What the Future of SaaS Holds for 2024 with David Sacks, Founder & General Partner, Craft Ventures

so much I want to chat about even frankly I want to learn in a few minutes down the road why you even have the enthusiasm to start another company right I could be I feel like I'm high energy and I could barely keep doing what I'm doing yeah so uh I want to get there but in order but before like let's talk about let's talk because we've both been doing this for a long time AI yeah um first of all from a craft perspective so I mean craps perhaps a big fun now what's your assets under management a billion and a half dollars we're at uh 3.3 billion yeah that was fast yeah is that a record over three billion I don't know I don't know if it's a record but yeah it is pretty now I mean half of that is in new funds that we haven't deployed yet so okay that's actually that's a topic we come back to but okay so 3.3 billion when you guys are talking each week and and it's craft is still very sad B2B focused right the majority B2B how much of this combo is about AI is it all AI does it have to be AI first it's about 80 80 yeah okay and if I wanted for new stuff what's that for new stuff obviously we have a large portfolio of Founders that we need to keep servicing and yeah most of that is not AI it was pre-ai right but in terms of looking for new ideas I think the team is spending 70 to 80 of their time looking at Ai and if I had like the world's best payroll app could I get a meeting to craft yeah absolutely I'm not being facetious it's the the issue is that one of the questions all VCS ask is why now yeah so um you know there is a tendency if you think about every major platform shift as like kind of a pond and the pond is kind of stocked with opportunities it will get fished out over time yeah you know the best opportunities over time will get taken there's always this question of why is this idea still available to the founder to be exploited and you know it's been before AI came on the scene it was what roughly a dozen years since the last really big platform shift we had a couple we had um Cloud obviously has been huge and then mobile there was also social although that mattered a little bit less in B2B so there there was a sense that SAS was getting a little bit long in the tooth as a wave kind of multi-tenant SASS and we needed something new to come along to kind of reset you know kind of restock the pond with opportunities yeah and I think that's AI at least that's the way most VCS what are you guys and what what has made your jaw drop or what gets the team excited for for reels right well we have seen a bunch of like cool Demos in AI that you know have been pretty impressive although a lot of them are more prototyping um I would say that we've kind of divided the AI opportunities into three buckets there's infrastructure um which is super hot and you're seeing rounds massive rounds get done at super high valuations ultimately my view is that infrastructures can be owned by the big tech companies and those mainly are plays for a good M A exit yeah um second bucket is co-pilots and I think this is the area where actually startups new Founders can start new things that the big companies really aren't going to go after I think there's going to be a co-pilot for every professional job category you know you've already seen a bunch for lawyers you know doctors yeah I mean I think there will be again co-pilots for everything and then there'll be co-pilots for horizontal job functions Marketing sales so forth uh third category is pre-ai SAS apps that get turbocharged in their value by adding AI functionality doesn't mean they're going to be like the Deep you know the sort of a foundation model it's more like they get to exploit all these new AI apis to make their product better we've seen like the killer notion uh AI demo where it auto completes everything our portfolio company clicked up just released some similar functionality I think that you know apps like gong or course are going to be turbocharged with the ability to analyze all that conversational intelligence that they're recording so I do think there'll be a lot of again pre-ai SAS apps that just get a lot better because of this functionality yeah no I'm with you but it's interesting I think what you said maybe to help Founders is is really the moment in time craps got over three billion under management you're spending seven to eighty percent of your time on on New Deals on AI um but a lot of the stuff is is just past demoware right so it's an interesting mismatch where unicorns have been reborn here yeah but uh we are we're we're getting very excited early oh we're planning on deploying our current funds very slowly slowly um so just because it's what we're spending against 70 to 80 of our yes of our sort of search time yeah but again we spend a huge amount of time just helping our current portfolio but you know in terms of the search for new ideas just because it's 78 of our time doesn't mean that we're instantly going to be like pilate it's going to take a while for this stuff to play out you know we've only made I'd say a couple of you know well we've made a few seed Investments C checks are a lot easier to write right now I think we've only written one or two you could call them like series a type checks one or two this year yeah yeah so that and what how let's take 2021 out of the equation um how does that compare to your average