← The Official SaaStr Podcast: SaaS | Founders | Investors
The Official SaaStr Podcast: SaaS | Founders | Investors
SaaStr 824: VC in the AI Era - Exactly What's Getting Funded, Why & When with SaaStr CEO and Founder Jason Lemkin
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SaaStr 824: VC in the AI Era - Exactly What's Getting Funded, Why & When with SaaStr CEO and Founder Jason Lemkin In this episode, SaaStr CEO and Founder Jason Lemkin delves into the current state of venture capital (VC) funding, informed by data...
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Welcome to the official Saster podcast where you can hear some of the best Saster speakers. This is where the cloud meets up today on the Saster podcast. You gotta be number one at something to stand out today. Now maybe if you're the number one fastest growing anything, you will stand out. But be honest, what are you number one in? And I certainly see way too many decks. Others everyone else sees way too many decks where it's interesting. Hey, we're. We're an AI SDR tool. Great. Okay. Some folks don't believe in it. It's Saster. We do believe in it. We have four of these running around. Being our Esther, we believe. What are you number one in? We're going to do this. And the other guy. No like you got to be because we're just seeing these. Every number one has always been the most important adventure. But people are obsessed with it now. They're obsessed with finding the next open AI, the next category winner. Hey everybody, it's Saster. Connect data, automate busy work and empower teams like nobody's business with the one platform that grows with you every step of the way. Learn how Salesforce works for startups@salesforce.com SMB that's salesforce.com SMB hey everybody, it's Saster. Fin is the number one AI agent for resolving complex queries like refunds, transaction disputes and technical troubleshooting, all with speed and reliability. See how Fin can deliver the highest resolution rates and highest quality customer experience at Fin AI Saster. That's Fin AI Saster. Hey everybody, get excited. Saster AI London is this December, December 1st and 2nd and we're on track to completely sell out with the playbooks for AI and B2B. Join 2000/BI and AI leaders for two days. Two days of practical advice on scaling in the new year. We'll have speakers flock from OpenAI, Wiz, Clay, Intercom, Fin and all your favorite B2B companies including yours truly with Harry Stebbings and more. Doing our live 20 VC podcast. It'll be fun. All in the heart of London. Don't miss out. Get your tickets. You can still go. Go to podcast.saster London.com that's podcast.saster London.com for special discount just for you. I thought I would do something pretty simple this week, show you some data and certainly what I have learned talking with a lot of founders. This year running we've actually launched a new tool on sastradayi where we can review your pitch decks. We should cross a thousand VC pitch decks reviewed this Week and almost 400,000 startup valuations on Saster AI. What I've learned from that, what I've learned from companies I've invested in at Astrophund that are raising money or have raised money. And a lot of stuff I've certainly learned doing the new 20 VC with Harry and Rory, which is a lot of fun. It comes out every Thursday if you guys want to watch. So I wanted to talk about just what's happening in VC funding so folks could know. Some of this may be Captain Obvious, some of this you may get if you read Saster content or watch our pods or others. But I thought I would just summarize everything happening in the market. And again this is not profound but I do think it, it is important. So Iconics, one of the leading growth funds originally funded by Mark Zuckerberger's Money and others, but it's got many, I think tens of billions under management. They just put up a great set of metrics as of September 30th. I just wrote them up on Saster this week. Amelia will probably have them out in a newsletter this week. It's pretty good. I summarized a 70 some odd page report and just a few key points to them. But I pulled out a couple slides for folks to understand what VCS are thinking about. And I know you, I know almost everyone knows this but I think this is just, it's a good to summarize this to understand what's investors heads and why. It means a lot of B2B VCS, a lot of classic SaaS investors, B2B investors that might have been interested in Investing in you 18 to 24 months ago will not be interested today. They're just not interested. I would say 80% might not be interested in you that would have been interested 18, 24, 36 months ago. And this chart summarizes it. I'll show this these benchmarks in a minute so you know them. And then we've actually built a new tool on Sasser that will do it dynamically for you. It's pretty cool. Hopefully it'll come out in about a week. But if you look over here on the right top quartile SaaS benchmark. So this isn't all SaaS companies, this is all the venture funded ones in Iconics universe. So this is already. These are pretty good ones, okay that have gotten in most cases to the growth, growth stage. So the very best ones, the cup top quartile, these are basically the ones folks want to fund have gotten from one to a hundred million in 20 quarters. 19 quarters. 