Note: SaaSForward is a fortnightly in-depth analysis of global SaaS trends. This video was recorded on 24 November, 2021.

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Expensify: Another Value SaaS IPO blockbuster: 00:04
Being left out of your own IPO party: 1:02
VC firms are going the hedge fund way: 2:46
RBI is back: Possibly with more friction in global incorporation: 3:57

Expensify: Another Value SaaS IPO blockbuster

This is Expensify, a startup that many of us might've used to file our own expenses. As one investor observed that one of the benefits of being capital-efficient is that you can be outrageously generous to your employees.

So it turns out that in its entire history, Expensify had only raised $32 million to build a business worth about $2.6 billion. And if many of these recently public-going SaaS companies are any indicator, these companies grow further at least 5X after they have gone public.

As one of the employees at Expensify said, 'I might just hold onto it'. They were able to award more than 10% stock grant because they had that much amount of equity to give in their cap table because of the capital-efficiency that they had.

Now, if you look at Expensify and a few more, this year has been a blockbuster of a year when it comes to SaaS IPOs. This year, the tally adds up to about 41.

Founders being left out of their own IPO party is real

In the same week, what also happened was that there was a SaaS founder who shared that their company went public but he was not included in the IPO. The management forgot to invite the founder to the IPO.

He's shared in a series of tweet threads that he had started out as a YC founder, and they were growing really well. But after some time, after the large fundraise, some other investors took over the company they further grew it along. But then the founder was left out.

What was great is the YC partner wrote in a very different kind of a way about the founder, but the founder being kept out of the IPO did not feel nice!

So I don't think, it is any more the question of whether in the space there will be more IPOs, wether the venture funded companies will go IPO, wether any type of software company will go IPO. The question is whether your company will go IPO and whether you as a founder will get to participate in that IPO.

Now the key takeaway from last week's news, at least I would say is, as a SaaS founder, are you able to retain control? And that is why thinking about Value SaaS, being capital-efficient, therefore being in control of the business that you build is very, very important.

VC firms are thinking more like hedge funds

In a different kind of news, across the world where so many companies are going public, many people are realizing that the growth that is happening is really happening after these companies are going public. Whether it is Facebook, whether it is Shopify or other recent SaaS companies that had gone IPO in the last three to five years, they are growing at least 5X.

So this is forcing many venture investors to think more like a hedge fund. They are asking, 'should we be asked to exit after we have had a company go IPO, and not continue to participate in that growth?'

This is one of the reasons Sequoia is fundamentally rethinking about how they should be structured as a business. And though it has been one of the most successful venture firms, they're now thinking more like a hedge fund where they would like to hold more of equity, have more percentage of the portfolio in a public company. So that's another big news that may affect how companies are funded and how companies are supported.

RBI is back: Possibly with more friction in global incorporation

And finally, the third piece of news is that RBI is back again in a way that has impact for us a SaaS founder. RBI shared a notification on how they would like to look at how companies get incorporated, especially foreign companies and how Indian citizens can own equity in a foreign company.

RBI is bringing in some restriction in terms of how gifting of shares can happen. So, this is going to definitely have an impact on all companies that are trying to incorporate at a global level because they have a global market.

Most of the SaaS companies, they realize that the market is global. So over a period of time they realize that they have to be globally incorporated. They incorporate in the US even if they are an Indian citizen.

But this notification, which is yet to become a guideline or a real law that RBI is going to mandate, creates certainly some more friction for how global SaaS companies will get created.

Many founders don't realize how it may impact them. However, we've spoken to about at least a dozen different law firms or advisors who understand these regulations really deeply, and they're all of the view that if this initial notification becomes a guideline then there is more friction on how, global companies can be incorporated by Indian citizens.

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