When capital raising, most founders struggle with reaching out to the right investors. The result? they end up wasting their time.

There are simply too many investors out there. While this might sound like a good thing, the problem is that not all of them are actively deploying capital, and not all of them are relevant to your sector. If you are a SaaS founder, I have solved both of these problems for you.

I sorted through 200+ deals (from April to June 2024) and narrowed down the list to focus specifically on SaaS.

Here are my findings 👇

(+ link to investor database at the end of the post)

Funding Rounds (Q2 2024)

• There were $9.3 billion (USD) invested across 67 companies

• The 4 top countries by number of funded companies were:

  • 🇺🇸 United States (36)

  • 🇫🇷 France (5)

  • 🇨🇦 Canada (4)

  • 🇯🇵 Japan (3)

• The company stages with the most funding were:

  • 🥇 Series F ($2.0B)

  • 🥈 Series B ($1.7B)

  • 🥉 Series E ($1.3B)

  • Series D ($1.2B)

  • Series C ($1.1B)

• The company stages with the most number of deals were:

  • 🥇 Series B (14)

  • 🥈 Series A (12)

  • 🥉 Series C (10)

  • Seed (8)

Active Investors (Q2 2024)

• There were 193 active investors in SaaS

• The top 6 countries (by funded company HQ location) with most number of investors involved were:

  • 🇺🇸 United States (112)

  • 🇫🇷 France (17)

  • 🇨🇦 Canada (17)

  • 🇸🇪 Sweden (11)

  • 🇸🇬 Singapore (10)

  • 🇨🇳 China (10)

• The 6 most active investors by number of deals were:

  • 🥇 Index Ventures (6)

  • 🥈 Lightspeed Venture Partners (6)

  • 🥉 Accel (5)

  • Spark Capital (4)

  • Insight Partners (4)

  • Andreessen Horowitz (4)

Funding Rounds & Investor Database (Q2 2024)

The list of funded companies is on the first tab and the list of active investors is on the second tab.

Here’s the truth.

Tech companies are now, more than ever, willing to pay for content. Anything from chat logs to personal photos.

If you’re curious about what’s happening — keep reading.

• Kennet Partners closes €266M fund to invest up to €50M in European SaaS startups (link)

• OpenAI’s annualized revenue doubles to $3.4 billion (link)

• Wiz walks away from Google’s $23B acquisition offer (link)

PS. This is the e-mail the CEO of WIZ sent to the entire company after rejecting the deal 👇

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See you next week!
-Alejandro

Hi MRR lovers,

As you know, you can fund a SaaS company in two ways: bootstrap or seek venture capital funding.

Boostrapped businesses use their own profits to grow. Venture funded businesses use external capital to scale quickly.

In 2024, with startups investors keeping a tight hold on their wallets, capital efficiency is king. But, who is faring better? Bootstrapped or VC backed companies?

In this newsletter, I cover the findings.

Which Model is Better? Bootstrapped or VC-backed?

In terms of growth milestones…

• Up until $300K ARR, bootstrapped companies in the top quartile grow the fastest.

• From there onwards, VC-backed companies in the top quartile have the advantage, reaching $1M ARR in 10 months, compared to Bootstrapped companies taking 16 months to reach the same milestone.

Growth Milestone	Boostrapped	VC Backed	Delta
$1M ARR	24 mo	20 mo	+4 mo
$500K	14 mo	14 mo	-
$300K	8 mo	10 mo	-2 mo
$100K	3 mo	4 mo	-1 mo

In terms of ARR growth…

• VC-backed companies below the $1M ARR range have experienced the biggest drop in Median ARR year-over-year growth

• At present, small and large bootstrapped businesses are growing at approximately the same rates (14% and 15% median ARR growth, respectively)

• Small VC backed companies are growing faster than larger VC-backed companies (36% and 26% median ARR growth, respectively)

In terms of new business growth…

• In the $1M-$30M ARR range, since late 2022, all SaaS companies have experienced similar new business growth rates at both median and top quartile levels.

• In the category of companies below $1M ARR, the median Bootstrapped company has suffered the most, hitting negative values in new business.

• Top-quartile bootstrapped companies have outperformed the median VC-backed business.

In terms of customer retention…

• In the $1M-$30M ARR range, top quartile bootstrapped companies started outperforming VC-backed companies since Q3 2023.

• Broadly, when looking at median performance, VC-backed companies fare much better

• Below $1M ARR, startups across both funding models appear to retain customers fairly equally. However, in 2024, the bootstrapped model has outperformed by a small margin (~3%)

In terms of net revenue retention…

• in the $1M-$30M ARR range, both funding models perform quite similarly, with VC-backed companies coming ahead by about 2-3%

• Below $1M ARR, both funding models perform quite similarly.

  

Read the full SaaS Growth Report

Enjoyed the newsletter? Forward it to a friend and have them signup here!

See you next week!
-Alejandro

I used to believe that software for creators was a somewhat oversaturated space — and upon doing more research, I found out that I was wrong.

On this newsletter, I break it all down for you.

The Evolution of the Creator Economy

First, let’s get the definition out of the way — the “Creator Economy” is not about dancing TikTokers or Instagram influencers partying on yachts.

In fact, the largest share of content creators are small businesses.

Source: Mighty Networks

Thus, the “Creator Economy” refers to independent businesses and side-hustles launched by individuals who are looking to earn an income off of their knowledge and skills through digital mediums.

To give you an idea of how fast the sector has grown since 2011, take a look at how much creators have earned on Gumroad as of 2020 👇

Source: Gumroad

This growth is being driven by:

1. how we create and consume content

2. access to new software and media platforms that empower creators

3. new ways of making money from your work

Social Media and The Rise of Creators

Initially, social media enabled people to build large audiences and monetization came from brand deals or view count.

In this old web economy, earning a living from your work was only possible if you could reach millions. Therefore, it was all dependent on scale.

The Move towards Direct Monetization

Through social media, creators owned nothing, their content belonged to the platforms.

As a result, creators began splitting their efforts across multiple mediums (e.g.newsletters, courses, podcasts) to monetize their audiences directly, without being solely reliant on brand deals and ad revenue.

This is when things started shifting.

Creators as Owners

Through alternative ways to monetize their audience, creators began to realize if they owned the distribution, they could monetize much more differently.

In the old world (e.g. instagram, youtube, tiktok), the economics were different. You previously needed thousands, if not millions, of followers to earn $1,000/month.

Through direct monetization on new platforms (e.g. Twitch, Discord, OnlyFans, Patreon) you could achieve the same result with a much smaller audience.

Source: Mighty Networks

More and more of these new platforms are offering new ways for creators to make money by going straight to the end-user and offering something of value in exchange for their money.

Source: McKinsey

The Creator Economy Landscape

Goldman Sachs estimates that the creator economy will double to $480 billion by 2027.

Technology has and will continue to play a huge role in this, as it has lowered the barriers to content creation.

Individuals are now free to choose which kind of work they take on (e.g. newsletters, livestreams, podcasts).

“Earning a living as a creator is an evolution of the so-called gig economy facilitated by companies like Uber and TaskRabbit.”

This has fueled demand, not only for content platforms, but also new services and tools that help creators manage their business.

Source: CB Insights

Enjoyed the newsletter? Forward it to a friend and have them signup here!

See you next week!
-Alejandro

Hello MRR lovers,

The next time a VC rejects you, forward them this newsletter to remind them that SaaS founders can be superheroes too.

Enjoy this one!

SaaS Wonder Woman Helps Parents Get Money For Their Kids

Having kids in the United States is not easy.

40% of parents are in debt due to childcare.

Funding for child care is also fragmented and unpredictable. For example, a family of 4 in New York making $65K a year would have access to government subsidies, while that same family in Pennsylvania would not.

Siran Cao is here to change that.

In 2015, while working at Uber in NYC, Siran’s mandate involved onboarding thousands of drivers daily. To achieve this, she depended on a 200+ people team, partly comprised of hourly workers. But there were a few challenges:

• For one, some of these employees often needed to cancel a shift or couldn’t take additional ones because they did not have proper childcare.

• Many women in her team would also refrain from taking promotions, fearing losing benefits they depended on, such as SNAP (Supplemental Nutrition Assistance Program).

• Others would drop out of the workforce because they could not make ends meet.

As an employer, she saw a clear incentive to help her employees resolve challenges posed by childcare. Without them, Uber could not grow.

Fast forward to 2020, she founded Mirza, an end-to-end childcare solution that supports parents by helping them access government funds they are eligible for.

Who is this platform for?

• Mirza is ideal for companies that employ hourly workers.

• The platform is geared toward helping frontline workers and anyone for whom remote work is not an option.

How does it work?

• Mirza calculates personalized childcare subsidies based on employee income, location, and specific financial needs for the employer.

• Once employees set up their financial plan through Mirza, the company’s algorithm optimizes contributions towards these accounts and maximizes employer benefits.

• The platform encompasses a range of financial solutions such as Health Savings Accounts, Flexible Spending Accounts, insurance, and Mirza’s products: securitized childcare, “care now, pay later” financing ISAs, and pension gap-free 401Ks.

• One of the main benefits is that Mirza’s platform is built to grow with its users. Once a child is born, parents become eligible for financial products, such as 529s or ESAs. Then, as childcare costs evolve into things like education costs, Mirza provides ongoing options.

Reddit Signs AI Content Licensing Deal Ahead of IPO

Reddit has signed a contract worth $60m/year allowing an unnamed AI company to train its artificial intelligence models on its platform’s content.

AI companies, hungry for data to train their programs on, have been striking data licensing deals with content providers eager for new sources of revenue.

According to research, by 2026, we are expected to exhaust all high-quality text data for training LLMs.

CB Insights also predicts that companies with proprietary content could become hot licensing or acquisition targets for AI companies.

Reddit is one of many targets. In December 2023, OpenAI partnered with German media giant Axel Springer to allow its users to access quality, real-time news content via its tools like ChatGPT.

Open AI is also in talks with publishers (CNN, Fox Corp, Time) to license their work and feed its AI products data to make their results more accurate, relevant, and up-to-date.

Enjoyed the newsletter? Consider forwarding to a friend!

See you next week!
-Alejandro

Good morning MRR lovers,

Have you ever wished to receive advice from someone worth $100M? Well, today is your chance.

• 💬 $100M Advice: If you are looking to build a SaaS in 2024, focus on micro-solutions.

• 💰 Did you think companies were spending less on software? Think again. 59% of spend went into only 4 categories.

• 🍟 Extra Fries: 7 things to do when you’re struggling, Layoffs, and State of SaaS in LatAm.

Where is money being spent on Software?

Over the past year, there were 3 significant shifts in a customer’s approach to buying Saas:

• Payment terms became a priority to preserve cash flow

• Customers were increasingly shopping around for alternatives, whether when considering new purchases or for renewals

• There was a decline in multi-year agreements as companies prioritized flexibility

In 2023, 59% of spend in Software went to the following categories:

• IT Infrastructure (27% of spend)

• Data Analytics & Management (12% of spend)

• Sales (10% of spend)

• Security & Compliance (10% of spend)

How is software spend affected as companies grow?

