Last week I attended a small conference with about a hundred early-stage VCs. The crowd and speakers were all bullish on tech start-ups over the long term... but decidedly somber about the short term.
A few large Series A-C investors said things on stage that stuck with me, such as:
Timing
“We need the IPO market open to inject some energy back into venture. Our best guess is that the IPO window will stay shut for at least another year. We're hoping that a few big names get out in late 2023, but who knows.”
Valuations
"Some of the biggest public SaaS companies are still growing >35% per year, throwing off 10% free cash flow... and they are trading at 6x current ARR or 4x next year's ARR. So every time we look at a private company, this is top of mind. Are we willing to pay a 10x multiple for a really fast growing young company? Maybe."
Minimum Bar for Funding
"For us to seriously consider a company for Series A or later right now, the minimum bar is probably:
2x revenue growth
70% gross margin
1-1.5x net new ARR / cash burn
12-24 month CAC payback (shorter for SMB, longer for enterprise)
net revenue retention over 100%
...and qualitatively, the question is: if we give you $10-50m today, is it obvious that you know what to do with it such that we will get a multiple back in new revenue?"
Living To Fight Another Day
Obviously fundraising is tough right now. I've been so impressed by many of you, who have come up with creative ways to adapt and thrive despite the conditions. Some of you have even gone into cockroach mode, which is to say shrinking way back to ensure that the business will survive without outside capital for at least another 1-2 years if needed. Note that cockroach mode is not meant to be forever — it’s simply "living to fight another day" through this financing winter and taking this time to nail unit economics, so that we are ready to jump back into rocket ship growth mode when the sun comes out. After all, most of the great companies, including Apple in the mid 90s, came close to the edge at some point before growing back stronger than ever.
Love it. Cockroach mode today for the rocketship in the future.