Interview, Fireside Chat, Conference Presentation
Jason Lemkin: PluralSight S*** the Bed & The Next IPO Candidates | E1160
- Salesforce is predicted to achieve 4-5% growth next quarter and single-digit growth for the full year, a trend expected to persist as the industry does not return to previous rates, with current Net Revenue Retention (NRR) described as "crummy" due to customer rationalization and the inability to grow at 7% despite enterprise norms.
- Tech companies are expected to continue cutting jobs and reducing tech spend throughout 2024, with Salesforce requiring 3X pipeline coverage compared to the historical 2X due to deals being 50% harder to close.
- SaaS spending growth of 20% this year is forecasted but characterized as substitution rather than net new, as enterprises churn 12 applications for one AI app, with CFOs lacking dedicated AI budget lines and relying on discretionary funds.
- Vertical SaaS, consumer SaaS, and security are identified as strong and growing rapidly, while the tech-to-tech SaaS sector is described as brutal, with Dropbox and Box expected to settle into 5-7% single-digit growth over 8-10 years as they reach market saturation.
- Investors may face $20 billion in write-offs if a large volume of big deals fail, though the private equity loss ratio is predicted not to be very high since such losses occur only every four or five years.
- A "crazy AI deal" is defined by a lack of high confidence in 3-5x returns including dilution and a genuine belief in a 10x outcome like a $100 billion company, with current AI investment acting as a confused substitution budget rather than delivering clear top or bottom line revenue boosts.
- The industry is expected to figure out how to monetize AI within 24-36 months, but resisting AI capabilities will cause companies to get "steamrolled" as customers expect integration.
- Market multiples for public SaaS companies are predicted to need a 30-40% rebound for venture math to pencil out, with the speaker taking the "under" on average public companies reaching an 8x multiple by the end of 2025.
- Venture capital funds investing at valuations north of $100 million cannot make money without multiple reflation, and individuals are advised against investing in funds requiring 16-year capital locks for 2x returns.
- The speaker predicts the Google acquisition of HubSpot for $33 billion is meaningless and risky due to antitrust concerns, whereas a $1.5 billion deal like Clearbit would likely face less regulatory scrutiny.
- Liquidity is expected to remain difficult for SaaS companies, with only two IPOs since 2021 and the number of $50 million+ exits stuck at 57 for a decade, creating a "double cloud" issue of M&A blocks and PE write-downs.
- Founders are advised to ask for "two to five" million rather than larger sums to avoid investors opting out, as a four million dollar check represents 7-8% of a fund and requires the founder to crush expectations.
- Public SaaS companies are described as having made a "terrible pact" demanding efficiency, leaving no money for R&D or sales headcount, contrasting with Palantir's successful playbook of improving metrics and margins from 20% to 70% before an IPO.
- HubSpot's growth faces pressure with NRR dropping from 110 to 100, and one-product companies like Dropbox face existential market exhaustion unless they successfully expand to multi-product models.
- An endowment or LP may face liquidity crunches due to capital calls and reinvestment needs, and IPOs at $200 million ARR are expected to offer no liquidity for employees or effective acquisition ability.
- The events business Sastra is predicted to face a decline in 2025 after losing 60-80 sponsors, needing to exceed $20 million in revenue to reach 30-40% profitability, while long-term focus should shift to content despite field marketing still accounting for 40% of spend.
- Founders who "cover for mediocre VPs" are described as "quite quitting," and the best board advice suggests choosing a leader like Toby from Shopify who "doesn't suffer fools."
- Potential IPO contenders include Stripe, Canva, and Plaid, with Canva potentially IPOing at 6-8x multiples if growth slows, while Stripe is predicted to remain private for four years to allow for structured secondary liquidity.
- The speaker expects a "fourth year of crummy multiples" in the coming year, forcing the industry to adapt, and predicts that public companies will not see revenue boosts from AI despite product improvements.
- Founders making the "unforced error" of asking for $10-20 million are likely to cause good investors to quietly opt out, whereas a "two to five" million range for a third-time founder creates skepticism.