The answer is two-fold: 

• There are unlucky segments that experience a decline in a % of spend as a company size increases. Categories include Design and Content Tools, Marketing and Advertising, Finance and Accounting, and Commerce and Retail.

• The lucky segments maintain a consistent % of company software spend across all sizes. Categories include Productivity, Vertical Industries, Dev Ops, and Human Resources.

Top Suppliers by Average Contract Value and Transaction Count

Top Products by Quantity Purchased

Read the Full Report

• 7 things to do when you’re struggling (Read More)

• Salesforce, DocuSign, Okta and others laying off hundreds in SF (Read More)

• Cisco launches Motific, a SaaS offering to accelerate generative AI deployments (Read More)

• State of SaaS LatAm 2024 (Read More)

Looking to start your own newsletter? get started on Beehiiv.

Enjoyed the newsletter? Consider forwarding to a friend!

See you next week!
-Alejandro

Good morning MRR lovers,

If you are struggling to monetize your startup, or you are looking for ideas on what to build next — this newsletter is for you 🤙.

• 💔 You should probably delete your “free plan”. Unless you can serve a large market or you compete against a premium solution, make your customers pay.

• 🦺 80% of the global workforce does not sit behind a desk. That does not mean they don’t want to buy your technology.

Before we begin, a big thank you to this week's sponsor.

Why "Freemium" Could Be Hurting Your Startup More Than You Think

@jasonlk

Slack, Zoom, Canva, Dropbox, and LinkedIn are all SaaS superstars that have built gigantic businesses thanks to their freemium models.

However, this doesn't mean your startup should opt for the same strategy.

Here are two reasons why:

#1 - Only viral products can afford to be free

A Freemium model is, without a doubt, an effective onboarding strategy. Still, unless your product is viral, it won't attract the number of users you need to build a sustainable business.

Viral products possess several qualities that contribute to their widespread popularity and rapid adoption:

• 🌎 They solve a common problem. Slack disrupted workplace communication by offering an intuitive platform that organizes messages, files, and conversation topics, addressing the pain of fragmented team communication.

• 🍼 They are easy to use. With its simple interface and reliable performance, Zoom made video conferencing accessible to everyone, from businesses to schools to families, contributing to its rapid adoption.

• 🍻 They are highly shareable. Canva allows users to create professional designs easily. Its shareable content formats and collaborative features encourage users to share their creations and invite others to the platform.

• ⚡️ They offer immediate value. Dropbox provides instant value by offering cloud storage and file sharing in just a few clicks.

• 🛜 They rely on network effects. LinkedIn becomes more valuable as more professionals join the network. The same can be said of products like Tinder. More users = more value for users.

#2- You might lose sight of what actually matters

Under a Freemium model, you get two types of feedback: paid and unpaid.

• Paid users are, more often than not, your product's power users. Their feedback is typically more constructive as it aims to improve the product, optimizing or enhancing specific features that affect their daily use. This can help you work on things that deliver more value.

• A free user's experience with your product is usually more casual and exploratory. As such, their feedback tends to be broader and often concentrates on the product's suitability for them ("Can it do X? Am I able to use it for Y?"). While this type of feedback might allow you to identify trends in habits and preferences, it requires more depth and specificity for you to build a compelling offer that could eventually convert them.

• Unpaid feedback may distract you and your team from building features that will mode the needle for your company.

If you are unsure how to prioritize customer feedback, here is a simple framework you can use 👇

Drift

---

There are two core benefits to killing your "free plan."

1. You are forced to build a valuable product. If your target customer is unwilling to pay for your offer, the product is not good enough.

2. You free up resources for your company (time + money). No money is spent on maintaining free users, and you reduce time spent on customer support.

@levelsio

---

How do you know which pricing model your startup should implement?

Go Premium if:

• Your product offers something unique and valuable. For example, Netflix and its competitors (e.g., Disney+, Hulu, Prime Video, HBO Max) all offer streaming video, but they each possess exclusive catalogs.

• You operate in a high-value and niche market. Most B2B solutions fall under this category. For example, Palantir specializes in big data analytics, with products like Gotham targeting government and defense applications. Other companies in this category include Salesforce, Zendesk, and Workday.

• Your product's scalability is limited. When your addressable market is narrow or costly to serve, you have no choice but to monetize every user to make your business sustainable. For example, Masterclass is an education platform that offers pre-recorded lectures by famous experts. Its target market is likely people with disposable income looking to expand their knowledge while being taught by the very best (narrow market). To appeal to this market, the company requires high-quality production and highly sought-after experts (both costly to provide).

Go Freemium if:

• You offer a scaled-down version of a premium solution. For example, Canva is much inferior to Adobe Illustrator regarding features. Still, it is easy to use, and appeals to a market segment that values speed, efficiency, and low pricing is effortless.

• Your product becomes more valuable if more people use it people use it. (e.g., Slack, Discord, LinkedIn, Tinder)

• You can serve a large market. If you assume a $10/mo per user and a 2% conversion rate, here's how many users you would need to achieve the following ARRs:

  • $100m ARR (Total Users: 42m, Paid Users: 830K)

  • $50m ARR (Total Users: 21m, Paid Users: 415K)

  • $25m ARR (Total Users: 11m, Paid Users: 210K)

  • $10m ARR (Total Users: 4m, Paid Users: 83K)

In the end, whatever you do, remember the following 👇

@shl

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Enjoyed the newsletter? Please forward to a friend. It only takes 8 seconds. Writing this one took 12 hours. 🙏

See you next week!
-Alejandro

Good morning MRR lovers,

For this week's newsletter, I wanted to try something different and talk about a topic I've encountered repeatedly in my conversations with SaaS founders: How do you stand out as a product when everything else looks the same?

Let's dive in 💪.

• 🍳 There are two key ingredients for a SaaS company to outlast competition: value + branding. Too many founders focus on irrelevant functionality.

• 🎥 How Loom became a Billion Dollar company with one simple branding trick. Position yourself as the only one.

• 🍟 Extra Fries: Build a moat in a crowded market, and how to implement remote work (properly)

The Commoditization of SaaS

Many believe that SaaS has become a commoditized industry, meaning that its products/services are widely available and seldom different from one to another.

Source: Ross Simons @ Foundation

There are arguments for both sides of the spectrum:

1) Software is about to become more competitive as an industry.

"We are almost at the tipping point of a set of tools that will allow competitors in a matter of days to compete with an 80% feature complete solution at a fraction of the price" 

• Not only will cheaper alternatives for virtually any solution become available, but they will be built VERY fast.

• Case in point: Carta. The company recently got into trouble due to allegations that it had tried to trade customer's shares without their consent. In a matter of two days, an open-source solution was developed.

Twitter tweet

2) Not everything in Software will be easy to displace. 

"[For any] SaaS category leader […] you realize that the product […] is kind of an iceberg, I'm just seeing the tip of the iceberg. Below the waterline is all the business logic that has been written into the system (subtle features, integrations, ongoing support, etc.)"

• The key word here is "system," which means "a set of principles or procedures according to which something is done."

• People like to use systems to achieve outcomes. So, the good news for SaaS founders is that they can build a defensible business by focusing on outcome-driven solutions. And the harder it is to build or integrate a particular system, the better.

But let's assume commoditization in software is or could be a thing. What is going to happen?

The good news is that "commodity" markets are nothing new, so we can learn from them. In particular, we can learn a lot from milk farmers.

Lesson #1 - 'Value' is a non-negotiable.

• Dairy, as an industry, has existed for centuries, and as such, even though it is a commoditized industry, it does not mean it is not worth participating in.

• However, milk is a product many deem "essential," meaning it delivers a certain value (i.e., there is a willingness to pay). That is why it is a product that continues to exist.

• SaaS products should not be any different. The more value they provide and the more "essential" they become to a customer or process, the better.

• There is only one way to deliver value as a commodity or a differentiated product: by addressing customer's needs.

• Too many founders focus on irrelevant functionality (see graph below).

Lesson #2 - In a crowded market, 'brand' is everything.

• Dairy farmers, for the most part, compete with other local farmers, and there is virtually no opportunity for differentiation. Milk is milk.

• The opposite is true for SaaS. Software products are not bound by geography, meaning competition can arise from anywhere, irrespective of the market you serve.

• When you're competing for demand, all else being equal, 'brand' is their ultimate differentiator.

• There is a reason why you're likely to think of these companies more often than their competition:

  • Airbnb - "Experiential travel at an affordable cost."

    • Competition: Vrbo, Wimdu, Sonder, Homestay

  • YouTube - "Give everyone a voice and show them the world."

    • Competition: Vimeo, Dailymotion, PeerTube, Veoh

  • Spotify - "Unlock the potential of human creativity."

    • Competition: Tidal, Deezer, Pandora, Soundcloud, Gaana, Napster, Apple Music, Amazon Music, Youtube Music

  • Shopify - "From Hello World to IPO"

    • Competition: BigCommerce, Squarespace, Wix, Ecwid, WooCommerce

• To be noticed in a crowd, you NEED to stand out. Period.

Case Study: The $1.5 Billion Screen Recorder

I found this excellent case study on branding from Harry Dry. Here's an abbreviated version 👇

When Loom launched in 2016, it was called OpenVid, and it was just another "easy-to-use screen recorder."

One day, Loom came up with a few observations:

1. The way remote teams communicate sucks.

2. Meetings are boring. Calls drag on. Email lacks personality.

3. The solution? Async video messaging.

The result? A new category was created: "video messaging for work."

Thanks to one simple branding trick, Loom is now valued at $1.5 billion.

• How Humanly.io Builds a Product Moat in a Crowded Market

• The companies that do remote work ON PURPOSE are…different.

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Good morning MRR lovers,

Here is the first newsletter of 2024. Let’s dive right in.

Have feedback? Let me know at alejandro@saassun.day

First time reading? Sign up here.

• 🎯 AI is transforming the SaaS industry by creating outcome-driven solutions. SaaS products are now functioning more like co-pilots, actively assisting users to achieve desired outcomes.

• 📉 SaaS companies faced low growth rates in 2023 and need to find ways to manage costs while expanding business. Two strategies for growth in 2024 are adopting usage-based pricing models and prioritizing resilience and efficiency.

• 🍟 Extra Fries: AI is transforming construction management, SaaS funding is shifting towards sustainable growth and efficiency, and vertical SaaS companies are well-positioned to succeed despite the rise of AI.

Unlocking Growth in Challenging Times

Source: ICONIQ Capital

• In 2023, the year-over-year growth rate of SaaS companies experienced its lowest point in the last five years.

• The existing challenge for founders is to find creative ways to manage costs while continuing to expand their business.

• In 2024, there are two strategies that SaaS companies can implement to drive growth:

#1 - Consider adopting an usage-based pricing model

• SaaS companies are moving beyond traditional licensing and seat-based pricing to more flexible models, such as usage-based pricing (UBP).

• UBP is gaining popularity because it offers more predictable revenue streams and enhances customer satisfaction (customers don't feel like they are "overbuying," they only pay for what they use)

• UBP models also outperform traditional subscription models in terms of ARR growth, with companies opting for a UBP model growing at an average of 200% annually, compared to 116% for subscription-based companies.

Source: ICONIQ Capital

#2 - Prioritize resilience and efficiency.

