The Day in SaaS, 07.28.22:
— Jason ✨2022 SaaStr Annual Sep 13-15 ✨ Lemkin (@jasonlk) July 28, 2022
So we’re in a bit of a weird world and time in venture capital. The public markets are down 50%+. The best of the best in SaaS and Cloud, truly the fastest growing and most iconic SaaS companies, from Snowflake to Datadog and more are way, way down. Even though their growth is way, way up.
But what about startups? Well … it depends. Much like buying a home at the peak of the market, you can sort of ignore things if the value declines. Well, sort of.
- Most VC funds “carry” startup investments at their last round price, unless their value has been materially impaired. So that 100x unicorn round that closed in 2021? Even if the startup isn’t quite a rocketship anymore, most smaller VC funds will stay hold it at the same value.
- VC funds with liquid assets (i.e., shares in public companies) do have to mark their holdings directly to market. So if they held on to shares post-IPO (as you often have to, at least for 180 days), they may have had to mark down the valuations.
- And in the middle are growth funds and investments. The rules there are clear, but the implementation isn’t. As you can see above, Canva has recently been marked down 40% … despite record growth past $1B in ARR!! Canva has done as well as any startup possibly could. But its public comps are down 50%. So, the investment gets marked down. By some VCs. But not others.
It sort of begs the question … is every SaaS startup worth half of what it was last year?
If Canva is worth 40% less than last year, and the best public SaaS companies are worth 50% less than last year … how can your startup not also be worth 40%-50% less?
Even if you are growing like a weed, well, so are they.
Look, your startup probably is worth half of what it was last year. But if you don’t need to raise capital at all, you can mostly tune it out. And even leverage these times to get a lower 409a valuation to price options lower. (Stripe just did this, and you probably should, too. It’s smart).
But deep down … deep down … almost all startups are probably worth half of what they were last year.
Even the very, very, very best ones.
Just be aware of it, and the implications if you need to raise or sell. If you don’t, and growth is good. Well, Keep Calm and Carry On. Times are still very, very good in SaaS and Cloud.