Jason Lemkin: PluralSight S*** the Bed & The Next IPO Candidates | E1160

Jason Lemkin 0:00 Salesforce lost $50 billion in market cap. The issue is that Salesforce said, "We have fallen to single digit growth and we're not coming back." (guitar music plays) Ready to go?

Harry Stebbings 0:22 Jason, I am so excited for this, dude. First, this is the first one we've ever done in person.

Jason Lemkin 0:26 I- I am so excited. Uh, it- it is great. The studio's great. Um, this is better. I'm- I'm just so proud of the team, everything at 20VC. It's great. So it's great to be here.

Harry Stebbings 0:35 Dude, it is so lovely to make it happen in person.

Jason Lemkin 0:37 Yes.

Harry Stebbings 0:37 Now, this is, like, a new show in the way that we're calling it This Week in SaaS. I want to do a-

Jason Lemkin 0:41 Yes. You're gonna do it 52 weeks for this?

Harry Stebbings 0:42 Oh, we're gonna do 52 weeks, and you are too.

Jason Lemkin 0:44 Okay, very good.

Harry Stebbings 0:45 Yeah. No, you didn't... You didn't get the memo? (laughs)

Jason Lemkin 0:46 (laughs) I did not. I- the- the Google Doc share did not work properly, but okay.

Harry Stebbings 0:49 Oh, right. Okay, well, so basically it's like This Week in SaaS.

Jason Lemkin 0:51 Yeah.

Harry Stebbings 0:51 We go through the biggest stories from the prior week in SaaS-

Jason Lemkin 0:54 Okay.

Harry Stebbings 0:54 ... and unpack them. Okay?

Jason Lemkin 0:55 All right. You picked a heck of a week.

Harry Stebbings 0:57 I picked one hell of a week.

Jason Lemkin 0:58 (laughs)

Harry Stebbings 0:58 And so we're gonna start at, like, all positivity in mind.

Jason Lemkin 1:02 Go ahead.

Harry Stebbings 1:02 Pluralsight, right?

Jason Lemkin 1:03 Pluralsight.

Harry Stebbings 1:03 Yeah. Uh, so-

Jason Lemkin 1:04 Okay. (laughs)

Harry Stebbings 1:04 So the Pluralsight news was that Vista wrote down their three and a half billion dollar buyout of Pluralsight last week to zero.

Jason Lemkin 1:12 Crazy. Crazy.

Harry Stebbings 1:13 Crazy.

Jason Lemkin 1:14 Yeah.

Harry Stebbings 1:14 Can you unpack just what actually happened, for those that didn't hear about it?

Jason Lemkin 1:17 I mean, they- they bought Pluralsight for, you know, three and a half billion, and they couldn't service the debt. They raised one point-... They used 1.5 billion of debt, which is the PE playbook, right? And I assume, I assume they had to refinance it, right? So let's... They said, the press said that Pluralsight had about almost 30% operating margins now. So let's say they're doing 300 million in ARR.

Harry Stebbings 1:39 Yeah.

Jason Lemkin 1:40 So they're generating 100 million of free cash. Maybe let's handicap it to 80. But the debt service on a billion and a half was too much, right? The debt service. So they walked away. The story seems odd, and I also read that they put some of their IP in another, second company, so there may be some other odd things going. But literally, to mark down three and a half billion out of, what, a $20 billion fund probably, something like that, right? That's- that's- that's devastating. More- more worrisome is, you had Mark Suster on the show recently, right?

Harry Stebbings 2:08 Mm-hmm.

Jason Lemkin 2:08 And he was talking about how PE is gonna be the big savior.

Harry Stebbings 2:10 Mm-hmm.

Jason Lemkin 2:10 'Cause they're gonna come in... This is what we've seen in SaaS, in cloud the last couple years. PE bought a lot of things that couldn't quite IPO, right, that couldn't quite get there. We ta-... You and I talked about some exits I had. I had a bunch of exits to Vista and others, and this is-

Harry Stebbings 2:24 I think your two biggest, actually. Yeah.

Jason Lemkin 2:25 Yeah, and- and it- it for v-... And founders and investors, this reduced a lot of stress. It's just been a relief. But if this is falling apart, uh, it's tough. It's harder for founders. If you wanna talk about my theme for This Week in SaaS, I- there are... Actually, parts of SaaS are really good. B2... What I call B2B2C is good. B2B2B is bad, but it's harder for founders.

Harry Stebbings 2:45 Okay, so B2B2C is good. What is that? Just so we have an example.

Jason Lemkin 2:49 Canva.

Harry Stebbings 2:49 Okay.

Jason Lemkin 2:50 Uh, or broadly, B2B2B is selling B2B software to tech. That got cratered. That's Salesforce, that's Mongo, that's all these f-... That's UiPath. That was the hottest thing in 2021. That's how we all had these raised big funds in exit, and I- I think it's an overreaction, but everyone in tech is cut- still cutting. It's 2024. They're still cutting. Benioff was on his earnings call the other day saying they're still cutting. People are still cutting back their tech spend in tech.

Harry Stebbings 3:16 Is this not just, like, a reflection of where we are in the adoption curve of newer PLG models, though? When you look at, like, Canva, which is-

Jason Lemkin 3:24 Right.

Harry Stebbings 3:24 ... like, absolutely rocketing in the consumer subscription space with their i- idea, thesis, that that will then lead to people bringing it into the enterprises they work in, and then they adopt from the enterprise as well. Are we not just early on that adoption cycle for Canva, for some of these players, and we will then-

Jason Lemkin 3:41 I don't think it's PLG. Uh, I think... You know, you had Aaron Levie here the other day too, right?

Harry Stebbings 3:47 Yeah.

Jason Lemkin 3:47 From Box. That, you know... He said something a couple years ago. He was like, "PLG is just what, like, we used to do, we d-... Just with a new label." PLG is just freemium with better analytics. We all... We've been doing freemium since the early days of the internet, right? Uh, a lot of us started... I started freemium. Box started freemium. Lot of the o- OG folks started freemium, right? Even Salesforce started very SMB, almost, almost freemium at the edge. So I don't think that's new. PLG is just a new way to describe more sophisticated motions, but this is not new in software. We have been trying software on the internet since WebEx, since the early days. So I think Canva more is a reflection of two things. One, the US economy and prob-... And most of the global economy remains strong. Unemployment's almost nothing, right?

Harry Stebbings 4:30 Mm-hmm.

Jason Lemkin 4:30 And so Canva is selling to normal consumers and small businesses, and they're growing 40% at 2.3 billion in revenue.

Harry Stebbings 4:39 Wow.

Jason Lemkin 4:39 2.3 billion in revenue. It's essentially accelerating. Um, that hasn't changed, but tech companies are just continuing app layoffs. We thought it would be over. They're still cutting, cutting, cutting, cutting, cutting, cutting to the bone, right? We see it at Zoom Info, we see it at Zoom, we see it at so many others. They're still cutting, and it's brutal.

Harry Stebbings 4:57 I do just wanna go back to the Pluralsight story 'cause-

Jason Lemkin 4:59 Yes.

Harry Stebbings 4:59 ... I just want an understanding of Mark Suster, you said about our show. He said that actually PE would be the primary buyers-

Jason Lemkin 5:04 Yes.

Harry Stebbings 5:04 ... for the next generation of software companies. With news like this, does that make it more difficult? Will we see less? Do you think he is wrong with news like this coming out?

Jason Lemkin 5:16 I hope he's right. I thought he was right. (laughs)

Harry Stebbings 5:18 (laughs)

Jason Lemkin 5:19 I- I am... Listen, h-... L- losing three and a half billion, you can only do one of those every four or five years, right? Listen, I... You- you've had PE guests. You can do more of them. It's interesting. I think it's int-... very interesting for SaaS. But the loss ratio can't be very high. Right? It c-... You can maybe- maybe some of these deals, you- you- traditionally-

Harry Stebbings 5:37 They can't be high at all. I interviewed them. They say, I mean, barely up.

Jason Lemkin 5:40 Yeah. And- and the real goal... Actually, the real goal of PE is if you use debt correctly, even when you lose, you win.... because you have, you've taken so much out, right? Or you've put so little equity. And if you can put in 10, 20% equity and leverage it up, like you win... Even if you lose, you win. As long as you have an exit, you win, right? If folks are gonna be writing off billions, because there's so many of these. There's Avalaras, there's Pluralsights, there's, there's, there's an infinite amount-

Harry Stebbings 6:04 Uh, we mentioned, we mentioned Zendesk, you mentioned Anaplan-

Jason Lemkin 6:05 Zendesk for 10 billion.

Harry Stebbings 6:07 Yeah, Anaplan for-

Jason Lemkin 6:07 What if it, what if t- Zendesk was 10 billion, Anaplan was close to 10 billion, right?

Harry Stebbings 6:11 Yeah.

Jason Lemkin 6:11 What if that debt can't be serviced? Then we're writing off 20 billion? Like, this is not a trillion-dollar industry, right? I don't know the average size of... You had, you had, uh, founder of Thoma

Jason Lemkin 6:20 Bravo, who was great, that w- that was a good one, right?

Harry Stebbings 6:22 Yeah.

Jason Lemkin 6:22 But even that's like a $20 billion fund, isn't it? The last Vista one was 20 billion.

Harry Stebbings 6:26 I think theirs was a $30 billion fund.

Jason Lemkin 6:27 30 billion.

Harry Stebbings 6:28 That- that's the lot of the fund.

Jason Lemkin 6:30 Yeah. So it's just... Maybe you do one of these on a blue, on a blue moon. But if, if a lot of these big deals, which seemed like you couldn't lose, right? You buy Zendesk for 10 billion, you invest a little, you take some pressure off, and then you take it public four years later. That was, that was gold. That was gold.

Harry Stebbings 6:46 Okay, so we have this kind of, um, litany of companies that's to come in this field, potentially.

Jason Lemkin 6:51 Yeah.

Harry Stebbings 6:51 Will we see LPs shifting allocations away from PE towards publics and more liquid assets, towards venture? Or will they continue the same and just say, "It's fine, you can have your shitty funds. It was a tough vintage."

Jason Lemkin 7:04 You would know better than me, but I've... The recent conversations I've had with my LPs is I do think there remains... If you're, if you're still investing, if you're still committing capital to managers, there's still optimism.

Harry Stebbings 7:15 Hmm.

Jason Lemkin 7:16 There still is optimism in these asset classes, and there is tolerance of a bad fund or two. Whether there should be or shouldn't, I'd be curious what you have to say, but I, I did about three LP calls. And again, my universe is small. I didn't hear... The only fear I heard was crazy AI deals.

Harry Stebbings 7:31 Hmm.

