10 Learnings From Mark Suster’s “Funding In the Time of Coronavirus”

Our recent SaaStr Summit: Bridging the Gap was the first time I’ve had a chance to be a participant at a SaaStr event in a long, long time.  Usually I personally have to do too much planning, moderating, etc.  I learned a lot! 😉  So I thought I’d share my learnings from the sessions as we put them up on YouTube.

My first set of 10 Learnings is from Mark Suster of Upfront Ventures.  The presentation is not only very good, but very compellingly narrated and put together.  Take a watch before or after you read the learnings:

1. Remember, We’re Only 30-60 Days Into This.  This is something we all almost half forget.  Whatever happens, it is still very early.  Our ability to predict what Q4, let alone next year, will really look like is limited.

2. VCs are Worried about “Deflation” in terms of pricing funding rounds.  Mark sees multiples falling, which doesn’t just lead to lower prices … it leads to a Stop in venture funding.  “It makes price discovery much more difficult.”

3. There Could be Three Waves.  We’re mostly focused on when we can get past things we are seeing and feeling now.  But what if there are 3 waves?

4.  VC’s Don’t Want to Lead Downrounds.  Down rounds angers folks, so VCs default to newer deals vs. lower-priced rounds.  This is an important point that Twitter and the tech media writing on “down rounds” overlook.  There is a lot of talk about down rounds.  But no VC really wants to do them. Not usually. Too much drama, too much complexity, too rough a way to start a decade-long relationship.  It’s easier just to go find another investment with less overhang and fewer issues.

5.  VC Slowdown Could Exist Anywhere From 3-18 Months.  No one knows.   What we do know is that overall, Q2 will be a much rougher quarter in the public markets overall than Q1.  Few seem to be factoring in that Q2 will be worse than Q1.

6. VC Will Be Much Worse in 2021 Than 2020.  Perhaps Mark’s most interesting point.  He believes things will be much worse next year for fundraising and venture capital.  He thinks we’re just starting to see shutdowns and bankruptcies.

7.  Innovation Is Dead in Enterprise.  In Bear Markets, Folks Are Paid to Consolidate and Cut Costs.  This is an important point.  For the past 5-7 years, SaaS in the enterprise has been turbocharged by CIOs and buyers wanting to bring innovation into the enterprise.  That’s on hold.  But there is also a re-allocation to need (Zoom, Slack, etc).  You and your messaging and your value prop need to evolve, too.  Quickly.

8. If You “Hold The Line” on Pricing, But Churn Goes Up, You May be Losing, Not Winning.  The goal now for most SaaS start-ups is to retain as many logos and customers as possible.  Especially many enterprise customers want flexibility now.  Mark advises trading off lower prices for longer commitments or other trade-offs that help more in the long term.  (I agree).

9.  Can you change your positioning to the market so it reduces other costs?  Mark recommends changing product marketing ASAP.  He says “productivity gains are so last year.”

10.  Good Businesses are Built in Good Markets and Bad Markets.  Truly differentiated products win in bad markets.  Why?   “Poser products” can’t get any traction in tough markets.

Mark also notes:

  • There is no “dot com crash coming”.  The Internet is 1000x larger and the fabric of our work and lives.
  • Investors aren’t going to move away from tech.  It remains our strength.
  • We’re all now connected financially.  This will accelerate e-commerce.  You can finally buy almost anything in 1 click.
  • 5G is underrated.  It will change the way many businesses operated.
  • In the last 10 days, Upfront has approved 2 new deals.  But early stage is easier now.  Both are seed rounds ($4m checks), pre-revenue with exceptional teams with deep knowledge.
  • Thinks the # of VC firms will dramatically decrease as LPs pull back.
  • Corporate VC will dry up. They are first to pull out.
  • Investment processes are slowed down by remote diligence (for now).  VCs have to change and do investments where they haven’t met face-to-face.  Culturally, Mark says he’s already changed.
  • Mark is doing a lot more 1-on-1 pitches and updates b/c of Zooms and remote.
  • Evolve your pitch decks.  Show you have real value for buyers now.  Align value prop with current world if you can, but not required.
  • Most VCs are saying hold off on meetings, but Mark says this is the best time.  VCs have more time to take quick calls and pitches.  Now is a great time to create relationships and “lines, not just dots.”
  • Worried about emerging market investments.  Things they will struggle more now.  70% of global trade is denominated in U.S. dollars, and 20% in Euros.  The U.S. can print money and solve its problems.  Others don’t have that “unfair advantage.”
  • Consumers haven’t realized the extent of what happens when 40,000,000 don’t have jobs for 6+ months.  Some categories will come back quickly.  Others may take a “pretty big hit for a long period of time.”
  • LPs (the folks that fund VC firms) for the most part won’t default.  VC firms will continue to sit on a lot of “dry powder.”  LPs will cut back on the firms, the managers, they back, however.

 

Published on April 26, 2020

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