Feb 3, 2023 · 57m · saastr
What Venture Looks Like In 2023 | SaaStr Founder Jason Lemkin + 20VC Host Harry Stebbings
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SaaStr founder Jason Lemkin and 20VC host Harry Stebbings examine the 2023 venture capital landscape, dissecting SaaS valuation resets, capital efficiency requirements, and LP distribution dynamics. They offer actionable guidance for founders on go-to-market budgeting, executive hiring, and building enduring, category-defining companies during an economic downturn.
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 84% of the talking time here. How this is scored →
Jason as informed peer 7.9 Guest teaching 1.2 Guest disagreement 1.6 Jason pushing back 1.9
speaking balance: gold is Jason, purple is the guest (3 minute bins)
Sharpest disagreement ▶ 5:30 Challenging the Postmates effect assumption
Harry forcefully pushes back against Jason's thesis on category proliferation, arguing the Postmates effect was purely an artifact of artificial monetary stimulus rather than sustainable market dynamics.
Hardest push from Jason ▶ 22:27 Dismissing employee equity value in late-stage unicornsJason rejects Harry's nuanced point on downside preference protections by stating flatly that any employee joining a unicorn in 2023 should expect their equity upside to be effectively zero.
Biggest teaching moment ▶ 47:07 Explaining the LP DPI scorecard and relationship managementHarry directly outlines LP decision-making criteria regarding cash return timing and deployment pace, highlighting how LPs evaluate GP discipline across cycle transitions.
Jason holds their own ▶ 7:50 Real-time portfolio metrics across sectorsJason dismantles the monolithic narrative of a tech collapse by demonstrating detailed revenue inflection data across Gorgias, Algolia, Shopify, and RevenueCat.
the scores for every segment, with the reasoning behind each
| Chapter | Topic | Jason as informed peer | Guest teaching | Guest disagreement | Jason pushing back | Why |
|---|---|---|---|---|---|---|
| State of Venture Capital in Early 2023 | 8 | 1 | 1 | 2 | Jason details his early SaaS track record from 2013 and contrasts the 2021 market dynamics with the 2023 reality, explaining the 'Postmates effect' and the shifting threshold for startup survival. | |
| The SaaS Trifecta: Growth, Efficiency, and Scale | 8 | 0 | 1 | 1 | Jason breaks down the fundamental metrics required for B2B SaaS success, outlining the decade-long journey to 100-200M ARR and the return to capital efficiency benchmarks. | |
| Category Leadership and Founder Conviction | 9 | 2 | 3 | 4 | Harry challenges the durability of the Postmates effect, but Jason counters with granular portfolio evidence across healthcare, Shopify ecosystem, Gorgias, and RevenueCat showing non-uniform market slowdowns. | |
| The Advantage of Being a Private Company | 7 | 1 | 1 | 1 | Jason explains the operational advantages private companies have over public SaaS companies experiencing severe multiple compression despite hitting operating numbers. | |
| Budget Allocation and Empowering Department Leaders | 9 | 1 | 2 | 2 | Jason gives practical operational advice against cutting marketing budgets to zero, exposing why CAC calculations can be misleading and why department heads should be given fixed budgets to optimize. | |
| Setting Realistic Targets and Sensitivity Modeling | 8 | 0 | 1 | 2 | Jason discusses the danger of uncalibrated burn rates and emphasizes building downside sensitivity models rather than assuming round extensions will materialize. | |
| Market Multiples and New Growth Term Sheets | 8 | 1 | 2 | 3 | Jason illustrates new growth term sheet conditions using a real-time term sheet example requiring 15x ARR, high NRR, and profitability requirements. | |
| Liquidation Preferences and Unicorn Equity Realities | 8 | 3 | 4 | 5 | Harry challenges Jason on liquidation preference structures affecting employee payouts; Jason responds by arguing joining a 1B+ unicorn in the current market leaves almost no employee equity upside. | |
| Solo GP Focus vs. Public Market Trading | 8 | 0 | 1 | 2 | Jason explains why solo GPs should not get distracted trading public equities when identifying a single generational early-stage company generates outsized returns. | |
