SaaStr Founder and CEO Jason Lemkin and Partner at QED Investors Amias Gerety chat on the Fintech Beat podstream about all things SaaS, money, and what makes a great founder. 

Some topics covered include: 

  • What makes SaaS so great
  • How SaaS is fairing in the “macro” economy
  • Perspectives on fintech and SaaS and how they overlap
  • How an investor chooses what to invest in and when it’s time to walk away

Fintech Beat is all about the intersection of finance, tech, and policy, and now they’re touring outside the neighborhood of fintech and into the great big world of SaaS. 

While the world of public tech stocks is defined by consumer-facing juggernauts like Facebook, Amazon, and Google, the world of venture capital is defined by the North Star of SaaS. 

Let’s dive right in. 

What Makes SaaS So Great

If you’re here on SaaStr reading this, you don’t need to be told why SaaS is so great. 

But we’ll share Jason Lemkin’s perspective on it anyway because it’s always a good reminder of why we’re here. 

“Recurring software revenue is now recognized as a great way to generate tons of cash for investors,” says Gerety. 

But that wasn’t always the case. 

It took a while. 

Lemkin’s been a SaaS entrepreneur since 2005, and SaaS didn’t come into fashion until 2019. 

That’s 14 years of waiting for people to get excited! 

Aaron Levie, the CEO of Box, came to SaaStr’s first big community event in 2015, one week after Box’s IPO. 

“Do public markets understand recurring revenue and SaaS models?” Lemkin asked him.

“Well, some do,” Levie had said. 

Fast forward, and Box is over $1B in revenue. Almost all Cloud and SaaS leaders have become profitable. And if not profitable, very positive operating margins of 20% or more. 

People are falling in love with this model for a couple of reasons. The magic of a SaaS model is: 

  • Very high logo retention. Over 90% stay each year. 
  • Net dollar retention is ideally over 120%. For every dollar you spend this year, your customers buy $1.20 next year. Compound that over four years, and your business doubles. 
  • High gross margins. Five engineers can write something for a million people to use. 

The public markets love this trifecta of 90% logo retention, 80% gross margins, and 120% net revenue retention. 

How SaaS Is Fairing in the Macro Economy

It’s crazy how much more efficient the leaders in SaaS and Cloud have gotten in one year. 

The public markets forced it. 

An extreme example of this is a super successful public SaaS company that we all know — Monday. 

They’re at $700M in revenue and growing 50%. Until last year, they were relatively inefficient, with -20% operating margins until the market said no more. 

In one year, they went from -20% to +20% operating margins. 

Hubspot and Salesforce did the same thing. 

How did they do that? 

By freezing headcount for a year. They didn’t lay off everyone, or if they did layoffs, a small percentage were replacements. 

Mathematically, if you keep the headcount flat and continue growing 50% like Monday or 30% at $2B like Hubspot, you get wildly more efficient. 

A meta question for the next few years: Will we stay efficient? 

Benefiting From The Macro, Taking Pain From The Market

When times are tough, people stop buying nice-to-have stuff they don’t need. 

As an entrepreneur, Lemkin never found that to be true… the idea of vitamins vs. painkillers. 

He had never found a successful software company that wasn’t necessary. This was likely due to how difficult it was to convince ten companies to buy back in the day. 

You had to be a painkiller because no one stayed up at night trying to buy business software. 

But then 2022 hit, and things changed for some companies. 

Those tied to direct macro saw no dip in growth. But some went from 100% growth to zero. 

That’s because companies tightened the belt and cut the crap they didn’t need overnight. 

The Age Of Tourist Investors Coming To Fintech May Be Over

Every VC has more than one story of fraud in their portfolio, and sometimes it’s just lite fraud — claiming something is recurring that isn’t or exaggerating margins. 

“Too many investors were tourists in fintech and convinced themselves that fintech margins were like software margins. But they weren’t,” Gerety says.

“People got burned the most in fintech because the margins were lower and burn rates were higher,” Lemkin shares. 