19, 20 quarters. So five years, it's pretty crazy to get from one to 100 million in five years. It is far better than I did and it's far better than most of us will do. But look at the folks want to fund today. Glean AI enterprise search got there in almost half the time. 11 labs. We use 11 labs. You probably use 11 lab for AI, AI speech and more. They went from 100 to a million in two years. Eight quarters. Perplexity, faster cursor. We all know anthropic and lovable replit. They can do it in less than a year, from 1 to 100 million. And so it's not the same as we'll chat about in the next slide or two. Some of these hyper growth AI native companies don't have the same margins. They do have token costs, they have other issues, but they are just growing so quickly that if you are a VC, especially a post seed stage VC and you have 100 million, 500 million, a billion, 2 billion, 8 billion like Andreessen's new growth fund to invest. Where on this chart are you going to put your money? Where are you going to put your money? You're going to go on the left. And it may not be fair to folks that are already in the top quartile on the far. It may not be fair, but just think about it for a minute. These companies just didn't even exist 24 months ago. So you couldn't invest on the left side of the chart. It just wasn't possible to invest over here. So the ones on the right were about as good as it gets. And you know, I started having these meetings with a lot of the VCs that have come to Saster events over the years about 18 months ago and they kept saying you were like why are you doing anything but invest in the companies on the left? Why are you even bringing them to your events, even talking to them? And I challenged it and I disagreed with it and so do many. What if it takes you a decade to get to a hundred million or it takes you three years? What really matters is how quickly you scale after that. But this is where all of the money is going to the left. And you can see why. You can challenge it if you want, you can pick at it if you want. But at the end of the day it doesn't really matter what you or I or anybody thinks. This is where 90% of the revenue is going and in fact why you can see a Massive amount of revenue is really only going to tens of different startups. The ones that are furthest to the left in are growing the quickest Best. Another great classic SaaS and cloud investor now doing a lot in AI. They put this together maybe a month ago or so ago. It's on their website. You can go find it. Just search for Bessemer Venture Partners AI and they broke it down into the two types of startups they're investing in. And these are. It's a high bar here. Okay guys. And again, don't shoot the messenger but it's helpful and pragmatic to see this. What are the two types of customers that startups that Bessemer wants to fund? They really talked about two types shooting stars which in many cases are classic software companies as you note on the bottom right with gross margins of 60% or higher. This is a lot of classic B2B stuff, high margin stuff. We write a little bit of code. There's not a lot of token or other AI costs even there. They want to see you go better than triple level. They want to see you go from 1 to 100 million in interestingly in about that same five years as iconic has. And that means going from something to 3 million then to 12 million, quadrupling then 12 to 40. Okay, that's 3.5x and then more than doubling from 40 to 100 million. That's what they think best of breed is and still somewhat, interestingly, somewhat inefficient. 164,000 of revenue per employees. That's the bar to get them excited to invest. And it is for a classic software company and that is as high as it's ever been. It is much higher than triple level which was always high. Then on the left you're like this is how we think about AI native companies where they really want to put their money in supernovas. You'll see the gross margins are often 25% or even negative and even negative. Even OpenAI is burning far more cash than it's bringing in. So is anthropic. So are lovable and replit as they've been clear on. I don't know if their gross margins are this low that they're burning a ton of cash to build these cool tools for us. But in one year going from one to 40 and in year two, 125, some of them faster. All right, Gamma, which we use for our slides, they already hit 50 million in one year rep level or others. And so you again you can pick at these and you can say oh my God, these are just wrappers around AI tokens and these models aren't sustainable. Maybe that's true, maybe it won't be true, but this is what people want to fund, okay? They want to fund one of these two categories depending on they are. And just as a side note, what's really interesting and I'm writing more up on this on Saster and we're actually going to talk about this on the 20 DC this week with, with Harry and Rory. But yes, these super fast AI companies, their gross margins often aren't as high as software companies, at least to start. But interestingly they are efficient. The ARR per employee, over a million dollars in revenue per employee. A lot of these companies are well under 100 employees as they approach 50 or 100 million in ARR, which doesn't necessarily mean they don't burn a lot of cash but it does mean that their