Jason Lemkin 7:31 I didn't hear any, any other, any other fear, right? The best folks have made 20% IRRs from these alternative asset classes, and that's the goal. How else are you gonna make it?

Harry Stebbings 7:42 Can I ask you-

Jason Lemkin 7:42 How else are you gonna make it?

Harry Stebbings 7:43 Just on that. I know it's, it's a tough one, but what is a crazy AI deal versus a not-crazy AI deal? 'Cause I, I see some of them too, and I go, "God." But then I look at the people involved, and I look at, you know, the quality of those investors, and I'm like, "Maybe I'm wrong." I look at Thrives and Sequoias and DSTs.

Jason Lemkin 7:59 Or conver- conservative folks like Bessemer, right?

Harry Stebbings 8:02 Conservative folks like Bessemer potentially doing Perplexity, which is really f-

Jason Lemkin 8:04 At 3 billion, right?

Harry Stebbings 8:06 Yeah. Bessemer are good.

Jason Lemkin 8:07 Good, but conservative.

Harry Stebbings 8:08 Yeah.

Jason Lemkin 8:09 In a good way, but conservative, right? So they've got to believe, they've got to have high confidence they can do the three to five X in that.

Harry Stebbings 8:16 Yeah.

Jason Lemkin 8:16 Including dilution, and, and a genuine belief of 10 X, right? So you've got to believe that Perplexity is gonna be a, $100-billion company. You've got to believe that there is room for what? Ten $100-billion companies coming out of this?

Harry Stebbings 8:28 Yeah.

Jason Lemkin 8:29 Um, you know, the bull... I guess, listen, we're still, we're all learning, right? If OpenAI literally essentially in three years went to over two billion in ARR, and you, you're, you have the bull case and you keep tracing that out, uh, maybe there is room for ten $100-billion outcomes, right? It's crazy, but AI is, the amount of spend is huge. Can we, if we maintain this spend... Just look at NVIDIA, right? Just look at... And so-

Harry Stebbings 8:54 But we say-

Jason Lemkin 8:54 ... if we maintain the spend.

Harry Stebbings 8:55 We say the spend is huge and it's getting bigger and bigger. Is the spend being created net new or is it being taken from elsewhere?

Jason Lemkin 9:02 It is all being taken. There is no net new. There is no net new. Gartner just up- did a report, uh, the other day and they, they slightly upgraded actually the amount of spend in SaaS this year to 20% growth this year. 20% growth. Pretty big, right?

Harry Stebbings 9:17 Yeah.

Jason Lemkin 9:17 And they said GenAI, AI is fueling it, but it's substitution. It's substitution. I literally was listening to a gong call the other day from a portfolio company.

Harry Stebbings 9:25 Hmm.

Jason Lemkin 9:26 From, uh, a large public company, but that's struggling a little bit. In, in their category, they were gonna churn 12 apps this year and buy one AI app with some of the budget. Kill 12, buy one. That's a substitution budget, right?

Harry Stebbings 9:41 That is.

Jason Lemkin 9:41 Um, and so, I think it is con- confusing. It's confusing, right? And I think for classic B2B SaaS it's stressful. Like we, we, for the last, you know, I would say th- until 18 months ago, we never fully had to figure out where this budget was coming from because SaaS kept growing 20% a year like clockwork. And it went into the same stuff. It went into ERP (laughs) and CRM and the same tools, and we kept buying more and more and our stacks got bigger and bigger, and arguably bloated and bloater. Um, now every founder needs to actually for real know where budget's coming from. You've got to know, right? And I, and I... It's sad when I talk to some founders or even listen to some portfolio companies where very happy customers are churning, to create AI budget, to free up AI budget.

Harry Stebbings 10:24 If you actually ad-

Jason Lemkin 10:25 Happy customers.

Harry Stebbings 10:26 If you advise me as a founder that I'm in your portfolio-

Jason Lemkin 10:28 Yeah.

Harry Stebbings 10:28 ... "Okay, I have to know where our budget's coming from." Do I say to my champion, "Jason, just out of interest, where am I coming from in your budget line?"

Jason Lemkin 10:36 All the best salespeople ask that question. On a first discovery call, Harry, when I'm meeting an enterprise customer. "So tell me, is, is this purchase budgeted for this year? Is it budgeted?" First time you work with... First time I heard this from a sales rep, I kind of squirmed. I'm like, "That's, that's, that's a little, that's a little salesy, isn't it?" (laughs)

Harry Stebbings 10:54 (laughs) It's like asking .........................

Jason Lemkin 10:55 But an enterprise buyer doesn't mind that's been buying apps for decades, because they just want to frame the conversation. "No, Harry, it's not budgeted. I'm hoping to get a little extra budget or some discretionary, but it's not budgeted." Or, "Yes, Harry, this is a multi-year project we're doing. It is budgeted. Um, I'm not gonna tell you how much, but it is budgeted." It's a f- it's a fair game question. It's a fair game question.

Harry Stebbings 11:13 Do you worry about not playing the game on the field? And do you, do you think it's important to play the game on the field? Bill Gurley said, you know, when it was, um, kind of crazy 21 times, "You gotta play the game on the field. You gotta play the game on the field."

Jason Lemkin 11:23 Yes.

Harry Stebbings 11:23 You are not really investing heavily in AI like every other fund or the majority of other funds.

Jason Lemkin 11:28 Yes.

Harry Stebbings 11:29 And you invest slowly. Do you worry about not playing the game on the field?

Jason Lemkin 11:34 Yeah, I think my strategy is wrong. Uh, so I've never lost money, ever. Anything, ever. I've always, every fund, every startup, everything, always made, always made money. Always made decent, pretty decent returns, right? And so, there is some conservatism in that. And when I started in venture, I think it...... serve well-

Harry Stebbings 11:53 Do you think that was good for you?

Jason Lemkin 11:54 What's that?

Harry Stebbings 11:54 Do you think that was good for you? And I don't mean that badly. But I've lost money. I have actually lost money, written off, and actually it was the time of deepest self-reflection-

Jason Lemkin 12:03 Yes.

Harry Stebbings 12:03 ... and learning.

Jason Lemkin 12:04 Do I think... Well, listen, I've, I've had inve- I've had... This'll be the first year I've ever had any investments that I had to write off, was this year. But the funds will still do fine, right? They'll still do fine. I do think it's bad. I think that I took LPs' money too seriously. I certainly took it way too seriously when I started investing, when I worked at someone else's fund. I shouldn't have given a rat's ass about whether I lost money or made money. Um, and I think I've cared too much. I've treated-

Harry Stebbings 12:29 Why? 'Cause the only thing that matters then is you're building your track for something else.

Jason Lemkin 12:31 Whatever, yeah. Just roll the dice. If I win, I win. If I lose, I don't tell anybody about it.

Harry Stebbings 12:36 (laughs)

Jason Lemkin 12:36 It's not, it's not your own fund (laughs) . You can only win if it's not your own fund. You can only wi-... I took every deal. My first deal f- was 800K, my first check. I sweated bullets. I did 10,000 reference calls. I did everything. I, I, uh, it took weeks to do all the due diligence. And, uh, it was, uh, it wa- I, there was no need to do that. It wasn't, wasn't my money. And i- th- that was Pipedrive. It did well. It sold for a billion and a half, but the first check was tiny. It was 800K. Like I... There are advantages to doing that, right? In f- s- and the biggest advantage is you don't have a lot of stress, right? You don't have a lot of stress. Like, you don't have a, like, you're-gonna-lose-your-shirt kind of stress. But no, I do think you should take your LPs' money less seriously than I do. I genuinely think it's b- a bad thing. Just like for... When you raise money from VCs, the more you raise, the m- more serious you should take the capital. But I worried too much as a founder, I remem- about losing single-digit millions for my VCs. I shouldn't have worried about it. It was bad for them and it was bad for me. I should... I s- stressed it too much. Like, they can survive. You know, a $400 million fund can survive. Emergence whatever two, which is like a 10X fund, could survive losing $3 million on my investment, right?

Harry Stebbings 13:41 You always talk about being the asterisk in their returns.

Jason Lemkin 13:44 Yes.

Harry Stebbings 13:44 And it's like, well, you know.

Jason Lemkin 13:45 I shouldn't have worried about it. I shouldn't have wor- I shouldn't have worried about any... And I would've made different decisions. I think it's bad for... And you know, I, what I see with, um, so many managers, especially with SBVs and opportunity funds, they literally don't care if the SBV goes to zero. They don't care at all. They don't give a rat's ass. I've never done that. I've never done... I have two opportunity funds, but I've never done an SBV where I didn't give a rat's ass. Uh, but I would've invested two to three times more if I had. Just spool those SBVs up. If they don't make it or the valuation's high, just, just, just hide it. Just, just, just ignore it. That's, I th- I genuinely think that's probably the way you should play venture. And, um, but it's just, I don't... It's not in my DNA. Not worth it.

Harry Stebbings 14:23 (laughs) I do want to discuss Salesforce.

Jason Lemkin 14:24 Yes.

Harry Stebbings 14:24 You mentioned that kind of B2B2B and, like, the challenge of, uh, spend being so hit-

Jason Lemkin 14:29 Yeah.

Harry Stebbings 14:29 ... but actually also going and saying up 20%. The, the news from Salesforce this week was shares tumbled 20%, the worst since 2004, with the news of weaker-than-expected results for Q1.

Jason Lemkin 14:40 Salesforce lost $50 billion in market cap. Yeah, brutal. Brutal. Brutal.

Harry Stebbings 14:46 On, on a miss, though, of .14 or .3?

Jason Lemkin 14:50 That's not the issue. The issue is that Salesforce said, "We have fallen to single-digit growth. And we're not coming back, as far as we know." They're... I think next quarter they're predicting like 4 or 5% growth, and for the full year, single-digit growth. People misunderstood. It was not the miss. No one really... I mean, missing this quarter is minor. The- these, these devastating falls from Salesforce and Mongo and, and Workday and others are about th- that they're all ratcheting down where they think things are going the next year. That's kind of the discouraging thing, that we haven't come out of it. We haven't come out of... Salesforce is saying it's getting, it is not getting any better. And because of that, we are falling to single-digit growth. And, you know, why does that matter? First of all, it's not a growth stock with single digits, right? Yes, they're at 30-something percent margin. That's why the market crashed and, and, and created this whole cascading effect. Um, Mongo said growth's gonna be in the teens from like 40, 40% 18 months ago, right? Huge, huge change. Trying to get tech companies. They're tech customers. But the troubling thing, Harry, is that in B2B and SaaS, um, for more enterprise stuff, we kind of rely on this 115, 120% NRR to carry us.

Harry Stebbings 15:57 Yeah.

