Eric Torenbeng brought us on his Turpentine podcast to talk about a bunch of interesting topics:

  • Where SaaS investing is today
  • How SaaStr started, and why
  • How combine venture and media

And much more!

Intro (00:00:00)

  • Jason Lemkin, founder and CEO of SaaStr Fund, discusses the challenges of scaling a venture firm and his media and event strategies.

Evolution of SaaStr Fund (00:01:22)

  • Jason Lemkin is one of the few people who has built a sizable venture fund and a sizable business that complement and synergize with each other.
  • Harry Stebbings has also done this, but on a smaller scale.

Accidental Success (00:01:58)

  • Jason Lemkin started SaaStr in 2012, the day he left Adobe after his last startup, EchoSign, was acquired.
  • He started by sharing his learnings as a founder on a blog, inspired by Mark Suster’s blog.
  • He was the first among his peers to have an exit, which gave him the credibility to share his mistakes and learnings openly.

Community + Content (00:03:35)

  • Jason Lemkin created a blog called “Katharas” to share his learnings as a Founder.
  • The blog gained traction within CEOs and Founders and he was recruited by a VC firm.
  • Lemkin made successful early investments in companies like PipeDrive, Algolia, Talkdesk, Greenhouse, and SalesLoft.
  • He believes that building a media company and investing are not as synergistic as outsiders think.
  • VCs need to do some kind of marketing, but too much marketing can be detrimental.
  • The goal of marketing for VCs is to generate the maximum number of decacorns or unicorns with the least amount of effort.
  • Lemkin suggests that VCs should focus on Enterprise marketing rather than consumer marketing.

Challenges and Realities of Scaling in Venture Capital (00:06:52)

  • Writing a blog post in response to a crazy tweet from a billionaire is a waste of energy that should be invested in deals.
  • Almost everyone in venture capital feels like their edge has eroded over time.
  • A top five seed investor, who is mostly retired, expressed feeling like he has lost his edge despite having a great track record.

Finding the Edge (00:07:46)

  • VCs employ various marketing strategies such as podcasts, newsletters, and YouTube channels to attract founders, while some, like Mimon Hamid, build networks through personal interactions.
  • The traditional edge in venture capital, such as being a hot series D company, is less significant now due to the abundance of capital at earlier stages.
  • Identifying great founders remains a challenge for seed investors due to the crowded market, but focusing on outsiders with unique backgrounds and strong growth potential can still provide an edge.
  • Companies that are priced to perfection in the short term may be overpriced in the long term.
  • Jason Lemkin cautions against over-emphasizing the overlap between media, community, and venture, and suggests that seeing one exceptional company per month is a good benchmark for deal flow.
  • Lemkin emphasizes the importance of only investing in great companies and suggests that there may be more efficient ways to find them without extensive social media, community building, or content creation.

Jason Lemkin and Harry Stebbings of @20VC (00:14:05)

  • Jason Lemkin suggests that entrepreneurs should focus on meeting with the best pre-investor rather than wasting time on unnecessary tasks.
  • Lemkin believes that he could have been more efficient in building SaaStr.
  • Lemkin acknowledges the challenges of running a large community and media business, using SaaStr as an example.
  • He highlights the amount of energy required to produce content, deal with multiple boards, struggling portfolio companies, and various other responsibilities.
  • Lemkin questions how one person can manage all of these tasks simultaneously.

Jason Lemkin and Harry Stebbings of @20VC (00:14:05)

  • Lemkin mentions the importance of community and media in building a successful business, citing SaaStr as an example of an accidental $30 million business that started as a community.
  • He acknowledges that SaaStr is not heavily monetized and compares it to a 14-month-a-year job.
  • Lemkin highlights the challenges of producing multiple pieces of content per week while dealing with various business responsibilities and difficult situations.