pace one or two I think that things right now they're going back to more the the pre the 2020 and 2021 were simply a bubble yeah it was a massive bubble especially the second half of 2021 valuations were crazy rounds were crazy it was worse because actually the metrics were already cratering in 2021 but we kept investing until until New Year's Eve I didn't to be honest I didn't there were a lot of companies that we saw that actually had very good metrics in 2021 I I didn't see the metrics start cratering until mid 2022. but I think the macro like if you go the Mac Shopify in Zoom yeah they had already reverted to normal yeah right there's this bubble was we weren't we were ignoring the fact that we'd return to the normal World quicker than we thought yeah so so you're right so the co the businesses that got accelerated by covid were already reverting to the mean I think that in terms of the financial markets um everything peaked in November of 2021 that's when the feds started turning really really hawkish and indicated that they would be raising rates but the rate hikes didn't start until about March and so q1 was still this like last gasp of people able to get rounds done maybe not quite as good as in Q4 I was nervous but it happened but it was still happening I would say like by Q2 yeah of 20 20 22 it was nothing but like a falling knife and then when I started seeing it but but my portfolio companies I think were still hitting their their forecast by and large it wasn't until the second half of 2022 that every board meeting I was at was like a exercise and reforcasting down and that was the part that was a little bit surprising to me is how much the fed's you know crazy loose money zerk policy where it was inflating the metrics of like every company all the way down to kind of early stage software companies yeah well let's come back to that but so just for just to be Technical and Venture because I think it's it's still an opaque world for Founders yeah so it is interesting even if it's sometimes born to you and me two deals a year right uh so I mean I think I think you know the last year was a really slow period I think um I would say that our expectation moving forward is that we will do call it one and a half I'd say one and a half which means uh deals per quarter okay so one and a half Big A's yeah it's like less like leading a series a or series B to call it three every six months yeah you know or six a year so I guess that's one every two months and then you know seeds a little different I think we can do um you know like a couple of seeds a quarter maybe even two to three seeds a quarter yeah and that's you know just thinking about it for a moment for for Founders here even for you and me the map Venture map's crazy to think about having three billion under management and doing six you might intuitively as a Founder think it's got to be 60 or like yeah and it also means the odds as as simple as fundraising seemed in 2021 actually mathematically the odds are tough aren't they yeah do you guys know where do you do you know how you model the attrition from seed day have you guys modeled that um yeah I mean we're still trying to figure that out I guess in terms of like giving you a precise numerical answer but I can tell you that it's based on like a feel thing it's really changed I would say that two years ago uh I would say like every seed round looked good because the graduation rates a series a was so high and so you know if you're paying like 15 20 even a size like a 30 cap on a seed round and it was graduating to a series a round at a 60 to 100 million dollar valuation which was very common in 2021. yeah if you felt like you were getting a discount by investing in almost every seat ground that you did and there are a lot of seed rounds basically based on this thesis which is we're just gonna ARB the you know the fact that there was a lot of ARP going on yeah like we know this company will get a series a round so it's going to invest in the seed round well I would say that the mortality rate on seed right now is very high you know I think it's probably going to be like 80 percent that's my gut about 80 right yeah I was we did uh I did 20 VC the other day and Frank rotman from QED Zone who's been doing fintech a long time he said their traditional model was 80 graduation and kudos to someone that's very metrics but that's as a Founder if you're planning on that today you're crazy right yeah I I think I think in one year I think it's I think the expectation should go from about you know 20 attrition to 80 attrition yeah so seed is no longer a bargain it's actually like pretty tough for investors seeds seeds yes that's what I mean yes because we're inherently overpaying well you might be overpaying um there there is a lot there's a lot of seed funds and so I'm no longer convinced that seed is particularly like a bargain in terms of that part of the market um in fact I I think probably series a or series B is a better place to invest I think you know the question is always the trade-off between uh proof and you know how much proof do you want as an investor versus the extra evaluation that you have to pay up for that and my and I think that you know a couple of years ago uh you'd have to pay up a ton for that incremental proof because it just you know it felt like the valuations would just you know hockey stick as soon as anything seems to be working yeah and now I think investors