• These metrics can make or break your business (more details here):

• Quick Ratio

  • Definition: Gross New ARR divided (÷) by Gross Churned ARR

  • This metric gauges a company's efficiency in growing its Annual Recurring Revenue (ARR) against the amount of revenue lost due to churn.

  • As companies grow, their churn rate naturally increases while their growth rate slows down due to a larger customer base. Therefore, the Quick Ratio tends to decrease as companies scale.

  • To be considered a top-performing company, the Quick Ratio should be maintained above 4x. This means that for every $1 of lost ARR, companies should add $4 in recurring revenue.

  • This metric can be particularly useful for early-stage businesses where metrics like Rule of 40 are typically less applicable due to the speed of growth and aggressiveness.

• Burn Multiple

  • Definition: cash burn divided (÷) by net ARR.

  • It provides a measure of how much a company is spending to generate each additional dollar of recurring revenue.

  • The goal for top-performing companies is to keep this number below 1x.

  • Note: This number is typically higher for early-stage companies with lower ARR. However, as ARR grows, companies should aim to gradually reduce this number to below 2, then 1.5, and ultimately below 1.

• CAC Payback

  • Definition: CAC divided (÷) by [New MRR x Gross Margin]

  • This metric measures the time it takes (in months) to break even when acquiring a new customer.

  • An exceptional CAC payback is under 12 months.

  • However, in today's environment, customers are more challenging to acquire, and it is common to see a CAC payback of 20-30 months.

• Productivity Ratio

  • Definition: average ARR per FTE divided (÷) by average Operating Expenses per FTE

  • This metric can help companies make informed decisions about their workforce.

  • As companies grow, it is expected that their productivity ratios will surpass 1x. This is the ultimate goal that every startup should aim for.

  • On the other hand, companies with a productivity ratio under 1x should pay attention to their workforce's costs and consider investing in measures that can improve productivity.

• 🛠️ AI is revolutionizing construction management, driving significant market growth, enhancing project efficiency through improved planning and risk management, and fostering better collaboration and safety on job sites. (Read More)

• 📊 In 2024, SaaS funding is shifting towards sustainable growth metrics and efficiency, with a focus on ARR per employee, Rule of 40, and unit economics as key indicators of fundability. (Read More)

• 🏆 Vertical SaaS companies are in a good position to succeed and remain resilient, thanks to technical limitations, psychological preferences, and efficiency gains, despite the potential for AI to enable internal software development. (Read More)

Good morning MRR lovers,

In case you did not know, Twitter has finally appointed a new CEO. Linda Yaccarino, a media executive (formerly of NBC Universal), will take over operations from Elon. Do you feel optimistic about this change?

Twitter tweet

Let's jump into today's content 👇

Have feedback? Let me know at alejandro@saassun.day

First time reading? Sign up here.

• 🇨🇳 US investment in Chinese startups sees a 47% decline amid political tensions and restrictions on certain sectors, while Chinese technology elites lead the frenzy of AI startups in China.

• 🤑 Learn how to build a SaaS unicorn and reach $100M ARR, including choosing the right product category, as well as different acquisition strategies to match different customer ARPA (average revenue per account) sizes.

• 📉 Venture debt dries up as interest rates rise, leading to a 50% decline in investment in startups and hindering job creation, although it may ultimately benefit the economy by directing funding towards better startups.

• 🍟 Extra Fries: SoftBank's Vision Fund loses $2 billion in Q1 2023, tech leaders discuss the impact of generative AI on business and society, and SaaS Capital releases latest report on SaaS retention.

Venture Funding in China Falls 47% in 2022 Amid Political Pressures

# of Investment Deals in Chinese companies by US investors

• There is a decline in US investment in Chinese startups, likely due to political tensions between the two countries.

• Venture funding in China almost doubled in 2021 to an all-time high of $87 billion, but dropped significantly in 2022 to $46.3 billion, a 47% decline.

• President Joe Biden is expected to sign an executive order that will limit investment in certain sectors of the Chinese economy by US investors, such as semiconductors and artificial intelligence.

• As a result, Hong Kong-based exchanges are seizing the opportunity to fill the gap left by the decline in US investment in Chinese startups.

Other Related News:

• Chinese technology elites have also jumped in to lead the frenzy of AI startups in China.

• Wang Huiwen, the retired co-founder of Meituan, announced a personal investment of $50 million to set up Beijing Lightyear Technology and went on a talent hunt to "build China's OpenAI."

• Overall, China's AI investment is expected to reach $26.69 billion in 2026, accounting for about 8.9% of global investment, according to IDC in an October report.

Together with EarlyNode: How to Reach $100M ARR

• Christoph Janz is famous for his graph of 5 ways to get to $100M ARR, a.k.a. to build a SaaS unicorn. Our friends at EarlyNode summarized his takeaways 👇

• Choosing the right product category is key. Ideally, you should focus on one or two types of customer sizes that offer an ARPA of $3.3k to $333k, “deer” and “elephants”. Companies of these types were found to create more than two-thirds of SaaS Unicorns.

  

• Align CAC and ARPA/LTV to avoid the "Zombieland" of startups who fail to scale due to a mismatch between their customer acquisition channels and lifetime value. Put simply, each customer category will require a different level of spending. The following graph provides some high-level guidelines.

• Different acquisition strategies match different customer ARPA sizes. Choose the right tools for the job.

• To acquire 10,000 Deer, you probably have a relatively complex product that requires more than a free trial before fully activating a customer. As such, you should aim to spend a good amount on marketing/sales (~$13K per customer), but the challenge is finding ways to implement a scalable lead generation process. Examples of companies hunting in this category: Hubspot, Atlassian, and New Relic.

• To acquire 1,000 Elephants, your team should be focused on outbound sales, account-based marketing, events, steak dinners, etc. With high LTV, you can afford to spend big money on customer acquisition. However, the challenge is raising a lot of money upfront to pull this off. Examples of companies hunting in this category: Salesforce, and eloqua (acq. by Oracle).

Tech Startups Struggle as Venture Debt Dries Up

• The volume of venture debt has fallen to its lowest level in the US since 2017.

• Last year, companies drove venture lending to record levels as revenue was under pressure and other forms of financing were drying up.

• By the first quarter of 2023, venture firms had invested $79 billion in startups, which was less than half the $178 billion invested in the previous year, according to PitchBook.

• The decrease in venture debt has been caused by rising interest rates, making it more expensive for companies and a lack of willingness among many lenders to take on risk.

• The decline in venture debt may lead to more startups collapsing, as many startups often focus on growth instead of profitability and need consistent capital to operate.

• This reduction in funding may also hinder job creation, as new businesses account for most job creation in the US.

• 👀 SoftBank's Vision Fund has lost money for the fifth quarter in a row, despite the recent tech rebound. The unit lost $2 billion in Q1 2023. (Read More)

• 🤖 Tech leaders discussed the impact of generative AI on business and society at a roundtable event in Bellevue. (Read More)

• 📈 SaaS Capital has released its latest report on SaaS retention after surveying over 1,500 SaaS companies and professionals. The report shows that annual contracts don't actually increase NRR for SaaS startups. (Read More)

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Hello MRR lovers!

Here’s what I have for you this week 👇

Have feedback? Let me know at alejandro@saassun.day

First time reading? Sign up here.

• 🏆 Capital-efficient SaaS startups are becoming a winning bet for venture capitalists, offering reduced risk, greater resilience, and higher potential returns, with the ability to generate revenue with minimal capital investment.

• 💬 Five reasons why eliminating live chat support can improve customer service, reduce costs, and increase productivity.

• 🍟 Extra Fries: why you should be skeptical of press releases about AI and Chegg's shares drop over 40% after announcing that ChatGPT is hurting its growth

• 💸 +3 Funding Rounds

Capital-Efficient SaaS Startups: A Winning Bet for Venture Capitalists

• The SaaS industry has been experiencing immense growth, but the market has become increasingly crowded and the economic situation has become challenging.

• Investors are adopting strategic shifts and focusing on capital-efficient startups, particularly in the SaaS industry.

• Non-surprisingly, LPs benefit from reduced risk, greater resilience, and higher potential returns by making investments in funds that give capital-efficient companies priority.

• What are capital-efficient startups? these are companies that can generate revenue with minimal capital investment. They have lean business models, scalable products or services, and prudent cash management.

• The preference for capital-efficient SaaS startups can be explained by the fact that they are well-positioned to weather funding droughts and offer attractive returns to investors. They are built on strong fundamentals and are less reliant on external funding.

Visually — here are the differences 👇

• The standard pattern: companies raise capital to fuel growth and bank on hitting it big in the long run. (Examples: Datadog, Elastic, Medallia)

• Capital-Hungry: companies raise a lot of cash and burn through most of it while trying to achieve long-term growth. However, the ratio of capital raised to annual recurring revenue (ARR) is significantly higher than that of the standard pattern. (Examples: Slack, Crowdstrike, Anaplan)

• Capital-efficient: these companies have strong fundamentals and grow significantly faster in comparison to the capital they raise. (Example: Sendgrid)

A big thank you to Shin Kim for these beautiful graphs.

• If you are intrigued by this, earlier this year, I wrote about how Indian SaaS companies are 2x more capital efficient than their global peers — read the post here.

Five Reasons Why Companies Should Eliminate Live Chat Support

• Senja, a SaaS company that provides a testimonials service, has decided to switch from live customer support to a ticket-based system.

• As many companies seek to improve productivity and reduce expenses, reconsidering how you serve customers can unlock numerous opportunities for your company.

Reasons to turn off live chat support:

1. You want to create a culture of self-sufficiency: Are you tired of dealing with unnecessary customer tickets? Improve the user experience by creating better help center guides. This will allow customers to solve their own problems without intervention. The ultimate objective is to create a product that is so user-friendly that any customer can achieve success independently, while still feeling supported and confident.

2. You are experiencing issues with support quality: As your user base grows, it is likely that your support team will struggle to keep up with the volume of inquiries. This can lead to inconsistent support experiences, where some customers receive fast support while others are left hanging.

3. It sets the wrong expectation: a live chat widget can create false expectations of instant answers, leading to rude or demanding behavior from users.

4. There is too much noise: While most users have a clear question, some (~15%) want to chat or fail to articulate their issue concisely. These types of requests can slow down your team. To improve support quality, companies should help customers ask specific and clear questions.

5. It can harm your product: Answering support questions can take time away from improving your business and product. Opting to focus your energy on developing a better product can ultimately help you customers generate high-quality testimonials and grow the business. Choose wisely.

• 🤨 Why you should be skeptical of press releases about artificial intelligence. While there is real technological progress in the field, many are exploiting the hype and making claims that are often meaningless. (Read More)

• 📉 Online education company Chegg's shares dropped more than 40% after the company announced that ChatGPT was hurting its growth. The AI, developed by OpenAI, is Chegg's biggest competitor in the homework assistance and online tutoring market. (Read More)

• 🏠 A new report from Tech Equity Collaborative warns that landlord software is making life worse for renters and prospective homeowners. The report found that the influence of venture capital in the property technology industry is leading to exploitative and predatory forms of inclusion. (Read More)

• Pando | $30m: open-market freight management platform that digitises logistics operations (link)

• THB | $20m: data technology platform to enable data and evidence driven healthcare and deliver game changing customer experience and care (link)

• Kazam | $3.6m Series A: electric vehicle charging software (link)

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A big thank you to Stan for the support and feedback 💪

Good morning MRR lovers,

If you’ve been looking for research and benchmarks on the latest SaaS trends, you will enjoy this issue. 😉

Let's go!

