. Let's, let's Say you could do it at 300 million. You can do it earlier. We can talk about that in the qa. But it's harder today than it used to be. But let's say you meet with, let's say you're, let's look at this, this growth rate and you a VC invest in you at a hundred. You kind of got to go from 1 to 3 and then 3 to 3 to 3 to 9. That's the tripling. And then the double, double 18, 36. And then I slowed down the growth a little bit, right to 40% at IPO. That's. And 40% of IPO is probably the slowest you can grow and have a decent IPO today. Just look at this chart, like, and I know for 99% of you this is going to be intimidating as f. Okay, but you kind of got to go from like, go to 370 million in 10 to 14 years to IPO. If you don't triple, triple, double, double after a million, you're not going to get there. Now, do VCS care how long it takes you to get to that first million? Actually, not that much. If it takes you a decade, it does. I literally got an email from a founder this morning. Everything looked great. The business is humming. They're Saster fans. They get it. It was a great email. They're at the coming up on a million tripling. Right. And then I quickly looked at the company. They're founded in 2011. Okay, I got to do some research there. That's a long time. But within reason, no one really cares if it takes you 1 year, 2 year, 3 or 4. It took UiPath 10 years to get to its first million revenue. I don't think OpenAI had any revenue for years. We'll come up with folks that shot out of the gate. Notion had no revenue for like five years, and I think Notion struggled for five or six years. But once you hit that million, you still got to be on triple, triple, double, double, or the math just doesn't pencil out. So even if these wanted to cut you some slack and most don't, they can't. You have to be in this elite group or there's no point in funding you. There's now you may. I'm not saying someone might not take a bet on you, but realize anyone that's doing this math is going to pass if you're not on this trajectory. And I know it's, I know it's intimidating, but for founders, at least be aware of why it does tie it all ties to what it takes to have a fun returner in a fund. What it takes for a fund to just return 1x that's still a 0% profit as you have to have a fund returner. Okay, so how. What's happening? Well, let me show you just two slides. Emergence Capital put this together a few weeks ago and it's, it's a little intimidating like the last slide, but at least it's helpful to see Emergence first. Went back to. Emergence is sort of a classic series A and B fund. They funded me at EchoSign back in the day. They did Bill, which we talked about with Renee. They did Viva, they did Salesforce, they did Box, they did Yammer. They did a lot of really good ones. Okay. And they went back to all the earlier funds they worked with the good VCs. Really good ones, good ones. The Cowboys, and lots of others. And they asked for the best seed funds. Give us all your data on how your companies are growing. These aren't just random startups. These are the ones that the best seed funds have picked. Homebrews and others. And they aggregated all the data. So from this elite level of business, software companies, how is the top. And then we'll hit top decile. Because I think this is informative. How's the top quartile? Not of all SaaS startups, but of course ones that raised seed funding from the best funds. How are the bet the top quartile, the top quarter, 25% growing. And look at this. It's at 1 to 5 million. The top quartile is growing 100%, which is good, but not quite triple, triple, double, double. Is it. You'd like it to be 150% and then it's starting to fall off a cliff. The 5 million ARR. They're growing 58% now. That is still plenty to compound to something huge to have an amazing exit and an amazing outcome as a founder, don't get me wrong, but does it get you to the numbers on the last slide? It doesn't. 58% is not the doubling at this phase. And then as you can see, even the top quartile, it's starting to get a little intimidating. You need to grow 40% to IPO, but the top quartile at 20 to 50 million is only growing 38%. And then it's falling to 22% at 100 million. As you get to a hundred million, you're starting to think about, okay, I've got to get rid. I'm not. I can't IPO yet, but I got to get ready. So you better be growing 40% or more. The top quartile isn't. So this is tough, so be aware. So I summarize this. On the left, 80% of VC, VC backed setups, 80% are not growing fast enough to raise another round. I know that sounds direct, but look at the math. 80% of the top VC backed startups are not on that trajectory. They are unfundable. And so this is the data and then I'll show you the top decimal in a minute. But if you have raised any fundraising, even a seed, ask your own investors, am I fundable? Don't be intimidated. Ask them if you have board meetings at the end of each board meeting, investor meetings, ask them by email. Be direct, I need to be honest, Tell me today, am I fundable? And I found for me as a founder, there were at least two out of our five years before acquisition where we weren't fundable. At least two years, maybe three. Many of the best companies go through a year or two or more where they're that were fundable and then