Weekly Update: YC Demo Day Stares Down Mr. Market
A few highlights from the week of 9/5
The WCLD cloud index had a strong week, up 9.6% to $30.80. Perhaps the WCLD won’t be revisiting the lows of June’s SaaSpocalypse?
However, by historical standards, median public SaaS multiples are still cheap at 5.8x forward revenue. Although they are down dramatically from their Nov highs of 19x.
For a good deep dive on SaaS public multiples, head to Clouded Judgment by Jamin Ball.
Meanwhile, in seed stage VC, it’s a Tale of Two Markets:
Some seed investors are very cautious due to Macro concerns
Everyone else is chasing the latest startup batch at Y Combinator
In fact, similar to past batches, many startups closed their rounds before Demo Day:
It’s very hard to resist drinking from the firehouse that is YC Demo Day and its 200+ startups!
While there are obvious macro reasons to be cautious, YC is still a remarkable magnet for talented founders. The list of top YC startups is a Murderer’s Row of startup achievement.
Valuations from this batch are down somewhat from the last batch in March, although they are still very elevated compared to non-YC startups. That said, I think it’s a safe bet that at least a few of the current batch will offer 50x or higher returns.
Podcast recommendation of the week:
This is a two-for-the-price-of-one pick: Invest Like the Best, continuing to deliver great content, had an interview with David Senra, creator of the Founders Podcast, one of my favorites.
David studies great entrepreneurs and reviews their biographies in his podcast. He has a number of wonderful anecdotes from the lives of great founders you might know such as Henry Ford and Steve Jobs — as well as others you might not know such as Edwin Land and Larry Miller.
Blog post recommendations from this week:
A wonderful take on finding favorable markets by the successful serial entrepreneur & VC James Currier of NFX - “Find the Fast Moving Water” - that’s somewhat more applicable to b2c (where I think market = destiny is much stronger).
More targeted to B2B, this is must-read post on finding product-market-fit by Andy Rachleff, the legendary VC from Benchmark Capital. I love this insight on validating PMF:
How do you validate PMF and what drives it?
The best test of whether or not people are desperate is whether or not they tell everyone they know how great your solution is. NPS is a proxy for this.
You know you have PMF when your customers become raving advocates for you.
For product-driven enterprise companies, the PMF proxy should be exponential organic growth. The only way to get exponential organic growth is through word of mouth. (Note: If your market is tiny, you won’t get this.)
People often kid themselves when they have growth. When you buy growth (aka inorganic growth), customer retention lags.
I'd make that article from Andy a checklist and ask all my b2b portfolio companies to have their PMs run through that checklist at an offsite. For product-led growth, I'd argue it becomes particularly imperative to use Andy's philosophy like a periodic 'cleanse' vs. a static you 'achieved PMF' moment.