are more skeptical and I think you don't have to pay as much to get a little bit more proof and so I think it's okay to wait basically disincrementally yeah if you can't I mean that's the Paradox for all of it for Founders that you would wait if you could right right um you know when I started the lesson I was taught is from seed to a you it need the valuation needs to at least double but ideally triple not not to be fancy or to look good on paper but to justify the risk because if you have enough money and craft has enough money you might as well wait like I'll pay 2x the price right for uh for for a tenth the risk that's the biggest bargain in the world that's right yes I think that's right so if it's if if it is an 80 mortality rate from C to series a yeah series A's need to be what is that five times and I think there has been a correction so the correction evaluation started with the the super late stage stuff because what happened is the the crossover investors who had come into the market like the Tigers and so on they just got their faces ripped off so they basically just got out of the market and so the super late stage rounds is where liquidity is dried up and then it started trickling down and so you know first series C was hard and then series B got hard I mean everyone who's kind of around earlier can look forward and see oh wait a second there's no end of market my deal anymore I better be like really conservative yeah and it trickles all the way down but seed obviously is the last round for it to trickle down to and I'm not sure it's like fully corrected yeah I don't I think folks here may affiliate I actually think here in in like the virtual Bay area where you have multiple successful founders with lots of money I don't think it's corrected at all for the for the halves right for the for the ones with the right resumes that that came out of stripe or came out of Yammer came out of wherever they they there's no impact right there's still a surplus of folks who in many cases are gentle people investors and they don't care right um all right two things I want to hit on the slide maybe we lost it up front if we could bring it back there's a lot but these are things I know you've thought about so we talked to the beginning eighty percent of crafts think about AI other things that got exciting and maybe are less today let's talk about the second one first low margin SAS right and and you've done plenty of stuff in fintech and combination over your career I still get confused when I meet with the founder with a 30 or 40 merge in business yeah how how are you thinking about this today it seemed like a perfect thing in 2021 to bolt on a low margin payments business to anything didn't it yeah I mean I would say to me when I hear the term low margin SAS that sounds like an oxymoron like it is an oxymoron software is supposed to be high margin the Insight that made Bill Gates the richest man in the world is he realized he could Mass produce software so at a low cost right because I don't know how we got away from that right because they put a floppy disk or a CD-ROM you print it you distribute it to 10 million people and it's cash right it's specific it's an IP business meaning that all the expense in creating the software goes into producing the first instance or the first copy of the software yeah taking additional copies of it is on the margins free and so the more of it you can sell the more lucrative it is that I mean that's the definition of gross margin it's almost like a perfect gross margin business there's no incremental cogs to producing more copies so as soon as you get away from that model you're getting away from what is unique and special about software and I think I'd say the payments business says maybe or fintech would be one aspect I think the other one was just all these like Tech enabled businesses yeah that had like that was software but it had a major physical world component and those businesses just got clobbered in the last few years and we've just kind of realized we didn't do a ton of it but I've come to realize that uh software businesses that have a physical world component it's very very difficult um you know you need you need a Founder who is a true like 10x operator to make those businesses work um three times more complicated minimum right many times more complicated you really have to pay attention to your gross margins and you know most Founders don't have the experience to really do that the nice thing about creating a software startup is it's very forgiving in terms of if you're not operationally efficient it's a it's certainly more forgiving look it's not a good place to be if you're not operationally efficient but you know if you're good at product and you're good at sales you don't have to be the world's greatest operator to make a software business work it's mostly about basically finding product Market fed and selling you know and but and all you have to look at is the Top Line the bottom line yeah even ignore everything in the middle right exactly but if you're like delivering food you know like you better be a world-class operator or you will not make the margins of that business work what about like a toast would you invest in toast today um because it's like a super it's like a very low margin I mean toast is 12 billion plus yeah but it has Hardware that it loses money on yeah then it has services that it loses even more money on