With the markets in turmoil and fear running rampant through the global economy, you might not think it’s the right moment to start a company. According to at least one well-known venture capitalist, however, it’s a great time to start up.
TechCrunch recently caught up with former founder and active venture capitalist Jason Lemkin to chat about the world of software-as-service companies, better known as “SaaS.” Lemkin swung by TC HQ in San Francisco to spend some time with the Equity crew to discuss all things SaaS, markets and startups.
Long-time listeners of our Equity podcast will recall that this is not the first or even second time that we’ve had Lemkin on. He was, after all, our first guest, as well as a repeat guest for Episode 100. But as it’s Equity’s third birthday, and the SaaStr conference was just around the corner (now postponed), we had Lemkin back to dig deep into one of our favorite startup categories. So let’s get nerdy about SaaS.
Hit the clip if you’ve had a long, hard week and want some optimism:
In the full interview after the jump, hear about Jason’s current venture fund, investing cadence, vertical SaaS, his advice for the middle class of SaaS, how to think about venture debt, SaaS consolidation, software in India, and the Slack versus Microsoft scrap. It’s a lot of fun, so let’s get into it.
Is now a good time?
When we spoke to Lemkin, the stock market had taken lumps, albeit nothing quite like we’ve seen in the last week. Still, the investor was not convinced that a secular cloud slowdown (as SaaS’s penetration into enterprise IT spend, its growth rate will slow) would be bad for startups operating as part of the modern, subscription software movement.
Why? There’s so much spend left to build for that there’s lots to build. And, perhaps more importantly, incumbents SaaS firms are so large now that they can afford to let smaller companies get pretty damn big before they pay attention.
“All the SaaS leaders are at a billion, two billion, […] in ARR,” according to Lemkin. “The Zendesks, the Shopifys, the Hubspots. And they don’t have time” to bother with small companies. Before, in his telling, a $5 million ARR SaaS company would have raised competitive eyebrows from market leaders. Today that bar has been raised to as high as $100 million. We asked Lemkin if he is still as bullish on SaaS in the face of market pullbacks; he is.
That’s good news for your local startup scene.
I initially missed his point about market size, and what the growing cloud pie means for startups. But by the end I’d come around: Because the big SaaS companies need to add $100 million, $200 million, or even $300 million in revenue each year, small software startups just don’t scan. Think of it as temporary invisibility for all SaaS startups until you’re probably too big to stop.
Expounding at length
Before you jump in, a few things to keep in mind. First that Lemkin is a long-running SaaS optimist. He’s been right so far, in his defense. But it’s worth keeping his chief bias (or: market read) in mind. Second, that after this clip came out SaaS companies were repriced some. We doubt that temporarily falling share prices would shake our guest’s views, but it’s worth noting that his responses came before the worst of the recent sell-off.
That said, it’s always good to have Lemkin on the show as we consistently learn something new. Click play below (or download it here) and enjoy.