they're not. And then the growth grows more, they grow into it and they're fundable. But ask, ask, because if 80% of the best are not fundable, that means Odds are 80% of the folks listening, watching, viewing are not fundable either. Okay, so then after I highlighted this on emergence, they came back with top decile data because I, I kind of had a tweet. I'm like, it's tough out there, but what, but what is a tough decile? The top decile looks good even, but not great in SaaS and cloud and business software. Top decile from 1 to 5 million to get. Now they're in that triple, triple, triple, double, double phase are going 166% at 1.5, they're doubling at 5 to 20. So the top decile are on this track to be a fund returner. The third one's a little intimidating, which is that. But as they hit 20 to 50 million, they're not quite on a path to be growing 40% at IPO, are they? Because if they're only growing 42% here, which is hard, I'm not saying any of this is easy, my friends, my folks. But if they're only growing that at 50, what are the odds they're going to be growing at that rate of 200 to 300, like low. Right? So, so there is a crunch out here. Only 10% of venture backed startups are on this triple, triple, double, double path, this fund returner path, and they're starting to fall out of it. Not all of them, not the databricks, not the canvas, not others, but they're starting to fall out of it at 20 to 50. So just be aware here that it gets harder. And if nothing else, if you do raise capital in any round, don't assume the next rounds ever coming unless you're in in this lead, even for the 10%. The top decile. The top decile. They're at the edge through the first three phases. And there's even. The top decile may not be good enough in this growth phase. The top decile may not be good enough in the growth phase. Okay, I know we've gone long but a couple other points but we will, we will keep time for questions so we have enough time. I wanted to highlight one point which I think you guys know, but for fundraising, you know, AI washing or whatever you want to call it, AI labeling, AI whatever. It's not enough. It's not enough. And even, you know, Logan from Redpoint said yesterday he's starting to see some deflation in VC activity for these crazy AI rounds. People are being more skeptical and I, I picked three different examples. One, there's a company called C3AI which was founded by the ex founder of Siebel, which was Salesforce's who Salesforce displaced went really early on AI CRM. I actually don't know any anyone that actually knows what they do. Okay. But they do have real revenues and they have been attempting to AI certain verticals and in CRM since AI wasn't cool, there's AI in their URL. They are known as an AI company. They're down 76% from their IPO. It's not enough. You have to put up the numbers. Right. More importantly on the right. And I've got a more detailed post on this coming on Saster soon. Like all the big guys know, like everyone at Salesforce and Zendesk and Asana, they all know AI is important. They've all read the read the articles and listened to their customers. Here's Mark Benioff saying that their LLM, their tiny giant, all things being equal, is the best model for a lot of use cases. Okay. And here's all the day it's the best model. But Salesforce, even with, let's give them some credit. Let's assume it's not actually going to defeat some of the models out there, but let's assume it's, you know, for its use case, it's pretty darn good. Salesforce is still projected growth will fall to 7% next year. So just tacking AI on and here's Zendesk's homepage. Just pulled up Zendesk homepage this morning. What does Zendesk homepage say? AI first service. So the fact that AI matters is not lost on anybody. But just calling yourself now, hey, we're, we're legal AI, we're whatever. This kind of AI sales AI is not. It's not enough to fundraise. You might trick a few VCs in, in the seed space. Don't get me wrong. I mean, go for it. Put your first, put your, put your, put your best foot forward. But what VCs mean in AI is hypergrowth, folks. They want, they want the type of AI that fuels insane growth. Not just okay, growth with some AI integrated through an API. Okay, last couple points. I, I know it's gone long, but I do think this content is really helpful. I wanted to quickly remind folks that if you feel like you're in a downturn and, and sometimes if you're on LinkedIn and you have a lot of B2B folks, you can feel like the world has ended in SaaS. It ain't true, folks. It ain't true. Sales and marketing categories are incredibly impacted. You know, zoom info, you know, a product we all love. I love the product. I Love Henry, the CEO. They've said their NRR is falling to 85% their NRR from like 110, 120. In 2021, the NRR has fallen. You can say it's competition and this and that, but it's not. It's stress in the category. It is stress and spend. Everyone. I, I got this wrong. In 2024, folks are still getting together in the room and saying we want to cut more sales. Not just spend, but tools. We want to cut, cut, cut tools. It's brutal out there. But you know what? Sales and marketing tools are not the entire world, right? So we talked about canva. Whether it's 40% or 60% growth at 2.3 billion, it's pretty good. We talked about databricks, but let's look at a few others that sell to the normal world. Samsara, we've had the Chief Product Officer and others speak at Saster. It's great. They sell fleet management and other software to manage vehicles to the real world, to the normal US economy, which is doing pretty good. 39% growth at 1.1 billion. And aggressively hiring not laying off aggressively hiring Klaviyo in the. In the B2B but for E commerce. The CEO is coming to Saster annual in September. Andrew is great. Come hear him. Look at this. Growing 42% and almost 800 million in revenue. You know, one of only two SaaS IPOs we've had since 2021. This and Rubrik Toast selling to normal restaurants. 