Investing and Venture Capital in 2023 With SaaStr Founder/CEO Jason Lemkin and Atrium Founder/CRO Pete Kazanjy (Pod 624 + Video)

The new year has officially begun, and since the markets have become more unpredictable over the past few years, SaaS founders are likely wondering what the VC landscape will look like in 2023. What sort of funding environment can founders expect?

SaaS Founder and CEO Jason Lemkin and Atrium Founder and CRO Pete Kazanjy sit down to discuss the state of investing in 2023 and what founders should keep in mind for the year ahead. 

The Backstory

So, who are these two SaaS leaders, and what experience do they draw from that helps inform their thoughts on capital, the market, and entrepreneurship? 

Jason Lemkin: After founding Echosign, which Adobe eventually acquired, Lemkin kicked off his VC career with investments in such notable companies as Pipedrive (sold to Vista Equity Partners for $1.5 billion), Talkdesk (valued at $10 billion) and Salesloft (sold for $2.3 billion).

After building a successful portfolio, Lemkin struck out on his own and is the Managing Director of SaaStr Fund and the CEO of SaaStr. Since 2016, he prefers to make about three or four investments per year, usually within the $1 – $4 million range. 

Pete Kazanjy: Kazanjy is a seasoned startup founder, investor, and advisor. He is the CRO and CO-Founder of Atrium, a data-driven sales management platform that helps sales managers, sales leaders, and sales ops pros use data to improve rep and team performance. Atrium has raised a total of $33.5 million in funding over four rounds. Their latest funding was raised on Jan 26, 2022, from a Series A round.

The Market and Early-Stage Investment Outlook 

It’s no secret –– last year, SaaS founders were feeling the pressure of inflation, rising interest rates, and a compressing public market. In response, VCs tended to be a bit more conservative with their investments. Will the same be true in 2023?

In Lemkin’s view, yes and no. He believes more seasoned VCs will be more willing to take on new ventures, particularly if they are focused on early-stage investments. “For folks who do seed up to early [Series] A…anyone who has been [investing] since 2015 or so –– they’re excited to invest now.” Although there is a dip in valuations, there is still the potential for high earnings. More experienced VCs are willing to do deals despite the decline of valuations; however, newer investors may be more worried since the last few years have impacted their portfolios more severely. Lemkin suggests that founders should “Hunt out investors who have been around awhile; hunt out investors who aren’t scared.” 

In Lemkin’s view, early-stage investing still is going strong. The same may not be true for late-stage rounds. 

Late-Stage Investing, Hiring, and Layoffs

Lemkin and Kazanjy both note that late-stage investments are not faring as well as early-stage investments in 2023 so far. This can be attributed to multiple factors, including the compressed market, but this year will look different than last year, and companies need to be ready. 

The pullback on late-stage investments has caused a ripple effect of companies being more conservative on spending and, unfortunately, laying off employees. Lemkin describes the sudden shift of capital being cut off that forced leadership to change strategy: “Sometimes these companies are struggling, but for the most part, COOs are waking up to the fact that there’s just no more money coming. That’s the issue; that’s what’s fueling layoffs.”

He elaborates further that last year’s hiring boom has now come to a halt since so many businesses had significantly increased their teams, even doubling them when capital seemed to be more accessible. 

Kazanjy, with the perspective of a SaaS co-founder and CRO, points out that companies spent their capital as they always had and were expected to by their investors. “You raise this money not to just have it sit in the bank because… the deal there was to deploy that to then turn that into ARR growth, such that it could grow to the next markup, such that it could impact IRR, which is exactly what the LPs want, and so on.” Kazanjy stresses that SaaS leaders did what was expected of them, to spend capital and fuel growth instead of sitting on money. However, for 2023, this strategy may not work as well, and company budgets must be considered more carefully. 

Thoughts For Founders Seeking Funding in 2023

If your company is beyond the early stages of funding, prepare to adjust your spend and don’t necessarily expect the same levels of late-stage capital that were typical in the past.
Remember, investors like Jason Lemkin are still eager for deals, particularly seed rounds to Series A. So before approaching a potential VC partner, do your research on their cap table and choose someone who you believe in and who also believes in you. 

Key Takeaways

  • There are seasoned VCs who are interested in early-stage deals. 
  • Companies in later funding stages should prepare for the possible reduction of capital and consider restructuring their spending.
  • Find an experienced investor who you feel a connection with and who believes in your vision.

*The Content is for informational purposes only, do not construe any such information as legal, tax, investment, financial, or other advice.

 

 

Published on January 11, 2023

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