Have feedback? Let me know at alejandro@saassun.day

First time reading? Sign up here.

• 📈 Investors prefer growth but not at all costs. Bessemer Venture Partners says that SaaS businesses with 100% revenue growth and a 1.2X burn multiple have the ideal growth profile.

• 🤯 Pando, a supply-chain SaaS startup, is growing rapidly and aims to be operationally profitable by the end of 2023 while expanding in North America.

• 🤔 Discover how to know when a company has reached strong product-market fit and why B2B SaaS businesses have a higher net retention rate vs. B2C SaaS businesses.

• 💸 +4 Funding Rounds

Fundability, Efficient Growth, and the Future of SaaS

Bessemer Venture Partners has released its State of the Cloud report for 2023, predicting that the year will be one of incredible transformation as AI continues to advance. Here are some of the topics that caught my attention:

• There is capital, but not necessarily for new companies. Despite record-high venture capital funding, much of the available funds are not completely dry and are reserved to support existing portfolio companies.

• There is no perfect time to fundraise. While public market valuations have adjusted in the past several months, private valuations have yet to normalize from the highs of 2021. Don't try to time the market, instead fundraise when capital is available. The best time to fundraise is when you do not need the money.

• Investors still prefer to see growth. Private venture-backed businesses do not need to immediately solve for cash flow break-even; they should be investing in growth. However, this growth should be at optimal costs, not growth-at-all-costs.

• According to Bessemer, the "ideal" growth profile for SaaS businesses involves 100% revenue growth and a 1.2X burn multiple.

• Related to that last point, one of Bessemer’s predictions for 2023 is that there will be a surge in adoption of SaaS solutions that help reduce inefficiency and optimize spending and procurement. Some examples of companies that are doing this include Cledara, Vertice, and Vendr.

• Bessemer is highly optimistic about the role of AI and machine learning in the cloud economy. A survey of the entire Bessemer investment team found that 96% of investors see portfolio companies with AI-driven features on the roadmap.

• This is not surprising, considering that ChatGPT became the fastest-growing consumer application in history.

• Would you like to read the full report? Click here.

Company Spotlight: Pando - The Supply Chain Powerhouse

• Pando is a supply-chain SaaS tech startup based in Chennai. The company was founded in 2018 and focuses on building an end-to-end platform based on AI, no code, and collaboration.

• It has over 50 large customers around the world, including Godrej, Honda, Johnson and Johnson, Accuride, Philips, Nestle, and ITC.

• The company has experienced tremendous growth. Having reached $4.4 million in annual recurring revenue in 2022, the company has now set its eyes on becoming operationally profitable by the end of 2023. It also aims to hire 150 more people and focus its expansion towards the North American market.

• What does the company do? Pando's Fulfillment Cloud provides a platform for manufacturers, retailers, and logistics companies to collaborate with suppliers and customers, enabling them to manage their deliveries end-to-end and help them optimize the process.

• What are the benefits for their customers? improved service levels, reduced carbon footprint and lower overall freight costs.

• Here’s a peek of their platform 👇

Net Retention Rates: What SaaS Founders Need to Know

• It is no secret that retention is critical for SaaS companies. It signals strong product-market fit, better growth, and a more capital-efficient business. Also, companies with higher net revenue retention often command higher valuations.

• Are you curious about how your company stacks up against the competition? Our friends at ChartMogul recently published their inaugural SaaS Retention Report — here are some of their key findings 👇

• More than half of SaaS businesses experienced lower retention rates in 2022 compared to 2021. This can be attributed to the challenging macroeconomic environment, which caused subscribers to reassess and reduce their SaaS spending.

• A net retention rate of over 100% indicates strong product-market fit. Amongst ARR ranges above $3m, a higher percentage of businesses have a net retention rate over 100%.

• SUPER IMPORTANT - a low net retention rate might be acceptable if: you are an early-stage SaaS startup in the pre-product-market fit phase; you have low or near-zero customer acquisition costs; or you operate in the B2C space.

• B2B SaaS businesses have a higher net retention rate than B2C SaaS businesses. Churn is higher and expansion is lower in B2C because individual customers tend to make knee-jerk buying decisions, and there are fewer opportunities for upselling and cross-selling.

• Note: If you’re having trouble reading the chart, note that lower ARPA companies tend to be B2C businesses, while higher ARPA companies tend tot be B2B.

• Expansion is the key driver of higher net retention at higher ARRs and ARPAs. As your business grows, not upselling or cross-selling to your existing customers means missing out on key growth opportunities.

• Access the full report here.

• Semgrep | $53m Series C: code scanning tool designed for both security and software engineers (link)

• Ampersand | $4.7m Seed: developer platform that lets SaaS engineers to create robust, customer-configurable, and scalable user-facing integrations (link)

• Primo | $3.4m: IT Operating System that allows companies to scale from 2 to 2000 employees (link)

• Loopin | $1.9m: staff well-being platform helping big employers and people-first managers better understand and support their employees (link)

Looking to start your own newsletter? Beehiiv is the Salesforce of creator platforms.

Good morning MRR lovers,

More AI this week and a couple of surprises, including this one 👇

Twitter tweet

I hope you are ready for Season 2 😂

Have feedback? Let me know at alejandro@saassun.day

First time reading? Sign up here.

• 👑 With billions of dollars in investments and soaring valuations, is a new era of gold rush beginning in the field of AI development?

• 📊 Many large SaaS companies are currently prioritizing sales and marketing over product development. This presents a window of opportunity for the next wave of SaaS startups.

• 🍟 Extra Fries: Iron Pillar closes $129M fund to invest in global cloud companies from India and Startup Wise Guys offers acceleration program for early-stage digital B2B SaaS startups in East and West Africa.

• 💸 +6 Funding Rounds

The AI Surge: A Beacon of Light for the Tech World

• Venture-capital firms and large tech companies are pouring billions of dollars into AI technology. In 2022, VCs invested $4.5 billion in Generative AI.

• Also, there were nearly 800,000 AI-related job openings in the U.S. last year, led by California’s 142,000 openings, according to data by Stanford University.

• Based on nine deals tracked by PitchBook through March 29, the median pre-money valuation for generative AI firms has jumped to $90 million in 2023 from $42.5 million in 2022.

• This surge in AI development is also bringing some millennials back to the Bay Area.

• Has a new era of gold rush begun?

The Dark Side of SaaS: Why Big Companies Neglect Product Improvements

Our friend Alex, from Keen Strategies, wrote a post this week that caught my attention. Here's what I learned from it:

• SaaS is well-known for having great profit margins. One would expect companies to take advantage of this opportunity by reinvesting their cash into product development. However, this is far from the truth!

• On average, public SaaS companies spend almost twice as much on sales and marketing (S&M) as on product development (R&D), while general administration (GA) spending is almost equal to R&D spending.

• But why is this? The high gross margins of SaaS companies make them less incentivized to innovate, leading them to prioritize winning deals over creating new value for customers.

• Furthermore, this behavior can be burdensome for new startups. The cost of software production is artificially high and always rising (high salaries play a direct role in high software production costs), making it difficult for new companies to compete.

So, will startups ever be able to compete with the big boys?

• Absolutely. For one, startups benefit right away by keeping teams small; it allows them to move faster and keep expenses low.

• In addition, developing a strong familiarity with the market and customers’ needs can significantly accelerate a company’s path to success. Case in point: How Satya Nadella reimagined Microsoft.

• In other words, the importance of trusting the instincts of founders and those who have been around for a long time and really know the customer should not be underestimated.

• Lastly, advancements in AI are enhancing the potential of software, creating a positive outlook for the future of SaaS. However, companies that fail to innovate will be left behind.

• 🤑 Make it rain. Iron Pillar has closed a $129 million late-stage fund that will invest in global cloud companies from India. The fund will focus on Series B and C stage companies with an emphasis on SaaS and Cloud Infrastructure, with themes such as cyber security and governance, DevOps tools, future of work and education, and automation. (Read More)

• 🍕I guess software is actually eating the world. Startup Wise Guys is offering an acceleration program for early-stage digital B2B SaaS startups in East and West Africa. The program provides tailored guidance and support from mentors and experts, up to €65K in investment for up to 12% equity, and access to industry experts and a network of founders, mentors, and investors. (Read More)

• Push Security | $15m: simplifying SaaS security for modern IT and cybersecurity teams (link)

• Fetcherr | $12.5m: AI-powered pricing system, using proven reinforcement AI models to increase airline revenue by enabling High-Frequency Pricing (link)

• Spendflo | $11m Series A: SaaS buying and optimization platform (link)

• Apptile | $2.5m Seed: no-code platform to build mobile apps (link)

• Inven | $1.6m Seed: AI company that develops B2B SaaS solutions for M&A, private equity, and management consulting professionals (link)

• Narrato | $1m Pre-Seed: AI content creation and collaboration platform (link)

Looking to start your own newsletter? Beehiiv is the Salesforce of creator platforms.

Good morning, recurring revenue lovers,

These days, it's almost impossible to talk about software without mentioning AI, right?

But I hope you're not bored of it, because I have some exciting content for you today.

Let's dive in.

• 💣 Index Ventures explains how AI is changing the software value chain and which business models you should be looking out for.

• ✋ Industry leaders call for a six-month "pause" on large-scale AI development in order to plan and manage the risks of AI systems with human-competitive intelligence.

• 🦄 Q1 2023 saw a dip in venture capital investment and deal volume in software industry, but OpenView Venture Partners secured $570M for its seventh fund to invest in high-growth software startups.

• 🍟 Extra Fries: a UK accelerator teaches women how to build B2B software companies, and Twitter investigates a code leak.

• + Select M&A/Funding Activity

The Software Value Chain is Changing: How AI is Ushering in a New Era of Business Models

Index Ventures is looking at AI as one of their most important investment areas as they believe that within a decade, AI will be a core component of every application software built and shipped. Here are some of their predictions:

• The adoption of AI will change the software value chain, leading to the emergence of new business models like the rise of cloud computing did.

• The Foundation Layer: A new class of companies will specialize in maintaining the latest up-to-date foundation models based on the most cutting-edge research.

  • The value of these companies will come from their massive scale, as it is expensive and requires deep knowledge to train and administer large models.

• The Infrastructure Layer: A new type of managed infrastructure company could emerge, helping software companies provide hyper-personalization on top of foundational model providers.

  • The complexity of fine-tuning at scale, along with generating, managing, and administering large volumes of data and models, creates opportunities for a new generation of infrastructure providers similar to the rise of database providers in recent decades.

  • Examples of companies they have invested in for this category include:

    • Scale AI: The company enables the development of AI applications by assisting machine learning teams in generating high-quality ground truth data. Their LiDAR, image, video, and NLP annotation APIs allow machine learning teams at companies such as OpenAI, Lyft, Pinterest, and Airbnb to concentrate on building distinguished models rather than labeling data.