revenue, they're pretty headcount efficient and something to reflect on. So these are two very different flavors of B2B and non B2B startups on the left. But this is how VCs are looking at it. I know it's soul crushing but at the end of the day VCs basically distill you down to the quality of the team, the traction and the market. And that's it. And this is the middle section, this is traction. Okay, next slide. And this one is a bit of a, it's almost a bit of a paradox because it's interesting even though VCs maybe it's not a paradox, but VCs only want to put the money into these even faster growing companies today because they can't, because they exist. What's interesting is that in some ways for the public companies, the public B2B companies, the bar has gone down. And what do I mean is the growth rates on average. Two interesting things. The second one, you wouldn't expect growth rates on average for public software companies. B2B software companies are the lowest they've ever been, they've fallen lower. Now there is some reacceleration in 2025 not just for OpenAI and Anthropic, but for B2B companies that are getting with it with AI. Palantir is the most extreme example in terms of its growth rebounding. But we've seen it at MongoDB, we've seen it at other leaders as well that other folks are growing a little bit more because of AI, Paul Twilio and others, but still it's pretty low. So for the public companies, artificially for startups you have to go faster. The fastest growing buckets, 30% growth, the middle buckets 20 to 30 and the lowest is minus 20. We actually calculate this now for you in real time. If you go to SAS or AI, you can just click market data in our nav. It will show you the real time multiples and who these companies are. But what's interesting is high growth is only 30% for a public company. It was twice that in 2021. More actually more than twice at about 70%. But they're tr. You get 20x air multiples, you get really high multiples. So the public, actually the public markets, as long as you're profitable at these numbers, they're actually not expecting extreme growth. So there's some irony here. It's hard to figure out because some of our public comps, we're looking at their growth, it's good, but it's not that impressive. HubSpot's growing 19%. When we all use HubSpot every day, it's not growing at these insane rates. Now it is approaching 3 billion in revenue. But there's almost a paradox here that we're expecting less from our public companies but giving them higher multiples, but we're expecting even more from our startup. So it's almost a paradox, but it's something to be aware of that will confuse you. You might be like, goodness gracious, you look in the middle. If a Data dog's growing 20 something percent, why do I have to grow 250%? Them's the brakes. Okay, them's the brakes. Okay, next one. And this is just another way of looking at some of the data, but I think this is one to freeze on. And we'll share the slides and we'll publish them to Saster again from this almost 100 slide iconic report. This distills all the top B2B companies they've invested in and what is the top quartile? And of course we'd all love to invest in the top 1%, the top 10%. But this is of the good ones. Okay, what does top quartile look like? And I really like this chart because look at these columns. Figure out where you are less than 10, 10 to 25, 50 to 100, et cetera. Figure out where you are and just go down this and realize this is if probably if you're above this, you're going to get funded. This is if I could simplify all of VC funding today. I think this table is maybe even better. Than iconic realize because this really ties to all my data. So let's just slow this down for a minute. And this is a high bar. Again, the whole point of this convo, this is a high bar to get funded today. If you're in the 50 to $100 million phase, this is beginning the growth phase. Top quartile is 90% growth and 120% NRR. 120% NR and fairly efficient payback 1.5x magic number. I won't go into all of that 220k in revenue per employee. As you can see this and you can see that scale, that means as you get into this growth phase, VCs are still going to be wanting you to grow almost 100% in at 25 to 50 over 100%. And I see plenty of really good B2B startups that are just dancing below this line. They're at 25, 30, 40 million, growing 60, 70, 80%. And look, maybe you can raise venture capital from a lot of the funds that we know and come to SAS rents. Maybe. But I think it's tough today. It's just going to be really tough. You better talk to every single one because this is what they're going to be. One or another. They're either literally looking this in their partner meetings or this is how they approach the world. This is the line to get funded today. And look back below 10 million. This is just top quartile. Again, this is not top 1% but top quartile of venture back. 515 growth below 10 million and 170 from 10 to 25. And I can tell you my own portfolio, it's Astro Fund. The folks that are above this, like no matter what anybody says, if they have good founders in an interesting space, they got multiple term sheets below this. It's really hard. And there is a zone. If you're below some of these numbers but you're doing something really important or you have really strong