Jared Sleeper from Avenir (a “future-focused Growth Equity firm backing category-defining companies”) published a 45 page deck, trying to answer the question “What’s Wrong with SaaS?!”
Executive Summary:
- Software remains a significant sector with hundreds of high-quality businesses. Within it, SaaS has suffered in recent years primarily due to deteriorating fundamentals, NOT a change in the valuation paradigm. The death of software IPOs is due to mismatched expectations, NOT a “shuttered IPO market.” Today’s private high-growth software companies can and (in our view) probably should IPO.
- The simplest explanation for deteriorating fundamentals is thaty we ve passed the center of the SaaS S-curve and incremental revenue willk be harder to come by going forward at the sector level. So far, SaaS companies have responded to this by spending more, leading to deteriorating sales efficiency and underperformance. What management teams have referred to as “tough macro” is likely a “new normal.”
- Though growth will be harder to come by, will stl be meaningful. Al represents a promising new F
product development vector, and incumbents will generally be beneficiaries. Either way, SaaS companies have a long way to go before they are run in a financially sound way - multiples for the group could wel be higher in a few years based on improving profitability and financial discipline.
I found it to be quite interesting and it is more than just the typical “AI is overrated short-term and underrated long-term”. Its more about the maturity state of the “overall” SaaS market (public and private) on its S-curve.