Weekly Update

Highlights from a SaaS VC on the week of 5/1

Trying a new format today. Please email/DM me with your thoughts!

Markets

1. Regional banks staged a recovery on Friday, but the risk of more going under remains high. It’s unclear if bank fundamentals matter as fear is in the air & it’s unclear if regulators are willing to intervene. (Link here - the whole thread is worth reading)

   

2. Strong jobs report on Friday sent markets higher, leaving the markets flat-to-up on the week. Hard to reconcile this really good economic data with recession risk. (link)

   

SaaS News

1. Employment trend in the economy looks great. Employment trend in public SaaS companies is headed in other direction. SaaS industry is still working through the post-bubble hangover. (link)

   

2. Median public co SaaS multiple is 5x. Late-sage VCs have gotten the memo on market-based valuations, which explains the lack of late-stage activity. Many active early-stage VCs are implicitly betting that public multiples will swing back up. (link)

3. It’s a buyer’s market. Expect buyers to assume a seller is in distress unless they have overwhelming evidence to the contrary. Last week, Pitchbook had a good report showing the dearth of VC-backed exits in Q1.

4. Despite the frosty public market multiples & despite the glut of over-funded bubble babies, SaaS is a truly wonderful business model. With a good team, it can compound basically forever. Hubspot is a great example, hovering around 40 on Rule of 40 and gradually becoming a cash flow monster. (link)

   

AI News

1. The AI funding boom continues! This week, the NYT reported that Cohere, which develops foundational models for generative AI, has raised $250m at a $2b valuation. (link)

The deal values Cohere at about $2 billion, the people said. Investors include the internet software giant Salesforce, the chip maker Nvidia, the Toronto venture capital firm Inovia Capital and the Silicon Valley firm Index Ventures…

Cohere builds technology that other businesses can use to deploy chatbots, search engines and other A.I.-driven products. It is among a small group of companies — including the tech industry’s giants and a handful of start-ups — that are building technology that could rival systems under development at OpenAI, the San Francisco start-up that kicked off the generative A.I. boom in November with the release of the chatbot ChatGPT.

2. AI is unleashing creative destruction. Chegg’s stock was battered by a soft earnings release where they cited ChatGPT as a brake on new customer growth. (link)

   “…since March we saw a significant spike in student interest in ChatGPT. We now believe it’s having an impact on our new customer growth rate.”

3. OpenAI’s remarkable growth isn’t cheap. The Information reports that OpenAI burned $540m last year. Its exponential revenue growth will apparently be accompanied by exponential cost growth. (link)

   Reflecting that capital drain, CEO Sam Altman has privately suggested OpenAI may try to raise as much as $100 billion in the coming years to achieve its aim of developing artificial general intelligence that is advanced enough to improve its own capabilities, his associates said.

4. The firehose of AI-driven product announcements continues. Salesforce-owned Slack has shipped new features at a snail’s pace over the last few years, but just now launched SlackGPT. LLMs can make snails look like sprinters. (link)

Podcasts & Readings

1. Great podcast from ILTB interviewing three GPs at Bessemer, one of the most successful VC firms in SasS (Shopify, Mindbody, Toast, Twilio, etc). Nice inside look at the inner workings of one of the oldest and most successful venture firms in the industry.

2. Fascinating leaked internal doc from Google on AI strategy. While I’m very bullish on open source, even I wouldn’t take such an aggressive pro-open-source position as this. (link)

   But the uncomfortable truth is, we aren’t positioned to win this arms race and neither is OpenAI. While we’ve been squabbling, a third faction has been quietly eating our lunch.

   I’m talking, of course, about open source. Plainly put, they are lapping us. Things we consider “major open problems” are solved and in people’s hands today.