Sep 13, 2023 · 42m · saastr
What the Future of SaaS Holds with David Sacks, Founder & General Partner, Craft Ventures
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gold bands on the timeline = statements, start to end. Hover to read, click to jump. CC turns on captions
David Sacks, Founder and General Partner of Craft Ventures, analyzes the macroeconomic reset in enterprise software, contrasting the challenges of late-stage corrections with the emerging greenfield opportunities in generative AI and specialized co-pilots. He outlines essential operational frameworks for founders, emphasizing rigorous gross margins, capital efficiency through the Burn Multiple, and standardized metrics tracking.
How this conversation actually went
Every chapter scored 0–10 on four independent dynamics. Hover any point for the reasoning behind the score. Jason holds 30.7% of the talking time here. How this is scored →
Jason as informed peer 6.3 Guest teaching 4.9 Guest disagreement 2.4 Jason pushing back 3.6
speaking balance: gold is Jason, purple is the guest (3 minute bins)
Sharpest disagreement ▶ 23:00 Sacks rejects the cherry-picked resilience narrative
Sacks rejects Lemkin's examples of resilient software companies, emphasizing that everyday board meetings were characterized by severe seat contraction from 120% down to 80%.
Hardest push from Jason ▶ 30:45 Lemkin pushes back on Burn Multiple complacencyLemkin directly challenges Sacks on his signature metric, arguing it provides false comfort to founders burning millions a month while heading over a cliff.
Biggest teaching moment ▶ 17:05 Sacks explains the fatal flaw of negative gross marginsSacks educates listeners on how misclassifying operational expenses into G&A hides negative gross margins, effectively leaving companies selling dollars for ninety cents.
Jason holds their own ▶ 22:15 Lemkin counters the downturn narrative with public compsLemkin demonstrates market mastery by citing Monday.com, MongoDB, and Snowflake to challenge the prevailing narrative that the software market is in total collapse.
the scores for every segment, with the reasoning behind each
| Chapter | Topic | Jason as informed peer | Guest teaching | Guest disagreement | Jason pushing back | Why |
|---|---|---|---|---|---|---|
| Craft Ventures' Scale and the AI Opportunity Shift | 4 | 4 | 1 | 1 | Lemkin establishes Craft's fund scale and asks how much investment focus is directed toward AI. Sacks explains the platform shift using the metaphor of a stocked fishing pond that gets depleted over time. | |
| Three Buckets of AI Startup Opportunities | 6 | 5 | 3 | 4 | Sacks outlines the three buckets of AI opportunities, while Lemkin challenges the timeline of the market downturn, citing early reversion in Zoom and Shopify. Sacks pushes back that startup metrics did not visibly crater until mid-2022. | |
| Seed Mortality Rates and Venture Capital Dynamics | 7 | 4 | 2 | 3 | Lemkin demonstrates deep knowledge of venture stage dynamics, citing Frank Rotman's historical graduation rates and calculating valuation risk math from Seed to Series A. Sacks agrees that seed mortality has surged to 80% as crossover late-stage capital withdrew. | |
| The Perils of Low-Margin and Tech-Enabled SaaS | 7 | 6 | 2 | 3 | Lemkin offers Toast's hardware and service model as a potential counterexample to pure software margin purity. Sacks breaks down the danger of hidden COGS and how misallocating operational expenses into overhead masks negative gross margin businesses. | |
| Navigating the Software Recession and Category Consolidation | 7 | 6 | 4 | 5 | Lemkin pushes back against macro gloom by citing resilient public performers like Monday.com and Snowflake. Sacks dismisses these as exceptional outliers, explaining that the broader market is enduring a real software recession characterized by seat contraction and category consolidation. | |
| Founding Companies During Market Downturns | 5 | 3 | 2 | 3 | Lemkin questions whether the death of overfunded unicorns truly harms the ecosystem. Sacks validates that downturns offer prime conditions for new founders due to diminished hiring competition and fewer copycat competitors, citing his experiences with Yammer and PayPal. | |
| Understanding and Applying the Burn Multiple Metric | 8 | 6 | 3 | 6 | Lemkin directly challenges Sacks' Burn Multiple metric, arguing founders misuse it to justify dangerous cash burns as they scale past $10M ARR. Sacks defends the metric's clarity against easily manipulated CAC numbers and clarifies that burn multiples must steadily trend down over time. |
Statements from this episode (19)
David Sacks: Half of Craft Ventures' $3.3B AUM remains undeployed
“Half of that is in new funds that we haven't deployed yet, so.”
