The other day, I asked Doug Pepper to join us for our podcast and YouTube to talk about where the venture markets really are today. Doug has done it all, from being the first seed investor in Marketo all the way to being a growth investor in Calendly, Loom, Braze, Lattice, and much more:
My key take-aways:
#1. VC remains open — at least for deals < $1B valuation.
You need to be growing fast at $20m ARR for a growth deal (100%+), but if you are, deals are and will still be getting done routinely at <$1B valuations. Unicorn rounds are tougher today — there just isn’t as much room to grow your valuation at $1B+. But top growth deals will still get done routinely, and Iconiq still sees itself deploying its full current fund over the next 24 months.
If nothing else, expect a fraction of the new SaaS unicorns we saw in 2021
With so many amazing public SaaS companies now worth just $2B
You just really, really got be epic to be worth $1B pic.twitter.com/yDQLfdTJzB
— Jason ✨BeKind✨ Lemkin #ДобісаПутіна (@jasonlk) May 9, 2022
#2. So many top, mid, and later stage SaaS companies raised tons of capital in 2021, so much … that few really need to go back to market and raise again this year.
Only 1 of current Iconiq Growth portfolio companies currently plans to raise this year, after, in many cases, raising 2-3 recent rounds. So the “crunch” may not affect many of the strongest players (my experience as well). The best players often raised so much money, they don’t need to raise at all in a more challenging fundraising environment. My general advice to founders is just stretch your capital a little longer in this current environment, at least 6 months longer, 12 if you can.
Lot of talk on twitter and media about Down Rounds
The reality, in SaaS, we're just going to have a lot of Non Rounds
In 2022, hot startups often raised 3 rounds in 12-15 months
Now they just might not raise for quite some time
Most of the time, it will be just fine
— Jason ✨BeKind✨ Lemkin #ДобісаПутіна (@jasonlk) May 8, 2022
#3. VCs are taking more time, but more “back to normal” time Growth deals can still be done in 3-4 weeks, just not 1 week now.
Per Doug, don’t tell VCs the deal is closing 3 days after first meeting. Instead, outline a calm 3+ week process with time for diligence, multiple meetings, etc. The fundraising pace and processes got a bit crazy in late 2020 and 2021. Put those processes aside, and focus on more sane, respectful, and calm fundraising schedules.
#4. Not only is there is plenty of money in venture — but even more is coming. Top funds are continuing to raise huge funds.
They may be slowing down investing a bit, but they still will deploy these funds over 2 years. How these funds will get deployed is still a bit in flux, but not only is there more money in venture than ever — even more is coming from VC funds raising even more capital, per Doug.
#5. The biggest issue in venture today is just that founders haven’t changed their expectations
Deals will take longer, and 100x valuations will be far rarer. Growth still needs to see a clear 3-5x outcome, with a shot at 10x. With markets down 50%, the math still has to work.
..If your company does need cash, don’t worry about the market noise too much either, just go out and raise. Don’t wait for valuations to recover or try to guess when they will, capitalize your business now at the best you can. There are enough good investors out there.
— Jyoti Bansal (@jyotibansalsf) May 6, 2022
#6. 2016 was tough, too. This one is different; every rough patch is different from the last one. But the markets also dropped 50% at the start of 2016, and VCs panicked. LinkedIn, Marketo, and other SaaS leaders sold for fairly low multiples as it seemed like enterprise SaaS buyers were drying up. And then, later that year — things just roared back.
Anyone remember another time when SaaS stocks plummeted 50% from January?
It was called 2016:
* Everyone panicked
* Seemed like multiples would never recover
* LinkedIn sold to Microsoft for 7x ARR
And then …
Later that year, SaaS went on a tear like we’ve never seen
— Jason ✨BeKind✨ Lemkin #ДобісаПутіна (@jasonlk) May 6, 2022
#7. Watch What the Big PE Firms like Vista, Thoma Bravo, etc. do in SaaS. They know. If they are buying up SaaS startups at attractive valuations, that’s because they know things will rebound and continue to scale. So far, buying there does not appear to have slowed down.
I’ve never met a CEO who regretted going private. And those that had the courage to do so have ended up delivering big premiums to today’s prices for their public shareholders. And, by going private, they’ve focused on profitable growth — putting their cos in a much better place.
— Orlando Bravo (@OrlandoBravoTB) May 10, 2022