market share or you have insane NRR or something. There is a zone below this where VCs will want. They'll lean in. They'll lean in. You'll be at 50 million ARR. Not growing 90 but growing 70. But you're dominating an important market and they can see that you could grow faster. They will lean in if there are reasons to lean in. But there better be some special reasons to lean in other than you being likable if you're not meeting the numbers on this chart. So slow this down, we'll share it But I think this summarizes so much. This is the bar that you have to meet to get funded by most, maybe not all, but by most VCs. And especially to get the kind of valuation expectations with founders have, which is a topic we may not get into today where we can. But it's not just that these numbers have gone up and the borrow has gone up, but founders expectations are higher. Like founders want higher prices too. Not always, but often. Some of the expectations to talk to folks that have been around for a little while are utterly insane. A lot of the founders in the latest Y Combinator batches have had revenue for stays and are raising it 25 or $30 million post money valuation, sometimes as high as 60 million post money valuations and then hoping to triple that in another round within a year. If you think about it from the other side, that's a big ask to your vcs. Maybe it's market, maybe you can do it because YC is a hot brand or you're a cool AI startup. But for VCS to make money off that, that's pretty hard. So not only have VCs expectations in general gone up, even though the public companies are growing more slowly, founders are asking for higher prices and lower ownership, which pressures the VC model. You just need to be aware of it, it just is a reality. You don't need to have any pity for VCs but realize when in many cases startup valuations have doubled over the last four to five years and maybe tripled or quadrupled. For AI companies it's not free like you might get the term sheet, but the expectations are equally as high. And this lastly and then we'll move on to the next slide. It just is interesting across all of the iconics, it's just interesting to watch how efficient the companies are getting. So they're going from 90k in revenue per employee up to 400k which is the standard to go public. But I do see a side note, but for folks that just want to get funded or otherwise, I see too many folks as they're scaling these days that still have too many employees. There's just too many. I think the number one root cause is they bring in new VP, is new CMOs, new CROs, new C whatever OS and they bring in folks from the 2021 era that who want to just have large teams, teams of 10, 20, 30, 40 million to 40 people, not million to to build out their function. They need 12 people in finance and 21 people in demand gen. And it's Just that's becoming increasingly dated and hard to support. But it's interesting to see the ramp here. But yeah, this is the bar, like it or not. To be in the top quartile and a couple other quick things and then we can open it up to questions. So on Saster Dead AI which is our new platform, Saster.com still hosts most of our content but Saster AI is where we're building all of our tools. There's so much stuff if you click on this little IBC at the top right and one of them. I'm going to promote this more. But we've taken, we've done 300 and something startup valuations which you can get for free in our tool and almost a thousand VC decks. And we have so much data, aggregate data. We don't retain the debts but we retain the aggregate data that we can show you trends. And so I think the iconic slide summarizes it all. If you want to get funded, you want to hit that. But do you want to see how you really compare to your peers? You can go to AIBC and just compare it across here it's 108 point, 108.5000 calculations. And so across everyone that's used our AI calculators. What how do they look at Series A? So this chart's just a little bit interesting. On the left you can see traditional SAS, AI enhanced SAS and AI native. Their average growth is 180% at about 5 million for AI native, 100% for AI enhanced and 75%. Which means you're not going to get funded for traditional. They're all around 5 million ARR. 5 to 6 million ARR. When they go out for the Series A. A lot of folks will do a series A at 2 to 3 million. We can answer that in the Q and A. But this is an average number. Some folks will take longer but the average B2B startup is at about 5 to 6 million when it raises a series A. But the AI ones are growing 180% and the non AI are growing as low as 75. It's just the reality out there. It's different worlds and you can see why the VCs want to invest in the ones with the higher growth. Okay. And maybe just two more things. Then we will again we'll open up to questions. We have another tool which you can get all the data that you just saw on Saturday and then we have something that I think is pretty cool. It's been used again we'll Cross a thousand times. I think later this week we just launched it where if you upload your VC pitch deck, we will give you an incredibly deep amount of feedback. These are just the summary scores. We'll tell you how a VC will see your traction, how they'll see your deck. And overall we'll give you a great and your odds of getting