Lemkin did some experiments in lower gross margins and won’t go back. But the tourists will come back when Stripe IPOs and other things happen, but will likely take a pause for a couple of years. 

Controls Around How You Spend Money And Grow

Without question, the proper controls for startups and scaleups have gotten worse over the last 8-10 years. 

And this is for a few reasons. 

  1. People used to respect capital more. 
  2. Founders remain extremely optimistic about raising future capital at higher valuations.
  3. Companies are waiting too long to hire a CFO or VP of Finance. 

People Used To Respect Capital More

As a founder, Lemkin’s second startup, which is now part of Adobe doing $250M, raised only $8M across two rounds. 

At one point, Lemkin offered to give it back to investors when growth stalled, and he wasn’t sure he could deliver. 

Stewart Butterfield also offered to give the money back before Slack turned into what Slack is. 

They did it because of respect for investors. They weren’t sure they could make them money. 

Founders Remain Extremely Optimistic About Raising Future Capital 

Even after the downturn of 2022, founders remain extremely optimistic about raising future capital at higher valuations. 

Founders view 2022 as an anomaly, which is a mistake. 

They don’t have life experience, or their life experience was only good times.

We’re slightly back to some of the good times, and this perspective leads to a lazy element. 

Companies Are Waiting Too Long To Hire A CFO or VP of Finance

A lot of founders hire a VP of Ops instead. 

They don’t want a bean counter, so they get a McKinsey or Bain person and make them VP of Operations. 

These people make amazing spreadsheets, and they get companies into wild trouble. 


Let’s say you’re burning $1M/month with $20M in the bank. That’s 20 months of runway, and the board doesn’t like it. 

So, this person tweaks the numbers in Q4 to show sales increasing, costs staying consistent, and burn going down. 

If you don’t look at the model, it’s magic. The VP of Ops shows seven years of runway, and they’re also the most dangerous hire people make. 

On the one hand, startups are much worse at finance and controls. Conversely, we’re better at instrumentation and can do cohort analysis of our customers and why they churn. 

So, Ops helps run reports and analytics, but it’s garbage in and out for financial models. 

If you have a real bean counter in month one of your business, you can trust the spreadsheet vs. it just being numbers thrown in that don’t actually mean anything. 

How An Investor Chooses To Invest and What Makes An Epic Founder

As an investor, Lemkin is highly concentrated. How does he choose just 4-5 investments in these early stages? 

People have a natural insertion point or stage, and Lemkin’s is late seed. The factors that led to this knowledge were:

  • The difficulty of knowing if a company would make it with no revenue. 
  • A 50/50 hit rate if investing pre-revenue. 
  • Didn’t want any big losses. 

Lemkin seeks out founders who are better than him and growing a little faster than he did as a founder. 

If he could get a 9-figure exit back in the day, there’s a shot this type of founder could exit for 10-figures today. 

What Makes An Epic Founder

If you have a smidge of traction, it helps, even if it’s $10k/month in recurring revenue or 10-15 customers. 

Beyond that, the real questions that determine an epic founder are: 

  1. What is the quality of the initial team?
  2. Can they see the future? 

We’re not talking about beating hands on your chest and shouting about how crypto will dominate the world. 

But meeting a founder at $10k/month in revenue who explains how the market will evolve over the next 5-7 years is epic. 

Know the future. 

As investors, it’s hard to find great founders. 

You meet a ton of good founders, and if you’re lucky, you can meet one off-the-chart founder every month, quarter, or year. 

Key Takeaways

The key takeaways here are: 

  • SaaS will continue to be great thanks to the trifecta model of high logo retention, ideally 120% net dollar retention, and high gross margins. 
  • SaaS and Cloud leaders have become incredibly efficient over the last year. 
  • The age of tourist investors coming to fintech may be over. 
  • Don’t wait too long to hire a VP of Finance. 
  • The very best founders have a great initial team and can see the future. 

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