    • Humanloop: the company assists developers in building high-performing applications using large language models like GPT-3. Its platform can be used to experiment with new prompts, collect model-generated data and user feedback, and fine-tune models for better performance while optimizing costs.

• The Application Layer: Business models at the application layer will shift to capture more customer-specific value unlocked by AI, enabling customers to pay based on the level of customization or personalization within the product.

  • These AI-native companies will be able to build a competitive advantage and capture value that grows over time. As customers put more of their own data into the product, the AI is able to improve in ways that are highly specific to them, further enhancing the value of the product.

  • Examples of companies they have invested in for this category include:

    • Gong: the company helps revenue teams reach their full potential by revealing their customers' reality. Its patented Gong Revenue Intelligence Platform captures and comprehends every customer interaction, delivering insights at scale.

    • Deepscribe: an AI-powered scribe that captures the natural conversation between clinicians and patients, and automatically generates medical documentation. This allows clinicians to focus on patient care instead of note-taking.

AI's Potential Dangers and Benefits Spark Fierce Debate Among Industry Leaders

• Elon Musk, Steve Wozniak, Yoshua Bengio, Gary Marcus, and other AI experts, researchers, and industry leaders have signed an open letter calling for a six-month "pause" on large-scale AI development beyond OpenAI's GPT-4.

• Supporters of the letter argue that:

  • AI systems with human-competitive intelligence can pose risks to society and should be planned and managed with care and resources.

  • Recent months have seen AI labs in a race to develop and deploy ever more powerful digital minds that no one can understand, predict, or reliably control.Powerful AI systems should be developed only once we are confident that their effects will be positive and their risks will be manageable.

• The Ask:

  • AI labs to immediately pause for at least 6 months the training of AI systems more powerful than GPT-4.

  • AI labs and independent experts should use this pause to jointly develop and implement a set of shared safety protocols for advanced AI design and development that are rigorously audited and overseen by independent outside experts.

  • AI labs to immediately pause for at least 6 months the training of AI systems more powerful than GPT-4 to jointly develop and implement a set of shared safety protocols for advanced AI design and development that are rigorously audited and overseen by independent outside experts.

• Critics of the letter argue that:

  • The letter further fuels AI hype and makes it harder to tackle real, already occurring AI harms.

  • That it fosters unhelpful alarm around hypothetical dangers, leading to misinformation and disinformation about actual, real-world concerns

  • That it underplays current efforts towards global AI regulation and legislation. (e.g. Europe’s AI Act)

Twitter tweet

• If you want to read more about this, Louis Rosenberg, the CEO of Unanimous AI, wrote a detailed guest piece on VentureBeat.

Venture Capital Activity in the Software Industry for Q1 2023

• Pitchbook's Q1 2023 venture data shows that venture activity has declined compared to 2022, with a 55% decline in total capital invested and a 53% decline in deal volume.

• In their Q1 2023 Quantitative Perspectives report, we can observe a significant imbalance in capital supply and demand for software companies, especially in the late stage.

• But it’s not all bad news for companies out there. OpenView Venture Partners has closed on $570 million in capital commitments for its seventh fund (25% larger than its sixth fund of $450 million).

• OpenView will continue to focus its investments on “high-growth software startups,” investing globally across business software categories including infrastructure, applications, cybersecurity and vertical software.

• The firm looks for companies that have between $1 million and $10 million in annual recurring revenue.

• OpenView invested in 16 companies with its sixth fund and expects with its seventh fund — being 25% bigger — it could invest in up to 20 companies over the next few years.

• OpenView's first investment in Fund VII is in Rewst, which is doing robotic process automation for the managed service provider sector.

• 🔎 Find of the week. Finout is a Tel Aviv-based startup that provides a SaaS service to help businesses manage their cloud spending. The software provides a single bill totalling all cloud spend, which can be analyzed through a customizable dashboard. (Read More)

• 🔥 Watch out, more founders incoming. AlbionVC and Speedinvest have launched an eight-week accelerator program for female operators with ideas that could turn into new B2B software companies in the next 12 months. The program, named Radia Accelerator, is open to UK-based female operators and will teach them how to start, build, and scale a B2B software company. (Read More)

• 🐣 Who let the bird out? Parts of Twitter's source code were leaked on GitHub, including "proprietary source code for Twitter's platform and internal tools." Twitter has filed a DMCA request and a court filing in California to try to find the person responsible for the leak and obtain information on any other GitHub users who may have downloaded the data. Twitter executives suspect that an employee who left the company last year may be responsible for the leak. (Read More)

• Yompl, a US-based SaaS and marketplace company, has acquired MasterStyle, a European beauty industry online marketplace with over a million clients. The partnership will expand Yompl's market reach worldwide, access new technologies and products, and diversify its business portfolio. (Read More)

• German package recycling start-up Recyda has raised €1.75m to expand into new international markets and develop its platform. The company's software is designed to help businesses and brands assess the recyclability of their packaging based on international regulations. (Read More)

• Orb, a pricing platform that helps companies automate various billing types, has raised a $14 million Series A round. The platform can schedule future price changes and lets companies directly embed draft invoices into product billing portals. (Read More)

I hope you’ve had a great weekend SaaSers,

With all the activity in AI and the rising popularity of ChatGPT, you may have wondered about the extent to which the software industry will be affected. Today, we're covering exactly that.

• 🛠️ OpenAI's GPT-4 could impact 80% of US workers' jobs, but is it the end for software engineers?

• 🍎 Apple's revenue from services alone is bigger than that of Nike and McDonald’s revenue combined, and the segment is twice as profitable as Apple's products division.

• 🤖 Despite layoffs in the tech industry, the SaaS market is still growing and companies are looking to implement robotic process automation to make staffing more productive and effective.

• 🍟 Extra Fries: OpenAI CEO did not take equity, rival Character AI raises $150 million, and Intel's Chief Architect leaves to found a generative AI gaming software startup

• 💸 +7 Funding Rounds

GPT-4's Anticipated Impact on the Workforce and the Future of Software Development

• OpenAI's GPT-4 could impact 80% of US workers' jobs, with 19% seeing at least half of their tasks affected, according to a paper by researchers from OpenAI and the University of Pennsylvania.

• Occupations with the highest exposure include mathematicians, tax preparers, writers, web designers, accountants, journalists, and legal secretaries.

• GPT's overall anticipated impact will be the strongest in the following industries: data processing services, information services, publishing industries, and insurance carriers

• The industries that are anticipated to be the least affected are: food manufacturing, wood product manufacturing, and support activities for agriculture and forestry.

• Of course, the study has is limitations, but the key takeaway is that GPT models will become more widespread. For example, startups are already using GPT-4 to reduce costs on human developers.

The Future of Software: Insights from The AI Maze

• Prediction: The cost of producing software will decrease as AI improves, leading to a world of zero marginal cost software.

• What does that mean? Software development will become more like writing, with a single developer being able to have a big impact.

• Convenience and differentiation will be the main forces driving value creation for companies building software.

• Convenience: In the world of AI, convenience will be a function of price and complexity. The greater the complexity of the software, the less convenient it will be to create using AI.

• For example, buying a subscription to Spotify is more convenient than downloading and organizing music on your own.

• Differentiation: Copycats will inevitably become more common. The more successful a software is, the more people will attempt to copy it. Companies will then have to rely on network effects (such as social networks and marketplaces), distribution , and switching costs (e.g. users becoming used to a particular workflow or ecosystem).

Trends that will be at play:

• Consumers will benefit from highly customized software for their specific needs.

• The B2B SaaS market will be pressured to lower maximum prices as companies can make software at zero cost.

• AI-generated code will lead to end-user "programming" and internal tools teams in companies emerging as a powerful force in the software industry.

• Companies will need to work hard to deliver value above end-user custom solutions.

Is It the End for Software Engineers? Andrew Rousseau does not think so.

• He argues that, writing code is only a small part of a software engineer's job, and maintenance and defects constitute the largest portion of where time is spent.

• There is no debate that AI tools will unlock efficiencies in software engineering. However, software engineers will still need to be vigilant in checking the accuracy of generated code to ensure there are no defects.

• In other words, good software engineers will still be needed to ensure a balance between delivering features quickly and maintaining high-quality systems and software.

Related News:

• Codium AI has released a beta version of its generative AI-powered code-integrity solution called TestGPT, which offers autogenerated software test suite suggestions for developers to speed coding and bug scans. (Read More)

• Nvidia has announced new tools to aid developers and organizations working on advanced natural language processing (NLP), including speech AI and large language model (LLM) development. (Read More)

The Financial Dominance of Apple's Services Segment

• “Services” are now ~20% of Apple’s revenue. This segment encompasses the App Store, Cloud Services, Subscriptions, Apple Pay, Apple Care, and Advertising.

• To put it in perspective, Apple’s revenue from services alone is bigger than that of Nike and McDonald’s revenue combined.

• “Services”, as a whole, is also far more profitable to Apple.

• In 2022, Gross Margin% for services was twice that of products (~72% vs 36%).

• Interested in more insights like these? Visit our friends at Trendline 👇

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The Impact of Layoffs on SaaS Procurement and Renewals

• Despite the large number of layoffs in tech, the SaaS market is still growing steadily, with Gartner predicting software spending to increase by 11.3% this year.

• Vendr analyzed more than $2.5 billion in SaaS spending and anticipates that SaaS spending will increase 18% this year.

• Smaller, less mission-critical SaaS suppliers may face tougher negotiations and renewals, while prices for top sellers may increase due to inflation.

• Despite a bright outlook for some, the SaaS industry still needs to reduce friction in the procurement process and move towards standardized, transparent pricing to continue its growth.

Will This Be the Rise of Automation?

• The COVID-19 pandemic has accelerated the demand for automation in businesses. Robotic process automation (RPA) is a software category that is experiencing strong demand due to its ability to make staffing more productive and effective. Even in the cost-conscious business climate, companies are still keen to implement RPA, generating tailwinds for RPA providers. (Read More)

• We all know that in today's cost-conscious business climate, companies are looking for ways to cut costs and make investments more effective on a per-dollar basis.

• Reducing staff and making it more productive is one way to achieve this, and robotic process automation (RPA) may have an edge in this regard compared to other software categories.

• Battery Ventures' report on software spend shows that automation, including RPA and no code, "has risen to the upper-middle of the pack in Q1 from lowest-ranked category on average in Q3 2022 survey."

• The adoption of RPA is still in its early stages as companies are just beginning to explore the numerous use cases that exist across industries.

• Additionally, with AI tools rapidly improving, there is ample opportunity for startups to make an impact in this segment.