Jason Lemkin 15:58 Like, Fastly last year grew 15% with no new, zero new customers. So (laughs) not a- they didn't close a single net new customer. Now, how'd they do that? 115% NRR. (laughs)

Harry Stebbings 16:08 They didn't close a single new customer? (laughs)

Jason Lemkin 16:10 Not mad. I mean, it's not one of the top performing ones, but it's, it's not-

Harry Stebbings 16:14 Not one of the top per- I hold it and it was... (laughs) sh-

Jason Lemkin 16:15 Yeah. It's a- on the one hand, it shows that the market is passing them by. On the other hand, it shows the power of, of what you're supposed to do with mid-market enterprise deals, which is have the triple-digit NRR. Salesforce is the most enterprise there is, right? That, that, and, you know, I mean, ServiceNow is more enterprise. But why isn't the 115% NRR playbook working for them? Right? That's a s- that's the troubling thing to unpack, right?

Harry Stebbings 16:38 Well, why, why isn't it?

Jason Lemkin 16:40 Bet- well, the short-term reason is everyone is cutting seats. Everyone is cutting seats, right? And what Mark said on the earnings call, what the team said is, and also because of that, so many deals that have closed are a fraction of the size that they were projecting. Much smaller deals, much smaller deals. And so, they say that it's layoffs and stuff, but it's not really layoffs. Again, th- unemployment's pretty low, but it, but tech is very specific. Te- layoffs have been tougher in tech. But now people are like, "Maybe we can get by with 100 seats, maybe 200 seats. Maybe we don't need as much Slack or as much Mulesoft or other pieces." And they're just rationalizing, rationalizing, rationalizing. And I don't know what the effective NRR is for Salesforce, but it's crummy. They c- you know, people s- people kind of fake NRR, net revenue retention, like how much d- how much recurs. And people, people, like, they'll, they'll cut out their smallest customers, they'll cut out segments. But how, how could the enterprise leader grow 7%? It shouldn't be possible. It should, it should, could happen with an SMB1 that stumbles. It could hap-... But it sh- this wasn't supposed to be possible with enterprise SaaS, just because NRR should last forever. So, that is troubling. And a- again, that's also kind of the engine behind PE and everything is that, you know, traditionally, a lot of these PE firms have not done SMB stuff, right? When, when Vista bought Pipedrive, I wasn't there, but a lot of discussion was how unusual it was because it was a high churn, very small business. They're like, "That's not the playbook." The playbook is, "Look, we're gonna go in and buy Marketo," which was Vista's-... first big deal, um, peer of mine and, you know, what- what we want to add a feature for four years, but it won't matter because of 120% RR, right? We'll go in, we'll buy it at 200 million, then it'll be 240 and then it'll be 300. And like as... You know, yeah, maybe in 10 years it'll fall apart, but- but- but if why isn't that not working at Salesforce? It is... It should worry all of us, right? It should worry all of us.

Harry Stebbings 18:22 Is there not a direct correlation though between that and HubSpot's growth? Like when you look at actually HubSpot's growth of CRM-

Jason Lemkin 18:28 Yes.

Harry Stebbings 18:28 ... and compare that to Salesforce's zero rating ARR, is that not combined?

Jason Lemkin 18:33 You know, for sure. And- and HubSpot is still growing almost 30%, right? Uh, at two and a half billion. But HubSpot's ARR is down too. It's down from 110 to 100. So they're seeing pressures too. It's not any early- easier than. For sure, the fact that HubSpot is coming up, I think on 700 million in revenue from CRM is a dent for Salesforce, but there's always competition, right? And Salesforce has five clouds, and sales is not their... Is- is I think their third biggest cloud. It's not even their top product.

Harry Stebbings 19:01 What happens if these companies are no longer growth stocks? What happens if we just accept the new norm-

Jason Lemkin 19:06 Yes.

Harry Stebbings 19:06 ... that they are growing at 5 to 7%?

Jason Lemkin 19:08 You know, it feels like Dropbox has settled into that.

Harry Stebbings 19:11 Yeah.

Jason Lemkin 19:12 It feels like Dro- And maybe even-

Harry Stebbings 19:14 At two and a half billion in ARR.

Jason Lemkin 19:14 As much as I love them, maybe even Aaron Levie settled into that too, right? I love Aaron's very aggressive in Builder, but I think they have such high saturation of the market. I think we are seeing some great companies like Dropbox and Box settle into that and just feel that they... Without... Unless they have a huge market cap and they can go buy something, then it- it is- it is- it is the world, right? It is the world.

Harry Stebbings 19:35 Uh, yeah. I- I don't know. I had Aaron Levie on the show and he was like-

Jason Lemkin 19:38 Yeah.

Harry Stebbings 19:38 ... "We're gonna go from 1 billion ARR to 2 billion ARR."

Jason Lemkin 19:41 He will.

Harry Stebbings 19:42 And, "As fast as possible. That is my goal."

Jason Lemkin 19:44 Yeah, but at 6% growth, it's still gonna take him, how long? Ten years? Or I'm doing my compounding wrong. Eight to ten years, right? And he'll get there. He'll get there, right? But- but... And I don't think Aaron settles for anything. I think he's one of the best founders that I know, but- but he's not saying we're going to get back to 30% growth.

Harry Stebbings 20:00 Just help me understand what, why we have seen the tapering of growth though. Is it like just incredible saturation of market? Is it lack of growth in market? Like why, why is this?

Jason Lemkin 20:10 Everyone on Twitter thinks there's one root cause. Again, if Canva's at 2.4 billion growing 40%, if Samsara is growing over 40% at 1.3 billion in revenue, okay? Um, if Zscaler, I think, is growing 40% at two billion in revenue on the security side, it's not like we're in a downturn, Harry.

Harry Stebbings 20:30 No.

Jason Lemkin 20:30 We're in... Now segments are in a downturn, but you can't say all- all is bad. It's not all bad. Toast is growing 30 something percent at 1.3 billion in revenue, okay?

Harry Stebbings 20:38 Wow.

Jason Lemkin 20:38 Like there are portions... Vertical SaaS is strong. Um, SaaS to consumer is strong. Security is strong. Just this- this thing that T- Tech is bad. Um-

Harry Stebbings 20:48 You look at your Klaviyo, you look at your-

Jason Lemkin 20:49 Kla- Klaviyo is...

Harry Stebbings 20:51 These companies did well.

Jason Lemkin 20:51 Yeah, look at Klaviyo for a minute. They're growing. I mean, the growth's come down a little bit, but they're growing, I think 50% at 750 million in ARR.

Harry Stebbings 20:59 Oh, yeah.

Jason Lemkin 20:59 Right? So all these woe is me people that are like... You know, this Klaviyo sells to- to real merchants, to- to- (laughs) to real... You know, how about... Th- th- they're going more enterprise, but it's really a 5K product. It's SMB, right? And, um, they are growing at epic rates. So it's- it's not a- a downturn everywhere, but- but it is... But the tech one, it's- it's- it's brutal. It is. It's brutal and it's across, it's across the board in tech.

Harry Stebbings 21:21 Yeah.

Jason Lemkin 21:22 Um, but I think to answer your question, I think... So first of all, let's make sure that, you know, consumer SaaS, vertical SaaS, and security are all excluded 'cause they're doing pretty well. And then let's realize there's... 'Cause everyone's so brilliant on social media, let's realize there's a couple different root causes, okay? I would... And this is just my, my learnings. I'm not sure I'm right. I would argue Salesforce is massive cuts, budget cuts. It's brutal. It's brutal out there. Everything's harder. Salesforce also just said that now they need 3X pipeline coverage versus 2X historically. So in other words, if they wanna close a billion dollars, they used to need $2 billion of deal in flight, now they need three 'cause it's just 50% harder to close. So that's one set of issues. What Salesforce got right was they have a lot of clouds. (laughs)

Harry Stebbings 22:05 (laughs)

Jason Lemkin 22:05 HubSpot also got this right. HubSpot, if- if it didn't have five core products, it would be slowing. When we look at the Boxes and the Dropboxes, and I think both Aaron and Drew are honest here, they were very late to go multi-product and arguably Dropbox isn't multi-product at all. Arguably it's one product. Box is kind of getting there, but I would say it's like, uh, multiple facets of the same product. So that's a different existential issue that founders need to be laser focused on after a certain amount of customers, just to not exhaust the one product world. We're getting better at it, but I think getting caught as a one product, uh, uh, um, company is very different than Salesforce getting that right, but- but seeing saturation in multiple products.

Harry Stebbings 22:50 A final one on this. Does AI not allow them to have so much more juice in their customer base? (laughs) And what I mean by that is like Salesforce have the distribution, Box have the dist- We've mentioned that incredibly high saturation. They can integrate generative AI or-

Jason Lemkin 23:03 Yes.

Harry Stebbings 23:03 ... you name it. Like Aaron on the show talks about integrating AI into their storage solution so you could extract knowledge way more efficiently from the docs you have. Does that not allow for a much more increased ability to price far higher? And actually they will be able to leverage AI to get a lot more money out of their existing customers.

Jason Lemkin 23:21 You know, we'll see. Um, you know, Dell also had a miss, it wasn't as big a deal as Salesforce and MongoDB. And what Dell said is, "Look, there are a little bit of benefits from AI and that we're shipping more servers, but our margins are down and net-net we're not doing any better. It's not helping us net-net." Salesforce, Marc Benioff on the earnings call talked about how amazing their AI products are, amazing. Like they- they couldn't even... The- the analysts kept asking him to talk about other things. He went on and on and on for half an hour. But is there... Is it increasing this revenue, right? Even ServiceNow, like it seems like it's doing well, but the average ServiceNow customer signs over a three year contract with 99% retention. How can we even tell? Like, he's a great CEO, but like we don't know if it's really making any difference in terms of the top or bottom line. I'm not saying our... All... I think all the products are gonna get better. I bet Box in a year will be a much better product than it ever has been.... much better. And Aaron's right. The problem with all these products, and I've built one, is it's very hard to deal with this unstructured data. It's very hard to c- how do you communicate with a document? It's very difficult, right? So if, if AI allows me to finally communicate with my 10 million documents in Box, I think Box could be a 10 times better product in a year. But will that lead to any revenue growth for Box versus OpenAI or, or Google Cloud? So far the evidence is no. So far it says the incumbents are gonna, they're gonna do great things with AI, great, great things. Their product's gonna be much better, but they're, but it's not clear they're gonna get any revenue boost from it. No one's saying that, who, none of these leaders are saying they've gotten any revenue boosts. They could talk and talk and talk, right? Even the great ones like Aaron talk for an hour, but right now we're not seeing a boost. So th- it is worr- it is worrisome, and there is an experiment budget and it is a substitution budget, and I think it's gonna take us another 24 to 36 months to figure it out. But the only one thing I will say, you gotta do it. You gotta do it. If you c- if you're competing with Box, you gotta at least have as good AI as Box. If you're competing, it is table stakes now. So even if, as frustrating it is that your engineers have to drop everything and build these cool products and deal with hallucinations and deal with the cogs and all the issues and all the integration, if you, if you resist this, you are gonna get steamrolled because the customers expect it. They're looking for it. How they pay for it is a different question, but I see too many founders still hiding or running from AI or mocking it or making fun of it, and I think it's a path to destruction.