then it sells to smbs hardware and services but it it's it's profitable now at billions of of Top Line right in the building of Revenue yeah I mean but it won it's won it's category right I would say at the series a stage I might miss that can I miss it yeah too too many weird things going on uh yeah I mean just like it looks really hard it wasn't really yeah they were sort of quasi-incubated at Bessemer and I remember Byron told the story of that they told them whatever you do don't go into the hardware business like don't do point of sale and they said you're absolutely right but the 10x to make it work we have to own the whole stack right yeah but um yeah I mean there's always exceptions that that prove the rule but um but it's just hard when you know the thing I look at is is there a cogs line in the p l you know like and what is in there yeah because pure software businesses shouldn't really have one um but sometimes they do and sometimes they're misattributed and then you find out oh wait a second this business actually does have cogs but you know the finance team buried it and you know in like an overhead line and then you find out well wait a second this business is actually negative gross margin yeah I think one of the worst things you can ever discover is that your late stage business which is growing really fast is actually negative gross margin because what that means is you've been selling dollars for 90 cents and so now you have to question if you you have to reprice everything meaning you have to you now have to change your pricing of the product to get out of negative gross margins and when you do that you might lose your product Market fit so it's like you really got to make sure from the beginning that you're properly instrumented on on things like gross margin yeah you had an Insight when we caught up the other day just for folks here that I thought was simple and but pretty profound if if you're not an 80 gross Market business if you have other stuff right your margins are probably much worse than you think yeah I just went through this with the startup I invested in every I mean the best team best everything but they have a blended business and I was like you know your margins can't really be 70 and they came back well they're they're 55 now right and this is what I mean by like there's if in pure SAS businesses there's a lot of forgiveness for not being operationally like the best very sloppy yeah exactly but as soon as you're in a world of kind of again these physical world components or these like cogs if if you do something like misattribute a true Cog to to overhead to your GNA for example yeah like that could be fatal because what will happen is you'll you'll think everything's great your your series C and then a really sophisticated late stage investor is going to point out wait a second that that expense belongs in you know in your cogs and all of a sudden your gross margin turns negative or it goes from 55 to 10 yeah then you're not you're not and all of a sudden like wait a second you don't even have the business that you thought you had yeah um let me get this next one high level one word this is um um this is a term uh that we'll come back to later that Hadley bounced off the bottom what are you thinking in general yourself or a craft where are we versus a quarter or so ago yeah I think we bottomed out it probably bottom now we bottomed out in the last few months from certainly from uh public markets valuation perspective we certainly have the nasdaq's up like 30 this year yeah um that was the good investment leave your money in QQQ and call it it for now you know a lot of that is based on the market believing that inflation has been licked it's in the rear view mirror and we're going to get rate Cuts next year so the Market's starting to price in you know a lower discount rate on all these growth stocks if inflation rebounds then watch out because the market will sell off but from a public market standpoint we have there has been a recovery and that tends to trickle down to private valuations as well so we've certainly bottomed out on the Capital Market side I think that for um Founders I've started having you know board meetings in the last few weeks where there's like green shoots like some companies are starting to accelerate and it feels like things have kind of bottomed out I don't think people are most folks that have good businesses are saying things are getting worse are they out there most yeah I know no one's saying it's getting worse anymore um but there's a lot of a lot of companies where there's still a lot of deferred pain yeah you know where they raise huge rounds in 2021 especially and they've been burning too much money and yeah things may have um bottom but it doesn't mean that they're right and they're still I think you're still going to see over the next year or two a lot of companies you know run out of money and die or have to take down rounds or you know restructure so there's definitely some deferred pain in the ecosystem that's tossed to play out yeah but let me come back just to show folks here look I just picked two I picked two that are kind of Representative but we're going through one on the left of Zoom info which is kind of like the public leader and pure play sales and marketing you can see they hit they hit bottom On Cue they actually it was just like David said actually things held up pretty good last year right um