32% growth at 1.3 billion. And finally Monday, Asana is struggling selling to tech. But Monday in. In sort of project management sells mainly to non tech. It's. It's not that strong in tech selling to non tech. It's growing 34% coming up on a billion in revenue. We wrote it up just now on Sasha. You can read the data. Monday's executing to perfection. But why they're not. It's not. It's Monday. Truly, it's Monday. I bet. I love the Monday founders. They're great. But are they really better than Dustin Moskovitz who co founded Facebook? I'm not going to get into that debate. But they have different customers. These are all folks selling for the most part to the real world. And the real world's doing pretty okay even if sales and marketing categories are in a weird, weird state where they're still cutting. I did not think we would be have a third year of what I call app layoffs, but I can tell you what's happening. There's still. Companies are still getting together and say we want to cut our sales stack and by 30% this year we want to cut our marketing stack. And I'm not convinced those cuts move the needle in terms of costs at companies. But they just bought so many tools in 202021 that we're still going through the app layoffs. Okay, so last couple points, here's a little bit of optimism. We had revenue Cat where I was the first investor in. They manage mobile subscriptions for 30% of all consumer SaaS companies, companies that buy stuff from subscription mobile phones, they run through RevenueCat subscription platform to manage that software. 30% of the whole mobile economy in the U.S. so this is across a massive number of apps. And so what was what I found interesting here in the presentation? You can see it on our, on our YouTube channel if you search for it or on Saster is the consumer. Consumer is faster than B2B. And you can see if you squint here, in 2022 there was a massive slowdown, massive slowdown in consumer SaaS and consumer subscription. But then in 2023 it came back and I can tell you as an investor they're having a record year today in 2024 as well. So my hope is that in the impacted SaaS categories we can't have four years of app layouts. My hope is that consumer is usually two to three years ahead of B2B. B2C usually is. And so if this has reignited growth, I'm optimistic based on these historical patterns of 2024 will be good for classic B2B2B. But we ain't there yet. We ain't there yet. Salesforce just said growth will fall to the single digits next year. Asana said growth will fall to the single digits next year. I'm not saying in six months they're not going to say things are better. It's happened many times in my career. But we're not there yet. But the, but the consumer pattern I think is reasons to be optimistic and then just one or two final points and I know we've gone along but we will get some questions in if you want to summarize all this folks folks just track multiples. You can do this in the BVP cloud index, you can do other places, you can do it on Saster. But if you want to summarize all the stress in venture to understand where VCs are going on, look at the median multiple for public companies. The because the public SaaS companies are like the NBA. You know like not everyone's whoever Lebron James, but they're all really really good. Almost all of them. So like you could make fun of public SaaS companies but beware the ones you make fun of are probably doing 2 billion in revenue. You're not there today. The average NBA player, the average public SaaS and companies only trading at 6x and the top quartile is only 9x. Until these numbers are 20 to 30% higher it's just hard in venture to make money. It's just hard. If this median is 8 or 9x and the top quateral is 15 to 20x the top, the top, the best and some of the best the best are then everyone can kind of make money in venture and this is about fundraising. It's easier for you to fundraise when everybody's making money. This is the fact of the money. It's like a startup. Whenever on your sales team is making money, sales is easier and when everyone in venture is making money it's easier for you to raise. This is still hard. 6x is hard. Track this. Don't track it every day. But just check in on it once in a while or I'll highlight it for you in Sastra when it gets better. When this is 7x8x higher times will be easier. But right now top decile is sort of what it takes to get there. So I'm gonna leave that here. I think we've got it. So we have a few minutes for questions. But thanks everybody for joining and I'll pop out of this so we can. And I'll stay if people are still here. I'll stay longer to try to answer more questions.