Harry Stebbings 25:42 Do you not think we will have an AI budget line item created for all CFOs? 'Cause right now we don't actually have that, I don't think.

Jason Lemkin 25:48 No.

Harry Stebbings 25:48 You don't think we will have that?

Jason Lemkin 25:49 Do you h- do you know any CFOs that are creating an AI budget? And where did they get, where did they get the money? Where did Dad or Mom give them the money?

Harry Stebbings 25:58 I didn't know any that have it.

Jason Lemkin 25:59 No, uh, they're substituting. They're substituting. Um...

Harry Stebbings 26:03 We mentioned Box.

Jason Lemkin 26:04 Yeah.

Harry Stebbings 26:04 And, and when I had Aaron on the show, and live in the show I was like, "Check his market cap." (laughs)

Jason Lemkin 26:08 Yeah.

Harry Stebbings 26:09 And he's like, "Billionaire," and it was 3.9 billion market cap. I said, "Dude, this is so depressing." I was, I was brought up on like the six to eight X at least. And you're like 3.9 X.

Jason Lemkin 26:21 Yeah.

Harry Stebbings 26:21 And my next stop was UiPath.

Jason Lemkin 26:23 Right.

Harry Stebbings 26:24 Which, you know, is $6.9 billion market cap, which is 4.2X revenue basically. My question to you is like, are you as con- concerned as I am by the compression that we're seeing in market caps or revenues?

Jason Lemkin 26:36 I'm concerned.

Harry Stebbings 26:37 Yeah.

Jason Lemkin 26:38 Um, I'm not concerned about the Boxes and the UiPath. I'm concerned that we've only had two SaaS-ish IPOs since 2021. We've only had two since. HashiCorp was the last one of the bubble of, of December 2021, right? Just got bought for IBM. Um, we've only had two. We've only had Klaviyo and Rubrik. Both essentially were at 500 million growing fif- much more, growing 50% for Rubrik and 70% for Klaviyo. They're both trading at like 6X. I don't mind if... Uh, listen, I love Aaron, I love Box. I don't mind if Box and Dropbox and a few others trade at modest multiples, 'cause the growth isn't there. The fact that a Klaviyo or Rubrik isn't trading at 20X, 15X to 20X, um, I don't mean to be a Debbie Downer, but it is wor- it i- we need a re- for the math to pencil out, this is the truth in venture, and founders should understand this at some level. I think for the math to pencil out in venture, we do need a rebound. The math de- And this is, forget about the unicorn rounds and the crazy... We just, we do need some, we do need a 30 to 40% multiple reflation, or we just can't make any money on any round north of 100 million evaluation.

Harry Stebbings 27:41 L-

Jason Lemkin 27:41 Can't make any money.

Harry Stebbings 27:42 Listen, I, I, I agree. But you said you're not concerned by UiPath. UiPath are growing 31% last quarter.

Jason Lemkin 27:48 Yes.

Harry Stebbings 27:48 22% I think year on year. It's pretty good.

Jason Lemkin 27:52 Yeah, yeah. I just meant the drama with Daniel coming back and the market hit. I think that will, that, that'll pass, right? The, the, the mo- the, the market had a little panic when we had a CEO t- t- turnover and change.

Harry Stebbings 28:01 How did you read that? 'Cause for me, I was like...

Jason Lemkin 28:04 Yeah.

Harry Stebbings 28:04 ... actually, you know, great companies are most often run by the founders themselves. That should have been a confident surge in some respects.

Jason Lemkin 28:12 That he came back?

Harry Stebbings 28:13 Yeah.

Jason Lemkin 28:13 But it was in like seven months.

Harry Stebbings 28:16 It was short.

Jason Lemkin 28:17 It was short, right? Listen, I think that the Salesforce crash was merited based on the projections, not on the miss, based on the projections. I think the Mongo crash was merited based on them saying, "Hey, we're only gonna grow in the teens." Like, Mongo was always supposed to be a high-flyer. Um, but there is some overreaction here, right? There is some over- overreaction. But listen, I don't know about UiPath. I, I think it's definitely positive. I, I think, you know, the vast majority of SaaS companies that are public are still run by their founders. Eventually people get tired, right? Pe- people, they can't do it. I mean, you can't do it for 100 years. This, this is, this is kind of hard. Um, but yeah, it should, it should be positive. But I think it will be positive maybe in a quarter, right?

Harry Stebbings 28:53 Okay, super harv- And you mentioned founders get tired, things change.

Jason Lemkin 28:58 Yeah.

Harry Stebbings 28:58 HubSpot's founders are, are less involved now. Obviously they've got Yamineer as CEO, and then there's the rumored $33 b- billion Google acquisition.

Jason Lemkin 29:05 Yes.

Harry Stebbings 29:06 Do you think that goes through?

Jason Lemkin 29:07 I- initially I, I thought this was a creation of social media. When I read the first article about it, which was like self-referential, it didn't even attribute to anybody, it said... Because listen, it, I worked briefly, I was briefly a VP at Adobe and I saw how M&A worked, and there's targets, okay? And actually...

Harry Stebbings 29:23 (laughs) I would love to see you with like a swipe card going into Adobe. (laughs)

Jason Lemkin 29:27 (laughs) Well, my ideas were pretty different from the targets. We can talk about that. But you know, a couple years ago, Business Insider published a leak from Salesforce where they had all their M&A targets. And it was very interesting. And at, at the bottom they had receptivity. I remember Box, it was w- uh, uninterested in selling. So they had all the potential, like the top 20 targets. It was, it was one of the... I mean, Business Insider is up and down, but this was one of the good ones where they leaked it and talked through it. So the fact that Google Cloud would be looking at HubSpot is meaningless to me. Of course they should, right? Of course they should be looking at every leader and saying, "Okay, listen. Who's a good..." Like, in some ways UiPath is a good match for like the enterprise push of Google Cloud, but maybe that type of automation is not really where they want to be. If they want to go SMB, if they want to combine with G Suite...

Harry Stebbings 30:07 Right.

Jason Lemkin 30:07 ... then it's a good, it's a good fit, right? Because they have this, a great footprint. So when I first saw it, I thought this was stupid. It was like, yeah, it's on someone's slide and so are 40 other companies, but maybe it's possible. The only reason I say this, and listen, if I knew anything, of course, I would not say anything. I, it feels like people are a little quiet at HubSpot. (laughs)

Harry Stebbings 30:25 (laughs)

Jason Lemkin 30:25 When you see the executives go a little quiet, yeah. That's my tell, right? Not like s- just like, so, you know, a l- that's the only reason why I-

Harry Stebbings 30:33 But there's a genuine question of, like, from a regulatory standpoint-

Jason Lemkin 30:35 Yeah.

Harry Stebbings 30:35 ... could it go through? At 33 billion, that passes the bar of, uh, meaningful to regulators. You know, we, we-

Jason Lemkin 30:40 Yeah.

Harry Stebbings 30:41 I was gonna ask you about, um, Clearbit, which was acquired for $150 and just what you thought about that. Respectfully, it's too small for regulators to give a shit really, I think, bluntly, but 33 billion? Oh, they care.

Jason Lemkin 30:51 I don't think Figma deserved the antitrust, uh, ding that it got. I think if Adobe bought Canva, that'd be a much bigger issue. I think Canva's an existential threat to the whole Creative Cloud, whole Creative Cloud. Uh, Figma is adjacent. Um, if antitrust looks at Google and says, "Hey, Google is arguably the number one marketing platform on planet Earth," and HubSpot is a marketing company, I'd block it. If you slowed it down and said, "Listen, this is a CRM with support with all these other pieces and it does some email automation," you're like, "This is not... This is fine." Bl- this, you're s- this, this is, this, this should be... So I think, so I do think it's risky because a lot of folks do think that HubSpot is primarily a marketing company, which is no longer really the majority of the revenue. So I think it is a crapshoot. So I don't know. I don't know that they would agree to it. It'll, it'll be interesting to see. Antitrust is a bummer too. It's like PE.

Harry Stebbings 31:39 (laughs)

Jason Lemkin 31:39 Like, it's a bummer for SaaS that it's hard to get acquired because it just creates a, a, a, it creates a cloud across M&A, and the PE stuff's a cloud. These are like double clouds.

Harry Stebbings 31:49 Uh, they are double clouds.

Jason Lemkin 31:50 Yeah.

Harry Stebbings 31:51 You've said to me before about kind of Figma and Adobe being seen as competitive.

Jason Lemkin 31:54 Yes.

Harry Stebbings 31:55 And you said, "Eh, actually Canva is more competitive in that respect."

Jason Lemkin 31:58 Yes.

Harry Stebbings 31:58 You just said it's a threat to the whole Creative Cloud. Why do you think that is?

Jason Lemkin 32:02 Well, it's what, it's what... I mean, Adobe, the majority of Adobe's revenue is still from designers (laughs) designing assets in Creative Cloud, and that is exactly what Canva does. It's not prototyping products, which is what Figma is great at. Uh, Adobe had, I forget what it's called, is it XD or something? Adobe had a trivial product doing like $50 million in revenue out of what, $5 billion or so. Maybe Adobe's more bigger today. But, but, but Creative Cloud is the bulk of, it's, it's still the majority. It's either the majority or the plurality of their revenue, and it's exactly what Canva did, and Canva snuck up on Adobe, I think, right? So, I mean, we, when I, I think every company uses Canva, even if your designers are using Creative Cloud. So it's, it's much bigger deal. I think, I do think the regulators got this one wrong, and maybe even they got it wrong, who knows, because of... And this is why the, the Google-HubSpot thing might be worse, and maybe it's how they were lobbied or manipulated, 'cause I don't think it's competitive.

Harry Stebbings 32:57 Can you just-

Jason Lemkin 32:57 Nor would do I think they would have done the deal if they genuinely believed it was competitive. They wanted to expand their surface area. Scott wanted to... Scott Belsky, I mean, he's great. You've had him, right? They wanted to expand their surface area. They didn't want to take out a competitor. That would be trying to buy Canva would be taking out a competitor. They wanted to expand what Adobe did.

Harry Stebbings 33:12 Can you just help me out on the question of liquidity?