| The Dilemma of Overvalued Startups and Exits | 8 | 2 | 2 | 1 | Jason details why companies that raised at 100x or 1000x ARR face severe M&A hurdles, explaining the rarity of 500M+ enterprise acquisitions. | |
| Tech Workforce Realities and Founder Migration | 7 | 1 | 1 | 1 | Jason and Harry discuss the shifting composition of tech workers over the preceding years and assess the likelihood of laid-off tech employees launching resilient startups. | |
| Evaluating Technical Leadership and Due Diligence | 8 | 1 | 1 | 1 | Jason details his diligence strategy for seed deals, prioritizing deep conversations with the CTO to evaluate genuine technical defensibility while screening out charismatic salesmanship. | |
| Founder Maturity and Avoiding Perpetual Strategic Retreats | 7 | 1 | 1 | 1 | Jason reflects on founder maturity and warns against staying in perpetual 'strategic retreat,' citing his fast operational turnaround during the cancellation of SaaStr Annual 2020. | |
| LP Dynamics and the 2023 Capital Distribution Lag | 8 | 2 | 1 | 1 | Jason shares insights into LP liquidity lags, explaining why 2022 cash distributions from late 2021 exits cushioned LPs prior to the dry spell in 2023. | |
| The Micro Fund Shakeout and Spotting Outliers | 8 | 1 | 1 | 1 | Jason forecasts significant shakeout among first-time micro-fund managers who deployed indiscriminately, advising new GPs to preserve their shots. | |
| Post-Revenue Sweet Spots and LP Re-Up Dynamics | 8 | 2 | 2 | 2 | Jason and Harry compare investment sweet spots at early post-revenue stages and discuss LP capital call planning and manager re-up pacing. | |
| DPI Expectations and Seed Investing vs. Money Management | 8 | 3 | 3 | 3 | Harry details LP expectations around DPI and fund deployment pace, while Jason explains the fundamental operational difference between seed investing and institutional money management. | |
| Predictions for Late 2023 and the High Bar for Capital | 8 | 0 | 1 | 1 | Jason offers his outlook for late 2023, predicting modest multiple recovery while emphasizing that founders should not expect a return to 2021 valuation multiples. |
Statements from this episode (44)
Lemkin: Did Almost No Venture Investing in Previous 12 Months
“I did almost no investing the last 12 months, and some of it's certainly the macro, I mean, boy, the market's changed a lot 12 months, didn't they?”
Lemkin: Multi-billion valuations for Brex, Ramp, Expensify, Divvy changed VC investing behavior
“When Brex and Ramp and Expensify and Divi, all of them are worth billions, it changed. Not only did it change the size of outcomes, but it changed the way we invested. We didn't have to decide who was number one.”
Lemkin: Founders no longer brag about achieving unicorn valuation status
“I don't think anyone brags about being a unicorn today, do they? Do founders brag about it? It's gone out the window as a term of brag, brag, bragification.”
Lemkin: SaaS companies need roughly $200M revenue in 7–10 years to IPO
“Somehow in seven to 10 years, you've got to get to a hundred plus million in revenue. Okay, you just have to, and really today it probably has to be closer to two hundred million because that's when you can really IPO, right, approaching two hundred million.”
Lemkin: VCs demand top-tier growth and top-quartile efficiency even at $1M ARR
“VCs unfortunately are looking for the trifecta. They're looking for top tier growth, but also some sort of top quartile capital efficiency. And even at, you know, even at a million in revenue, maybe not You know, 10 K in MRR, but even at a million in error, th…”
Lemkin: SaaS categories have more room for category winners than VCs realize
“Categories have more rooms for number one than sometimes VCs realize, right? And that has certainly happened as SaaS and cloud has expanded, especially with vertical SaaS.”
Lemkin: Competition slides in pitch decks finally matter again
“The competition slide finally matters again.”
Lemkin: There is no downturn in US healthcare SaaS buying
“In the US, there's no downturn in healthcare right now. There's nothing, and I can't imagine it's different in the UK. So yes, I'm sorry if you sell only to overfunded startups, you may think that this is the worst recession since 1811. But if you sell to heal…”
Lemkin: Gorgias grew faster in second half of 2022
“And so when you look at folks like Gorgias on its own, like it's it grew faster in the second half of last year than in the beginning.”