Great, thank you, Jason, as always. Happy to take some questions. So we've got some in the chat so I'm going to invite some folks up to the stage so we can get rocking and rolling.

Yep.

Here we go. I'm not sure if you pronounce this Garandu, but invite you up so you can invite your question.

You got that one?

I got it, yeah.

Hi there. Hey Jason. This is amazing. Amazing statistics. Quite a few questions around this. You know, maybe I'll start with the first one you mentioned in the last slide. That consumer category seems to be a lot more attractive. B2B 2C. Let me. Because I'm not a consumer guy, I don't know how to do consumer packaged goods, liquid death or anything. I just mean software companies that sell to consumers. The toasts, the klaviyos are doing better than ones that sell to tech. Tech. Tech startups. Tech companies. Right, got it. So if that's the case, then B2B, the typical B2B where VCS were funding quite a bit in the last decade or so. Yes. That category almost dead. Meaning are you seeing. Are you seeing a lot of those leaders raise money? There's quite a few. No look like cybersecurity companies. Healthcare. No, Services. Cyber. Sorry, I kind of glossed to a piece. In the end, what is doing well? AI is doing well. B2B2C is doing well and cybersecurity is doing is on fire. Right. I ran out of time at the end. I would have gotten more into it. I mean, you know, crowdstrike, whiz. On the private side, it is fueled whether it's AI or the general issues security. If you're in the hot air of cybersecurity, these are as good a times as it's ever been. CyberSecurity is great. B2B2C is good to great. Depending it can vary. Real AI, that is where the growth is insane is great. But. But rando AI is the same. It's just SaaS. Right. So yeah, there are pockets of areas that are very, very strong. That's the thing. The downturn is not on LinkedIn. It looks like everyone's in a downturn. The downturn is actually localized to tech. Really to a segment of tech. And it does not include cybersecurity. You're right, it does not. Not in the aggregate. Not in the aggregate. Yeah. I don't want to hog the rest of the webinar here, but thank you so much. For sure. Appreciate it.

Hey Jason, quick question. Around NDR and nrr, you showed two slides. One of them you showed where hey, for emergence they showed like 134 and in your previous slide or the slide after you showed that was a year on year rolling average of like hey, 2023 presume was 80%.

Right.

Or is VC giving any weight to historical NRS and NDRS? And when people are raising funds, are they separated by year? Are they doing hey, 2020 to 2023? Here's an average NR that I'm getting. Like yeah, are they putting any weight to that knowing that there's going to be a bounce back in 2024, 2025?

No. I have a post coming up on Saster talking about the downturn in nrr. Right. We. There is. Let me step back for a minute. There's no would. Would VCs like to cut folks a little bit of slack in growth and NRR and other things due to macro reasons? Maybe. But you can't get to that fund returner if you do unless you hope and pray. Right? So now having said that, even the it's interesting some folks have seen. I just wrote up on our five interesting learnings. I wrote up GitLab. I didn't know GitLab has no downturn in NR the last five years. Okay. We wrote up Monday. Just. Just now. Monday is pretty interesting. Monday for SMB. Now it's gone bigger but it's still mostly SMB. It's still at 110% for SMBs, but it was insane in 2021. They actually Monday has a great group of charts where they show it. I put it up on Saster just now. It's wonderful. So look, if you were at 130 before, now you're at. And now you're at 110 VCs are going to get it. But at the end of the day, here's the reality is if you're not top decile in nrr, that shows. Let's be honest, it shows you're not as mission critical as we thought. And the angst with founders, the real angst that a lot of founders are going through is and this is why it's so brutal in a lot of sales segments in others is they're saying cripes, I'm not mission critical. I literally got an investor update from a founder I love coming up on 20 million. They're coming up on 20 but their churn is massive this year and it's AI driven. I don't want to get into the details but he's like listen, with some a segment of our customers we're just not as mission critical as we thought. And that is a quiet conversation you should be having with your co founders and go friggin fix it. Yes. Are there app layoffs happening all across the board, especially in sales marketing? Yes. But are you cutting the lifeblood of your company? No. Right. So anyhow, so listen our VCs okay if your NRR is down from 2021? Yes. Are they okay if it's not? If you're not in that top decile, they're smart. VCs will segment your NRR by enterprise versus mid market for SMBs, your average venture partner will just pull up some data on what is aggregated across all segments. But if you're not in the top decile, it's a flag. It's just, it's just a flag. Yeah.

Anil, you're up next if you want to ask your question. Oh, we can't hear you. Maybe.

How about now?

There you go. You got the fancy mic.