Why Jason Never Created a YC for SaaS (00:15:36)

  • Jason Lemkin decided against creating a YC for SaaS due to his lack of passion for the idea and the challenges of managing multiple partners.
  • Lemkin prefers one-on-one meetings with founders and believes that seed investing is not the most lucrative compared to managing larger funding rounds.
  • He emphasizes playing to one’s strengths and focusing on areas of passion and expertise, such as his own focus on sales and helping companies between $100K to $1M in revenue.
  • Lemkin acknowledges that different investors have different strengths and passions, like Garry Tan’s passion for YC and late-stage investing.
  • He advises investors to prioritize securing the best companies or adopting the YC approach of investing super early when it’s hard to identify the next big winners, rather than wasting time on small checks.

Deciding on Fund Size and Scale (00:23:05)

  • Jason Lemkin, co-founder of SaaStr, focuses on making three to four seed deals annually, targeting early-stage startups seeking guidance in sales.
  • He has raised four funds, two smallish funds of about $70 million each and two small growth or opportunity funds.
  • Lemkin emphasizes the importance of finding a co-founder in investing, someone who complements his skills and helps scale the operation.
  • He highlights the success of David Cummings, who achieved significant financial success by co-creating multiple companies and investing in successful startups.
  • Lemkin believes in patience and selectivity in venture investing, focusing on high-quality inbound deals with strong growth, metrics, and CTOs.
  • He aims to generate consistent returns by picking the best deals and avoiding the need to add value or achieve low MPS.
  • Lemkin acknowledges the stress involved in venture investing but believes that the potential rewards outweigh the risks, especially in early-stage investing.

Partnering in a Smaller Fund or Heading to a Mega Fund (00:30:56)

  • Jason Lemkin, founder of SaaStr, discusses the advantages and disadvantages of joining a large venture capital fund.
  • Mega venture capital funds offer high salaries and potentially generous carry but have fewer decision-makers and are less democratic.
  • CEOs transitioning into venture capital may face challenges due to the demanding nature of founders and the different dynamics of working for someone else.
  • Phil Libin’s experience at General Catalyst emphasizes the significance of fit and personal preferences when considering a move from CEO to venture capitalist.

Early Days SaaStr (00:35:07)

  • Jason Lemkin built SaaStr by accident.
  • He started out by writing a blog about SaaS and then decided to host a conference.
  • The conference was a success and led to the creation of SaaStr, a company that provides resources and services to SaaS companies.
  • SaaStr’s business model has evolved over time.
  • The company started out by selling tickets to its conference.
  • It then added a subscription service that provides access to exclusive content and discounts.
  • SaaStr also offers consulting services and sponsorships.
  • Jason Lemkin believes that the key to getting from 30 to 100 employees is to focus on hiring the right people.
  • He looks for people who are passionate about SaaS and who are willing to work hard.
  • He also believes in giving employees the opportunity to learn and grow.
  • Jason Lemkin believes that the key to getting to 100 employees is to focus on building a strong culture.
  • He believes in creating a positive work environment where employees feel valued and respected.
  • He also believes in giving employees the opportunity to make a difference.

Media and Event Business Models

  • Jason Lemkin founded the successful SaaS blog SaaStr in 2012, which led to sold-out meetups and the annual SaaStr conference.
  • Despite financial success, the outsourced event management team made a significant error by omitting $1.6 million for food and beverage in the budget, resulting in the loss of the entire surplus.
  • The event industry is plagued by inflated costs, kickbacks, and a lack of exceptional talent, making it challenging to find skilled professionals.
  • SaaStr’s business model includes community building, events, and digital media, with digital media alone generating approximately $2 million in annual revenue.