and then they hit bottom in q1 and then bounce back right and then Zoom is obviously the craziest covid it turned out it looked like the greatest beneficiary it was the greatest non-beneficiary of covid right and they finally kind of returned to limited but real growth and new bookings so uh those to me like if you look at the most impacted if they're bouncing off the bottom maybe it's a dead cat bounce right but uh the companies that were doing you know that were accelerated by covid like food delivery and e-commerce and uh Zoom you know they they're in like kind of a little bit of a different bucket I think than just like the the software bucket um and so that those are the ones I'm talking about yeah one more quick about on this just because uh just your thoughts I get EX I get burnt out everyone's saying how horrible it is on the Twitter and the internet X um and um because not everything's a downturn right like the overall consumer economy is pretty good and if you look at I picked toast notwithstanding our margin question and I took it Monday we're having to Ron the CEO of Monday come in a couple hours interviewing like Monday sales to normal companies Okay and like you know and there was no impact at Monday I mean minimal impact right and so it's we have this how do you think about there's like this microcosm of SAS startups that sold to be the bsas startup selling a fungible sales and marketing product that it felt like the world ended right and then there's Real World Companies where impacts were so is this right is this a downturn or what did we go where we actually just go through well I think you're you're picking two of the the best least affected companies yeah I could pick or Snowflake and a few others but yeah but point taken yeah I you know what I can tell you is that my my sort of view based on the The Casual empiricism of sitting in a lot of board meetings is that things like sucked for the past year you know and uh a lot you know because I think a lot of startups do sell not just to other startups but to other big tech companies or the early adopter type buyers and a lot of these companies were going through layoffs and so they were reducing the amount of seats they needed to buy yeah so even even the the startups that were good at getting renewals were renewing uh you know they were getting seat contractions still happening still happening that was a big change because for the last decade plus seed expansions has been this huge wind at our backs and all of a sudden seen expansion you know 120 percent has turned to 80 in terms of the expectation for the renewal so that's been a big problem the other thing I'm seeing is that there's a lot of categories that are merging right now you know like you look at like sales enablement for example we thought there were five or six different categories of you know sales and ailment they're all now trying to get into each other's business yeah and buyers are starting to sharpen their pencils and say we just need one of these and I think that's going to happen in a lot of software categories so the buyers are getting more discriminating everyone's looking at cut costs and uh it I think it's like a pretty tough period actually I mean I describe it as a software recession um I don't you know I don't know why the rest of the economy has held up as well as it has um but from the point of view if you're if you're in the software business we've been experiencing recession over the last year or two what do you the the um I I've started to go into kind of an ass kicking mode related to this which is look this this happened right so it was a tough year but aren't we lapping that doesn't shouldn't everybody do like a little bit better the next year than they did the last year do you get an excuse to not at least do better than last year if you were if you were heavily impacted yeah I mean I think that the last um I'd say the last five quarters have just been you know have just been like every board meeting is reforesting down um but I think like I said the last few weeks it feels like things have started to turn up a little bit so if you're still forecasting down five quarters from now then I'd say you're screwed um like the next year should be better yeah but you know like the old saying goes It's a escalator on the way up an elevator on the way down so we just had the elevator on the way down now we're starting to build um build back up it's not like it's going to bounce back to just where it was you know in in late 2021 it's just not it'll happen take another 20 years right it's like um illegal Gurley describes this kind of assault you know Sawtooth pattern where things kind of go up with you know some with you know little Corrections and all of a sudden there's a big correction that starts to go back up so we're kind of like saw two thing our way back back up but it's you know this is never going to be like it was in 2021 I mean that was like the biggest bubble since the.com bubble in 1999. it was because the smart people bought into it that's what always happens psychology is really helpful the smart it went on too long that even the cynics you have you have you have to play the the game on the field right so you want to sit out the game for two years when I mean there were huge cash exits it was and then there were cash exits in 2019.99 too right I mean the dessert bubble if you want to look at it that way have been building for 15 