51–60 of 77 posts
Earlier quoted context omitted.
boasting about a 15% annual return with an illiquid stake in a early to mid stage private tech company is the opposite of “too good to be true”
I'm a little slow this morning but am having trouble parsing what the opposite of "too good to be true" is. Too bad to be false?
the risk you take to earn 15% is way too high to justify such a small return. if you want to earn 15% just invest in some REITs and call it a day
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:…
Would emphasize your point around services - SaaS investors are generally allergic to this stuff and prefer services to make up as little of revenue as possible. It's typical low margin and not seen to be very "strategic" (though this could be debated).
SaaS is also much easier to analyze and diligence than the typical non-SaaS software company or consumer internet business. I won't say it's dead simple, but it's very much not rocket science. In combination with excess capital, this leads to prices getting bid up as such ease of diligence leads many investors to throw in a term sheet. It's just so easy to get comfortable with this stuff.
One caveat to all this that ties to your last point around the market / economy is volatility. You can see in the data that companies that generate a higher amount of the their growth from SaaS-like retention/upsell see higher valuation volatility when the market turns for any reason. [1] The "best" SaaS companies in the eyes of later-stage investors are typically those with high net revenue retention - but these are also the ones that get whacked the most in corrections.
As far as a downturn taking down growth equity - time will tell.
Earlier quoted context omitted.
> if you don't fit their narrative, for example you have large service revenue or you have only few enterprise clients, then you are out of luck Can you clarify this? What do you mean by "large service revenue" and why does that mean the founders are out of luck?
It was poorly phrased so I changed it. I meant that if a big chunk of your revenue comes from services, they are not going to be very enthusiastic about your business.
Earlier quoted context omitted.
It was poorly phrased so I changed it. I meant that if a big chunk of your revenue comes from services, they are not going to be very enthusiastic about your business.
Thank you for the clarification. I hope I can ask another. What is the alternative that would make them enthusiastic? That is, if I am bootstrapping a business and want to attract these kind of investors then what sources of revenue would they like to see other than revenue from services?
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:…
The re-focus on SaaS as the only class of investment that can reliably generate returns and avoid zeros or capital loss is a very real trend. Would emphasize your point around services - SaaS investors are generally allergic to this stuff and prefer services to make up as little of revenue as possible. It's typical low margin and not seen to be very "strategic" (though this could be debated). SaaS is also much easier…
Performance through-the-cycle is a big question. One can point to Salesforce (founded 1999, IPO 2004), which has been around for 20+ years... However, big sample bias here (ditto for my article, with sample n = 1). Salesforce, a big-category-defining company - may not be representative of moderately-sized businesses.
Whoisnnamdi - per your post, revenue retention looks like a key metric driving valuations!
Earlier quoted context omitted.
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.
There certainly were a lot of bad companies without meaningful revenue seeking and getting investments, just like today.
But if you'd invested only in profitable small software companies doing 15% growth back in 2000, I think you'd have done well.
I think we'll need more examples then just Buffer. Everyone knows Buffer is a successfully bootstrapped company that grew kind of big but not massive. If the author gave five other examples, then there's a case, but pointing out the one known example doesn't provide enough evidence in my opinion. A separate point on style and punctuation: too many em dashes in the wrong places. > What would make Buffer — a good inves…
I think the author uses these to imply a dramatic pause... like I sometimes do with ellipses. :-)
The written word is a different medium.
It would be like writing:
> She enters the room. Pan left and there's a photo on the wall. Cut back to her, she's brushing a strand of hair from her face. Now cut to the bartender. Zoom in on him. He's polishing a glass, staring at nothing.
etc.
It's a pastiche of a movie scene.
It's not that you can't do it or that the reader won't know what you're trying to do. Unless there's a specific reason to do so, it's probably not the best option.
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:…
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:…
What does "up until the economy is up to the right" mean? up to the right sounds like a good growth path to me.
I think we'll need more examples then just Buffer. Everyone knows Buffer is a successfully bootstrapped company that grew kind of big but not massive. If the author gave five other examples, then there's a case, but pointing out the one known example doesn't provide enough evidence in my opinion. A separate point on style and punctuation: too many em dashes in the wrong places. > What would make Buffer — a good inves…