funded. We'll compare you with all other founders. We'll tell you what looks good in your deck, where you should improve, what you should edit. And if you want, we can, not only can we give you incredible detail, but we can even write an entire use AI to write an entire investment memo to see. Tell you how VCs will see you. Like, it's pretty cool if you go to AIVC and just upload your deck. Look, you could maybe don't do it like 500 times because it costs us like 10 cents each time you do it, but do it as often as you want. I, I don't. We don't literally see them, but we see the activity. I know multiple folks use this again and again. They'll upload their deck and they'll get a B and what do you want? At least a B plus or an A minus and they'll tweak it or they'll go next month or others. And don't go into. I see way too many founders, confused, optimistic, ignorant, getting bad advice. Don't. We will do this for you. We have incorporated all these valuations, all these decks that we've ragged in 800 plus VCs that have spoken to Saster and in just a couple minutes we can tell, we can give you an honest. You don't have to tell anybody, you don't have to share it with anybody's score of how your pitch deck looks and how your company looks for funding. So don't go in blind. Just use our free tool and then, yeah, use the metrics and you can see this is interesting. On our tool, we've graded 932 decks in two weeks again, so we'll cross a thousand soon. We've done 387,000 378,000 valuations. 1500 founders used it in the last seven days. 17% are top tier, so 17% got an A minus or above and B minus, as you can see, is the average when we first built this. We've inflated the grades at first to make people feel better, but quickly decided that was a bad idea. This is an honest grade. So if you're in the Bs, here's a way to use our tool. If you're in the bees you might get funded but you better talk to everybody. It's going to be a lot of work. And so most folks, if you think if the average grade is a B minus, there's Quite a few Fs, these folks are screwing around and maybe that's helpful too because people are delusional and we just tell you you're not going to get funded at that growth rate with type of company. But the fact that most people, if you look at this distribution are B minuses, it's probably summarizes a lot of what I feel too which is founders, they have something, they're in the zone. It's just not enough. It's just not enough. A B minus is not enough to get funded. So at least we'll tell you so you don't have to be blind. Especially if you don't have any anyone helping you. If you don't know a lot of VCs if you haven't been through it, if you don't have a great board, we will do that all for you with AI. Okay, my my last summary and then one more, one more little show you our next tool and then we will open up to questions. So how do you deal with this market? How do you deal with the bar where it is? How do you deal with the fact that VCs 80% of VCS want to put 80 of their money into replet Lovable cursor and friends. What do you do? Okay, the first one. Excuse me and this may sound basic but man I see so many founders don't do this. Ask your existing investors if you have any investors. Seed investors, pre seed angels, devils, seed ABC whoever. Ask them to be honest and just put them on the spot because VCS won't volunteer this your angels won't volunteers how on a scale of 1 to 10, how good a startup are we and more importantly what are the odds we can get funded for our next round, ask what the odds and if you have any experienced investors they will exactly have their opinion on their odds. Now they may not be perfectly right but push them. Tell them you want to know an exact number. What are the odds? I can raise enough around, give me a percentage number. I think actually our AI tools are better but use them both. Use the humans you have and use our AI tool. So ask the second one and this was a big deep dive on our 20 DC conversation this week. I think because all the money is going into the hottest AI startups you Got to be number one at something to stand out today. Now maybe if you're the number one fastest growing anything you will stand out. But be honest, what are you number one in? And I certainly see way too many decks others everyone else sees way too many decks where it's interesting. Hey, we're. We're an AI SDR tool. Great. Okay. Some folks don't believe in it. It's after we do believe in it. We have four of these running around being our Esther. We believe what are you number one in? We're going to do this and the other got no like you got to be because we're just seeing these every number one has always been the most important adventure but people are obsessed with it now. They're obsessed with finding the next open AI the next category winner. And there's so many AI startups and there's so much noise and there's so much innovation and you walk around San francisco and there's 100 meetups every day, meetups every night like you were looking. What can you be number one in something and don't talk out of your rear. Show with data even if it's early. What you are number one in something. This will really stand out today. And I don't see enough folks doing it. Point three. This is Captain Obvious. We went through it. If you're not in that iconic