• 👀 What?! Sam Altman, the CEO and co-founder of OpenAI, did not take an equity stake in the company when it added the for-profit OpenAI LP entity in 2019. OpenAI is now looking to tender shares at a $29 billion valuation, more than double what it was worth in 2021. (Read More)

• 😂 I tried this already, and chatted with Elon Musk. OpenAI rival Character AI has raised $150 million in a funding round led by Andreessen Horowitz, valuing the company at $1 billion. The company offers AI chatbots that allow users to chat and role-play with anyone. (Read More)

• 🏃‍♂️ Expect more moves like this. Raja Koduri, Intel's current Chief Architect, is leaving the company to found a generative AI gaming software startup. Koduri had assumed the role of leader of Intel's AXG graphics unit last year but stepped back to be a Chief Architect after a restructuring. During his tenure at Intel, Koduri was responsible for the creation and launch of Intel's Arc graphics cards and Ponte Vecchio GPUs. (Read More)

• ✂️ The cuts continue. Twitch is set to lay off 400 employees as part of its parent company Amazon's plan to cut 9,000 jobs across multiple divisions. The move is an effort to improve Twitch's business outlook in the long term. The announcement comes after the company's CEO stepped down to spend time with his family. (Read More)

• Reveal, a leading AI-powered eDiscovery platform, has acquired LIGL, a cloud-based digital evidence and lifecycle management platform. The acquisition will provide Reveal's clients with the most sophisticated workflow automation and digital evidence lifecycle capabilities available. (Read More)

• Character AI | $150m: open-ended conversational applications that let users create characters and converse with them (link)

• Joblogic | $73m: service management software for field service operatives (link)

• Coactive AI | $14m Series A: analytics and insights from unstructured image and video data (link)

• Piclo | $9.8m Series B: leading independent marketplace for flexibility services (link)

• Mistifly | $8m Series B: operating system to start or grow airline retailing business (link)

• MVision | $5.8m Post-Seed: AI-powered solution for radiotherapy treatment planning to treat cancer (link)

• Mercator AI | $3.7m: real-time construction intelligence (link)

Happy Sunday crew!

Today, we will explore a simple yet effective strategy that many SaaS companies are adopting and explain a not-so-well-known financial metric that can help you quantify the stickiness of a SaaS product.

BTW, I have an exciting backlog of content I'll share with you over the next few weeks. If you have any ideas you'd like to pitch in, reply to this email and let me know! ;)

Keep SaaSin’

-Alejandro

• ⏪ Embedded apps in SaaS products are back in vogue and there are five core reasons for this resurgence in popularity.

• 🤑 Learn how to measure a company's revenue backlog and gain valuable insight into the stickiness of a SaaS product.

• 👀 Extra Fries: How Rippling raised $500m in 12h during the SVB meltdown, and latest news in AI

• 💸 +5 Funding Rounds

The Benefits of Embedded Apps: Why Top SaaS Companies Are Adopting Them

Have you ever wondered "how" many of the top SaaS products offer a seamless experience and why the ways we interact with these apps seem almost standardized? The answer is simple — embedded apps.

Explo has published an insightful and detailed article on the topic. I have summarized the takeaways for you here.

• In the early days of modern web design, before Gmail changed its logo, before Periscope and Vine were bought and shut down by Twitter, and before the bluebird app had an edit button, there was a time of uncertain bets. The web was transitioning from nothing to something.

• As the web began to take shape, we saw trends in software design come and go. However, one trend in particular has stood the test of time: use of third-party embedded apps (a.k.a. widgets.)

First Wave: Implement third-party widgets for expected website features.

• As the internet became more popular, websites were expected to have certain features.

• For example, news sites were expected to have commenting and RSS features, as well as social media buttons. Similarly, social sign-on, internal pop-ups, and sign-up boxes for newsletters became common in other apps.

• To add these features, engineers used widgets, which are pre-built interfaces that take care of basic features.

• The ultimate benefit of widgets is that they provide reliable functionality in a standardized format, making them a convenient solution.

Second Wave: Shift to in-housing everything surrounding app development.

• In the early 2010s, app development shifted to in-house work.

• Widgets became perceived as cheap and tacky and were associated with outdated Google Sites and Tumblr blogs. Professional websites needed to create an end-to-end experience that was form-fitted for their users.

• This led to an explosion of libraries and packages on npm, which allowed engineering teams to extend pre-written code.

• Widgets were not dead, but they needed to innovate. This led to the emergence of the third wave of modern web design.

Third Wave: emergence of customizable embedded apps

• Today, widgets are back in vogue. Companies like Netlify, Gusto, Yotpo, and Freshworks have action-packed search bars called wonderbars, all powered by CommandBar.

• Gitbook, Pitch, and Stacksi use Magicbell to power their notifications panel.

• Pfizer, Toast, AMD, and Outreach have authentication panels by Auth0.

• Saleshood, Rho, and Copy.ai use Paragon to power their integration authentication and configuration panels. The list goes on.

• The point is, many other companies are following this trend and there are five core reasons for this resurgence in popularity.

Reason #1: Personalization and Customizability

• Widgets used to be less customizable. Nowadays, embedded apps excel in personalization and customizability.

• Designers need personalization to maintain a brand's style, and developers need customizability for bespoke implementations.

Reason #2: Speed and Ease of Implementation

• Embedded apps come with many features that are often too costly to build in-house.

• Developers have limited time and often delay nice-to-have features due to opportunity cost. However, embedded apps make it nearly as easy to implement these features as it is to implement the simplified version.

Reason #3: UX over UI

• Using third-party embedded apps limits UI consistency, even with available personalization features.

• However, product teams now prioritize UX over UI. This means that the placement of buttons, for example, is more important than their appearance.

• SaaS software is becoming more similar, and users have preconceived notions about where nav-bars and icons should be located. Embedded apps offer a recognizable form-factor that works across broad categories.

Reason #4: Cost versus Risk

• Building a feature in-house is often more expensive than purchasing it.

• This process can take months, and if the feature's UX is foreign or the release ends up being buggy, additional engineering cycles might be needed. Additionally, there is a risk that the feature may not meet user expectations.

Reason #5: The Best Product Wins

• As you probably already know, the SaaS market is fiercely competitive.

• Embedded apps help teams release features more quickly, and in many cases allows them to an edge over rivals with in-house builds.

• Ultimately, SaaS startups succeed not by having the most attractive features, but by having the best ones. If this requires you to use an embedded app for, leverage it to your advantage.

Demystifying Remaining Performance Obligations in SaaS: What You Need to Know

This week, I stumbled upon a Twitter thread by our friend Ben that I thought was worth sharing, so here it is!

Twitter tweet

• Remaining Performance Obligations (RPO) represent the value of contracted revenue that SaaS companies expect to recognize in the future from existing contracts with customers.

• In simpler terms, it measures a company's revenue backlog.

• Why measure RPO? Any metric that provides forward-looking visibility into a SaaS business is a valuable metric for operators, investors, and the board.

• Ultimately, it also helps provide insight into the stickiness of a company’s product.

• Currently, RPOs are a required disclosure for US public companies.

You don't see RPOs being used much in private SaaS yet, but I believe this will change. It will be tracked just like bookings. -Ben Murray, The SaaS CFO

• How do you calculate RPO? It requires two inputs: Input #1: deferred revenueInput #2: unbilled revenue

Example:

• Scenario: 3-year contract for a subscription product. $120K ARR per year. $360K total contract value (TCV).

• At the time of the booking in January. No invoicing or revenue recognition yet. We booked a $360K TCV deal.

• The result is:

• One month later (in February), we invoice the customer on February 1 for a February 1 subscription start date.

• The result is: unbilled revenue drops by the invoiced amount but deferred revenue increases by the invoice amount.

• Note: For visualization purposes, ARR Booked and TCV are left on the chart, but once the deal is booked, those value should not change and should remain only in the January bookings report.

• If you wish to read about this topic in more detail, click here.

• Amazing execution. Rippling, a workforce management company, was affected by the run on Silicon Valley Bank (SVB) that began on March 9. To avert disaster, the company liquidated $130 million in money market funds that its customers needed for their payrolls. In the span of 12 hours, Rippling was able to secure $500 million in fresh funding to protect the company in the event that the markets spiraled even more out of control. (Read More)

• Competition heats up. Anthropic, a startup funded by Google, has launched its AI chat assistant, Claude, which is seen as a rival to OpenAI's ChatGPT. Claude is built to produce less harmful outputs than previous AI chatbots and can be used for summarization, search, collaborative writing, Q&A, coding and much more. (Read More)

• Will organizations be able to finally justify their investments in AI? DataRobot has unveiled its latest AI platform aimed at helping organizations derive measurable value from their AI investments. The new platform includes Workbench, a user experience that supports users with code-first and no-code approaches, reduced enterprise risk through bias mitigation, centralized model monitoring and automated model compliance, and new AI service packages. (Read More)

• RIP Clippy. Microsoft has announced Copilot 365, which combines large language models with Microsoft Graph data and Microsoft 365 apps. Copilot 365 can generate documents based on existing ones, create a PowerPoint, analyze data in Excel, capture meeting notes, and more. (Read More)

• Mitiga | $45m Series A: cloud-based solution for incident readiness and response in cloud and hybrid environments (link)

• HealthPlix | $22m Series C: digital health platform that uses AI technologies to support clinical decisions (link)

• Pitchly | $7m Series A: B2B SaaS data enablement platform for firms and businesses to automate document and content generation (link)

• Upduo | $4m Seed: platform that help companies deliver engaging 1:1 coaching sessions at scale that drive measurable business outcomes (link)

• Deeploi | $3.2 Seed: IT-as-a-Service platform (link)

Hey team - I hope you've had a lovely weekend!

If you’re reading this, you’re probably already caught up with the whole Silicon Valley Bank fiasco. Crazy times.

Jason Calacanis did a tremendous job last Friday. He hosted an emergency podcast on his channel to explain the implications of the SVB shutdown — for those interested, I posted the full Q&A here.

-Alejandro

• 🏦 The Federal Reserve has announced no losses for depositors in Silicon Valley Bank shutdown fiasco.

• ☁️ Battery Ventures reveals how startups can leverage cloud marketplaces to generate revenue in a recession.

• 🏷️ B2B SaaS pricing models play a significant role in growth and churn, according to the Maxio 2023 Growth Index report.

• 📉 Economic headwinds and changing investor expectations are affecting the growth of enterprise SaaS companies, leading to tighter capital and increased pressure to cut costs.

• 💸 +6 funding rounds

The Good News First

The Federal Reserve has announced that all depositors at Silicon Valley Bank will have access to their money starting March 13 and no losses will be borne by taxpayers.

Important Lessons from Battery Ventures' State of Cloud Software Spending Report

Battery Ventures recently released a report on the state of cloud software spending.

While the report had some good news for startups hoping to sell software to enterprise clients, there are also headwinds ahead for startups, as money is not flowing as freely as it used to.

Here are the key takeaways:

• Enterprise cloud spend is holding up well, but large companies are looking into vendor consolidation.

• The recession is having an impact on how large companies plan to buy software.

• CXOs are tightening restrictions on self-procurement, even in the dev/test environment.

• This is concerning for the growing number of vendors who rely on a bottom-up sales motion, in which a service gets adopted by individuals or teams before being sold to the organization more broadly.

• Software startups and SaaS companies will likely be the most affected in the short-term, but they may find a useful workaround by leveraging cloud marketplaces.

• Cloud marketplaces can be likened to app stores curated by the three dominant cloud service providers (CSPs): Amazon AWS, Microsoft Azure, and Google Cloud.

• Cloud marketplaces have not always been a high-priority sales channel for many startups. However, in a recession, companies need to find ways to generate revenue at any cost.