years it's a long time and so people just kind of started taking it for granted that interest rates will always be this low that Capital would always be this available that valuations would always be this great but it wasn't just us I mean look what's going on in the commercial real estate sector they are just getting their faces ripped off right now uh you're gonna see a lot of more to come yeah you're gonna see a lot of Siri bankruptcies a lot next 18 months should we um and I want to hit a few other I want to hit this one for fun but related to this bankruptcy thing um and I know I know it's very visceral when you're on board meetings and all the other stuff but should we really care if some of these over funded unicorns fail should we does it really matter I mean there's so much on social media and the and the media but if it's also it doesn't matter does it matter if 20 or 30 percent of the 1100 unicorns go under is it such a tragedy not to any of you guys if you're founding companies who cares you know yeah it really only matters to the founders and investors and employees and investors of those I don't mean to be calloused to the employees yeah it matters a lot but at a meta level right the world hasn't ended no no I mean and you know look I think that software is not going away I mean the software is only going to become a larger and larger part of the economy there's no way that it becomes a smaller part of the economy the business environment is always changing there's always these new platforms like AI so if you're a Founder who has a great idea for starting a company no it doesn't matter to you I mean start your company doesn't matter that some overfunded unicorn like you know is is basically you know a zombie yeah I mean I don't mean to be I shouldn't be I didn't mean to be uh uncaring about employees that are impacted but at all uh but at a meta level we take so many cues from VCS right and yeah it's Terr as a VC it pretty much sucks if you've got 10 unicorns you got around sure it's not fun to work a tiger or soft bang today but for the world I I just don't I think it's it's overdone yeah look I mean I found a dmmer in the wake of the um of the 2008 you know great financial crisis didn't stop you it didn't stop me from yeah it was and it turned out I mean it was by the way it was really hard to raise money I think we only had like one term sheet at the series a and series B is that true yeah even as the CEO of PayPal yeah one term yeah I mean it was not it was not easy but we did it uh and PayPal was mostly created after the.com crash I mean it was founded before and thank goodness we raised a bunch of money before but the company was built primarily in the wake of the.com from 2000 to 2002. so so I think building a company during downturns is a great time because you know the war for talent is less intense so it's recruiting gets a lot easier it was getting insanely hard to recruit anybody in 2021 yeah and and startups couldn't really compete with big companies which were you know giving huge salaries to you know so that gets easier also uh when you are operating during either a downturn or just a less frothy period there's less competitors who get funded you know like in 2020 or 2021 as soon as you would come up with a great idea and start a company there'd be like five copycats who would get funded so I think it's generally and if you look at the history of like great Venture returns it happens from vintages when you know you're not like obviously in a bubble so this is a much healthier place for the ecosystem to be yeah okay this one the burn multiple so every investor update I mean I I think you coined the term if you didn't coined the term well consider you the coin of fire of the bird multiple every investor update I get this metric I I think and I think of you every time they burn multiple and uh I wanna I agree with you on close to 100 of things on SAS but this one I want to challenge a little bit only because I think it may have taken on the life of its own beyond what you intended right right which is I see Founders that are maybe burning a little too much thinking their burn multiple is okay as they're slowly driving their car off the cliff right they're slowly driving it right and so when you think about this today what is all this I know what you're trying to we're trying to simplify a lot of things here how do we think about burn multiple in 2023 20 20 24. yeah I think I wrote I wrote this blog post called the burn multiple I think I wrote it in um early 2020. yeah it's about three and a half years ago um actually it was I think it was when we had there was like a three-month kind of covet Swoon period in the market might have been six weeks but we'll call it three months yeah I mean basically everyone thought the world was ending to covid and then the FED just started airdropping money um so it was a very short-lived and that's when the bubble began the the Super Bubble began um but any event I I wrote this there because I I thought that it would become very important for startups to think about their Capital efficiency and they weren't and now the message really matters so it um but any event um in terms of in terms of um well sorry what's the question again well how do we just now I feel like today so so that that window was nearly where efficiency was incredibly important right yeah then we went through an area where it was only important as a game