top quartel, be honest, it will be very hard if not impossible to get funded. Don't pretend. Don't run out of money because you didn't know. Don't run out of money because you didn't know. For we know this one. But not everyone is AI native robust. Just most. And if you listen to some of these discussions we have every week over on 20 VC with Rory and Harry and me, you'll see a spectrum. And Harry is probably the most aggressive investor. If it's not AI native or bust, he's out. He wants to be in all the cool AI tools. I'm somewhere in the middle. And Rory's more nuanced. Rory is a classic B2B investor. He's invested in Box and Bill and Docusign and lots of other leaders have been on their boards for many years and he's made a lot of money. And Rory's point is triple, double is good enough for him. Triple if it's hard enough. But if you do triple, triple, double, I can see my way to an IPO at a multi billion dollar company and make money and. But I would say of the folks I've grown Up with of the folks that have come to our events, of the folks that have spoken, maybe only 20% are like Rory. So not everyone is AI native or bus. Not everyone needs you to be replit or Gamma or Higsfield or whatever just 80% are. So if you're not that, I mean don't jump off the roof but get realize this founder of EC David is just going to be harder. It's just going to be harder because you're going to have to sorry, can never use these apps but you're going to have to swipe left a lot more times and have a lot more meetings to find somebody if you're not AI native. But it doesn't mean they're not there. It doesn't mean they're not there. And two last points that I hope should be obvious but I find that with founders they're not don't assume the next round is coming. I still see too much of this. I still see too much where a company is at 20 million in ARR growing 60% which is still compounding to something great. Okay, if you don't need money, just do a spreadsheet. 20% growing 60% and 50% and 45% like you're still going to have hundreds of millions of dollars company. It's going to be great but no one's going to want to fund you. So just because everyone on your cap table saying great job or good job Amelia or great month Jason or whatever, don't assume in this day and age when everything's going again to those ones on the left that the next rounds coming, ask your investment challenge yourself, make sure that it's coming, don't assume. And then this final point, I see this way too much often too for funded companies is look, there's some folks that are like Harry, we're on the bleeding edge and are pushing everyone to grow 10x every hour. For sure they're out there, they're on X. But man, there's also a lot of investors who haven't been investing a lot recently or otherwise and they give you dated advice like it's still 2021 or 2022 and they just don't know and they're just not connected enough to what is getting funded or not. And I just had a debate the other day with a group of very seasoned investors who were convinced this company was hot as hot as boy, what's hot these days? Hot as Travis Kelson, Taylor Swift that hot or hotter and like look, I love this company. It's Great. But this is a company that doesn't have an ounce of AI in it today. Okay. And has an incredible management team, but feels a lot like 2021. There's nothing wrong with this company. It's. I love this company but no one's going to look at this and say this hottest AI startup. And it just, I felt like we were living on different planets. This is Mars and Venus. Just be wary of for fundraising. Be wary of the data advice. Be wary VPs of sales that haven't since 2021. Be wary CMOs. Okay then finally. And then I'll break down. Click AIBC at the top. You can use them all we have. We'll tell you what you're probably worth. We'll. We'll give us your VC pitch deck. Even if foreign upload your latest investor update, upload your latest Financials, upload a VCDeck, upload anything that has your data and we'll benchmark you, compared you with you with all the other B2B startups. We'll tell you how you stack up, we'll tell you what percentile you're in. We'll grade everything and you don't have to be fundraising and you don't have to have a VC pitch deck. Just give us whatever you have. We'll do the best with it and we'll instantly tell you how you're really doing. It combines everything we've done with the Saster AI AVC into one cool tool. So this real time benchmark and you can do it every day, every week, maybe once a month is enough. When you have new data and just find out how you're doing every week and we'll just tell you and we'll tell you quietly and we'll tell you without telling anybody else. And you can print it or email it to yourself or you can, you can delete the window and run it next month, but you'll have someone that'll honestly tell you finally, how the hell am I doing? Sastry, I will tell you. So thanks everybody. You didn't create a startup to run a small business. Let Salesforce help you connect data, automate busy work and empower employees on the only platform you will ever need. No matter how big you get. With smarter AI and built in collaboration tools like Slack, which we use and you use. The sky is the limit. Learn how Salesforce works for startups@salesforce.com SMB that's salesforce.com SMB.