SaaSletter - Mass Extinction + Embalming Fluid

Analogies get better in a downturn. Plus my usual charts.

Capital Shortage = Mass Extinction

You probably saw Tom Loverro’s (Partner at IVP) “mass extinction” thread (“unrolled” ThreadReader version here):

Tom Loverro @tomloverro

PREDICTION: There's a mass extinction event coming for early & mid-stage companies. Late '23 & '24 will make the '08 financial crisis look quaint for startups. Below I explain when, why & how it will start & offer *detailed advice to founders* on surviving the looming die-off. /1

A key component of his message: capital demand will far exceed capital supply. My value add: Morgan Stanley’s latest Venture Vision report featured a chart showing how this capital imbalance has rapidly spiked:

Matt Harney @SaaSletter

This 1 was pretty alarming really - suggests a real *cash* shortage and capital *need* for late-stage companies. /2

Trevor Loy joined the field of clever if a bit morbid analogies as well:

Trevor Loy @trevorloy

In this kind of environment, bridge round investment usually ends up as embalming fluid.

2023 SaaS IT Spend Budgets via ICONIQ

ICONIQ Growth’s new “The Essential Tech Stack” report included great details on 2023 vs 2022 IT spend.

Pre-$100m ARR SaaS companies are increasing their software spend at healthy levels (+10% to +30% depending on category; SalesOps category showing reductions):

Whereas $100m+ ARR SaaS companies are becoming more disciplined (typical category increase of ~0% to ~10%):

Related Reading: “Sales in 2023 & Rise of CFO Power” from OnlyCFO

Assorted Tweets + Links

The latest Meritech report highlighted how good you have to be to earn a 10x+ revenue multiple:

Matt Harney @SaaSletter

👀 new @MeritechCapital @afc report exclusively focused on *10x ARR* names -> proxy for best of breed metrics at scale *SLIDE PDF* = drive.google.com/file/d/1AamvKD… meritechcapital.com/blog/the-10x-a…

Another concerning quota achievement data point:

Sahil from Bravado @SVMansuri

This seems highly accurate to me, based on data we're seeing on Bravado. Companies without PMF are slashing their sales teams as they simply cannot sell their product in this market. Only 22% (!!) of sales reps hit quota in January. Lowest on record.

Tom Loverro @tomloverro

PREDICTION: There's a mass extinction event coming for early & mid-stage companies. Late '23 & '24 will make the '08 financial crisis look quaint for startups. Below I explain when, why & how it will start & offer *detailed advice to founders* on surviving the looming die-off. /1

An attempt at a meme:

Matt Harney @SaaSletter

Meme for the rest of Q4 earnings (h/t @nrmehta for the content + inspiration)

Nick Mehta @nrmehta

Listened to a bunch of SaaS earnings calls last week. ICMYI: Analyst: "What are you seeing in terms of the macro environment?" CEO: "We're very confident in our long-term value proposition and ROI." Translation: "It's brutal out there."

In my experience, the math works on this framework:

Dave Kellogg @Kellblog

OH: financial test -- can you prove via cohort analysis that if you turned off the new customer acquisition tap, that you'd converge to 40% EBITDA margin? #interesting

New Readers → SaaS Demand Index

With the influx of new subscribers, I wanted to re-highlight the most recent SaaS Demand Index (aka a proxy for top-of-the-funnel trends using high-intent Google search data):

SaaSletter - Weakish Dec'22 Demand Index Data