An accountant going to a SaaS conference. It almost sounds like the introduction of a joke.
Whilst we may not be founders, or software engineers or venture capitalists, there is a huge amount of value in attending SaaStr. Understanding from people much smarter than us what we can expect over the next 12 months on valuation multiples, overall market conditions and not to mention the latest in trends (AI!) is incredibly valuable when it comes to working with our SaaS clients.
So we did it again. 12 months on, we made the trek to Silicon Valley for SaaStr Annual 2023.
After a year that’s been a bit of a bloodbath from a trading conditions and valuation standpoint for SaaS and tech in general, I was expecting the overall mood to be downbeat and sombre. What I found was actually quite the opposite.
Some of the key takeaways from a general trading perspective were:
- The term that was thrown around the most was ‘Cautious Recovery’. In the US market, a few factors but in particular, the first S-1 filing to IPO since December 2021 by Klaviyo seems to have buoyed the market into thinking a recovery is on its way.
- The US market has likely bottomed out and Q1 and Q2 a lot of the public SaaS companies have bounced back. There's still not enough data to show we're 'out of the woods'
- Layoffs and SaaS spend cutbacks have likely finished as well
- If you have a sound Balance Sheet and runway, now is the time to be making strategic hires for your business. Talent is more readily available, your competitors likely aren't raising capital. Zig when others are Zagging.
One key thing to note here is that Australia tends to lag 6-12 months behind the US market, so there could be some pain left to come when it comes to business confidence and spending. I’d love to say things are going to be all growth and positivity from here, but I don’t think we’re there just yet.
When it comes to the capital markets and the turbulence we’ve seen there over the past couple of years, some of the main points I picked up were:
- For traditional SaaS (non-AI) funding is still very tough. Attrition rates from Seed to Series A are very high (gone from ~20% to ~80% since mid 2021) and the benchmarks you need to hit to raise these rounds successfully are higher than ever.
- 80%+ of Seed-Level US VC funds are going to AI startups at the moment. If you’re building a SaaS product, you can expect to be asked “how are you incorporating AI into your product”.
- Series A rounds are almost non-existent at the moment, with the goalposts for raising an A round having moved a fair distance from where they were in late 2021. With the bounceback in the markets starting to come, we can expect these to increase in frequency in 2024.
- Growth rounds (Series B and beyond) are getting done but at flat valuations or even some down rounds. A lot of growth stage companies have made significant cuts (layoffs, cutbacks) in the past 6-12 months to increase runway and avoid needing to do one of these rounds until at least next year.
The biggest exception to all of these trends from a capital raising perspective would be AI startups. We’re in the midst of a series ‘hype cycle’ at the moment when it comes to AI. Valuations are off the charts for the brightest AI companies, in scenes reminiscent of the bubble of 2021, the early investments in Mobile, Social and Web3. Something tells me when we look back in a couple of years, there’ll be a heap of this money that’s been lost. Then again, that’s venture capital for you!
Overall, it was a hugely productive and enjoyable few days in San Mateo. These takeaways were just the tip of the iceberg. Stay tuned for further updates from the Scendar team on all things SaaStr!