Jun 3, 2024, 10:00 AM ETInterview, Fireside Chat, Conference Presentation

Jason Lemkin: PluralSight S*** the Bed & The Next IPO Candidates | E1160

Salesforce lost $50 billion in market cap following a 20% stock tumble, its worst decline since 2004.
- The market reaction was driven by guidance of single-digit growth (4-5%) rather than a minor Q1 earnings miss.
- Salesforce projected full-year growth in the single digits and warned growth would not return to previous highs.
MongoDB dropped 23% after announcing growth would fall to the teens, shifting from a high-growth "flyer" status.
Market multiple compression is severe; only two public SaaS IPOs (Klaviyo, Rubrik) have occurred since 2021.
- Klaviyo trades at roughly 6x revenue despite 40%+ growth.
- UiPath trades at 4.2x revenue ($6.9 billion market cap).
- Box trades at approximately 3.9x revenue.
The number of tracked $50M+ software exits in the US has remained stagnant at ~57 for a decade, despite a 20-30x explosion in startup volume.
- This suggests M&A liquidity is significantly harder to achieve, necessitating a 10x multiple reflation (to ~8x average) for venture math to work.

Growth is bifurcating: B2C SaaS and Vertical SaaS are outperforming "B2B2B" (selling software to technology companies).
- Winners: Canva (40% growth at $2.3B ARR), Toast (32% growth at $1.3B ARR), Samsara (39% growth at $1.1B ARR), and Zscaler (32% growth at $2.2B ARR).
- Losers: Companies selling to tech stacks, including Salesforce, MongoDB, Zendesk, and Anaplan, are facing headwinds.
Tech enterprise customers are rationalizing spend via substitution rather than net-new budget.
- Gartner reports a 20% SaaS growth rate fueled by GenAI, but this represents a 1:1 substitution of existing tools (e.g., killing 12 apps to buy one AI app) rather than net new spending.
- Salesforce requires 3x pipeline coverage to close deals, up from the historical 2x standard.
- Net Revenue Retention (NRR) is compressing even for leaders; HubSpot's NRR fell from 110% to 100%, and Fastly grew 15% with zero net new customers.
AI integration is currently "table stakes" but not yet a revenue driver.
- Incumbents (Salesforce, Box) are integrating AI to retain customers but have not reported measurable top-line growth from it yet.
- CFOs are not creating dedicated "AI budget" line items; AI spend is being sourced from discretionary cuts elsewhere.

Private Equity (PE) liquidity events are deteriorating, challenging the thesis that PE will be the primary exit route for SaaS.
- Vista Equity Partners wrote down its $3.5 billion buyout of Pluralsight to zero, citing inability to service $1.5 billion in debt against ~$80 million in projected free cash flow.
- Similar write-downs and distress are reported for Avalara, Zendesk, and Anaplan.
LPs are increasingly skeptical of PE deals where leverage cannot be serviced, raising fears of a high loss ratio in the PE software sector.
IPO market is nearly frozen; Figma and Retool have faced significant valuation hurdles or blocked exits.
- Even successful companies like Klaviyo and Rubrik are trading at 6x revenue multiples, well below the 15-20x required for strong fund returns.
- Secondary markets are the only remaining liquidity, but founders and investors are wary of "flat" or "underwater" outcomes (e.g., investing at $40B and exiting at $26B).

Fundraising Discipline: Founders asking for excessive amounts (e.g., $10M Series A) are being ignored; a $4M check constitutes a significant risk (7-8% of a fund) that requires near-certainty of success.
- "Runway" advice from 2021 is outdated; founders must be realistic about capital needs in a higher interest rate environment.
Founder Retention & Management:
- Harry Stebbings argues founders should worry less about losing money for LPs (if managing other people's capital) to avoid "conservative" decision-making that stifles growth.
- Founders acquiescing to mediocre VP hires (sales, product) are signaling a likely exit; rebuilding management teams becomes nearly impossible after such acceptance.
Product Strategy: One-product companies (e.g., Dropbox, Box historically) face saturation risks; multi-product platforms (Salesforce, HubSpot) are better positioned to navigate low-growth environments.
- Box and Dropbox have "settled" into 5-7% growth, whereas founders like Aaron Levy (Box) acknowledge this new reality while pushing for multi-product expansion.

HubSpot Acquisition Rumors: Speculation exists regarding a $33 billion Google acquisition of HubSpot.
- Harry Stebbings views this as risky due to antitrust concerns; regulators may block it as Google would be acquiring a marketing/CRM leader to expand its surface area.
- Figma's antitrust scrutiny is viewed as misplaced compared to the potential Adobe/Canva threat, as Canva competes directly with Adobe's Creative Cloud core revenue.
Leadership Changes:
- Twilio's market cap remains depressed ($5-6B) despite a loyal user base, exacerbated by unprofitable acquisitions (Segment, SendGrid) and low margins in a profitability-focused public market.
- Salesforce and Workday continue to face pressure from market expectations of high NRR in a shrinking tech spend environment.

Growth Trajectory: The conversation suggests a "new normal" where SaaS companies grow at 5-7% annually rather than 30-40%.
- Canva, Samsara, and Toast are exceptions growing 30-40% by targeting non-tech end-economies (consumers, SMBs, end-users).
IPO Outlook: Canva, Figma, and Stripe are expected to be strong IPO candidates, but valuations may be constrained to 6x-8x multiples rather than 20x+ historical norms.
- Harry Stebbings predicts Canva will IPO with $3B ARR, potentially at a $45B valuation (15x multiple), though this is optimistic given current multiples.
The "8x World" Bet: Harry Stebbings and Jason Calacanis bet on public SaaS companies averaging an 8x revenue multiple by the end of 2025.
- Calacanis takes the "Under" (betting averages will remain below 8x), while Stebbings takes the "Over."
AI Spend Reality: AI spend is currently being funded by chopping existing budgets (substitution) rather than net new spending, creating a "tough year" for classic B2B SaaS incumbents until a clear ROI or dedicated AI budget emerges (estimated 24-36 months away).