Lemkin: RevenueCat re-accelerated growth at the end of 2022
“RevenueCat automates subscription management for mobile. It was a rocket ship, then in COVID it blew up, then it kind of plateaued, and then it re-accelerated at the end of this past year, re-accelerated in twenty-twenty-two.”
Lemkin: Private Companies Not Raising Capital Can Shelter From Market Swings
“It's a benefit of being private is that you can duck out some of these issues if you don't need to raise capital.”
Lemkin predicts startup recovery by late 2023 but severe pipeline shortages
“We're cutting too much in marketing. And I'll tell you what I think we should be doing. We're cutting too much and it's going to hurt everybody, not this week or even this quarter, but it's going to hurt everyone's going to not going to have enough pipeline at…”
Lemkin: Marc Benioff Is Repeating His Past Mistake by Cutting Sales
“I mean, Mark Benioff in his book wrote his biggest mistake in the last downturns was cutting sales. And what did he just do? Cut sales. So we're all, he's making them, he's making the same mistake three times.”
Lemkin: Cutting marketing budgets to zero is the wrong answer
“Cutting the marketing budget to zero wrong answer, right? Let them optimize what they can do with a million and trust in your team.”
Lemkin: Layoffs are temporary fixes that do not generate growth
“Layoffs don't really solve anything. They're just little, they're little snacks, right? They make little incremental changes, but layoffs don't create growth on their own, right?”
Lemkin: CAC is a flawed metric because acquisition is bimodal
“This is why CAC is such a flawed metric, because if your customer, let's say your average deal size is five K, a five K a year customer. You're actually not gonna have anything that's, where you can spend 5000 dollars to get a 5000 dollar customer. You're gonn…”
Lemkin: A startup's base plan is its trailing 3-4 month average
“First of all, you have to look at your trailing velocity. You have to look at your last three to four months, average the growth rate, average the burn rate. And that's who you are. Whoever, whatever you've been growing or burning last week, even if you want t…”
Lemkin: Founders must assume they are unfundable absent proof
“There's still delusion across all of the markets, and I still anger founders when I bring it up. I still get Toxic comments, but you just have to assume absent evidence, you're unfundable. Like, go find, go get a term sheet, or just go get someone you trust to…”
Lemkin: 90% of Growth Stage Investors Are Mostly Out of the Market
“I would say 90% of growth investors are mostly out of market, like they're not actively investing, but some are, some want to, some either want bargains, which I'm not sure exist, right, or they're making a bullish bet”
Lemkin: Employees Joining Unicorns in 2023 Will Make Nothing on Equity
“If as an employee, if you join a company with, in, in, in, in 2023 with a valuation over a billion as an employee, you're gonna make nothing. It doesn't matter what it sells for, you're gonna make nothing.”
Lemkin: HashiCorp and GitLab should be valued at $20B each
“Yeah, those should be twenty billion dollar companies, Harry. They should be twenty billion dollar companies.”
Lemkin: Startup employees rarely get rich without a $10B+ exit
“You know, it, it's very hard for most employees to make money on anything that doesn't have a ten billion dollar plus outcome. It's very hard to get rich as an employee.”
Lemkin: VCs tweeting about buying public tech stocks are losers
“And so when I see VCs on Twitter talking about how they're looking at buying some shares of Shopify, honestly, I think they're losers.”
Lemkin: Invested in Two Companies with a Decade of Runway
“I have two, two companies. I've invested in that are doing okay, that have like a decade of runway, right?”
Lemkin: Startups Selling for 10x Capital Raised Work Out for Everyone
“If you sell for 10 X or more than you raise, like, it's all pretty good. No matter what, it gets worked out.”
Lemkin: Startup Exits Are Extremely Rare Despite VC Narrative
“Exits are rare. They're really, really rare, and VCs don't talk this way, and Twitter doesn't talk this way.”