• The main advantage of marketplaces is that enterprise clients have already allocated a budget to a particular cloud service provider (CSP), which they can also use to make software purchases.

B2B SaaS Companies Show Resilience Despite Economic Headwinds

• The Maxio 2023 Growth Index report found that B2B software companies remain resilient despite macroeconomic uncertainty and cooling technology markets.

• Of the companies analyzed in this study that process $1M or more in annual billings, 82% grew year-over-year from 2021 to 2022.

• However, growth rates for most companies declined over the course of 2022, with a substantial drop-off in Q4 2022. The drop has been attributed to increased customer churn around end-of-year renewal dates.

Your business’ pricing model will dictate how fast you grow (or shrink)

• The report did an excellent job of segmenting revenue growth rates by pricing model. It revealed that companies with a consumption/usage-based model experienced a more pronounced slowdown in growth rate compared to subscription-based businesses.

• One benefit of usage-based pricing for SaaS companies is that as a customer grows and uses the software more, the SaaS company receives an immediate increase in monthly billings. However, if customer growth slows or reverses, companies using usage-based pricing can experience a contraction in their recurring billings, sometimes unexpectedly.

• On the other hand, companies that offer traditional subscription-based pricing models experience the opposite trend. They enjoy stability and predictability in billing, but have limited upside potential if customers increase usage or expand before the contract expiration.

Your business’ pricing model will affect your churn differently

• Companies that use consumption-based pricing models typically offer month-to-month agreements, while those that use subscription invoicing generally have longer-term agreements of a year or more, with predictable billing schedules.

• Unsurprisingly, businesses in their earliest stages (with annualized billings or revenue below $1MM) struggle disproportionately compared to those with more than $1MM in revenue. Most of these businesses are still finding product-market fit and do not yet possess a stable or loyal customer base.

• Nonetheless, it is important to note that no pricing model is perfect and safe from churn.

• Note: This analysis was conducted using data from 2,000 Maxio customers.

Mixed Results from Leading SaaS Companies in Current Economic Climate

This week, TechCrunch analyzed earnings reports from Zoom, Salesforce, Box, Snowflake, and Okta. The results were mixed, with some companies performing better than others.

Here are the main takeaways 👇:

• Enterprise SaaS companies are facing economic headwinds due to a shift in investor expectations from growth to profitability and macroeconomic factors, such as inflationary pressures and higher interest rates. For startups, this means tighter capital and lower valuations after years of inflated numbers.For larger companies, this has affected their ability to borrow and discouraged spending.Overall, it has pushed companies to cut costs.

• Despite the challenges, the overall SaaS market is showing healthy growth, particularly in categories that have lagged in SaaS conversion, such as ERP and supply chain.

• Companies that operate in the security category have shown to be more resilient to economic headwinds, likely due to the increased importance of security applications in recent years.

• However, startups may face a tougher market for their products, and it's becoming less common to find outlier companies in these conditions.

What can enterprise SaaS companies do to fight short-term economic turbulence?

• Very simple. Retention, double-digit growth, and managing expenses are key factors in staying afloat.

• As mentioned previously, companies are under pressure to cut costs and many have responded with layoffs.

• A strong U.S. dollar has been trouble for companies selling outside of U.S. markets as it has bitten into foreign profits and dragged down revenue growth overall.

• Anthropic | $300m: AI-driven research company that focuses on increasing the safety of large-scale AI systems (link)

• Amelia | $175m: trusted leader in enterprise AI for automation and conversational applications (link)

• Consensus | $110m: intelligent demo automation platform that automates custom product demos to accelerate sales (link)

• MentorcliQ | $80m: employee mentoring software platform that helps upskill and retain employees (link)

• Pidge | $3m: logistics platform (link)

• Houseware | $2.1m Seed: revenue engine for B2B SaaS teams to work with metrics, create intelligent workflows, and drive predictable revenue outcomes (link)

Happy Sunday, crew!

This week's newsletter covers a recent report by EY showing how Indian B2B SaaS companies are 2x more capital efficient than their global peers.

We will explore the reasons behind this phenomenon, as well as the growth strategies that are enabling Indian SaaS companies to thrive.

Let’s go!

-Alejandro

• 🤑 Indian B2B SaaS companies are 2x more capital efficient than global peers, according to a recent report by EY

• 🇮🇳 Nexus Venture Partners and Grayscale Ventures raise large funds to invest in Indian SaaS startups

• 💼 Meta and ByteDance, the parent companies of Facebook and TikTok, respectively, plan to cut jobs, restructure, and change leadership amidst economic instability and competition

• 💸 +8 Funding Rounds

Indian B2B SaaS companies 2x more capital efficient than global peers

• A recent report by EY reveals that Indian B2B SaaS companies are 2x more capital efficient than their global peers, with 8 out of 10 Indian SaaS companies having a burn multiple of under 1.5x.

• This can be attributed to lower labor costs and a talent pool that is trained in remote customer engagement, inside sales, and customer support, which can lead to higher capital efficiency leverage.

• According to EY's research on the top 30 global large public B2B SaaS companies (with over $0.5b ARR), those that are capital-efficient experienced the least value erosion in the past year, during which enterprise valuations plummeted. This suggests that only companies that can operate efficiently with capital will be able to survive and thrive.

• The report proposes that the inherent capital efficiency of India's SaaS means that the next generation of long-lasting SaaS companies, such as Salesforce, Veeva, Atlassian, and ZoomInfo, will inevitably emerge from India.

• But what makes these companies so different? Let’s look at some of their findings:

Finding #1: Indian SaaS growth is capital efficient by default (burn multiple < 1.5x)

• Globally, a burn multiple under 2x is considered ‘good’, while 80% of Indian B2B SaaS companies have a burn multiple under 1.5x, which is considered ‘great.

Categorization as per David Sacks, from Craft Ventures

• Indian SaaS companies have also shown to be capable of retaining high levels of capital efficiency even at growth stages. 8 out of 10 companies surveyed with ARR > US$10 million have a burn multiple of under 1.5x.

• The report proposes that a different approach to growth is what is helping Indian companies distinguish themselves from their U.S. counterparts. U.S. companies typically prioritize scaling through partnerships and sales and marketing spending.

• In contrast, Indian companies focus on niche opportunities, often targeting SMEs, and concentrate on implementing pricing structures and modularity within their product offerings.

Finding #2: Indian SaaS companies are bullish on growth for 2023, despite weakening macroeconomic trends

This optimistic outlook appears to be rooted in their chosen growth strategies and the nature of the markets in which they operate. Indian Saas companies are focused on:

• Capitalizing on small and mid-sized markets by differentiating through niche and cost-effective products.

• E2E Multi-product strategy: Launching suite of products through quick iterations to drive growth within the same industry segment and capture the entire value chain (end-to-end).

• Building domain expertise in one vertical first, build differentiated offering(s) in it, and then scaling the offering to multiple customers within the same industry segment

The majority of companies targeting ultra-growth are from Artificial Intelligence (AI), Human Capital Management (HCM), Fintech, Customer Relationship Management (CRM), and Customer Data Platform (CDP) segments.

Finding #3: 1 out of 3 Indian SaaS are Trailblazers (ultra or hyper-growth companies with very low burn multiples)

Trailblazers seem to possess four attributes that set them apart from the rest of the pack:

• Attribute #1: Financial discipline and constraints

  • 90% of bootstrapped companies are trailblazers and steady pacers

  • 85% of funded companies are trailblazers and speedsters

• Attribute #2: Domain Expertise is key to growth

  • 90% are vertical SaaS companies are trailblazers and speedsters

  • 45% of horizontal SaaS are speedsters

• Attribute #3: Trailblazers maintain capital efficiency even at growth stage and beyond.

  • 27% of >US$5m ARR companies are trailblazers

  • 45% of >US$5m ARR companies are speedster

  • 27% of >US$5m ARR companies are Steady pacers

• Attribute #4: Location. Location. Location.

  • 83% of the India HQ companies are trailblazers and speedsters

  • Only 42% of US HQ companies are speedsters

But what what exactly are trailblazers doing different?

According to the report, Trailblazers prioritize product innovation to take advantage of niche market opportunities. Additionally, they rely on low-cost customer acquisition processes.

1. They focus on product innovation and technology leadership. This implies two things:

   1. Build differentiated products that focus on simplicity, ease of use, and self-service

   2. Focus on ease of deployment and usability to increase product adoption 

2. They focus on a customer-focused buying experience. To achieve this, companies:

   1. create a modular product with buyer-focused features and pricing to facilitate opt-in.

   2. create micro-use cases to become more relevant to the buyer persona. 

3. They focus on low-cost customer acquisition through content marketing, word-of-mouth referrals, and even collaboration (rather than competition) with full stack providers.

On the other hand, speedsters tend to focus on sales leadership strategies and build partner-led expansion strategies to scale enterprise accounts and optimize sales and marketing operations.

1. They build enterprise-focused sales expertise, meaning:

   1. Hiring seasoned sales leaders and aim to increase ARPA (average revenue per account) and ACV (annual contract value)

   2. Hosting stakeholder engagement events and nurturing the ecosystem 

2. They leverage partnerships to grow. Mainly, they prioritize:

   1. Investment in long-term alliances and partnerships with large enterprises

   2. Creating reseller networks across various industries and geographies

   3. Partnering with hyper scalers, such as AWS, Microsoft Azure, and Google Cloudmarketplaces

Nexus Venture Partners Raises Largest Fund Yet to Invest in AI and Software Revolution

• Nexus Ventures Partners has raised a $700 million fund, its seventh, to invest in startups across AI, SaaS, fintech, and commerce in India and the US.

• The pandemic has accelerated digital adoption worldwide across enterprises and consumers, and remote workforces have enabled startups to flourish.

• With one of the largest developer bases in the world, India is emerging as a key innovation and talent hub for global companies driving AI and software revolution.

• Nexus Venture Partners has invested in unicorns such as Zomato, Delhivery, Unacademy, along with Zepto and Rapido.

• The $700m fund is the second-largest fund raised by an Indian VC firm. Sequoia Capital India is the largest fund, raising $2.85 billion to invest in India and Southeast Asian startups in mid-2022.

Grayscale Ventures raises $10M for debut fund focused on Indian SaaS startups

• Grayscale Ventures has raised half of its $20 million target for its debut fund.

• The Singapore-based fund will invest in 15-20 startups in the pre-seed stage, with a focus on Indian SaaS companies.

• India is well on its way to take over the United States in terms of a large developer base, and the firm is betting on the emergence of developer-focused firms like Hasura and TestSigma from India.

• The firm expects the next generation of SaaS companies to be build for specific industries (Vertical SaaS) and based on AI capabilities.

• Investment Stage: Grayscale Ventures usually invests in startups that have a product or service ready in some form, before the product-market fit stage. Only in very rare occasions it will consider pre product-stage companies.

• Investment Term: Grayscale Ventures expects to stay with a company for 10-12 years until it becomes very large or goes for an IPO.

Meta Flattens Hierarchy, Pushes Leaders into Lower-Level Roles

• Meta, the parent company of Facebook, is planning a new round of job cuts, which will affect thousands of workers.