I love it. Yeah, I just kept myself muted so thanks. Very informative session. Just have a quick question around the early validation stage. So startups that are at seed stage may not have that linear growth in MRR or ARR because on various things how would they position themselves in this scenario? Well look I try to. Saster mostly is focused on folks you know from sort of 100k ARR to yeah 100k ARR below that. I'm not truly an expert but I'll still try to answer your question if I mean your pre revenue or your post revenue but it's early just question is 100k onwards? Yeah we are already 100k. Yeah, here's the, here's the tough truth there. If you want to get funded at 100k and growth is spotty because you're figuring it out okay either you're going to be put in, you're going to be put back into kind of the, the inception category precede and they're going to say, listen, great that you have 100k, but if you're not already off to the races, we're going to assume you're still figuring it out. And so if we're even interested in funding you, you're going to get zero credit for your revenue. One option is zero credit for the revenue, the other option is it better be good. And I can tell you personally, listen, I'm sure we can find a lot of folks that are leaders that at 8, 8 to 10k in MRR, right. 100k were lumpy for a long time. Right. But I can tell you myself, my own life experience as a founder and investor is all of the best investments I did kind of. We're starting to be rocket ships even then. And I know it's not true of everyone and I'm not trying to be critical, but you're asking what invest. If, if you sent me a deck and you say, listen, I'm at, I'm at 10k mrr, I have great customers, I have GE and Facebook and this, our product is disruptive and we're growing 4% a month, I would say great, please email me back when you're in the double digits. Got it. Like for folks that have been around for a while, even if it's not perfect, even if growth can fade, we're still looking for double digit monthly growth. At 10k a month, we're looking for double digit growth. Okay. So the focus is power your growth more than anything else.

Yeah.

Going to that slide. Profitability, don't care. Like because you got to become. Because remember to this. And I know it takes a long time. I didn't get it. As a founder, you've got to build a fund returner. You've got. And the earlier stage the investor is, the more hopes and dreams can come into it. The more you judge the quality of the founders over the quality of the revenue. Right. I'm sure the Canva founders are as great as they are, but I think a lot of folks would invest even if they barely knew the founders because the quality of revenue is so high. The earlier you are, the more important the founders are. But that VCs never want to invest in mediocre growth. I never actually saw the show Silicon Valley, but I saw like a clip or something where the guy Russ Hennelman's yelling at them, don't. No revenue. What do you mean? Real revenue? You ever heard the scene he's yelling at the founders and it's stupid, but there's a Lot of truth in that, which is that mediocre revenue is maybe worse. Mediocre growth might be worse than no revenue. It's not completely true, but it might put you back. And then I'll end here and go to the next question. It might put you back in sort of the inception pre seed category, even though you have customers. Right. Just be cognizant of it. Thank you.

Awesome. Thank you. Dan, welcome to the stage. Go ahead and ask your question.

Can you hear me? Okay. We can hear you. Okay.

If you're driving, I'm happy to ask.

Yeah, yeah, no, I'll, I'll ask the question. We're an AI company focused on vertical sas, so construction tech. But I'm wondering whether they're. You're seeing a lot of real world AI applications that are solving real problems and achieving really good growth or whether most of those companies are still selling POCs and not real, real solutions. Well, look, for sure, this POC thing is a vibe. It's a vibe, right? I was literally just before this, before this, I was talking with the VP of marketing I've known well, and she joined a gen AI startup and it basically all imploded around her because there was huge churn from all these POCs. Right. So certainly it happens, I think in classic B2B like we're talking about, you're in construction tech. Right. In vertical SaaS, I don't see these POC is really happening. These are, these are, this is whether it's AI fueled or not. You're. If you want to be successful. Vertical SaaS all has two things in common. You want to be the ERP for your industry. Okay. You want to be the app they rely on. Okay. And as part of that, you got to automate a lot of workflows. And even if you can deploy your app in 60 seconds, changing the way you do business is a big investment by companies. Right. So I just don't see a lot of rando POC is happening in real, outside of tech or CIOs offices. Maybe you do, you might actually be closer, but I don't see that as a material thing in vertical SaaS or others. In terms of your second question, I think, and maybe it's not quite what you asked, but I'll answer a variant of it anyway. Like from a venture perspective, for AI to be real, it has to be fueling growth. Right. And I think another point, I, I, that I kind of hinted at it a slide. I didn't, if nothing else, to founders for this should have Maybe been in the deck, if nothing else, for founders, for, for, for customers and for VCs, you have to at least have AI parity with the competition. You have to have AI now. Maybe in your area of construction tech, we won't have enough time to talk about it. You could email me more information, but let's say you're like, it's kind of helpful but like it doesn't really change the game on project management in my area. Like, it helps. Like we're automating. We use AI to automate some of these interactions and to size up a work site. And it's very, very cool, but it does it like it's not a total game changer. Okay, but, and maybe that's true, but if your competitor has it and you don't, you're going to lose deals today. Everyone wants this AI functionality one way or the other. And even if it's okay, you better listen, you better have parity. Parity may or may not help you grow, but you're going to lose deals left and right if you don't have parity. We're seeing, I don't know if you're seeing this, but incumbents within construction, they're all looking to implement AI. But they're complacent. They're complacent. But they are. But. And you're right. And listen, we could chat for. I want to go to next question. You're right. And so there's still a window to be the, to be AI, to be the AI leader. But that's why I put the Zendesk slide up today in the Salesforce, it's go to zendesk.com like, I don't exactly know how Zendesk compares to Gorgeous or Intercoms or others AI or fronts that are like more agile companies. But it ain't lost on their management. It's right there on their homepage. So if you do have a window over the incumbents because they're slowing whatever, assume it's either it's going to end or they're out. And here's the reality. If they're big, they're promising they're going to do it and they may get away with it. Today, a lot of AI is promises, so you better, you better have a great demo and a great, a great onboarding and a great pilot because your big competitor may say that's cool, that's, that's great, Dan, but they've promised I'm going to get this in Q4 and it's on their homepage and they may still win the deal. So just a few thoughts. So. So move fast because I don't know that. That you may still be better than the big Guy, but they're going to close some of that feature gap, Tom, this year and they're going to be telling everybody. They're going to. They're going to be telling the market that they're closing. It's going to be on their homepage. So thanks for the questions. Yeah, thanks.