Lemkin: Tech Boom Employees Will Not Leave to Found Major Startups
“Startups sucked so many human beings into it. Thousands of SDRs, thousands of AEs, thousands of marketing managers and social media strategists that these became just or highly paid ordinary jobs. Highly paid ordinary jobs, and I don't think any of those peopl…”
Stebbings: The Recent Generation of Tech Employees Is Entitled and Poor-Performing
“I, my worry is that actually, I think there's this generation of kind of entitled, but also pretty crap team members.”
Lemkin: Early-stage CEOs are sales proxies, but the CTO is the product
“I view the CEO as the proxy for sales and marketing. Like if the CEO is great with some help, maybe you and I can, we're working on a search together day. We can help you find a sales and marketing leader. But I don't really care who you have at a hundred K in…”
Stebbings: Mature founders navigate downturns better than volatile young founders
“The mature founders, the fathers, the, and the mothers, and the more mature minded are weathering it well.
They know that if their child gets sick, it's going to be much worse than a recession.
But the young, young founders, their volatility is very extreme.
I…”
Lemkin: Startups that stay in strategic retreat for a year never recover
“If you do a brief strategic retreat as a startup, it's fine.
Take a quarter, get your house in order, right?
Get rid of that terrible VP, cut your burn rate.
But if you stay in strategic retreat for a year, you never pull out of it, right?”
Lemkin: SaaStr lost $10 million overnight cancelling 2020 annual conference
“I remember, like, you know, going back in time in March, 2020, when we had to cancel Sasser Annual the night before, we lost ten million dollars, ok?”
Lemkin: VC LPs have no appetite to add new fund managers
“None, one, none of them want another manager. They don't. Okay. It's not that they won't take another manager in like they will, right? If you or I sent one of them an email and said, this is the best new fund on planet earth, they will probably write up, writ…”
Stebbings: Many micro VC funds funded by founders will die
“I think we'll see the death of many of the micro funds, the funds that raised from founders, public market founders who now have had their net worths crushed.”
Lemkin: Talkdesk was the only SaaS unicorn he knew would hit $1B
“I had no idea that any of my cash unicorns, right, the ones that were exited for billions, I didn't, Think any of them would except for talk desk. I did. I, and it's not that I didn't love the founders. It's just so hard, right? It's just so hard to build thes…”
Lemkin: Founders have an investing superpower over non-founder managers
“So founders have this investing superpower that money managers don't have, which is they know who's better than them. But if in SaaS and B to B, if you do that pre-revenue, you really can't be sure.”
Stebbings: 20VC deployed only 35% of its fund over 18 months
“I invested 35% of my fund in, you know, 1718 months.”
Stebbings: LPs penalize VC managers who missed chances to return DPI
“On the re-ups, from what I understand, and I speak to a lot of LPs, if you had the chance to produce DPI last year, and you didn't, you're in the bad books.”
Lemkin: LPs should quit GPs lacking billion-dollar cash exits by 2022
“If you did not, as a GP, if you've been investing more than six or seven years, and you didn't have multiple billion dollar cash outcomes in 22, at the best, because they were it was just so accelerated, You never will. Like, the LPs should just quit on you.”
Lemkin: Seed investing is an artisanal craft, not money management
“Seed investing is not money management, okay? ... Once you get up to a certain size, you are money managers, right? You're money managers of these illiquid investments, and you do want these huge teams, and you want the IR team and the folks doing this. ... Th…”
Lemkin: Public SaaS multiples will rebound 20% to 40% by late 2023
“And so I'm pretty bullish at the end of this year. I'm bullish that multiples will be up somewhere between 20 and 40%, and I believe that will lead to a rush to deploy capital, but for founders, you have to understand that will never lead to a return of 2021.”
Lemkin: Unfundable startups will not become fundable in a market recovery
“If you can't raise any money at all today, like if you're unfundable, I don't think you're going to be fundable at the end of the year. Ok, if you're fundable today, but you don't like the metrics, you don't like the valuation, you double the end of this year …”
Lemkin: Near-Death Startup Fundraising Stories Will Return
“Almost every top founder I knew almost ran out of money, but they didn't. They almost all had that great story, right? You get them on stage outside of the last two years, you're getting on stage, you know, we were three weeks away. We only, We had to meet 700…”