Who Captures Most Value After the SaaS Acquisition: Enterprises or Startups?

Who Captures the Most Value After the SaaS-Acre? Enterprises or Startups?

Alex Wilhelm
April 19, 2023 – 35 minutes

Hello and welcome back to Equity, the podcast about the business of startups, where we unpack the numbers and nuance behind the headlines. This is our Wednesday episode, where we niche down to a single person, think about their work, and unpack the rest.

The State of the Cloud

Today, we’re joined by Janelle Teng from Bessemer Venture Partners, who has co-authored the firm’s latest data dump on cloud stocks, startups, AI, and more. We invited her on the program to riff with us on the state of the cloud and answer some critical commentary regarding Figma and why startups should always kill Goliath instead of joining him for a round of grapes and lounging.

The Report

You can find the report we chatted about here: [link to report]. Our early notes are available here. A rundown of topics includes:

• Is the valuation massacre that startups have survived since late 2021 finally over?
• Why is investor preference swinging back toward growth from profitability?
• What is the state of runway at late-stage startups?
• Is the M&A pause nearly over?
• And, naturally, AI and SaaS and where VCs see the pair heading!

See You at Early Stage Tomorrow!

For episode transcripts and more, head to Equity’s Simplecast website. Equity drops at 7 a.m. PT every Monday, Wednesday, and Friday, so subscribe to us on Apple Podcasts, Overcast, Spotify, and all the casts.

TechCrunch also has a great show on crypto, which interviews founders and details how our stories come together and more!

The Conversation

We’re joined today by Janelle Teng from Bessemer Venture Partners. Welcome to the program, Janelle!

Janelle: Thanks for having me!

Alex: Great to have you here! Let’s dive right in. The report you co-authored with your team at Bessemer is all about cloud stocks, startups, AI, and more. What’s the main takeaway from this data dump?

Janelle: Our report shows that the valuation massacre that startups survived since late 2021 might finally be over. We’re seeing a shift in investor preference back toward growth from profitability.

Alex: That’s a great point. Can you elaborate on what you mean by "valuation massacre"? What happened to valuations during this time?

Janelle: From our perspective, the valuation massacre refers to the sharp decline in startup valuations since late 2021. Many startups saw their valuations plummet due to macroeconomic factors such as rising interest rates and increased scrutiny from investors.

Alex: I see. And what do you think is driving this shift back toward growth from profitability?

Janelle: We believe that investors are starting to re-evaluate the importance of growth over profitability. With inflation on the rise, companies need to show they can scale and grow quickly to stay ahead of the competition.

The State of Runway at Late-Stage Startups

Alex: That makes sense. What about late-stage startups? How’s their runway looking?

Janelle: From our report, we found that many late-stage startups are struggling with cash flow management. With valuations down and funding harder to come by, these companies need to carefully manage their burn rates.

The M&A Pause

Alex: I see. And what about the M&A pause? Is it nearly over?

Janelle: We believe that the M&A pause is indeed coming to an end. With valuations stabilizing and investors becoming more cautious, we’re seeing a surge in M&A activity as companies look to acquire assets at lower prices.

AI and SaaS

Alex: Last but not least, what about AI and SaaS? Where do you see these two industries heading?

Janelle: From our perspective, AI and SaaS are converging. We expect to see more companies combining AI capabilities with traditional SaaS offerings to create innovative products that drive growth.

Conclusion

And there you have it – a snapshot of the current state of cloud stocks, startups, AI, and more from Bessemer Venture Partners’ latest report. Thanks again to Janelle Teng for joining us on the program today!

You can find the full episode transcript and more at Equity’s Simplecast website.

Key Takeaways

• The valuation massacre that startups have survived since late 2021 might finally be over.
• Investor preference is swinging back toward growth from profitability due to rising inflation and increased scrutiny from investors.
• Late-stage startups are struggling with cash flow management, with many needing to carefully manage their burn rates.
• The M&A pause is nearly over, as valuations stabilize and companies look to acquire assets at lower prices.
• AI and SaaS are converging, with more companies combining AI capabilities with traditional SaaS offerings to create innovative products that drive growth.

Links

• [link to report]
• [link to early notes]
• Equity’s Simplecast website
• Apple Podcasts
• Overcast
• Spotify

Notes

• Equity drops at 7 a.m. PT every Monday, Wednesday, and Friday.
• TechCrunch also has a great show on crypto, which interviews founders and details how our stories come together and more!