David Sacks advises SaaS founders to take seed capital and series A from an experienced, single GP who knows their business category well, and not to worry too much about dilution in the IPO process, but to focus on diversifying stock ownership.
The podcast discusses the explosive growth of SaaS companies, with some going from zero to hundreds of millions of dollars in revenue within a few years.
The high gross margins and pure software nature of SaaS companies make them attractive investment options, but the market may be inflated due to investors chasing yield. There is potential for growth, but also the possibility of the market reaching its peak.
Allocators and venture capitalists need to differentiate between high and low quality tech startups, analyzing their balance sheets for sufficient cash and path to profitability, and considering changes to public market multiples and risk premiums. Free cash flow growth is a critical metric in evaluating a company's potential for future success.
Brad Gerstner has published charts showing a significant increase in multiples for internet and SaaS companies during COVID over the last two years.
The speaker ponders why Microsoft was so obsessed with Slack, given that its team's product was more competitive with Zoom, and expresses regret that we won't see the terminal value if they were left alone to execute. Despite the slack product team's slower innovation, their ability to innovate was still unique.