Jason Lemkin 33:14 Yeah.

Harry Stebbings 33:14 'Cause we've just mentioned obviously Pluralsight and what I think that could do to PE and their willingness to buy. We've mentioned their regulators and their withdrawal or their kind of intrusion, meaning, uh, less M&A, uh, the lack of IPOs with Rubrik and HashiCorp being the last ones as you said.

Jason Lemkin 33:30 Yeah.

Harry Stebbings 33:30 How do we solve the problem of liquidity? How do you explain that to LPs who ask?

Jason Lemkin 33:36 Yeah, look. You gotta either... Again, I, I think you either... It's tough. You've gotta be, you've gotta decide if your glass f- half full or glass half empty. If you're like, listen, there's been essentially no liquidity since 2021. You had two IPOs. Two IPOs. Um, you can't even get liquid on Figma. The big stuff's blocked. So that's the easy way to get cash, right? Is just someone write you a check the day a big deal closes. If y- if I can't get liquid on, you know, billion dollar plus deals and the multiples for the best companies are at 6X. And even worse, I, I think... Now, listen. This is, this, I don't... You know, it's hard to say 'cause one of these IPOs hasn't happened in years, but basic- folks that are close about the market say, "Look, for sure you can IPO at $200 million in ARR, in ARR, but there's no liquidity." If you can't distribute your stock, if you can't sell your stock, it doesn't matter much for venture.

Harry Stebbings 34:23 Do you think you can IPO at $200 in ARR? Yeah, you can-

Jason Lemkin 34:26 Yeah, for sure. Yeah, yeah. Maybe you'll IPO at a billion in market cap, and that was fin- HubSpot IPO'd at $800 million. Box IPO'd at $800 million. Shopify IPO'd at $700 million. The world will not end if you IPO, but if there's no liquidity, uh, i- i- it sh- sh- Employees can sell their shares, and you can do a little bit of M&A, but how much M&A can you do at a billion? Like, se- bu- y- 8% of your market cap is $80 million. What can you buy in today's world, right? So what's the point if your VCs can't get out and, uh, you can't buy anything? Then employee liquidity is critical, but maybe that's all it really does.

Harry Stebbings 34:59 Yeah.

Jason Lemkin 34:59 We haven't had liquidity... There, there's random things that happen. We haven't had liquidity in venture since 2021. It's getting to be a while, and you either have to decide there's ups and downs in an illiquid asset class. There's, there's... And it, and like this is part of the, the, the deal, or you should maybe panic. And this is why I tell almost every individual, "Do not invest in venture funds." (laughs) Dumb for individuals.

Harry Stebbings 35:21 (laughs)

Jason Lemkin 35:21 If you're managing an endowment thinking about centuries, you can have a, a, a, a, a, an- sort of you can have a nuanced approach in liquidity, but even there they have liquidity crunches because they have capital calls and they have to reinvest money. And even folks that didn't think liquidity was important in endowments end up having liquidity crunches too, right? But as an individual, you really want to lock up your $100 grand for 16 years for a 2X return? I say put it... don't, don't (laughs) do that.

Harry Stebbings 35:43 (laughs) The final one that got slammed was Mongo.

Jason Lemkin 35:45 Yes.

Harry Stebbings 35:45 Mongo sinking 23%. Is that the same story as Salesforce? Is there anything different there?

Jason Lemkin 35:50 It is. It, it has literally taking a, a company that even when things started to get harder in 2022 into '23 still hit its numbers, still crushed it, still was a high fly, still had the multiples, still had everything, right? People love Mongo. They run their companies on it. Um, it's very interesting in terms of, you know, having a long tail and being very enterprised. Great CEO, uh, like everything competitive position, despite a lot of competitors, stronger than ever. But then saying, "Hey, growth has plummeted to the teens." It's not a growth stock anymore.That was just like a shock to the system. And, you know, Dev said his discretionary spend is being... is still being managed very, very carefully and I'm, I'm sure that's the reason. But seeing a high-flyer go to a m- a mid tee- it's just, it's, it's... I think folks, everyone sort of thought we were bouncing off some bottom. And if you look at a lot of charts, like Jamon Bell's charts are great and you can track a lot of folks, and it does look like in the aggregate we have... we bounced off some bottoms in first half of 2023, in the aggregate, all cloud out SaaS. But we're not seeing a... and Mongo is saying, "Hey, it's not getting... it's getting worse." Salesforce is saying it's basically getting worse. Yamini got on the last call a couple weeks ago and said, "Yeah, we saw a little bounce at the end of the year and HubSpot had a great quarter, but it's not any easier." She said, "It's not one lick easier right now." So HubSpot, not any easier, Mongo worse, Salesforce worse, Workday worse. Uh, it's tough.

Harry Stebbings 37:10 Can I ask you a weird one? What happens to Twilio? Twilio, obviously, Geoff Lawson now no longer CEO.

Jason Lemkin 37:15 Crazy.

Harry Stebbings 37:15 But people love the product.

Jason Lemkin 37:16 Brilliant idea. Push out one of the greatest founders of our generation. Just, just, just push. Great idea. (laughs)

Harry Stebbings 37:20 But people love the product.

Jason Lemkin 37:22 Great idea. (laughs)

Harry Stebbings 37:22 People still use the product.

Jason Lemkin 37:23 Yeah.

Harry Stebbings 37:23 It has great community, but the market cap's in the fucking floor.

Jason Lemkin 37:28 Yeah.

Harry Stebbings 37:28 It is not, uh, loved by Wall Street.

Jason Lemkin 37:32 Well, look, I'll... I don't know the answer. I'll... You know, it... Twilio has... Twilio is... you know, it is... it's the Stripe of communications, right? It- it- it- it, it has more competitors-

Harry Stebbings 37:42 But if Twilio is the Stripe of communications, it is egregious that it is whatever it is, a five or a $6 billion market cap company.

Jason Lemkin 37:48 It does, but if we wanna... if we wanna take a very short-term view, one, the margins are lower.

Harry Stebbings 37:54 Mm-hmm.

Jason Lemkin 37:54 Margins have always been low. Two, uh... an- and maybe the market's overreacted. It hasn't been able to make Segment make any money, which it's paid billions of dollars for. So it has like two existential issues. It's got like a big product line that it doesn't want to divest-

Harry Stebbings 38:07 Mm-hmm.

Jason Lemkin 38:07 ... that's not profitable in a world where they need to be... have 30% margins. So in the old days, buying... you know, when you bought... when they bought Segment and, and SendGrid and all these others, just breaking even was fine. But now you have to be so profitable, it's- it's an anchor. So they've got a bunch of existential issues and maybe Geoff just (laughs) is like, "If you... You think you're so smart (laughs) you can solve these problems?" But honestly, those are the- the... I think the micro answer is what I- I wanna... I generally try to be positive, realistic, but man, it sucks because n- 99.9% of us will never build a Twilio.

Harry Stebbings 38:38 Yeah.

Jason Lemkin 38:39 Twilio isn't just a good business, it's an iconic platform and brand, right? It is trusted. And, uh, yeah, this is the... I think it's good to kind of hide in series A land with five years of runway. This is the place to be today. (laughs) Hi- hide from all of this stuff, right? Uh, and to not have to deal with some of the market issues.

Harry Stebbings 38:58 Well, is- is there a better place not to be actually like your calls selling for two and a half billion to private equity versus your Gongs with the pressure now with your repricing being put on you, that is a hard place to be.

Jason Lemkin 39:11 It- it's hard, it's hard. It- it is, it is hard. And you know, you, you... I mean, I can't speak to Gong in particular, but I think all of these folks, they're- they're gonna have to rebuild their entire management teams if they haven't already. You need n- you just... it's too much for the team. Folks that I know that work at a lot of these unicorns that have done well, uh, they- they've left or leaving. And it's not because they don't believe, but it's just too... it's too much, it's too much change, it's too hard. You need, you need new blood and you need, you need fresh blood, right?

Harry Stebbings 39:37 Would you buy Notion at 10?

Jason Lemkin 39:40 What do you think they're doing? 80 million in revenue?

Harry Stebbings 39:43 150?

Jason Lemkin 39:45 Um. I mean, look, I don't... I... where's the... what, what, what like Notion is worth over 30 billion? You... I- I guess you have to believe it's bigger and better than HubSpot. I mean, it's not a perfect comp. You'd have to believe it's bigger 'cause if HubSpot's trading at 30, right?

Harry Stebbings 40:00 Yeah.

Jason Lemkin 40:00 Um, so you've got to believe it's gonna be better than, you know... 'cause even 30 is only 3X. I want at least a shot at more. So what's my... Is it gonna be better than Datadog? I mean, I don't know what product... I guess, I guess Atlassian sort of, but, but, you know, Notion just does a little tiny bit of what Atlassian does, right? 'Cause what's Atlassian worth? We can look it up. 40 billion, 50 billion?

Harry Stebbings 40:22 Yeah, 45 billion.

Jason Lemkin 40:23 So you're betting that Notion is gonna be bigger than Atlassian? Um, and it's newer. It's cool... it's still cooler, um, but I d- those bets, uh, I honestly don't... when I look at even across my own portfolio, I, I wonder at some of the growth bets being made. I, I don't fully... I'm, I'm happy for them, I'm supportive, but I- I- I think they-

Harry Stebbings 40:44 Do you actively seek out secondaries in those rounds?

Jason Lemkin 40:48 I think that there's no point in, even as a seed investor, selling before a billion. It's not enough money.

Harry Stebbings 40:58 The impact on your fund is not big enough?

Jason Lemkin 40:59 Not enough. It's just... it took me a little while to figure this out, but even though I'm, I'm a little slow, it's just... that's my new rule. It's just... even if it's there and even if you can make 10X on your investment or 15X, you know what? When you start your career in venture like, "Oh, 15X, that, that sounds..." And it does sound great when you go to raise your own fund, but you know, it doesn't... later on, it doesn't matter what... how any individual investment does. If it can't... you gotta find fund returners, right?

Harry Stebbings 41:22 Mm-hmm.

Jason Lemkin 41:22 You gotta find fund returners. And you almost... and I think this, this still creates corruptive... This is where the misalignment between founders and VCs always has been or is still an issue. Like you gotta... if, if the investment's struggling, you'll take a dollar. (laughs) Hooray, I'll take... I'm so excited I got, I got (laughs) I got a million dollars back on my $2 million check if it was gonna be zero. But it... but if the investment's doing re- ... the tough one for venture, I think, is when the investment's doing reasonably well. Reasonably well. Um, would you take liquidity at 500 million if you invested at five million? It sounds like 100X, but it's really 50X with dilution. It sounds great, but let's say you're diluted to 5%. So you're gonna sell your entire position? People talk about selling a little piece.

