Interview, Fireside Chat
Xander Oltmann, Commodity Capital: Downfall of SaaS & Uprising of Vertically Integrated Monopolies
- The podcast will highlight top GPs, founders, and deal announcements leading the next innovation cycle and is adopting a new format starting immediately.
- Commodity Capital plans to partner with founders to build vertically integrated monopolies, particularly in hard tech, by leveraging declining software engineering costs.
- Vertical integration is expected to become critical for driving financial performance and operational leverage, with the narrative anticipated to catch on further in 2024.
- Commodity Capital intends to continue investing in pre-seed and seed-stage companies while focusing on helping historically non-scalable businesses become hyper-scalable.
- Software engineering salaries are forecasted to remain fairly flat year-over-year, with a potentially aggressive chart predicting declining costs.
- AI tools like co-pilots are expected to increase engineer leverage, potentially making one engineer as effective as ten.
- GPU demand may spike in the short term, causing price increases, though this is viewed as a temporary condition.
- SaaS funding is expected to remain at a five-year low, with sales and marketing budgets for SaaS companies projected to rise significantly.
- Publicly traded SaaS companies like Snowflake are expected to prioritize sales and marketing spending over research and development.
- Companies without net new customers or expansion are expected to churn 30% of their customer base annually.
- The narrative regarding SaaS and customer churn is expected to impact publicly traded companies with massive user bases within two to three years.
- The current AI wave is expected to play out similarly to the predictive analytics era from over 10 years ago, with unique AI technologies likely to be acquired by large incumbents.
- Most AI-focused startups are expected not to go public, and businesses relying solely on AI as a moat are expected to face significant challenges.
- Winners in the AI landscape are expected to be found at the model layer, hardware layer, and data center layer, while large incumbents are expected to build internal AI products.
- Companies are expected to integrate AI capabilities into their products rapidly, and unique AI technologies are expected to be acquired by large incumbents.
- Hadrian is expected to continue scaling faster than the top 3% of SaaS companies with 70% gross margins.
- Pricing for aerospace, defense, and industrial companies is expected to continue rising, making competition with multi-stage funds increasingly difficult.
- Partnering with big multi-stage funds is expected to strengthen businesses and improve cap tables, as these funds are critical for capital-intensive businesses needing large LP bases for later-stage funding.
- Multi-stage funds are expected to double down by writing large pro-rata checks to ensure companies reach IPO and beyond.
- The supply of capital is expected to remain high while demand for high-quality businesses remains relatively low, with many current funded companies leaning more toward science projects than near-term commercial viability.
- Vertical integration is expected to take center stage as the next great operating model in 2024.
- Startups are expected to return to public markets in 2024, with the IPO narrative continuing from previous highs, potentially seeing companies file below their last private valuation.
- A significant increase in venture capital dollars deployed is expected in the second half of 2024, alongside an expected rise in individual check sizes for later-stage companies.
- The number of deals getting done is expected to increase significantly in 2024.
- Sorcery's newsletter is expected to continue being published every Tuesday morning.