Field Marketing in Business Growth

  • SaaStr generates revenue through podcasts, newsletters, and events.
  • Events have high fixed costs but can be profitable if they are large enough. Public companies in the event space can achieve good operating margins by combining multiple properties.
  • SaaStr has been affected by the decline in unicorn startups but is recovering by partnering with larger companies.
  • Field marketing, which involves meeting buyers and sellers in person, is an effective but often overlooked marketing strategy.
  • SaaStr aims to reach $100 million in revenue by leveraging its brand, aligning with growing macro trends, and expanding its market share.
  • The cloud computing industry is rapidly growing, with SaaS representing a $200 billion market, and overall business software spending expected to surpass $1 trillion this year.
  • Jason Lemkin, an early investor in SaaS companies, discovered the effectiveness of field marketing before learning about the 40% rule for field marketing.

Rolling Up Vertical Media Businesses 

  • Jason Lemkin believes the old model of numerous small-scale events is no longer profitable due to compressed margins.
  • Harry Stebbings, founder of The Twenty Minute VC podcast, is predicted to become a highly successful managing general partner, raising billions in capital.
  • Lemkin is exploring his passion and the best business model for it, considering a combination of community media, investing, and a platform to help others build their media businesses.
  • SaaStr, Lenny Rachitsky, and Harry Stebbings all have different approaches: SaaStr is a trusted resource for first-party knowledge, Lenny is a curious mind and great at creating media around product, while Harry is an expert interviewer and venture capitalist.
  • Lemkin believes building a media company like SaaStr but for different areas of expertise is possible and could be a successful business model.
  • Passion is not a reliable guide for career choices; instead, focus on what you are good at and driven to do.
  • Pursuing passions can be dangerous and has become toxic advice, especially on platforms like TikTok.
  • Little investing is not worth it unless you can own a significant percentage (8% or more) of the company.
  • To win in venture capital, you need to be relentless and win large positions in iconic companies; it cannot be a side hustle.
  • Lenny Rachitsky, a hypothetical business owner, makes $500k net from his business and $400-500k from angel investing, totaling around $1 million per year.
  • Lenny’s business model involves being an expert in a sector or position, creating content, and doing some investing on the side.
  • Lenny’s income is a combination of current income and qualified small business untaxed income that takes years to come but produces itself over time.
  • Lenny’s success didn’t happen overnight, and he may make more than the estimated $1 million per year.
  • Lenny’s business model is different from someone like Jason Lemkin, who raises hundreds of millions of dollars and charges 2.5% in fees per month as a solo GP.
  • Harry Stebbings’ average check size is $5 million.
  • Pitchbook and Crunchbase are examples of paywall data products that sell to investors.
  • Pitchbook was sold for a couple of hundred million dollars.
  • Crunchbase may have been on the market.
  • These companies have real data businesses.

Complexities of Managing Multiple Income Streams 

  • Different business models have varying viability, and some models, particularly those heavily reliant on media or data, face limitations in growth and scalability.
  • The speaker expresses skepticism about businesses claiming multiple successful income streams or compound businesses, emphasizing the challenges of managing multiple ventures simultaneously.
  • Pursuing too many diverse business ventures or income streams can hinder the ability to achieve significant success in any one area.
  • Combining 10 full-time jobs is possible but should be done intentionally, as 10 lifestyle businesses do not equal one great lifestyle and can lead to a decline in all 10 businesses.

Building Empires in Venture Capital

  • Harry Stebbings, host of the SaaStr podcast, is part of a new wave of solo general partners (GPs) who manage large sums of money.
  • Solo GPs are attractive to limited partners (LPs) because they offer the potential for higher returns and more control over investments.
  • LPs are willing to take on the increased risk of investing with a solo GP because they believe these GPs have the expertise and experience to generate superior returns.
  • Solo GPs can adapt to the changing market landscape and invest in the most promising startups.
  • Jason Lemkin, founder of SaaStr, believes solo GPs are the future of venture capital.
  • Unlike software businesses, media businesses don’t benefit from the same scale advantages and don’t experience the same ease of growth.
  • Media businesses can experience significant fluctuations in revenue, unlike software businesses with high net retention rates (NRR).

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