Harry Stebbings 42:05 It's difficult to sell your entire position, just like feasibly, it's difficult.

Jason Lemkin 42:08 Yeah. So what... Okay, so great, so you... let's say you have a $25 million position in $100 million fund. First of all, the whol- the entire thing's only a quarter of your fund. What if you sell 10%? You get $2 million back, right?Uh, you know, we ha- we have a co-investment, we'll leave it nameless, that just did a round at, uh, you know, 300 and something million, and one of their early investors, seed investors sold a little bit, um, in this round and, like, they made like, uh, 50X. Th- but only got like two million. I'm like, "What's the- (laughs) what's the-" (laughs)

Harry Stebbings 42:37 And that was a fund?

Jason Lemkin 42:38 Yeah, a fund, yeah. Well, let's not name any names.

Harry Stebbings 42:40 Yeah.

Jason Lemkin 42:40 It's a great company, great thing they were both in, but I'm like, I get it that it... And sometimes that's a good proof point for your LPs, uh, y- you know, but it doesn't make any difference, right? So you just gotta, you gotta keep going all in, I think, um, otherwise you just... you can't make enough money, you just... And, and, uh, and, and they're tough decisions, right? Re- really all these... I- If it, if it was your own money, you might sell these shares.

Harry Stebbings 43:02 100%.

Jason Lemkin 43:02 If it was your own money. You know, you put 50 grand in and... which is, you know, a l- a lot of money, I don't mean to... And then someone, you know, uh, five years later offers you three million, you should take it. (laughs)

Harry Stebbings 43:14 (laughs)

Jason Lemkin 43:14 Two million? What's 50... Uh, 2.5 million on your 50 grand?

Harry Stebbings 43:17 But I mean-

Jason Lemkin 43:17 You should take that. (laughs)

Harry Stebbings 43:18 ... I was laughing with our C- CFO this morning, 'cause we've got a company where we did the, the first round for when it was a SaaS company, pivoted to a foundation model, and now it's worth three billion.

Jason Lemkin 43:28 Wow.

Harry Stebbings 43:28 Um, but, I- you can't get fucking liquidity on it, Jason. So, like, we own 2% of it-

Jason Lemkin 43:34 Yeah.

Harry Stebbings 43:34 ... which is like $60 million in a $30 million fund. Shit, it's two X the fund.

Jason Lemkin 43:38 That is great.

Harry Stebbings 43:39 It means nothing. I can't get any liquidity on it.

Jason Lemkin 43:43 Yeah. It is, it is, um...

Harry Stebbings 43:46 What surprises me is numbers still matter to LPs. And what I mean by that is, like, TVPI numbers-

Jason Lemkin 43:52 Yeah.

Harry Stebbings 43:52 ... still carry a lot of weight. I thought everyone knew that the TVPI numbers like that is actually relatively meaningless and it's a shift towards DPI if you've been in the game long enough. But no, TVPI still is a big focus.

Jason Lemkin 44:05 Look, there are... Uh, you would know better than me, there's many... There, there are actually probably more, there are probably more types of LPs than VCs actually. There may be more types of LPs than VCs.

Harry Stebbings 44:14 Sure there are.

Jason Lemkin 44:15 But what... A lot of people on... challenge me on this, but they're wrong. They're wrong. So many LPs are judged on TVPI, the paper markups. If you're judged as a, as a manager at an LP on your paper markups, of course you're gonna care. You can mock it and you can be, "Ah, moola in the coola, DPI," all this stuff. It's true, but how are you judged? If you're only judged as a ma- at, at an LP as cash distributions, then great, hopefully in 23 years you get a promotion. (laughs)

Harry Stebbings 44:49 (laughs)

Jason Lemkin 44:49 'Cause even if 20VC does really well, you've got 20 managers, and so altogether it's gonna take you 20 years to make enough money on this to prove yourself. You gotta do the... And, and should it be discounted or do we account for TV... I don't think we, we, we account for it properly, that's my criticism of TVPI. But you gotta use-

Harry Stebbings 45:07 What do you mean we don't-

Jason Lemkin 45:08 ... you gotta use a KPI.

Harry Stebbings 45:09 What do you mean?

Jason Lemkin 45:09 You have to use a KPI.

Harry Stebbings 45:10 What do you mean we don't account for it properly?

Jason Lemkin 45:11 I think markups are corrupt behavior. But you need something, right? You need something. But they do corrupt behavior. Are they mark to... Should, should we have mark to market? Not to get down the venture road versus This Week in SaaS. Should we force people, like, you know, crossover funds who would have to- to have to revalue their investments every quarter? Maybe just a little bit? Maybe that would be better.

Harry Stebbings 45:35 Are you very reflective of your book? Like, do you mark down your book very proactively?

Jason Lemkin 45:39 At the end of 1231, I marked... I took a big red marker and I went overboard. I cut everything that needed to be cut. In fact, I just had a liquidity... I mean, an extremely minor liquidity event, and w- it's no- and it's three times what I marked it down to in December. It ain't much, but it is three times (laughs) I marked the investment down.

Harry Stebbings 45:57 How did LPs respond to the rab pan to the portfolio?

Jason Lemkin 46:01 They didn't care. They didn't care. I, I didn't get any feedback. I mean, the, the, the fund's still fine, um, but I didn't, I didn't, I didn't get any fee- maybe I didn't ask, right? Um, I... My sense though, my sense is that that was unusual last year. My sense is people were still holding on to valuations. But I'm like, listen, I'm gonna cut everything back to the bone so that there... again, so there's only upside. (laughs) I don't want anything, I don't want anything to only go up. There's only, there's only upside, so-

Harry Stebbings 46:31 I think people are still holding on structured rounds, inside rounds. They're continuing to keep prices high.

Jason Lemkin 46:37 Yeah. So that's why it is... TVPI is corrupting for this, because it... you wouldn't... If, if, if you didn't value companies like this, no one would do endless extensions on unicorn rounds to, to prop up valuation. That's bad. That's bad. Um, should you have no markups at all? Uh, I, I actually think that's not the dumbest idea, but it's too exhausting for LPs.

Harry Stebbings 47:00 What happens to companies-

Jason Lemkin 47:01 It's too exhausting.

Harry Stebbings 47:01 ... like Retool, who was super hot and then kind of just continued, but lose the heat over time, and it's... What happens there?

Jason Lemkin 47:11 On This Week in SaaS, one of the more discouraging... Okay, so the, the, the multiples are discouraging. The lack of any I- (laughs) only two IPOs since 2021 is discouraging.

Harry Stebbings 47:20 We're gonna get to the positives soon.

Jason Lemkin 47:22 Um, we're gonna get to the positives. Uh, again-

Harry Stebbings 47:22 Do you, do you have-

Jason Lemkin 47:23 Camp is growing four-

Harry Stebbings 47:24 Do you have a-

Jason Lemkin 47:24 Camp is growing 40% at 2.3 billion and mo- monstrously profitable, and it'll be a great... That... There's gonna be some great IPOs coming, which we could talk about. Um, one of the most discouraging things I- I- I saw was Thomas Tunges did a- uh, something a couple weeks ago, I put it up on SaaStr, you can search for him, and that the number of 50 million plus software exits in the US that can be tracked, and some aren't tracked for a variety of reasons, it's averaged about 57 or so for a decade, and it's stuck at 57. So the problem is we have so many Retools now, so many great c- Like, it's... the number of... So that's a decade... I saw it a decade ago, okay? And it seemed rare. If you think about it for a minute, if the number of 50 million plus exits is constant for a decade, and startups, SaaS, all startups have exploded, what, 20X, 30X? It has to mean it's harder to get acquired. That's... Forget about Hart Scott Rodino and Figma, it has to be harder if it's still only 57 deals. And how many deals are VCs doing, like M&A? And so this, I think, quietly was the most discouraging thing I saw, which is getting acquired is hard as F.... it's hard as F. And we all think like, "Hey, you know, we'll get, well, let's just get the company to five million or 10 million and someone will buy it and HubSpot will buy it." Or it's- it's 57? 57? I think it needs to be 570 for venture math to pencil out. It's worrisome. It's worrisome.

Harry Stebbings 48:45 When do SaaS companies' micro brands get to a stage where you start to see reduction in CACs because of micro brands? You've said before, like when you get to 10 million an hour, I think it was 10 million an hour-

Jason Lemkin 48:54 Yes.

Harry Stebbings 48:55 ... you get a micro brand maybe in a vertical and-

Jason Lemkin 48:57 Maybe early, maybe a couple million.

Harry Stebbings 48:58 Maybe a couple million?

Jason Lemkin 48:59 Yes.

Harry Stebbings 48:59 When do you start, I, uh, but this, I really think to this quote of yours often when I'm investing-

Jason Lemkin 49:04 Yes.

Harry Stebbings 49:04 ... because I'm looking at CACs going, "When does the micro brand CAC reduction happen?"

Jason Lemkin 49:08 Well, I actually find it happens by a couple million in revenue. You often will get half of your deals from not just inbound deals, but folks that heard about you, folks that, in your little niche, in your, in your little niche that have not- not in the grand scheme of things no one's heard of you, but other folks just like your customers, they start talking about you. They go to events, they meet up, they- they- they have their own little communities, they talk about you. So you get like, you start approaching 50% of your leads are free, you know, free in quotes, but they are free and they're inbound and they're great. Um, and so if you did nothing else, your CAC would go to zero. And that, frankly, that's what I accidentally did as a founder. That's why I went profitable at five million in revenue is I just, I had, I went to a zero cost marketing model. But the problem with that is right when that happens is when we start to raise money and invest in sales and marketing. So we kind of lose the... It works, like that's, that- that- that propels us up the curve to scale, but we don't really get a net CAC benefit 'cause we layer in more paid along with the free.

Harry Stebbings 50:04 Mm-hmm.

Jason Lemkin 50:04 So you- you never see... Well, a sad thing we learned, one good thing we learned in SaaS is until the Salesforce decline, we learned that generally high NR last forever. It lasts to a billion, two billion, 10 billion, but we also learned that CAC never comes down. And actually the public SaaS companies have the highest CACs of all.

Harry Stebbings 50:21 So we- we said about positivity.

Jason Lemkin 50:23 Yes.

Harry Stebbings 50:23 Okay. Uh, 'cause we- we wanna be more positive in This Week in SaaS, otherwise we'll just have people jumping off the bridge.

Jason Lemkin 50:29 Yes.

Harry Stebbings 50:29 Uh, when we think about like the IPOs to come, who are the next contenders? Who do we think is going out next?

Jason Lemkin 50:34 Obviously, look, I, we hit some of these. I mean, Canva, Figma, these will be great IPOs. These will be great-

Harry Stebbings 50:39 Do you think Figma will go out anytime soon though?

