Jason Lemkin, Founder & CEO at SaaStr and Christoph Janz, Partner at Point Nine Capital, had an opening session at SaaStr Europe earlier this year. They talk about the state of SaaS, pros and cons of SF vs Europe and more.
Also, if you didn’t attend SaaStr Europa, we’re doing it bigger and better in June 2019. Grab your tickets! 🙂
Transcript
Founder & CEO @ SaaStr| Jason Lemkin
Partner @ Point Nine Capital | Christoph Janz
Jason Lemkin: You know we probably met. This is so Bessemer if you haven’t seen this go to Bessemer Venture Partners Web site there’s 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 start to do well. And then in February 2016 there is that drop. You remember that? I seemed like the world was over.
Christoph Janz: That was the day of the SaaStr conference in SF.
Jason Lemkin: It was. So every VC said that said the unicorns were dead the world was over. Right.
Jason Lemkin: So but literally in February 26 2016 people thought SaaS is gonna be tough. Yeah. And that lasted almost three weeks. That downturn didn’t it. Yeah something like that. And then what happened since then?
Christoph Janz: Yeah well first of all like in so many pitch decks that we’re getting there is no description of what line we bought but I’ll guess right.
Jason Lemkin: It works well for YC.
Christoph Janz: 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.
Jason Lemkin: And that’s just my fault for making the slides. Yeah the top is SaaS companies and its NASDAQ back down. I never got Dow Jones or something. Yeah the top one is the cloud. What is that five hundred and fifty percent growth in the last five years?
Christoph Janz: Yeah I think that that is remarkable. I think it’s even like even if you look at the the multiples. Yes I mean doesn’t look quite like it but it doesn’t look quite like this but it’s also clear that it’s and pretty much never seen before all time high.
Jason Lemkin: So let me ask your question we are we had the speaker dinner last night in one speaker who will remain nameless. That’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. I don’t worry. Should people prepare for a huge crash next week? Are the good days gonna be over soon.
Christoph Janz: 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 and 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 used to justify every bubble.
Jason Lemkin: I think so. I tell you 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 his stock has since gone by I think 28 to almost 300. So it 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. No nobody knew. So and I think what we did. 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 of slides is just how forceful it would be when businesses went to we call it the cloud. Now when they went to SaaS 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 we didn’t realize that. That these markets for these products would grow one hundred or even a thousand acts right. That’s what’s changing and I don’t know that that trend has I don’t know or even not far into that trend.
Christoph Janz: I’m I mean I’m obviously super bullish about the future of science for all kinds of reasons. I think just. I mean I’m not that interested in like the stock prices so I’ve no idea if they will go up or down maybe they will. I think they can correct by 30 or 50 percent anytime right and it looks like it’s a random walk down maybe not. Maybe not Sandhill Road but Wall Street. So. But I think that’s also not what we really care about. Like we we really care much more about like the really long term potential to build great businesses. And I think if you talk about that we’ll probably agree that that is far from over.
Jason Lemkin: I think I just had a couple I put together but this was a good one that Ari had the other day. There’s twenty five SaaS companies that are public that are not just that are public that are up 40 percent this year. So when we did that SaaStr annual and 20 the first one is in 2015. Aaron Levee 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 is Wall Street think of SaaS.
Jason Lemkin: 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 since all the ones that were worth a billion they’re always 4 billion all the new relics and the boxes that were billion dollar companies then what Zendesk 4 billion right. 6 6 6 it was for HubSpot was like almost five the last time I looked in in a way you blink an eye and that one Bill. Zendesk seem crazy at a billion and now it’s six. Right. I’m sure you’ve held on to all your shares so you’ve benefited from the subsequent appreciation. How do you have any idea how many IPOs can we can we can can get out. How many can everyone here IPO. You think we can have 100 or 200 SaaS companies IPO
Christoph Janz: Um and it depends on the timescale I would say right.
Jason Lemkin: Everyone here is committed for 10 to 20 years so so that that’s OK.
Christoph Janz: I mean I think would be statistically quite unlikely unlikely that all of you in the room will eventually have a billion dollar. I feel so so sorry. But I think some some will end.
Christoph Janz: Yeah. Like how many more billion dollar SaaS unicorns can we have. I think depends on many factors like dependence on like where do the tens if not hundreds of billions of market cap that are currently still captured in S&P and Oracle IBM like what was 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.
Jason Lemkin: It’s true it is true. Yeah it’s pretty crazy.
