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33% of SaaS IPOs in 2021 were Value SaaS: 0:12
Markets say it's better to defer a fundraise for now: 1:37
Product-led growth without sales is a myth: 2:49

Fact: 1 in 3 SaaS IPOs in 2021 is Value SaaS

The year 2021 ended with 21 SaaS IPOs. Out of this, we were very curious to find out how many of them were Value SaaS companies, Value SaaS being capital-efficient growth as a result of which founders are still in control.

Now capital-efficient growth can be looked at through the burn ratio metric - net burn in a year divided by the net new ARR in that particular year. Since we were looking at the entire IPO crop, we would look at this metric over a 10-year time span. We also use the YC definition of more than 9% equity being an important criteria for somebody to be called a founder. So, we looked at how many founders still owned more than 9% equity at the time of IPO. When you put these two parameters together, it turns out that 7 out of 21 are Value SaaS. These were Amplitude, Confluent, Expensify, GitLab, Monday.com, Olo and SEMrush.

Now amongst the seven, the most interesting one was SEMrush where the founders still owned about 45% at the time of IPO, while the most capital-efficient was Olo. One more fun fact about Olo - it was founded by Noah Glass, one of the co-founders of Twitter. It took him 15 years to build this behemoth of a cashflow-generating machine with crazy amount of capital-efficiency.

Markets say it's better to defer a fundraise for now

In a related news, public markets have gone through a lot of ups and downs in the last few weeks; stocks across different sectors have taken a beating, including Crypto. Now, the interesting thing about the software and SaaS stocks was that any losses were quickly recovered in the next few days.

A lot of this change is because of macro reasons. Two years ago, post COVID, a lot of money was pumped into the market by the Fed and that had inflated valuations. In some cases in private valuations, it had even touched about a 100X. Now there is a correction going on and there might be a regression to the mean roughly about 20-25X the public market level. And these may not have any direct connection with the fundamentals of the business.

However, one takeaway for founders is that given the sentiment moving down south, now may not be the best time to do a fundraise. And if you have runway that can last you for the next 15-18 months, then it is better to delay that fundraise.

Product-led growth without sales is a myth

Finally, the third piece is that there has been been a lot of discussion around product-led growth. It was a huge fad last year and many companies thought that if they built a great product, then won't have to go look for customers. Customers will walk down the door and that's how they will be able to grow.

However, a company called Focus, along with First Round Capital, did a survey of at least a 100 SaaS startups across a wide range of traction, some closer to getting product-market fit and some beyond a hundred million dollar ARR. They found that 'product-led growth don't have a sales team' is a myth.

Every product-led growth company adds a sales layer on top so that it can become a powerful growth lever. Even a company like Zoom - which initially took off thanks to product-led growth - eventually added an enterprise sales team that closed a lot of 100K to about a million dollar deal closer to IPO. So product-led growth does not mean you don't build a sales team.


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