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Sneak peek at future of SaaS investing

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Re: Sneak peek at future of SaaS investing

#31

Post by doh »

Only a little related to this, in recent months I've spoken to ~60 growth stage equity funds and found out that essentially all transformed to be SAAS focused investors.

That means they abandoned 1/3 portfolio strategy they used to have (1/3 loses money, 1/3 returns exactly 1, 1/3 returns fund) but instead are focusing on steady returns by SAAS companies at 2-3x of the investment.

There are a few major implications:

- for the founders; if you don't fit their narrative, for example you have big chunk of revenue coming from services or you have only few enterprise clients, then you are out of luck

- for the funds; the deals are overly competitive driving up the price and diminishing the returns

- for the market; up until the economy is up to the right, things will be fine. Once things start changing, the first things to go will be a lot of these "nice to have" SAAS companies. In turn they will take down growth equity and freeze funding at the later stage (Series B, C, D, ...).

The last point applies to also to the the article. You can build bootstrapped $1M ARR business, but can you defend it? I think that's the biggest question.

Re: Sneak peek at future of SaaS investing

#32

Post by falcolas »

Fuzzwah wrote: post #25
falcolas wrote: post #10

Tiny capital is relative. EDIT: It's also the name of the VC firm. D'oh! Keeping the rest for posterity. Notice how there’s no actual values for what “tiny” means? If you have cash to invest on a VC company, you’re most likely already quite well off, with an equal amount invested in less risky ventures.

Tiny Capital is the name of the VC company.

How TF did I miss that. Seriously. Thanks for the note.

Re: Sneak peek at future of SaaS investing

#33

Post by [deleted] »

doh wrote: post #31

Only a little related to this, in recent months I've spoken to ~60 growth stage equity funds and found out that essentially all transformed to be SAAS focused investors. That means they abandoned 1/3 portfolio strategy they used to have (1/3 loses money, 1/3 returns exactly 1, 1/3 returns fund) but instead are focusing on steady returns by SAAS companies at 2-3x of the investment. There are a few major implications:…

[deleted]

Re: Sneak peek at future of SaaS investing

#34

Post by pavlov »

icedchai wrote: post #17
fnord77 wrote: post #15

Earlier quoted context omitted.

> VTSAX the past 10 years, yeah. but the prior 10 years were much worse.

True. But do you think they were better for private tech companies? Maybe if you lucked out with the next Google. More than likely, you got a dot-bomb that lost 90% of its valuation and was sold for pennies on the dollar...

Private tech companies growing at 15% were not the "dot-bombs".

Re: Sneak peek at future of SaaS investing

#35

Post by icedchai »

pavlov wrote: post #34
icedchai wrote: post #17

Earlier quoted context omitted.

True. But do you think they were better for private tech companies? Maybe if you lucked out with the next Google. More than likely, you got a dot-bomb that lost 90% of its valuation and was sold for pennies on the dollar...

Private tech companies growing at 15% were not the "dot-bombs".

But many, many others were, or did "okay" but got nowhere near 15% growth. What makes you think you invested in one of the better ones?

Were you around during that time? Everyone thought they were going to have the next Amazon. Most folks wound up with Pets.com.

Re: Sneak peek at future of SaaS investing

#36

Post by deyan »

doh wrote: post #31

Only a little related to this, in recent months I've spoken to ~60 growth stage equity funds and found out that essentially all transformed to be SAAS focused investors. That means they abandoned 1/3 portfolio strategy they used to have (1/3 loses money, 1/3 returns exactly 1, 1/3 returns fund) but instead are focusing on steady returns by SAAS companies at 2-3x of the investment. There are a few major implications:…

Mind clarifying what funds you spoke to (VC or PE, which geographies)? Curious whether your sample size is Bay Area or elsewhere.

Re: Sneak peek at future of SaaS investing

#37

Post by DenverR »

doh wrote: post #31

Only a little related to this, in recent months I've spoken to ~60 growth stage equity funds and found out that essentially all transformed to be SAAS focused investors. That means they abandoned 1/3 portfolio strategy they used to have (1/3 loses money, 1/3 returns exactly 1, 1/3 returns fund) but instead are focusing on steady returns by SAAS companies at 2-3x of the investment. There are a few major implications:…

Former GE investor here - everything you've said is spot on.

Our modus operandi was that a growth equity investment should _never_ go to zero. The new portfolio thinking has shifted to the right: 1/3 make 1-2x, 1/3 make 2-3x, 1/3 make 3x or more.

Re: Sneak peek at future of SaaS investing

#38

Post by doh »

deyan wrote: post #36
doh wrote: post #31

Only a little related to this, in recent months I've spoken to ~60 growth stage equity funds and found out that essentially all transformed to be SAAS focused investors. That means they abandoned 1/3 portfolio strategy they used to have (1/3 loses money, 1/3 returns exactly 1, 1/3 returns fund) but instead are focusing on steady returns by SAAS companies at 2-3x of the investment. There are a few major implications:…

Mind clarifying what funds you spoke to (VC or PE, which geographies)? Curious whether your sample size is Bay Area or elsewhere.

Both VC (70%) and PE (30%). 90% in US, 17% in EU and 3% in Canada. 31% in the Bay Area (many growth stage funds are now in NYC).

Re: Sneak peek at future of SaaS investing

#39

Post by doh »

DenverR wrote: post #37
doh wrote: post #31

Only a little related to this, in recent months I've spoken to ~60 growth stage equity funds and found out that essentially all transformed to be SAAS focused investors. That means they abandoned 1/3 portfolio strategy they used to have (1/3 loses money, 1/3 returns exactly 1, 1/3 returns fund) but instead are focusing on steady returns by SAAS companies at 2-3x of the investment. There are a few major implications:…

Former GE investor here - everything you've said is spot on. Our modus operandi was that a growth equity investment should _never_ go to zero. The new portfolio thinking has shifted to the right: 1/3 make 1-2x, 1/3 make 2-3x, 1/3 make 3x or more.

Thanks for clarifying it.

Re: Sneak peek at future of SaaS investing

#40

Post by walshemj »

TheRealPomax wrote: post #13

Remember: Hacker News is not a financial service, and people upvoting articles about financial behaviour is not the same as financial advice. If it sounds too good to be true, it probably is, and was probably written by someone who mistook the luck of doing the right thing at the right time for a transferable skill.

And pitching small stocks (which appear to be unlisted) that return 15% yoy - sounds rather shady.
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