Jason Lemkin 50:42 I think that Stripe will be a great IPO. Forget about the valuation. These will be great IPOs. The, Stripe will be a great public company. Canva will be a great public company. Um, Plaid will probably be a great public company. Like, a lot of these names that we know, they're not gonna IPO at 100 million or 200 million IPO. Canva's gonna IPO at three billion in revenue.

Harry Stebbings 51:00 What is that IPO at?

Jason Lemkin 51:01 Canva?

Harry Stebbings 51:02 Mm-hmm.

Jason Lemkin 51:04 I don't know. I mean, listen, it's hard to see. I mean-

Harry Stebbings 51:08 They did, they- they had secondary at 26 billion earlier this year.

Jason Lemkin 51:11 So let's say the, I mean, what's the highest possible multiple in the market would be 15, right? So that could be 45 billion. So that sort of ties to the secondary hoping to double their money in an IPO, right? Uh, there's just n- would be no precedent in today's world for it to be higher than 15.

Harry Stebbings 51:27 Yeah.

Jason Lemkin 51:27 And again, it sucks that Klaviyo is at 6X because I don't know that, I mean, Canva is bigger. I don't know that it's better than Klaviyo. So 6X or 8X would be like a bummer, right? Then, then you'd have like a 15 to $20 million market cap. But from the founders and the early investors, it is what it is, right? It- it- it is what it is. But it could be flat, right? It could be... And act, frankly, for a growth investor, if they, th- the secondary was at 20.

Harry Stebbings 51:50 Yeah. 26.

Jason Lemkin 51:50 Th- there was a round at 40, right?

Harry Stebbings 51:51 There was a round at 40 and then the secondary reportedly, uh-

Jason Lemkin 51:55 Yeah.

Harry Stebbings 51:55 ... earlier this year was 26.

Jason Lemkin 51:56 But maybe that's okay, Harry, because maybe, you know, the re- if you, if you invest in a great name and you only end up making 1X on some of them, maybe it's not the end of the world. Maybe that's part of the bet, right? Maybe that's part of the bet. I don't know what th- they're thinking. You know, you hope, you hope to get 3X on a lot. You hope one per fund in this growth stage is like a 10Xer. And if some of them are 1X and you're co- but you're, but you're pretty confident, maybe it's not the end of the world.

Harry Stebbings 52:19 So Canva agreed. I will take a bet with you. I think Stripe will still be private in four years time.

Jason Lemkin 52:28 Well, look, I, you know-

Harry Stebbings 52:29 I don't think the Collisons ever want to go public with it.

Jason Lemkin 52:31 If- if you and I were running a startup together at- at their size and we personally didn't need to create a lot of liquidity for ourselves and we could literally create structured, uh, secondary every six months, why wouldn't you stay in that, in the world of being a builder? Because you look at Salesforce. The problem with public companies here, here's the problem for The Week in SaaS, and again, I do want to be positive. Here's the real problem. I think we've made a terrible pact with the devil in public SaaS companies, a terrible pact, which is the markets told everyone they had to get efficient, but there's no money for R&D. There's no money for R&D. How can you, if Salesforce is gonna get to 40%, it's- it's coming up on 40% margins, where's the money for engineers? Where's the money for sales? Sales head count is down, right? Engineering head count is d- is, I don't know if it's down, sales... Like, where is the money? And so I would stay private as long as I could, so I keep investing in the product. And then when I finally had to, fine, I've got to be profitable, but no one cares if you're profitable six years before your IPO. They care if you're there when you IPO. Palantir ran that playbook. Their- their metrics were atrocious before the IPO. They weren't even SaaS. They had like 20% gross margins, forget about profits. Then magically their margins were in the 70 the year before they IPOed and they've done pretty well. (laughs)

Harry Stebbings 53:42 Is there anything else positive that we should discuss in This Week in SaaS?

Jason Lemkin 53:46 Again, I, w- we started off with some, with some tough news and look, it was a terrible week, but there's more good news out there than bad. Multiples are down. That- that's not fun. But again, let's, let me pull up our list.

Harry Stebbings 53:58 The j-

Jason Lemkin 53:59 Canva, 40% at 2.3 billion in revenue. Toast, 32% growth at 1.3 billion. Samsara, 39% at 1.1 billion. Uh, Monday. Now, okay, now this is a super interesting one. You know, you know who Monday doesn't really sell to? Tech. They sell to non-tech. M- Salesforce, single digit growth. Monday, 34% at 900 million in revenue, 34%.

Harry Stebbings 54:21 But let's just go through those. Canva sells to end consumer.

Jason Lemkin 54:23 Yeah.

Harry Stebbings 54:23 Toast sells to end consumer being restaurant owners.

Jason Lemkin 54:25 Yeah.

Harry Stebbings 54:26 Monday sells to, uh, SMBs, uh, small creators.

Jason Lemkin 54:29 Yeah. Sam- Samsara is selling to the end economy, not consumers businesses, but the end economy, right? Zscaler, 32% at 2.2 billion.... right? Security remains on fire. And then Klaviyo, we talked about 42% at 800 million. So it's like we can look at all the, the, the, you know, the Mongos and the Workdays and the Salesforce, they look dumb, but I, I found six, six leaders that are all growing at not so ... Now, they're not 2021 not-so rates. So you basically have a couple choices. You can hibernate, you can blame, you can say, "Woe is me." Or you can say, "Listen, maybe I'm not, maybe I, I'm not selling to restaurants or to InDesign, but what can I find in here? Where are the gems?" And, uh, I remember Henry Schuck from ZoomInfo, like a year and a half ago, said this thing. It was, it was early, but he was obviously seeing everything early. He's like, I think a year and a half ago he said that, "The, the good news is our non-tech customers are growing 20 something percent. The bad news is our tech customers are growing, like, 6%." Now it's worse. Now I think it's po- they're negative, right? 'Cause their NRS has fallen to, like, 85% at ZoomInfo.

Harry Stebbings 55:24 Would you be a buyer or short on ZoomInfo?

Jason Lemkin 55:27 Generally speaking, when you have great founders that are committed, I'm a buyer, so I would buy. I would. There's negative things, but like, Hen- Henry's a great founder who's done this from scratch, basically bootstrapped all the way here, totally committed to the space, will never quit. You're gonna ... Now, th- there's Apollo, there's others, but you're gonna ultimately outlast the ones that quit.

Harry Stebbings 55:48 Can I ask, actually one, we, we mentioned kind of the, uh, kind of hypergrowth companies that are now non-growth stocks-

Jason Lemkin 55:54 Yes.

Harry Stebbings 55:54 ... be it your Boxs, be it your Dropboxs, be it your Salesforces. Which one that has transitioned from growth to stable four to 6% grower do you think will reflate in the next few years? And what do you think will be the next one that is a hyper-grower, will go into a slow growth stock?

Jason Lemkin 56:13 I think the ZoomInfos and the Bills that have gone through a patch with incredible founders that have been, have a multi-decade commitment will crush it. Uh, I don't know how some of the Zooms will do it, right? I don't know. Uh, I mean, Eric's as good as it gets, right? Um, they got the worst, they got th- they got dealt the worst COVID card. It seemed that they had the best, one to 4 billion in one year, but they got dealt a tough hand, right? That, that's a tough one. So I don't know. Um, I don't know. I'm gonna be, I'm gonna say that folks that are going through a patch, like a ZoomInfo or Bill, they're gonna pull out. Folks that maybe like Dropbox, uh, have decided to lean into this world, I, uh, it, it can happen, but you need ... You know, what, it's funny, when I was at Adobe, going back in time, Adobe wasn't really growing. And its market cap was nothing, right? And then all of a sudden, cloud took off. Um, it's funny, mo- most folks didn't think it was really gonna work. SaaS really exploded. That helped. There will be others like NVIDIA that did not predict this, right? So I think if you stay in the game, something could happen for these leaders that have dominant brands, but I don't know on their own. It's just, I think th- the tough thing is we've learned that, uh, we've learned you've gotta sequence these next acts like HubSpot did, and if you don't, uh, it's just, it, it's so hard to do it later. It's so ... It's not impossible, but it is, it is so hard.

Harry Stebbings 57:40 Okay, so I wanna do a tweet of the week. I mean, I love this.

Jason Lemkin 57:42 Go ahead, tweet of the week.

Harry Stebbings 57:42 You said, "One large accidental mistake founders can make in fundraising is to ask for too much money."

Jason Lemkin 57:48 Yes.

Harry Stebbings 57:49 What did you mean by this? And how does that impact the advice that you give to founders listening?

Jason Lemkin 57:54 Let me give a, let me step back for a minute. Everyone's still giving, too many founders are still giving you terrible advice from 2021, 20, into 2022. They're still, they still give you, like, run a process, give people one hour to decide. I literally got an email while I was here, Harry. The, the email was pretty good, okay? From this founder, you know, we're at, I think they're at 100K ARR, okay? And they're doubling. Okay? So they're growing, but like this is not a rocket ship ye- yesterday. And the- the- and in bold it's like, "The deal's moving really fast." (laughs) I'm like, "I don't know who told you to write this or where you found this on the internet, but no, this is not..." The right way to approach it is, "Listen, we have something that's early. Let me tell you why it's gonna be great," right? So, so much of the advice is bad. And, uh, people are still asking for too much money. They're asking for too much money. And, um, you know, I was pulling this up for, for SaaStr Europe, but you know, Gong series A was seven million, series A was seven million. That wasn't that long ago. That was 2017.

Harry Stebbings 58:49 Yeah.

Jason Lemkin 58:49 That used to be a series A, now it's a seed round, okay? And so you see these numbers o- in the media and you hear about them, but be very careful that that's appropriate for you because along w- you can just rule yourself out from investors. It's just such an unforced error. It's, and it's har- Founders, there's things-

Harry Stebbings 59:07 So for founders listening, what do you mean you can rule yourself out for investors?

Jason Lemkin 59:10 You have t- uh, if a fund size isn't big enough to meet your ask, most good investors will m- maybe, many good investors will quietly opt out, 'cause there's too many deals, okay? The biggest check I can write, uh, you can tell me what yours is next. The biggest check I can write is four million bucks, okay? I've written quite a few $4 million checks. I could write a little more, but when I write a $4 million check, Harry, it has, like has to work. (laughs)

Harry Stebbings 59:33 Y- yours is 7, 8% of your fund.

Jason Lemkin 59:36 Yeah, it's a lot, right?

Harry Stebbings 59:37 Yes, it's a lot.

