This Week in SaaS: PluralSight Goes to Zero, Salesforce and Mongo Hit Hard, The Next IPO Candidates and How Do We Solve the Problem of Liquidity in Venture Capital
Jun 3, 2024
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Jason Lemkin, a successful SaaS investor, discusses PluralSight going to zero, Salesforce and Mongo stock drops, slow growth for Dropbox and Box, and the need for a change in how venture capital evaluates portfolios to fix the broken system.
Salesforce and MongoDB face significant market cap drops due to lower growth projections, reflecting challenges in high-growth companies.
Vista Equity writes down Pluralsight investment, indicating financial challenges in managing debt and impact on valuations in PE playbooks.
HubSpot demonstrates resilience in evergreen markets with stable growth rates and strategic leadership transitions under Yamini Rangan as CEO.
Challenges in liquidity in venture capital highlight the lack of IPOs and limited liquidity events, emphasizing the need for realistic valuations and portfolio management.
Reducing customer acquisition costs through micro-branding strategies around $2 million revenue mark drives organic referrals and inbound leads to scale marketing efforts.
Key companies like Canva, Figma, Stripe, and Plaid are recognized as strong IPO contenders with secondary valuations and market expectations influencing their potential.
Deep dives
Salesforce and Market Performance
Salesforce experienced a significant market cap loss due to lower growth projections. The company indicated a shift to single-digit growth, influencing market reactions and stock value. MongoDB also faced a 23% drop, while UiPAR CEO Daniel Dines' return led to a 30% stock dip. These events reflect a challenging market environment.
Pluralsight and Vista Equity
Vista Equity wrote down its $3.5 billion purchase of Pluralsight, signaling financial challenges. Despite high operating margins, debt servicing issues prompted Vista to reassess its investment. The move highlights the complexities of managing debt in PE playbooks and the impact on valuations.
HubSpot and Evergreen Markets
HubSpot's growth trajectory and market presence indicate resilience in evergreen markets. Despite industry challenges, HubSpot remains stable with consistent growth rates. The company's transition to new leadership with Yamini Rangan as CEO reflects ongoing strategic adaptability.
SaaS Market Dynamics and Challenges
The SaaS landscape faces various market dynamics and challenges, with different companies experiencing contrasting trajectories. High-growth companies like Canva showcase remarkable success, whilst Salesforce, MongoDB, and others grapple with growth limitations and market reactions. Shifting customer demands and the AI integration landscape further influence market behavior.
Liquidity and Investment Realities
The discussion delves into the challenges of liquidity in venture capital, signaling a lack of IPOs and limited liquidity events. Mark-to-market valuations, LP expectations tied to TVPI metrics, and challenges surrounding asset liquidity are key considerations. The need for realistic valuations and strategic portfolio management is emphasized.
CAC Reduction and Micro Brands
Achieving reduced customer acquisition costs (CAC) through micro-branding strategies often materializes around the $2 million revenue mark. At this stage, organic referrals and inbound interest drive up to 50% of leads, leading to lower CAC figures. Balancing free inbound leads with paid marketing investments poses a key challenge in scaling sales and marketing efforts.
Positive IPO Prospects
Key companies like Canva, Figma, Stripe, and Plaid are highlighted as potential strong IPO contenders with promising market debuts. Factors such as secondary valuations, revenue size, and market expectations influence the IPO potential of these companies. The market outlook remains positive for companies planning to go public.
Founder Challenges and Market Realities
The discussion sheds light on the challenges faced by founders amidst market pressures and investment dynamics. The importance of realistic valuations, market resilience, and strategic decision-making in navigating competitive landscapes and funding environments is emphasized. Founders are advised to align with market realities and investor expectations for sustainable growth.
Market Performance and Venture Valuations
Analyzing market performance alongside venture valuations, the conversation highlights the role of TVPI metrics, paper markups, and asset valuations in shaping investor perceptions. The impact of skewed valuations, strategies to optimize returns, and repercussions on overall fund performance are key considerations for investors and fund managers.
AI Integration and Market Impact
The integration of AI technologies in SaaS companies and their impact on market dynamics are discussed. The potential for AI solutions to enhance customer growth, improve operational efficiencies, and drive revenue streams is explored. Market shifts driven by AI adoption reflect evolving customer demands and competitive landscapes.
SaaS Market Outlook and Growth Strategies
Examining the SaaS market outlook and growth strategies, the analysis spans challenges in acquisitions, market competitiveness, and growth scalability. Companies' positioning in evergreen markets, merger and acquisition complexities, and the role of AI in driving market growth shape industry trends. Strategic alignment with market realities, liquidity considerations, and sustainable growth models are central themes.
Challenges in Asset Valuations and Liquidity
Navigating challenges in asset valuations and liquidity events requires a strategic approach to balance investor expectations and market dynamics. The impact of mark-to-market valuations, investment strategies, and liquidity constraints on venture capital ecosystems is highlighted. Founder-advisor dynamics, market visibility, and proactive portfolio management are critical for sustained growth and investment success.
Staying Private vs. Going Public
The podcast episode discusses the advantages of staying a private company versus going public. It emphasizes the importance of staying private for as long as possible to focus on product development without the pressure of immediate profitability. By staying private, companies can prioritize investing in their products and R&D, leading to stronger metrics and growth potential before eventually going public. The episode highlights the success of companies like Salesforce, Palantir, and others that stayed private to focus on product quality before attaining profitability.
Challenges and Strategies in Growth
Another key point addressed in the podcast is the challenges and strategies in achieving growth in the SaaS industry. The discussion covers the importance of building a strong management team and recognizing signs of mediocrity within VPs. The episode stresses the significance of active community building and engaging with founders to foresee future success. By focusing on high-quality investments and strategic decision-making, founders can navigate the transition from hyper-growth to stable growth effectively, ensuring long-term success and profitability in the industry.
Jason Lemkin is one of the OG SaaS investors with all of his first five investments turning into unicorns with Pipedrive, Algolia, Talkdesk, Salesloft and RevenueCat all in his portfolio. SaaStr is the largest global community in SaaS and he has taught a generation the fundamentals of SaaS on saastr.com.
In Our First Ever Episode of This Week in SaaS
1. PluralSight Goes to Zero:
WTF happened to PluralSight? How did it go from $3.5BN to $0?
Will this have a wider impact on the willingness of PE to buy tech companies?
Who are the next contenders to go from hero to zero? Zendesk? Anaplan?
Will this generation of PE funds be let off by their LPs for a poor vintage?
2. Salesforce's Worst Stock Market Drop Since 2004 + Mongo Takes a 23% Hit:
Why did Salesforce lose $50BN of market cap in a single day?
Is the same true for MongoDB taking a 23% hit in one day?
What does it mean when the new normal is these once hyper-growth companies now growing only 6% per annum?
3. The Settlers into Slow Growth:
Why does Jason believe that Dropbox and Box have both settled into a world of slow growth?
What happens to Twilio from here in a world post Jeff Lawson?
What happens to Retool from this point on?
Would Jason be a buyer of Notion at $10BN?
4. Venture Capital is Broken:
Why does Jason believe that we need to see a relation of public multiples for the math in venture capital to work again?
Why does Jason believe that the way we mark portfolios with TVPI leads to corrupt and bad behaviour?
How does Jason think we will solve the problem of liquidity with IPOs being shut, M&A being out of the window and now PE being a doubt as the source of buyers?
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