• The company plans to flatten its hierarchy by pushing some leaders into lower-level roles without direct reports. It is asking many of them to transition to individual contributor jobs or leave the company.

• Meta is also reshuffling its top leaders, and Meta's Chief Business Officer, Marne Levine, recently announced that she was leaving the company after 13 years.

• Meta’s business, which relies on advertising, has been hit particularly hard by a steady stream of economic challenges, such as the inflation that continues to create market instability.

• Meta is also increasingly fending off competition for marketing dollars and users from upstart social media rivals, such as TikTok.

ByteDance, TikTok's Parent Company, Set to Lay Off Thousands of Workers in China

• ByteDance, the owner of TikTok, plans to lay off over 10,000 employees in China due to an economic slowdown, dwindling growth, and unviable projects.

• ByteDance continues to face political pressure in the United States and other key Western markets due to security worries over TikTok.

• Canadian privacy commissioners are investigating TikTok's data practices, with a focus on how they affect younger users. This follows class action lawsuits and media reports about TikTok's collection, use, and disclosure of personal information.

• Disputes in the US have also led to TikTok being banned by over 20 states in the US, as well as device and network-wide bans in several universities.

• Chew Shou Zi, the chief executive of TikTok, is expected to give testimony in the US Congress about the app's operations in late March.

• Don't look at me. The Biden administration plans to release a new national cybersecurity strategy to hold software manufacturers and device makers accountable for cybersecurity breaches. The strategy seeks to shift the responsibility for hacks from hacked companies to manufacturers of software and devices. (Read More)

• The SaaS won't stop. Big Band Software has launched as a B2B SaaS software holding company focusing on acquiring smaller businesses with high customer retention, profitable growth, and revenue from one to ten million. The company aims to deploy up to $100 million to create value-driven options for growth-minded organizations. (Read More)

• Sign me up. Bengaluru-based SaaS community, SaaS Insider, plans to launch an app in June to help SaaS founders and investors connect and secure deals. The app will offer discussion threads, job postings, and mentorship, and aims to connect Indian SaaS startups with international VC firms interested in investing in the local market. (Read More)

• Temporal | $75m Series B: build and operate resilient applications using developer-friendly primitives (link)

• Typeface | $65m Series A: generative AI application for creating enterprise content (link)

• SpotDraft | $26m Series A: AI-powered Contract Lifecycle Management solution for high-growth startups (link)

• Attio | $23.5m Series A: powerful, flexible and data-driven CRM ****(link)

• Bonusly | 18.9m Series B: online platform for employee recognition, rewards, and engagement (link)

• Plum | $6m: objective data to measure and match human potential to job needs, enhancing talent decisions across the employee lifecycle (link)

• Polyteia | $5.3m Late Seed: actionable data for decision-making for governments (link)

• Crstl | $4.4m Seed: no-code Electronic Data Interchange (EDI) for modern brands, manufacturers, and wholesalers (link)

Happy Sunday SaaSers!

Today, we're spilling the tea on the struggle for SaaS companies to achieve 10x ARR multiples in a fiercely competitive market. We'll also reveal which SaaS products are thriving and which are getting cut in the current economic downturn. And if that's not enough, we'll quickly dive into Meta's new language model, which is heating up the competition in AI with the big tech giants.

-Alejandro

• 🔟 Discover what it takes for SaaS companies to go public in 2023 and why achieving a 10x ARR multiple is harder than ever in today's market!

• 💬 Meta's LLaMA language model intensifies competition in AI space, with Microsoft-backed OpenAI, Alphabet, and Baidu seeking to impress investors with their own offerings.

• ✂️ Which SaaS products are thriving and which ones are getting cut in the current economic downturn?

• 🤓 Vendr's new Explore catalog helps companies streamline purchasing decisions and save money on SaaS spend.

• 🖤 +2 M&A Transactions: Turtlefin + Last Decimal; GoCo + WFHomie

• 💸 +11 Funding Rounds: Tome ($43m), Vitally ($30m), Buk ($35m), Sirclo ($30m), and more.

SaaS Companies Need Exceptional Performance to Achieve 10x ARR Multiples in Today's Market

Twitter tweet

• In today's market, both public and private SaaS companies need to acknowledge the harsh reality that 10x ARR multiples will only be awarded to the strongest performers.

• VC firm Meritech wrote a post earlier this year summarizing the characteristics of the past year's IPOs in an attempt to understand "what it takes to go public" for SaaS companies in 2023.

• Out of the approximately 100 public pure-play SaaS companies that Meritech tracks, only about 20% trade at a multiple greater than 10x ARR.

• Their findings indicate that multiples have compressed by 70% from their respective peaks in late 2021, with the median coming down from 38.8x to 11.8x.

• This means that a business must grow its top line by a multiple of 3.3x to reach the same previous levels in enterprise value, which could take years under current market conditions.

• On the same theme, TechCrunch highlighted the same messaging by analyzing Unity's latest earnings data. Despite having strong software products, robust growth, and improving adjusted profits, Unity still has a single-digit multiple (~6x), demonstrating that it is difficult to achieve and maintain a 10x revenue multiple in today's conservative market.

• This observation has also been validated by the Bessemer Cloud Index, which calculates an "average revenue multiple" of 6.8x and a median figure of 6.2x for emerging public companies primarily involved in providing cloud software to their customers.

Meta Releases New Language Model, Intensifying the AI Arms Race

• Meta has released a large language model called LLaMA (Large Language Model Meta AI) to researchers. The model will be available under a non-commercial license to researchers and entities affiliated with government, civil society, and academia.

• What are Large Language Models? Large Language Models mine vast amounts of text to summarize information and generate content. They can answer questions with sentences that read as if written by humans. Meta stated that the LLaMA model requires "far less" computing power than previous models and is trained on 20 languages, focusing on those with Latin and Cyrillic alphabets.

• Performance: The company claims that LLaMA can outperform competitors that examine more parameters or variables than the algorithm takes into account. It is "competitive" with Google's Chinchilla70B and PaLM-540B. LLaMA has 13 billion parameters and can outperform GPT-3, a recent predecessor to the model on which Microsoft-backed OpenAI's ChatGPT is built.

• Future Use: Meta is currently testing the generative AI capabilities of LLaMA with the aim of implementing them into their products in the future. This technology could be a game-changer for their business. AI has become a crucial area of investment for the tech industry, and Meta's announcement is indicative of a broader trend of integrating AI into products.

• Previous Attempts: Meta had previously released large language model OPT-175B in May of last year, which formed the basis of a new iteration of its chatbot BlenderBot. Later, it introduced a model called Galactica which could write scientific articles and solve math problems, but quickly pulled down the demo after it generated authoritative-sounding false responses.

Which SaaS Products are Thriving and Which Ones are Getting Cut?

• VCs are instructing their portfolio companies to increase their runway and reduce costs. This means that founders are being compelled to carefully consider which SaaS tools they truly need during difficult times. However, not all types of software tools are being affected equally.

• Spending on SaaS tools for HR, analytics, and product have shrunk the most, while software for IT and security and sales have increased the most, demonstrating that "mission critical" tools are the most resilient in a downturn.

• Software spending by companies decreased by 2.9% in December 2022, continuing a trend of declining SaaS spending growth since August. However, there was a 1.3% increase in software spending in January 2023 compared to December 2022, according to the latest data from Cledara.

• In January 2023, ten software vendors saw +50% growth in average monthly spend compared to Q4 2022. These were led by Grammarly, Docker, Loom, Zoho, and Vercel.

Vendr's Explore: The Dynamic Catalog That's Revolutionizing SaaS Purchasing

• Speaking of software spend, Vendr, a leading SaaS buying platform, has launched Explore, a dynamic catalog designed to help companies make faster and more informed purchasing decisions.

• Backed by unbiased data from billions in spend processed from tens of thousands of deals and thousands of suppliers, Vendr helps buyers understand which solution is the best fit for their needs and only connects sellers with the most high-intent buyers.

• Vendr is trusted by hundreds of customers, including Brex, Drift, and Dashlane, to find, buy, and manage enterprise software, which Gartner predicts will exceed $750B in spending this year.

Here are the top 5 features of their product:

1. Comprehensive SaaS product database: Vendr Explore offers a vast database of over 19,000 SaaS products that helps users find the best solutions for their business needs.

2. Dynamic market insights: Through Vestimate, a dynamic market insight tool, Vendr helps users get a sense of how much they can expect to pay for a particular product.

3. Comparison and filtering tools: Explore enables users to compare and filter products based on their features, benefits, security, and legal policies.

4. Compliance details: Vendr Explore provides compliance details that help users understand whether a particular product can get through their internal approvals process.

5. Transparent Pricing: Vendr's proprietary algorithm considers contextual information about a user's company, category, and market trends to provide predictive pricing estimates that help users understand what they can expect to pay based on the size of their company.

• Despite making up a quarter of Google's full-time employees, the Cloud division has never turned a profit. To save money and allow continued investment in growth, Google's Cloud division is sharing desks among employees in its largest US locations. They will alternate usage with a "desk buddy", storing personal items and working from an "overflow drop-in space" if they don't follow the schedule. (Read More)

• Abhishek Chopra is blazing a trail for other entrepreneurs with his decision to move his India-based SaaS company, BosonQ Psi, to Buffalo. With the help of infrastructure partners and channel partners, he is looking to revolutionize virtual simulations with quantum computing and is taking advantage of the talented software engineers in Upstate New York to commercialize his product and make the most of the thriving startup community in the area. (Read More)

• Signal could stop operating in the UK if the government passes the Online Safety Bill, which proposes bypassing encryption. The proposed UK ban would not apply to off-the-shelf commercial mobile phones or the encrypted messaging apps available on them. (Read More)

Twitter tweet

• Most popular response: cold call/e-mail

• Insurtech startup, Turtlefin, has made its first acquisition by snapping up a Bengaluru-based insurtech SaaS firm to strengthen its bancassurance technology offering and expand its market share in the insurtech space. (Read More)

• GoCo.io, a Houston-based HR SaaS company, has acquired Toronto-based WFHomie, a remote-first platform that helps companies keep up with people analytics and enhance the employee experience. GoCo has raised $27.5 million to date. The two companies share a vision of improving work-life for employees and empowering organizations to operate more effectively. (Read More)

• Tome | $43m Series B: storytelling productivity tool that helps users transform ideas into visually appealing narratives (link)

• Vitally | $30m Series B: customer success platform (CSP) designed for maximizing productivity, visibility and collaboration, plus eliminate churn (link)

• Buk | $35m: cloud-based human resource management platform (link)

• Sirclo | $30m: website building platform for e-commerce (link)

• Metomic | $20m Series A: discover sensitive data and protect it from security, privacy and compliance risks (link)

• Zerocater | $15m Series C: corporate catering and cafeteria solutions employees love as they transition to the hybrid workplace (link)

• SendOwl | $9m: tools for selling digital products through social media and blogs (link)

• CarbonCloud | $7.9m Series A: digital infrastructure for calculating and communicating climate footprints for food (link)

• Prismatic | $9m Series A: integration platform for B2B software companies (link)

• Klikit | $5.6m Seed: solution for restaurants to increase their food delivery profits (link)

• Konfetti | $2.8m Seed: marketplace for local activities (link)