Christoph Janz: And then I think just to add to that you know you have the existing software spend which I think will eventually move over to the cloud and maybe why it doing so maybe some of that will be compressed. But at the same time with things like automation and I think the market will also expand because software will just do more things which today are done by humans so the the value creation done by software will will increase.
Jason Lemkin: I think I leave the quantitative math to folks like you and Thomas. But my gut is there is another 100 SaaS IPO is 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 got to be one hundred of them. There’s got to 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 eight in eight and how do we pronounce it. Yeah. Eight an item that IPO 20 billion market cap.
Christoph Janz: Yes that’s right.
Jason Lemkin: Yeah 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 that we saw the market’s crazy. We saw that Zendesk which was a billion a couple of years ago was 6 billion all that all of them. But my view is that the bar has also gone up. This is this is a bit of it as the cloud has grown and look at these October which had a crazy IPO. I think there were six billion today too but at six. Eighty three million in revenues. So I’m getting already tired. What’s that. Almost 400 million dollar run rate but they’re growing 60 percent a year. Shopify which is worth like 14 15 billion which is crazy but they’re growing 75 percent and even good ole’ Atlassian the last year. And we all use Atlassian and they’re at a billion dollar run rate growing 40 percent. So let me ask you a mean question if I’m SaaS founder at a million ARR are growing 100 percent year over year which is probably where I was at a million. Is that good enough today. Can I do. Does this raise the bar on me what what how fast do I have to be growing if I want to be the next octo or Shopify.
Christoph Janz: I think that’s good enough. Although it’s not quite on the famous like triple twice double three times.
Jason Lemkin: Do I have to be on the triple quadruple double or triple triple double double? What do you think.
Christoph Janz: I think for some investors you have to have those that are really just using a framework like this. But I think if you’re at a million you are at 1M ARR your doubling and it’s a good team and a great opportunity then I think you’ll be able to to raise a serious Iran to be able to raise. I think so.
Jason Lemkin: So don’t let the numbers and they intimidate me. Don’t don’t don’t let them intimidate you.
Christoph Janz: 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 percent year over year by year at 100 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. You just have a small number of winners that are pretty much unstoppable and they just get outsized rewards and returns and and everybody knows them and they get all the mindshare and word of mouth and so on. And that is maybe unfortunately what all VCs is at least later stage stage see are focused on and you can’t blame them because that’s how their model works.
Christoph Janz: But all this has companies that are just a little bit below that but are still viable business is growing fast maybe not more than 100 percent but still like 80 percent and can be very profitable businesses. Currently I think for them it’s somewhat hard to raise because like for others. Yeah yeah but maybe that will change with different types of private equity. Yes well different kind of asset classes because I think that we’ll be like let’s put it that way. I think if you’re saying that there will be a hundred billion dollars house companies for each one of them the boat will probably be 10 20 or more. Viable businesses that will be multiple make tens of millions of revenues and and millions in profits. So I don’t think it’s good to have these incredible success stories as an aspirational goal. But it’s it’s not like if you’re not part of this cohort like the world is over.
Jason Lemkin: Well here’s the funny paradox and then I make sure we have time to do the next two. But Tomas did meet up at our office like you did with Matilde 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 he. His view is that SaaS companies after 10 million ARR are 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 there are 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.
Jason Lemkin: And I think quietly as the 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 at work you didn’t know should I. The numbers were up but now you have to quietly say look am I doing 100 percent 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.
Christoph Janz: And I mean I think you actually tweeted about this tonight. I don’t know if you had any sleep. But I think I think yeah I think I saw a tweet from you. It’s like the 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 build that extra whatever millions just to get them. The last couple of percent of growth which was the other most expensive ones.
Jason Lemkin: They are. Yeah I wrote that one when Tiago from TalkDesk did an event at our showing space he that was the first coming 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 one to 15 at 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 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 I’ll get this on the blog post and fix these columns but I was trying to how important is moving to the Bay Area in 2018 and you’ve been a strong proponent of it. I’ve worked with prior to over 20 SaaS companies many of whom are today that moved 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’ve 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. Yeah that’s crazy right.
Jason Lemkin: And rents are insane like office rent your employees in San Francisco are going to live for 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 Bay Area than ever. Like they quit if you can if you can get someone to stay a year these days employees and I’m you’re lucky because they’re going to go from pipe drive to stripe to whatever and you just don’t see the turnover here.