Jason Lemkin 59:37 So it has to work. I c- otherwise it's like Pluralsight, like I'm dead if that thing ... Like, I can survive it, of course, but it really sucks when I write a $4 million check. So when you ask for 10, not only do I not have enough money, but maybe I can get Harry to do the sh- deal with me, right? But I have to believe it, it will absolutely crush it to do a 10, 'cause then I gotta bring Harry in to do four, and then we'll find our friends to do two. So we can do it, but if you're just take, getting going, you know what I'm gonna con- con- 'cause how many ... I mean, you know, you get, what do we get, 40 or 50 of these emails a week. It's just easier to not respond or to be kind, right? Now, if that same company, uh, with similar, I mean, similar metrics says, we're, I wanna raise like 4 to 5 million, or even they do something dumb like 2 to 5, it's okay even if it doesn't make sense, then I'll take the meeting if the rest looks good. But I'm not, I'm not, if it, they're asking for 10 or 20 or crazy things, it's just not ... Once in a while I'll do the meeting when it's so amazing, right? When it literally leaps ... But, but you have to check every single box. It's easier to just say, "Listen, this founder doesn't get it. Like, I'm just the wrong match for that," right?

Harry Stebbings 1:00:37 This is unpopular. I don't like big ranges. Two to five? What you do with two is completely different to what you do with five.

Jason Lemkin 1:00:41 Well, I said it intentionally, like, that wasn't a great answer, but I, I'll still engage.... I'll just say, listen, if it's a- if it's a third time founder and they're asking for two to five, I'm skeptical.

Harry Stebbings 1:00:49 Mm.

Jason Lemkin 1:00:49 If it's the first time they've raised any capital and they don't know, you gotta cut people a little bit of slack, right?

Harry Stebbings 1:00:53 You do.

Jason Lemkin 1:00:54 Yeah. So, you know, uh, I mean, yeah, four to five is better, four to six is a good answer, right?

Harry Stebbings 1:00:58 How many founder meetings do you take a week?

Jason Lemkin 1:01:01 True meet- true meet- like, true Zooms?

Harry Stebbings 1:01:03 Yeah.

Jason Lemkin 1:01:04 Try to do two.

Harry Stebbings 1:01:05 Two a week?

Jason Lemkin 1:01:06 Yeah. I try to interact for real with every single good email. Like for real, that's good. Um, but I try to do as much as I can-

Harry Stebbings 1:01:13 How many good emails do you get a week? 3D.

Jason Lemkin 1:01:17 You know, it's prob- it should be more than ever because there's more good startups than ever, but I... What is super great or good? (laughs)

Harry Stebbings 1:01:26 When you're like, "Really, this is good."

Jason Lemkin 1:01:28 You know, you get... T- I would say you get two good ones, really good ones a week, and if you're lucky if you get an insane one a month. You're lucky if you get an insane one. If you're lucky-

Harry Stebbings 1:01:39 Was Talkdesk an insane one?

Jason Lemkin 1:01:41 Yeah, yeah. That was, that, that... I mean, there were some quirks in it, but that... Yeah, that one was a- an instant investment.

Harry Stebbings 1:01:46 Was there ever a good deal that you did that had a, eh, email?

Jason Lemkin 1:01:50 No, but that might be my flaw. 'Cause I just want-

Harry Stebbings 1:01:53 You've missed quite a... Sorry.

Jason Lemkin 1:01:53 Yeah.

Harry Stebbings 1:01:54 'Cause you've had, like, the best of the best in SaaS emailly.

Jason Lemkin 1:01:56 Yeah, when the emails are bad. Yeah.

Harry Stebbings 1:01:57 Well, it's like, they... I remember there's a founder that I did the deal in, and after the round that you saw.

Jason Lemkin 1:02:03 Yeah.

Harry Stebbings 1:02:03 And I sent it to you 'cause you were like his hero.

Jason Lemkin 1:02:06 Yeah.

Harry Stebbings 1:02:06 And you were like, "Oh, he emailed me years ago." (laughs)

Jason Lemkin 1:02:10 (laughs) Yeah, it's a bad... It's- it's bad, but it is... It's like... To me, it's like recruiting. Like, you can take... If... Listen, if someone writes you a terrible email for a position to be- to be director of content at 20VC, like, "Oh, hi. Hi. Hi, Harry S. I recently stumbled upon VC20 and, uh..." And like you can mock that but- but, you know, but once in a while, you know, maybe there's a gem in there, but I- I've never... I find those recruiting meetings are so exhausting. I- I actually last year I've taken some of them and I really want to blow my brains out. And the problem with those founders is when you do those meetings, when you do those, the- the terrible Monday emails like they joked about when I did, and others, you should do them, but like how are you gonna do 50?

Harry Stebbings 1:02:50 (laughs)

Jason Lemkin 1:02:50 Like you need an army of analysts and you need to do it. And so because if the email is terrible, but you will, you will miss things, right? You will miss things. Um, and you'll also miss things where some founders that literally you could invest in but don't need money, sometimes they write their own emails too.

Harry Stebbings 1:03:05 This is true.

Jason Lemkin 1:03:06 Right? And those are the ones you'll miss too. So it's, it's a... But- but just because, you know, then you got to do an hour and then they got like eight follow-ups and then you just gotta keep following up and, uh, so.

Harry Stebbings 1:03:16 Am I allowed to ask some really unfair questions now-

Jason Lemkin 1:03:18 Sure.

Harry Stebbings 1:03:19 ... in person? You can tell anything. How much does SaaStr do in revenue?

Jason Lemkin 1:03:23 SaaStr?

Harry Stebbings 1:03:23 Yeah.

Jason Lemkin 1:03:24 This will be our first crappy year, but like 25 million.

Harry Stebbings 1:03:27 Why is it a crappy year?

Jason Lemkin 1:03:28 Because this is the first year where we've just had so many unicorn SaaStr's that imploded. So we probably lost 60 sponsors, 70, 80.

Harry Stebbings 1:03:37 Wow.

Jason Lemkin 1:03:38 Yeah. Now it's not that they're bankrupt, but lost them.

Harry Stebbings 1:03:41 Gotcha. And so it's a flat year for revenue or?

Jason Lemkin 1:03:43 It'll be down.

Harry Stebbings 1:03:44 Down year?

Jason Lemkin 1:03:45 Yeah.

Harry Stebbings 1:03:46 Do you think that is also because events are less exciting than they were? Events in SaaStr used to be the thing. Now content is the thing.

Jason Lemkin 1:03:55 It's mixed, because on the one hand, field... Every report I've read recently, field is still 40% of all marketing spend, field marketing. Okay? So the budgets are still there, but some people don't even want to deploy them. Okay, so that's one issue, right? Um, and then, yeah, there's a whole issue where we thought that when we came out of lockdown that people would want to be together more, right? And I think what I've learned from the events thing is it cuts two ways. On the one hand, there are... It is great, we're all... Look, even we're here in your office, your team is here, but almost everyone's at least running some kind of hybrid team. Okay, no... Almost everybody. And so- so- so we've- we've had to learn about this, but pe- a lot of people just don't want to get out of the house.

Harry Stebbings 1:04:38 Yeah.

Jason Lemkin 1:04:39 They don't want to get out of the house. And so events, on the one hand, they're very exciting for folks, but I think a lot of folks just literally don't want, don't want to leave the home. I mean, we've gotten... It's funny, I'll tell you a little. It's just tiny, but if you're... This is a niche topic. Uh, Amelia, who runs a lot of SaaStr, was saying she'd gotten the most cancellations this year ever for a very specific reason, people wanted refunds. We just... Anyone complains, we give them a refund. Like, we don't have... We have a tiny team. We're not going to argue. We give you a refund. People actually, they wanted to buy a ticket, but they just... Not only did they want the list, which they don't do, they didn't want to come. (laughs) They wanted the benefits, but they didn't-

Harry Stebbings 1:05:16 Oh.

Jason Lemkin 1:05:16 ... they didn't want to come. So all this stuff cuts both ways and I think that we all kind of thought the world would- would pendulum back in certain ways. I will say I don't- I don't know the answer. I- I don't know the answer. But, um, 'cause I-

Harry Stebbings 1:05:28 But, 'cause I- I- ... As like your friend, and this is us-

Jason Lemkin 1:05:31 Yeah.

Harry Stebbings 1:05:31 ... it's me being really unfair turning this into a show as well.

Jason Lemkin 1:05:33 Yeah.

Harry Stebbings 1:05:34 But I'm like, I get the event strategy helps the investing strategy 10 years ago, but I look at it-

Jason Lemkin 1:05:40 It never helped.

Harry Stebbings 1:05:42 I disagree with you there. No?

Jason Lemkin 1:05:44 No.

Harry Stebbings 1:05:44 Like when you look at the founders ........................

Jason Lemkin 1:05:45 Having the community helped. There was no need to do an event.

Harry Stebbings 1:05:49 Then why do it? It is the hardest form. Like content is so much easier.

Jason Lemkin 1:05:53 Very hard.

Harry Stebbings 1:05:54 You can write or edit in your own home with a coffee and we can chat on a podcast from our own homes. Why do all this shit? I mean, I was walking around the city with mom today-

Jason Lemkin 1:06:02 Yeah.

Harry Stebbings 1:06:02 ... and I said to her, "God, I got a way better deal than Jason." (laughs) This events business is hard.

Jason Lemkin 1:06:08 Well, I'll tell you a funny VC-related story in a second. First of all, it was an accident, right? It was... Meetups became thousands of people getting together. Um, uh, SaaStr was smaller when we first met, but- but there wasn't a lot of folks sharing how to do it. So it became a movement, right, in the early days. Um, so it became its own thing. Um, two reasons. One, it does make a difference in a lot of people's lives and you only have so many orbits around the planet.... and if you can... even if it's not... maybe you, maybe it's hard or the time ROI is tough, if you really c- can do something that other people can't do. Now, people can... very few people can do an event for 15,000 people in the US, Harry.

Harry Stebbings 1:06:48 Totally.

Jason Lemkin 1:06:49 It's a... and, you know, the, the classic Sam Altman, who was here thing, you know, saying, you know, his classic thing is say, "Do the things that other... th- that are easy for you that are hard for other people." This is something that's hard for us, but much harder for other people. Like, m- much, m- I mean, w- what we can do with our-

Harry Stebbings 1:07:02 I could never do it. Everyone says to me, "Do events." I'm like, "No, no way." (laughs)

Jason Lemkin 1:07:04 Yeah. You would need a... a- and you would lose millions, and you would need a huge team, so. But it's, it's a question and, um, uh, so, so one is we're good at it, two, it's impactful, and then the third one, this, this I learned from, um, from Aaron Levie. I asked him, when I... I don't do very many podcasts, but I do a few, right? And when I... the last few ones I've asked Bill, "Why do you still do it?" (laughs) It's my opener. I