Surviving the SaaSacre: A TL'DR of VC Insights
A lot of advice is being bandied about on how to navigate the current market. What's the "so what"? I distill 6 key takeaways from a curated reading list of VC resources about this crucible moment.
From layoff announcements to the tumbling stock market and recession concerns, bad news keeps raining down into the Cloud world. When I first wrote about the SaaSacre of 2022 in early April, the BVP Nasdaq Emerging Cloud Index (EMCLOUD) was down ~40% since its all-time high in early November 2021. Fast forward a few short months, as of mid last week, EMCLOUD has dipped further — down ~60% since its all-time high and down ~50% YoY. Notably, this is a more marked decline compared to other broad market indices (as seen in the graph above).
No one needs another gratuitous post about how dire things are. Rather, we all would probably prefer survival tips or uplifting notes, as founders and teams inevitably brace for hostile conditions. Over the past few months, many VCs and firms have offered advice + published their own version of a crisis management memo, à la Sequoia Capital’s iconic 2008 “RIP Good Times” presentation or Paul Graham’s “Default Alive or Default Dead” essay. I’ve compiled several 2022 resources from my reading list into this digest below, with the hope that this can serve as an open-source library for founders and teams to leverage for help and encouragement during the SaaSacre.
What’s the TL’DR? Across all the research and opinions I’ve read, I noticed 6 recurring themes repeated by the VC herd:
The dynamics of this downturn are different: unlike previous crises like the dotcom crash, SaaS companies today are still displaying strong fundamentals despite valuation multiples collapsing, and the pullback is mostly instigated by macro conditions.
Valuation framework has changed: not just in absolute terms with regards to multiple compression, but also on a relative basis with a renewed focus on growth + profitability. Entrepreneurs need to adjust expectations and plans accordingly.
Demonstrating a path to profitability is more important than ever before: growth at all costs is no longer rewarded, so prime your business model to ensure that efficient growth (i.e. growth + profitability) can be achieved.
Do not run out of cash: recovery might take a while so make good decisions to monitor and manage your runway, such as by tracking quantitative burn metrics closely and by preserving cash through cutting non-essential activities. Unlike in previous years, “cheap” capital is no longer readily accessible so anticipate a tougher fundraising environment.
Prepare now and ahead of time: employ a framework (many different ones are offered in the resources below) to help you, your employees, and your company prepare for wartime. The faster the preparation happens, the better.
Crisis breeds opportunity: history has shown that some of the most iconic companies of a generation arise following major crises. Examples in the SaaS world: cloud giants Atlassian (founded in 2002) and Cloudflare (founded in 2009) rose from the depths of the dot-com crash and 2008 financial crisis respectively. Atlassian even pioneered a whole new go-to-market model of product-led growth along the way. While these times will be trying, stay optimistic and capitalize on the opportunities ahead.
From working with entrepreneurs throughout my career as both an operator and investor, I can definitively say that they are some of the most adaptable and resilient folks on earth (and don’t just take my word for it, here is a recent literature review documenting several studies on the resilience of entrepreneurs). This is why I’m confident that many great startups will not just survive, but thrive, through the SaaSacre, and I’m looking forward to the crop of category-defining companies that will emerge stronger than ever in this crucible moment.
SaaSacre Survival Resources
Curated from NextBigTeng’s reading list. This list is non-exhaustive and meant to be a living document that is open-source, so please share your favorite resources for me to include!
VC Firm Posts
a16z: A Framework for Navigating Down Markets (5/13/22)
Bessemer Venture Partners: State of the Cloud 2022 (5/10/22)
Greylock: Crisis Management — Navigating Through Uncertainty (5/31/22)
Index Ventures: How Startups Should Handle the Downturn (6/13/22)
Lightspeed Venture Partners: The Upside of a Downturn (5/16/22)
Pear VC: 6 actionable tips on extending your runway (6/27/22)
Sequoia Capital: Adapting to Endure (6/14/22)
Y Combinator: Save Your Startup during an Economic Downturn (5/19/22)
Investor Posts/Threads
Bill Gurley from Benchmark:
Thread on 2022 market reset (6/15/22)
Thread on the end of bull-market run (4/29/22)
Elad Gil:
Fred Wilson from Union Square Ventures:
Staying Positive (6/21/22)
How This Ends (5/22/22)
Jamin Ball from Altimeter Capital:
Two Competing Truths (6/17/22)
Event Path for 2022 (6/10/22)
Have We Hit The Bottom? (5/27/22)
Janelle Teng from Bessemer Venture Partners:
Tech IPO Winter is Here (4/25/22)
The SaaSacre of 2022 (4/11/22)
Jason Lemkin from SaaStr:
Kyle Harrison from Contrary Capital:
What's In a Valuation? (2/1/22)
Mary D’onofrio and Andrew Schmitt from Bessemer:
Part Five of Parting the Clouds (6/13/22)
Mike Volpi from Index Ventures:
Tomasz Tunguz from Redpoint:
The Macroeconomic Signal to Watch for Software & Infrastructure Startups (6/1/22)
The 4 Startup States During a Recession (5/16/22)
How Much Further Can We Fall? (5/9/22)
Cash Flow Shockwaves (5/5/22)
Product-Market Fit in Different Capital Environments (5/3/22)
The Three Eras of Startup Valuations (4/28/22)
Conferences/Podcasts/Videos
(for the more audio/visual folks)
All-In Summit: Bill Gurley & Brad Gerstner on markets, downturns & investment cycles (E81) (5/22/22)
All-In Podcast: Late-stage VC markdowns and mistakes, market strategy, Ukraine/Russia update with Brad Gerstner (E73) (4/25/22)
Y Combinator: Save Your Startup During an Economic Downturn (5/6/22)
Questions? Thoughts? Feel free to leave a comment or reach out to me on twitter @NextBigTeng!