Jason Lemkin: And and then the last interesting thing is I think there are finally more veterans here in Europe but then this side with the tradeoffs and at the dinner last night we were talking with Zora and Anaplan and boats that both those beat you can you can hear from Mark and Maria today they’re both saying their last year they’re veterans from SaaS their last teams three or four years ago their European teams were OK but now they’re great that there’s veterans right. But yet the Bay Area’s is better than ever isn’t it by the same token.
Christoph Janz: I mean I agree with all of the downsides that you have in the Bay Area. But I think that probably like 20 reasons that make your life hard in the Bay Area and also 20 reasons that make your life very hard in Europe. And it’s also it’s a bit off I like the grass is greener on the other side thing. I think because everybody complains about the issues where they are.
Jason Lemkin: I think that is very fair point yeah.
Christoph Janz: 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, Berlin, in 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 CEO spending lots of time on planes. But my mom one of my favorite models maybe the favorite model is really to combine both like Algolia for example which 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 and beyond and and keep them and then they have like moved to San Francisco one they two founders which is ideal for this one. One founder it stays here takes care of the team here and the the other founder goes to San Francisco and builds the commercial team they are. I think maybe that is even a better model compared to a native San Francisco. It has a start that would be like the first time in history that a European company actually is an advantage over a company out of San Francisco.
Jason Lemkin: But two quick things on this chart then let’s break so we can try and stay on track But pros are still many more veterans if you need a V.P. a sales V.P. marketing V.P. customer success the Box’s the Twilio’s NewRelics Zendesk the NewRelic the AppDynamics there they’re spitting out veterans left and right right you get so many of these hundred companies that have gotten the next level they’re changing over their management teams every couple of years and that’s creating hundreds of of directors in VPs for you to hire. So I still think huge better and veterans capital is a weird one how much better. Just quickly because we’re at a time when we started working together probably access to capital for startups was still five to 10 X in the U.S. over Europe what’s the gap today?
Christoph Janz: Is a two x one point one X I I can’t really quantify but I know that access to capital is no longer a reason to move to the US. Same may come from Zendesk where there was no that was it. Generation X had to move her capital. Today you do not know and that’s a big change there.
Christoph Janz: Definitely not. And both because they are more European funds but also because funds from the U.S. 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 another reason for moving that I think talent and access to partners customers being close to the market that that is that is the reason.
Jason Lemkin: Yeah. And then the last one partners and customers are still strong. But I think this last one and 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 peer as you get being in San Francisco and walking down the street I was walking out four times since we’ve been doing all of us I’ve bumped into McKay from intercom I mean he’s just there right. I’m one block from the Algolia a team but the people I bump into on the street and a peer pressure I feel even myself to do well is that combination I think drives you to excellence that sometimes if you’re 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.
Christoph Janz: Yeah I agree. Like I mean maybe sometimes you can also go mad if you live in this echo chamber right.
Jason Lemkin: It is I am going mad sometimes yes.
Christoph Janz: 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 it’s not it’s not binary but I completely agree that the access to people who have done it before and have seen greatness like has seen companies like Dropbox that went from zero to a billion and in 10 years are like Consumer companies like Pinterest and Airbnb and Snap and something like that. 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 that is really still what’s what makes the Bay Area unique.
Jason Lemkin: All right. Last one because we’re out of time and then we’ll 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. I think if you’re going enterprise and you can come to San Francisco don’t go to New York New York I love it but come to SF there as if you need to hire someone that needs knows how to close 100k deals million dollar deals 50k deals even not only that you can hire a V.P. but he or she can bring a team with them that then go out and find you 10 or 20 enterprise reps. You have a huge weapon being in San Francisco. And if you’re doing enterprise more 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 if you’re doing processing lots of inexpensive inbound leads hundred dollar deals thousand dollar deals I think the benefits are real but maybe they’re smaller right maybe you can do an accent you can build a billion dollar SaaS SMB company from anywhere today. That that’s my thinking. I think that the advantages are fewer but still there. Any quick thoughts on SMB versus enterprise on that.
Christoph Janz: I agree in the sense that the V.P. of sales is like a one reason for going to the Bay Area which if you’re an SMB maybe not quite as important. I think it’s not the only like trigger that might want to lead you to go to the U.S.. I think another one is like the VP of marketing our great product management or maybe in some cases even tech. So I think that depends on what exactly your doing and what the key talent is that you need for that company. Yeah. So let’s say for our developer tool for example and maybe you don’t need the V.P. of sales but you still want to like in the community. But I think that pipe drive which you’re an investor in is 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.