Thanks, Dan. All right, Paul, you're up if you want to ask your question.

Yeah, great. Thank you. Thanks very much. Excuse me, Jason. It's really, really interesting. It's like drinking from a fire hose here.

But I appreciate it a little bit. Yeah, a little bit.

That's good. So the cloud services spend market globally, like in 2027 is supposed to be north of about a trillion dollars.

Yeah. Gartner said SASS alone still going to grow 20% this year.

Yes.

Yeah.

So it's not slowing down.

So the aggregate. It's not. It's not. That's why this downturn is localized. Yes. It's not true in the. There is no downturn in the aggregate. This will be per. Gartner actually just raised its estimates for SAS spend this year. They just raised them fueled by AI spend, but for SaaS, not for infrastructure, but for SAS, they raised it fueled by AI. So the dollars are still there.

All right, so let me ask you this. And out of that trillion dollars in the future, which is now 700 billion, about 35% of that statistically is waste. So over provisioning, turning, leaving things on that aren't being turned off. What do you think of the B2B cloud management tool services market that's trying?

I'm not sure. I. I'm not sure. Look, the, the space exploded like for a long time. We had a lot of tools to help manage our, our raw cloud spend. Right. In the early days of aws, it exploded. Then we had the vendors and the productives and so many other cool apps that would help you either manage it through technology or through automating procurement. And everyone, everyone knows we're wasting money. I think now that we've all figured that out, I don't have the answers. All I can tell you is, I think at the moment, and it's, it's, it's, it's stressful. We're still using, no matter what tools and systems and vendors out there, we're still using a pretty blunt approach, was cut apps. Okay. Having said that, listen and and maybe it may be a longer discussion we get into. I'll give you one other one that's just, it's a reality if you look at Mongo db. Okay, now listen, does Mongo have competitors? Sure. But is it basically what the majority of folks run their, their core database workflows on? Yes. I never thought Mongo could have much of an NRR reduction or a downturn because who can cut their core? Right. How can you cut your data? You can cut some experiments and some projects. Mongo had a brutal revision last quarter and Dev is one of the best CEOs in the world. The CEO and I think they cut their growth rate from 30 something percent to 17% for next year. Mongol. And what, what they said, what Devin others said is our customers now are accelerating the amount of workflows they are looking to cut from Mongo. And it is discouraging that it's happening Year three. It is a little bit discouraging that it's almost accelerating its Salesforce in Mongo and Asana, like this next year may be their worst year until they bounce off because they're all seeing massive deceleration in growth. What it shows is people are still cutting budgets and cutting. They're not just cutting seats and workflows, they're cutting everything. And, and maybe too far. So I don't. But in terms of tools and being a vendor in this marketplace and doing it, it's. It's changing so much. I'm not smart enough to know the answer. Right. I also worry a little bit that when the market normalizes the whole way we think about these tools and systems is going to change again. Like I think it's changed. It's changed so much that any. I'm sure you have a lot of deep. I don't have all the answers. I just, I would look at. Mongo was the one that shocked me and it shocked me that people are still trying to cut their Salesforce spend because I never thought Salesforce could grow less than 15% a year if only because it had 150% NRR. I never thought Salesforce could grow single digits no matter what they did because no one, it's impossible to rip Salesforce out. Like it's harder to rip SAP out, but it takes five to. I was at Adobe when they were moving deploying Salesforce from their prior solution. It took like seven years. Now I'm watching and learning like you. Thanks for the question.

