The Rogue Wave of Enterprise SaaS

https://staysaasy.com/scaling/2020/07/29/the-rogue-wave-of-enterprise-saas.html

by chesterarthur • 6 years ago

34 6 6 years ago

Im a firm believer in the price elasticity of startup opportunity. We’ve more or less solved the lowest common denominator problems in software and we’re in the “chasing small optimizations” phase. In this phase I believe there are many many more opportunities, but individually theyre smaller. In aggregate theyre worth way more than a single company.

All this together - i think - will force LPs and VCs to change their return models and invest/operate fewer businesses but still generate excellent returns.

In other words a 20M arr business is amazing, if you arent trying to get to a $B.

jrott• 6 years ago

I think this is totally true. Unfortunately there’ll probably be a set of companies that are destroyed because they are pushed to grow at all costs even though there in a small vertical.

mdorazio• 6 years ago

I think you're probably right, but changing the VC business model means that VCs need to get significantly more selective about which businesses they fund, and also focus on metrics that a lot of younger entrepreneurs don't like (ex. actual profitability). When you can't count on a unicorn exit to offset all your total failures and zombies, investment models tend to start looking more like bank loans via equity than like the traditional VC setup we're all familiar with.

staysaasy• 6 years ago

(author here, thanks for reading!)

Fwiw, this post isn't meant to be an endorsement or condemnation of the venture backed high-growth model – it's just a description of a phenomenon that seems to occur fairly predictably in those types of companies. I do agree that moving to a world with slower growth, more profitable companies would be excellent for software, and also agree that we're shifting that way as the market matures.

Thanks again for reading!

N_A_T_E• 6 years ago

I think this is an astute observation. Any ideas what these sass verticals might be around the corner?

michaelbuckbee• 6 years ago

I don't know about LP/VC but I think the growth of "Bootstrapped VC" funds like Earnest and TinySeed are really interesting.

Where they're really looking at companies in the sub $1mil ARR space that are poised for growth and then they're investing in tons of them. In general they're far more stable and long lived than the typical VC ratios of 9 failures to 10 investments (with the 1 paying off for all of them).

The Rogue Wave of Enterprise SaaS

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