until the next round right now we're in an interesting world where actually for the first time all the public SAS companies are efficient Monday went from minus 15 to like plus 20 non-gaap operating margin than 15 months just flipped 15 points sales forces approaching the rule of 50. it's already I mean the level of efficiency in the public it's jaw-dropping they basically just froze hiring it sort of worked yeah but so we're in this new area of more efficiency so what is what's the guidelines for Founders yeah right okay so so let me make two points so uh the first is why kind of come up with this new metric of burn multiple as opposed to using things like CAC or CAC payback things like that yeah I think that's important is that what I was seeing in metrics like hack is that if the finance team simply misattributed a certain expense then like it would make the CAC payback look great everyone's got a great CAC yeah exactly every start I was just way too easy and I'm not saying they did it on purpose but you know you just ask the founders was your entire marketing team including the communications team in CAC yeah and they're like no I thought it was just sales people so there was there's just too high a chance that CAC was or magic number is even the worst version of this like no one knows how to calculate it was constantly miscalculated so the beauty of burn multiple is you just take your entire burn in a given quarter or a year and you divide by the net new ARR and so there's like nowhere for people to hide it's like it just captures everything and it's a measure of efficiency now the second point is that I you know I created these like rules of thumb to make it really easy for Founders just to quickly diagnose with it this is a good thing about the metric right is like in like 30 seconds you could figure out if you're good or bad you know every board meeting but it is true that the standards for what is a good burn multiple change over time so and I say this in the blog but I don't I don't like quantify it if you're a very early stage startup like let's say pre-series a your bird multiple has to be bad because you're doing all this r d and you're just starting sales so your burn compared to your net new ARR it's going to be a really high ratio and that's funded what's that if you're funded if you're funded that that's okay but what should happen over time is that your your uh your burn multiple which is just your burn divided by your net new ARR it should be going down and obviously by the time that's the point that folks Miss if that's the point it should be going down and so like if you're a late Stage Company or like a growth stage company like your burn multiple should probably be one or even less meaning let's say you add 20 million of ARR net new er in a year you should probably be burning more than 20 million dollars like you know and then by the time you get to be public obviously you ideally you'd be profitable or cash flow positive in which case your burn is zero and hopefully your net new error is a big number so zero over you know a big number it's it's zero so your burn multiple should be trending down towards zero over time it can start at the seed round at a high place by series a you know it's okay to probably be at two ish you know growth round one-ish public company zero yeah right it's a good where this this idea of how it Trends maybe was in the post but it's not in every investor update I get I think where I see it get corrupted if you're lucky enough to have raised funding right is as you cross 10 million somewhere around that a million a month um your burn can grow out of control right it can grow out of control the day after demo day oh I see but there's this moment in time it's starting to click right you're hitting 10 million you're growing 100 120 you know if you're going triple digits at 10 million you've got something good right and if you look at your birth multiple and I'm like well it's 2.4 David said it was suspect but I'm not in bad but 2.4 when you're adding a million of new bookings that means you're burning 2.5 you're burning over two million a month right and so it can that that actually sneak up on you go from 600 to 800 to a million and that's where I see it just when it gets good your burn multiple can get bad right if you're not that that's that's that's where I think people misunderstand it right yeah well also um if you if you so so what happens is that when a startup creates its forecast for the next year or the next quarter or whatever if they want to scale up or hit a greater level of ARR they typically have to invest they hire a bunch of sales people they train them there's ramp time so you know what your costs are going to be but you're prediction by your net new AR is basically a prediction and if you miss your burn multiple can go from like a forecast of two to like five just shocks Founders all the time doesn't it but that's a good reason to be look at the metric is to like it does jolt them when they say wait a second our multiple's horrible this quarter what I said what I said I gave a couple of um I gave a few talks that are on to our portfolio companies that we later put on YouTube as we were going into this software session uh in 2022 and what I said is do not let your burn multiple go above two because we're going into a tough period it's more likely that you're going to miss than exceed and if you miss your burn multiple is