Yeah, thank you very much.

All right, Mo, we're going to invite you up to the stage if you want to ask your question.

Oh, can you hear me? Well, sorry. All right, good. So today by coincidence, I'm wearing Saster T shirt. Great cut, by the way. I'm asking about the HR tech sector. What is the status of the HR tech sector? If you have any information about maybe public companies. We see many companies are emerging now in this section claiming a lot of functionalities with AI. So what's your take on this to be sensitive to your time and size? I'm not sure. I think the. The we're obviously seeing. I think we're seeing. My limited sense is we're seeing a bifurcated market. So the part of HR tech that is tech like is struggling in some ways, like sales and marketing tools. The part of tech that is tied to displacing payroll and selling to normal customers. Gusto, rippling, deal remote. These are strong. The numbers are strong. Rippling is accelerating. Right. Gusto is getting a third wind. So deal. Deal has, you know, deal has whatever record to 400 million in revenue. You can't argue with those numbers. Right. So. So this area tied to automating the core people processes seems to be very strong. The side tied to recruiting technologies, to improving onboarding and offboarding all this classic tech stuff. I was just talking with a VP of sales yesterday in the broad HR space doing onboarding and employee management and he's just brutal. They said they lost all their customers. He would talk to them and like, we need your product. We need it to automate our employee. But. But there's just no budget for this anymore. There is no software budget for improve improving our employee experience any longer. There's just not. It's not. We need your product. We need to improve this internal you have. This is a top five problem in our company. But there is just no money for this type of category. So I think it's a weird split of worlds of like improving people ops and people efficiency and recruiting. Guys, deal with what you have. Deal with 100 vendors we already have. Right. And then this whole other world that is related to. To payroll automation and that seems to be on the deals and ripplings and gustos are on fire. And maybe it's this almost as B2B to C versus B2B world. But that's not the most brilliant insight, but it is what I'm seeing. So thanks for the question. Thank you. Richards. Do we have one or two others with Caitlin?

Sorry, Caitlin, you're muted.

That might help. Rookie move. But I'm saying there's Two more questions in the queue. So I'm going to invite Richard up. I just, just dropped the link to the slides that Jason ran through to our slideshare. So make sure you reference those if you want to refer back as well as the recording. So it's available live on our YouTube as soon as this wraps. So Richard, you just turn your video off. Can you turn it back on? I'll invite you up. There we go. And now you're on mute. Richard.

Can you see me? Now we got. Now we got. Okay, thank you. Thank you, Jason. A lot of great information here. So we're in the B2G space and I don't know how you differentiate B2B to B2G. We're still seeing strong growth. What do you, you know, how do you see that? The government sector. Look, I, I don't, I don't have any perfect answers, I can tell you that. Like the. I know it's niche, but I do think that for the public companies, Palantir is a great one to peer into. Right. Long sales cycles, complex government sales. Is a lot of it tied to defense? In some weird areas, yes, but it is no, no downturn at all. On fire, right? Accelerating, accelerating. There's more. Palantir's core customers are putting more and more money into trying to get analytics, data, AI and learnings out of Palantir than ever. So there's obviously no, no direct downturn there. In terms of personal stories, I was talking the other day with a founder selling essentially a type of politic software to, to enable politics better. Better politician better. Better pieces of. I'm not going to go into all the details because it's pretty niche, but sort of politics SaaS. That's sort of silly to hear it that way, but it is true. Insane growth, like in the early days, like just insane growth to automate a lot of fundraising and other pieces of that. Even though niche insane growth. On the other hand, I literally was in a board meeting just in the last week with someone selling government adjacent government, not to the government, but to big companies that sell to government and they're getting lots of pushback. They're getting lots of the same budget scrutiny and tough times and CIOs cutting. So I think if you're selling directly to government, Palantir looks great. If you're one level removed and selling two vendors to government, you may be seeing the same excessive app layoff pressures based on these stories that we're seeing in other segments. But thanks for the question. This is my best Insights, but let's track Palantir. Right? Okay, thank you.

