This special edition of SaaS Half Full features a fireside chat between two SaaS VCs discussing the vibe of our current investment landscape. Our guests tackle everything from the technologies they’re bullish about to the importance of burn efficiency in defining financial health. According to our experts, it’s healthy to be conservative — but optimistic — about the current investing sitch.
Sara Omohundro, Principal at Elevate Ventures, and David Kerr, Managing Director of Allos Ventures, are experienced SaaS investors who joined host Lindsey Groepper in the PANBlast office for an all-agency discussion. Tune in to hear the unscripted conversation from boots on the ground in SaaS investing.
Welcome back to runway season
In 2021, SaaS startup valuations boomed. According to David, many publicly traded SaaS companies traded at a whopping 15x their top-line figures like revenue and sales. Although this created an exciting investing environment, it ultimately proved unsustainable.
“Now, [the investment markup is] below five times — it’s about four. So ’21 was manic; everybody was getting markups and every VC was feeling great, and it was a great time to go raise money,” said David. “[Then in 2022], you… had companies that had a really difficult time raising money, and you had very few that were the highest performing that could raise money and were still getting higher valuations. But 2022 was when you realized you were human again.”
And for founders, “being human” meant returning to fundamental business metrics like revenue and burn rate. Sara said a crucial part of that equation was — and remains — maintaining a solid cash runway.
“If [a founder or company is] looking to raise, they need to think about having enough capital to get them through up to 24 months,” said Sara. “Similarly with burn efficiency, [they must] think through if or when they need to make cuts… But ultimately, you know, when it comes to investing, a good company is a good company.”
“Never waste a good crisis”
Are we nearing a recession? Have we avoided one? Are we already in one? The pendulum continues to swing back and forth. Still, with rising inflation, a tumultuous stock market and increasing layoffs, one fact remains clear: Economic uncertainties have taken a toll on Tech.
But that doesn’t mean SaaS companies are in dire straits. Many have flourished over the past year, meeting and exceeding revenue goals — while others have benefited from a more metrics-driven environment.
“For existing SaaS businesses, it becomes a lot easier to acquire great tech talent in the changing economic and job environment. Another positive change we see… is people have to be a lot more resourceful,” said Sara. “And ultimately, we get to a place where we have more efficient and profitable solutions and products.”
“It’s easy to get sloppy and lazy sometimes if you’re not having your feet held to the fire by certain… metrics. So to me, [this economic environment] forces discipline,” said David.
So, where does that leave SaaS PR?
Marketing and PR departments often bear the brunt of early budget cuts and layoffs. David said this likely stems from a fundamental misunderstanding about how to achieve growth and revenue goals.
“We see more of this (a lack of understanding about PR) in the founder archetype. [They think,] ‘I’m an engineer, I’m gonna protect Product,'” said David. “I think technical founders truly believe that the product will sell itself… And, at least so far in my career, I’ve never come across the greatest product ever…But I think that’s [the misconception] you run into.”
Similarly, the timing of PR can impact the success of marketing metrics and campaigns. Sara suggested that founders wait for brand to become a priority before starting a full-scale PR campaign.
“If the founder has started building that brand on their own, then the PR company can help them expand and grow that brand and refine it. If a founder hasn’t been thinking about that, then it’s probably not the right time yet,” said Sara.
To listen to more of Sara and David’s insights, listen to Episode 342 of SaaS Half Full.