A couple of thoughts:

First, note that the best funds, and tons of Not The Best funds, have tons of capital to deploy (i.e., invest).  And many big funds are going back to market in Q1 to raise even more funds to deploy.

So the money is still there to go get.  Lots of it.  But …

in SaaS, at least, the bar has gone up about 2x since the summer.

This really means three things:

  • One, to achieve a target valuation of $XXm, you may need about twice the traction you needed in 1H’15.  This is invisible multiple compression.  The most tangible expression of this was how the bar for a “good Series A” went from $1m ARR growing 1X% per month for a reasonably hot SaaS company earlier in the year … to $2.Xm ARR growing 1X% per month. Same sized round, same valuation … just 2x the revenue to get it.  And also, in many cases, the VCs are taking less risk here.  The get to see a few more cards played before writing the same check for the same ownership.
  • Two, the days of Pretty Good SaaS companies getting venture funded somewhat easily may be over. Through the summer of this year, just about any SaaS company in a decent space with $1m in ARR growing 1X% a month could raise a round.  And back in ’08, ’09, even ’10 … that would have been a good SaaS company.  But today, the best ones are just growing so much faster … see, e.g., Slack, Zenefits, Intercom, Talkdesk, etc.
  • So … many VCs’ portfolios are full of “pretty good” SaaS companies that will probably never get to $100m+ in ARR, an IPO, or a good exit … and worse, may never be able to raise a Series B.  They won’t fail, but they’ll just suck up VC times and resources and not have a material impact on the fund.  Folks don’t want to do these sort of investments again.  They leaned forward a little too far, a little too fast, in the first half of the year.  Dealing with their “pretty good” SaaS investments is going to create a venture hangover here for a long, long time.

So the hot ones will have zero trouble getting funded — and fast.  There’s more money in venture then ever, and more new, bigger funds than in my memory.  The GPs are still there to hunt and kill.

But the bar has gone up about 2x, and the days of “pretty good” SaaS companies getting significant venture funding may be gone for a long time.

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