Thanks, Richard. All right, Tanya, you're going to be our closing question and it's about AI. So a good one to end with because it's exploding in what we're seeing is a huge popular topic. So go for it.

Hey, thank you so much, Jason, for all the whole lecture, also all the Q and A so far. So I kind of just want to connect back about the growth. 10k per month at least, let's say. So I'm working at a company that we. Yeah, 10%. Yeah, yeah, we're seeing, you know, we've seen our seed and our Series A, and now the question is we're in an AI space, we're working in mostly ML, so we're creating our own solutions. So it's not just like a cloud of AI pretending to be AI. And I mean, I don't think OpenAI is going to eat us up, but you never know because they're fast growing. They have 3 billion. You know, they can do whatever they feel like it at this point. And what do you think as the investment continues into the next years, is it going to be super hard to get Series B or is there still possibility in this space?

Listen, I think that in. In AI, AI is still having what I wrote in the boom 20, 21 boom, something called the Postmates effect, which is that many people think even the third, fourth, fifth, sixth player in a category can be worth massive amounts of money. Okay, this was something that a partner at Sequoia told me made up the Postmates. In fact, I didn't make it up where like, they didn't do Postmates, I don't think, because they, they thought they would be number three behind Uber and whoever else it was. Doordash, instacart. I getting confused. I guess it's. I guess it's doordash. And they're like, well, listen, this is a great, great CEO, great founder, but number three, you don't make money in venture number three. That's the classic way of thinking. And I think it's true in many categories. It's. The reality is, you know, this sort of the number one gets 70% market share, number two gets 20, and then everyone else fights it out for the rest. But when markets are so huge, like OpenAI and the revenue justifies, people are like, listen, not only will there be six or seven winners here, but maybe the market will segment or fragment in such a way that they'll be number one in a portion of the Market that's huge. So a rambling way of saying, I don't think that there's so much. If you have the numbers, I don't think any too many VCs are going to say no because OpenAI is going to kill you. Even if it ends up happening. Yeah, they're just too. The opportunity is too big that they believe there can be too many winners. May or may not be true, but I don't think they're going to be intimidated that Open AI is going to kill you if the numbers are there. If you put up the numbers and.

Then is it better to. Sorry, second question. Is it better to connect to like a B2B or B2C space? Because I know B2C here is growing and it's definitely like, there's so many possibilities, but at this point, I feel like with AI and SAS, softer B2B is a little bit stronger with its potential to.

You know, I think you just gotta, you just gotta follow your journey and you got to. Look, here's the thing. Even if some segments of the market come and go, some are, you know, you know, I did, I did a great what's new interview with Henry Schuck, CEO of Zoom Info, maybe a year ago was great. Not enough people watched it. It's on, it's on our YouTube in our tester. And he's like, he's like, we have to do non tech and tech. And he's like, even when Zoom Info's market was hitting some growth bumps, he's like, listen, our tech customers are now shrinking, but our non tech are growing 20%. He's like, but in 2021, it was inverted. He's like, in 2021, being in tech was the greatest place in mankind. And he's like, if you're going long, he said, I've been doing this 17 years. You need to stay in both. Okay, so that's one answer. The other. So the other version, the other reality is even if you're in a tougher space, not all space stays tough. And if you just truly disrupt the space, they're huge. Like, okay, you can be like, oh man. Like, it's tough to like gong and outreach and sales offer as investor. They're all big and they're barely growing now. And then Clay explodes. Now, maybe clay will decelerate, I don't know. But they are disrupting dollars. So if you disrupt. Even if a big space is growing slowly for, for the moment, right? If you're, if you truly disrupt it, you can grow like a weed. Like. Yeah. Is Zoom's growth been slowed at 4 billion for, like, two years? It's been at 4 billion for, like, 2 years. It's hard to disrupt. But if you truly disrupt Zoom, you could take all 4 billion. Yeah. Like, you could grow pretty fast even if Zoom isn't. Right. So that's why. And don't. So don't, don't worry too much. If, if the, if segments of your market are growing slowly, if you're truly disruptive, follow the, follow the path of where you have that 10x advantage. That's the best I give you. All right, everybody, I know we went over. Thank you for the time. Thank you, Tanya. And we'll see everybody for. For the next one.

Happy for everyone next week.

Thanks, Jason.

Thanks, Jason. What a great session. Thanks, everyone.