Let’s be clear, 2021 was crazy:
* SPAC of billions with no revenue
* the multiplier magically triples
* Fintech equals 80% GM with 10% GM
* #5 #1 in the market. got the same premium as
* Growth stage is seen as free money
* Seed VCs were bought versus sold in the $3B-10B round
— Jason ‘Happy’ Lemkin (@jasonlk) September 28, 2022
So as we’ve talked about before, these are awkward days at mother-in-law. SaaS and the best in the cloud are growing faster than ever… yet are worth less than half what they were not so long ago.
Where will we be when we come out of this? Will we come out of this at all? Or is this the new normal?
I don’t know do not you know. And of course, 90% of VCs on Twitter have no idea.
But there are a few things we do know now. Things that didn’t make sense in 2021, but still… in the end, didn’t make sense:
* Gross margin matters. At the end of 2021, especially in fintech, it looked like all revenue was ARR, and it didn’t matter what the margin was. All your revenue in low-margin fees? Nobody cared. All that mattered was top-line growth. I doubt those days are behind us forever.
* High burn rate SaaS startups will still exist, but they will be very rare. Discipline was lost in the burn rate in 2021 and early 2022. Burning $700k a month to book $200k? Who cares if the next round is coming! The winners of the larger category will still raise the bigger rounds, if they can, to win. That playbook still works. But this will only work for a very small number of startups with the growth, numbers and stomach for a high burn playbook.
* The next round will generally be tough, not easy. It almost turned upside down in 2021. But now the next round is usually tough, not easy. The bar goes up, and high valuations make it harder for VCs to earn top returns.
But … but … now the thing is.
* There will be more Figmas. Everyone’s jaw was broken when Marketo was acquired by Pei for about $2 billion. Then everyone’s jaw was broken when Yammer was bought for $1.5B for Microsoft. Again when Qualtrix was bought for $6B, that seemed like a high water mark. Except it wasn’t. This was followed by a $10B+ acquisition, and then … Figma for $20B.
SaaS became difficult again in 2022. It really did. But it’s still bigger than ever.
A Figma every few years, coupled with a Datadog or two every year, will keep innovation (and venture capital) flowing.
It will never be like 2021 again. Or at least, not for very long.
Published on September 29, 2022