Episode 729 | 9 Things I've Learned Investing in 170+ SaaS Companies
Sep 3, 2024
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In this discussion, insights from over 170 SaaS investments reveal critical patterns in survivability and valuation. Niche markets, particularly vertical and orthogonal SaaS, are highlighted for their growth potential. The emotional landscape of entrepreneurship is examined, especially how acquisition offers can complicate decision-making. Additionally, there's valuable advice for founders facing strategic challenges, including co-founder disputes and funding options. For more in-depth strategies, listeners are encouraged to check out additional resources online.
B2B SaaS companies demonstrate remarkable resilience, with only about 2% shutting down, indicating the effectiveness of investment selection in this sector.
Vertical and orthogonal SaaS companies outperform their horizontal counterparts by targeting niche markets, leading to lower churn rates and higher exit multiples.
Deep dives
Low Failure Rate of B2B SaaS Companies
B2B SaaS companies exhibit a notably low failure rate, particularly among those funded through TinySeed. Out of over 170 investments, only approximately 2% have faced shutdowns, showcasing the resilience of this business model once it achieves traction. This contrasts with traditional venture capital, which often encounters much higher failure rates. The data suggests that the careful selection of companies for investment has led to a higher success rate among B2B SaaS enterprises.
Significant Financial Impact from Successful Exits
The financial implications of successful exits in the SaaS sector are significant, with a notable 4% of TinySeed companies having successfully exited. Among those no longer operating, 43% of founders have become millionaires, highlighting the transformative potential of this type of investment. The data emphasizes how an acquisition can lead to substantial financial rewards for founders, even when returns for investors may not reach the same high multiples. This insight into the financial dynamics of SaaS ventures reinforces the value of targeted investments in this sector.
Niche Focus Yields Better Marketing Outcomes
Vertical and orthogonal SaaS companies tend to perform better compared to horizontal ones, which face more competition from established players. By focusing on niche markets, these companies benefit from clearer customer profiles and more effective marketing strategies. The differentiation seen in niche businesses often leads to lower churn rates and potentially higher exit multiples, as acquirers appreciate the defined target audience. This trend underscores the advantages of specialization in the increasingly crowded SaaS landscape.
In episode 729, join Rob Walling as he shares insights from the 170+ SaaS investments he’s made through his B2B SaaS accelerator, TinySeed. Key patterns include the survivability of SaaS, the lucrative value of these companies, and commonalities across the ones that grow the fastest. To see even more patterns that didn’t make this episode, be sure to check out the MicroConf YouTube channel.
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Topics we cover:
2:24 – Survivability of B2B SaaS in TinySeed
4:09 – SaaS is extremely valuable
8:26 – Vertical and orthogonal SaaS face fewer headwinds
12:36 – A supermajority of TinySeed companies want a big exit
15:51 – TinySeed founder count aligns with the broader MicroConf ecosystem
17:04 – Ruined cap tables have prevented deals
19:35 – A quarter of TinySeed companies raise subsequent fundraising
21:17 – Common advisory topics: pricing, plateaus, cofounders, funding, selling
If you have questions about starting or scaling a software business that you’d like for us to cover, please submit your question for an upcoming episode. We’d love to hear from you!