going to happen in your planning yeah so two is the absolute Max that your burn muscle should be going into this like tough period and um so you know anything above two you're in the danger zone already okay that's a good summary all right one thing I want to make sure we hit let's skip that for a minute yeah a little bit a plug but yeah you are you've had some success um founded Yammer founded a few other movie producer 3.5 billion under management PayPal others so you're gonna start another company we did we did uh so we're launching this today we announced it today I just tweeted it out it's um this was previously a free tool that we gave out to our portfolio companies first and then we kind of published it and the ways it's SAS grid and it's it's a dashboarding tool that's built specifically for SAS startups and the way it works is you just connect your data sources like you know Salesforce or HubSpot or QuickBooks or you could upload you know spreadsheets and you just connect those data sources and then we basically give you all the charts and dashboards you need and should be looking at if you're a SAS company there's something like 70 metrics that we just Auto calculate for you and then there's a setup process where you know we we've identified like hundreds of edge cases where the data doesn't properly Translate from house fighter Salesforce or QuickBooks or whatever and so we you know it's implementation takes about 30 minutes and then so we'll help you get it set up and then you can customize the dashboards it this will save I think SAS starts a ton of time there are other dashboarding or business intelligence tools out there but none of them are custom built for SAS companies so what happens is you have to hire like a data a data analytics team and then they're going to like take all of these data sources and put them in a data warehouse or have to clean them up then they're gonna have to write a bunch of formulas in SQL for all the SAS metrics that you think you need you're going to forget about half of them you know and then finally you'll get your dashboard in like looker or Tableau this just like replaces all of that it's a 30 minute process connect your data sources boom you've got everything you need and you can customize it from there so I think you know the idea here is that by verticalizing a business intelligence tool for a particular industry we can just give you a level of convenience and value that just wasn't possible with like a broad-based generic business intelligence tool so that's what sasquerade is the you know the history of it is this just started as a spreadsheet that we would give to companies that were applying for you know basically they wanted to raise money from Craft so we just give him a spreadsheet saying fill this in because they weren't giving us their metrics in the right format got it so we're like here's the right format so we give them the spreadsheet the spreadsheet would spit out the charts so they could kind of see what they're giving us and they're like whoa this is really good like I wish we had this instead of just doing it ourselves so then we basically put it out there as like a free website that they could use and then the the aha moment was we started seeing SAS companies using it as their dashboarding tool meaning not just when like they ran a financing process but we had 500 companies that were just using it as our dashboarding tool and we're like okay they played applied where you could apply to craft to get fund to get reviewed right they would use the output as their screening as their reporting tools yes but not just but what again the AHA was they were using it not just when they need to raise money no every month but every month or forever for their board meetings and we're like okay like the world actually needs a dedicated SAS dashboarding tool and the more we started thinking about that the more excited we got and look I'm I'm like a co-founder but the CEO the real CEO founder is Ethan Ruby yeah who is our uh partner for analytics at craft and he's been in the weeds of like taking all the data from startups and realizing where all the edge cases are and where all the formula errors are and like where the data always gets screwed up and he's been cleaning it up and so he's productized the work that he's been doing with hundreds of companies and he and his brother actually are like the main Founders and now they're spinning this off into it's completely separate company and um I think we can make this a standard for SAS companies you know so I can go today sasgrid.com later I can do this I can hook it up I can hook up my CRM my Quickbooks and I can start getting the same analytics to 500 totally and the deal right yeah and uh and it's free for any SAS company uh if you're under a million dollars of ARR it's totally free to use we don't charge you till you hit a million of ARR so I think you'll find that if you use this gonna simplify your lives a lot cool all right I'd love to go for another 45 minutes but let's thank David this was really great that's right

Channel: SaaStr

Views: 27,478

Keywords: saas, saastr, software as a service, startups saas startups, tech startups, startup company, start up business, starting a business, entrepreneur ideas, successful entrepreneurs, becoming an entrepreneur, how to be a successful tech entrepreneur

Id: GEFLjAshxLk

Length: 42min 32sec (2552 seconds)

Published: Wed Sep 13 2023