David Sacks: Craft Ventures spends 70% to 80% of time on AI
“In terms of looking for new ideas, I think the team is spending 70 to 80% of their time looking at AI.”
Sacks: Tech platform shifts are ponds that get fished out over time
“If you think about every major platform shift as, like, kind of a pond, and the pond is kind of stocked with opportunities, it will get fished out over time. You know, the best opportunities over time will get taken. There's always this question of, why is thi…”
David Sacks: Big tech will own AI infrastructure; startups are M&A targets
“Ultimately, my view is that infrastructure can be owned by the big tech companies, and Those mainly are plays for a good M&A exit.”
Sacks: There will be an AI co-pilot for every professional job category
“I think there's going to be a co-pilot for every professional job category.”
David Sacks: Craft has written only one or two Series A checks
“We've only made, I'd say, a couple of, you know, well, we've made a few seed investments. Seed checks are a lot easier to write right now. I think we've only written one or two, you could call them, like, series A type checks.”
David Sacks: In 2H 2022 every board meeting was re-forecasting down
“It wasn't until the second half of twenty-twenty-two that every board meeting I was at was, like, a exercise in re-forecasting down.”
David Sacks: Seed-stage startup mortality rate will reach roughly 80%
“Well, I would say that the mortality rate on seed right now is very high. You know, I think it's probably going to be like, 80%.”
David Sacks: Series A and B are currently better investments than seed
“So I, I'm no longer convinced that seed is particularly like a bargain in terms of that part of the market. In fact, I think probably Series A or Series B is a better place to invest.”
Jason Lemkin: Seed valuations have not corrected for elite Bay Area founders
“Here in, in like, the virtual Bay Area, where you have multiple successful founders with lots of money, I don't think it's corrected at all for the haves. For the ones with the right resumes that, that came out of Stripe, or came out of Yammer, came out of whe…”
David Sacks: Repricing to fix negative gross margins risks losing product-market fit
“It's like one of the worst things you can ever discover, is that your late stage business, which is growing really fast, is actually negative gross margin. Because what that means is, you've been selling dollars for 90 cents, and so now you have to question, i…”
David Sacks: Many 2021-funded startups will fail or restructure by 2025
“There's still, I think, you're still gonna see over the next year or two a lot of companies, you know,
Run out of money and die, or have to take down rounds or, you know, restructure.”
David Sacks: Expect widespread vendor consolidation as enterprise buyers cut costs
“We thought there were five or six different categories of, you know, sales enablement. They're all now trying to get into each other's business. And buyers are starting to sharpen their pencils and say, well, we just need one of these. And I think that's gonna…”
David Sacks: The 2021 tech market was the biggest bubble since 1999
“It's, you know, it's just never gonna be like it was in twenty-twenty-one. I mean, that was like the biggest bubble Since the dot-com bubble in 1999.”
David Sacks: Expect a wave of commercial real estate bankruptcies by 2025
“Yeah, you're gonna see a lot of Siri bankruptcies in the next 18 months.”
David Sacks: CAC Payback and Magic Number are flawed and easily miscalculated
“What I was seeing in metrics like CAC, is that if the finance team simply misattributed a certain expense, then, like, it would make the CAC Payback look great... Magic number is even the worst version of this. Like, no one knows how to calculate. It was const…”
David Sacks: Burn Multiple should trend from 2.0 to zero at IPO
“Your burn multiple, which is just your burn divided by your net new ARR, it should be going down. And obviously, by the time... That's the point, it should be going down, and so, like, if you're a late stage company, you're like a growth stage company, like, y…”
David Sacks: Startups must cap their Burn Multiple at 2.0 during downturns
“Do not let your burn multiple go above two, because We're going into a tough period. It's more likely that you're gonna miss than exceed, and if you miss, your burn multiple's gonna, like, go off the charts. It's gonna be even worse than you're planning, right…”