Mar 27, 2020 · 1h 13m · saastr
The Current State of Venture Capital and Cloud | SaaStr Software Community
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In this SaaStr community session, Jason Lemkin and Bessemer Venture Partners' Byron Deeter analyze how economic downturns reshape venture capital deployment and provide SaaS founders with actionable strategies for fundraising, runway extension, and operational resilience.
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 39.2% of the talking time here. How this is scored →
Jason as informed peer 6.3 Guest teaching 3.4 Guest disagreement 1.7 Jason pushing back 1.9
speaking balance: gold is Jason, purple is the guest (3 minute bins)
Sharpest disagreement ▶ 42:50 Tourist investors vs. seasoned firms
Byron firmly dismisses the dependability of newer and fringe capital providers during a crisis, warning founders that opportunistic entrants lack the reserves or commitment to support portfolio companies.
Hardest push from Jason ▶ 1:00:16 Directly asking VCs if they can closeJason challenges Byron's complex advice about analyzing fund metrics by insisting that founders should directly and candidly ask prospective investors about the odds of closing.
Biggest teaching moment ▶ 23:26 Deconstructing SaaS vulnerability vectorsByron breaks down an intricate multi-factor framework for assessing vulnerability, guiding the host and audience through leading churn indicators like seat deprovisioning and customer transaction dips.
Jason holds their own ▶ 44:00 Lemkin defends dry powder in newer fundsJason pushes back on Byron's warning against newer funds by highlighting that freshly raised funds unburdened by troubled legacy portfolios may actually represent eager and active capital.
the scores for every segment, with the reasoning behind each
| Chapter | Topic | Jason as informed peer | Guest teaching | Guest disagreement | Jason pushing back | Why |
|---|---|---|---|---|---|---|
| VC Triage and Prioritization of Existing Portfolios | 6 | 3 | 2 | 2 | Jason sets up the framing around transparency and how VC time is allocated during sudden market shifts. Byron details the internal triage processes firms undergo, explaining why partner bandwidth contracts dramatically for net new investments. The dynamic is cordial, with Jason prompting realistic timelines for founders. | |
| Fundraising Strategy and Operational Guidance for Startups | 7 | 2 | 1 | 2 | Jason offers practical operator advice on taking advantage of market pauses to pay down technical and process debt. Byron agrees wholeheartedly, pointing out that founders will receive a pass on top-line growth metrics for the immediate quarters ahead. | |
| Historical Market Crashes Versus the Current Macro Shock | 6 | 4 | 2 | 1 | Jason compares the current macro shock to past drawdowns like 2008 and 2016. Byron provides macroeconomic context, noting that while the speed of the decline is historic, SaaS revenue multiples remain relatively healthy compared to traditional EBITDA-based industries. | |
| Evaluating Vertical Exposure and Leading Indicators in SaaS | 5 | 5 | 1 | 1 | Jason asks how founders should model out an 18-month downturn across different operational scenarios. Byron lays out a detailed framework analyzing vertical exposure, customer size (SMB vs. enterprise), and functional criticality to forecast churn leading indicators. | |
| Navigating Bridge Financings and Term Sheet Renegotiations | 7 | 3 | 2 | 2 | Jason and Byron discuss the etiquette, mechanics, and psychology around bridge rounds and renegotiating active term sheets. Both share personal founder anecdotes about pulled term sheets and emphasize meeting investors in the middle to prioritize speed and survival over valuation perfection. | |
| Venture Debt, Alternative Financing, and Lender Stability | 7 | 4 | 2 | 3 | Jason inquires whether venture debt and alternative non-dilutive lenders will remain viable during a liquidity crunch, pushing on whether new funds might step in. Byron draws on his 2008 experience to strongly advise drawing down lines immediately as insurance against recalled credit facilities. | |
| Tactical Fundraising Guidance Across Startup Stages | 6 | 3 | 2 | 2 | Jason probes the realities of fundraising across early vs. late stages and warns founders about tire-kicking discovery calls from investors with newly empty calendars. Byron confirms that while elite outliers will still command capital, valuation adjustments are inevitable across the board. | |
| Venture Fund Mechanics, Reserves, and LP Constraints | 7 | 4 | 2 | 3 | Jason presents a breakdown of fund math, reserve allocations, and capital calls, challenging Byron on whether founders should directly ask VCs about their ability to close. Byron explains LP defaults and the mechanics behind mandatory support rounds vs. optional up rounds. | |
| Public Cloud Index Resilience and Secular Replatforming | 6 | 3 | 1 | 1 | Jason reflects on the resilience of cloud platforms using the BVP Cloud Index as a benchmark. Byron underscores the secular shift toward distributed technology and emphasizes that software business models remain exceptionally resilient despite macro turbulence. |
Statements from this episode (25)
Deeter: LinkedIn was the first private unicorn; early cloud lacked public comps
“When we, when you were starting EchoSign, I was doing Trigo, there wasn't a single public cloud company. In fact, in 2000, it took a couple of years before the first emerged and the first private unicorn was LinkedIn and like, Oh wait, so all new land.”
Deeter: Claims of 'business as usual' in VC right now are crap
“I think the idea that it's business as usual is, is crap. I don't think any venture firm is approaching it that way. And I think anyone that's suggesting that is, is misleading at best.”
Deeter: Private market lag will slow venture deal pace
“It will take a while for the private markets to adjust to what we've seen very rapidly happen in the public markets. And I think that's going to impact deal pace as well.”
Deeter: VC time has shifted overwhelmingly to internal portfolio triage
“Overwhelmingly the focus has gone to internal things. You know, I've had direct conversations, texts, emails, we've had, you know, quick board meetings. A lot of these discussions are scenario planning.”
Deeter: Venture dealmaking bar should normalize around mid-April 2020
“The net new conversations are hard and the bar is always high, but as the, one of the prior tweets said it's astronomically high right now. That will adjust and that will come back to a little bit of normal deal management in the next few weeks, but I suspect …”
Deeter: Startups with fundraising momentum should prioritize speed over greed
“If you've got discussions underway and enough momentum to complete it, hit it hard and try to like finish immediately. And don't worry about optimizing price or valuation or terms bluntly, just get it done and think of that as speed over greed.”
Lemkin: Failing to raise quickly out of top accelerators creates negative signaling
“I think if you are in a top tier accelerator and you don't get funded quickly, there is a bit of a black star, a scarlet mark. It's not huge, but if you're, it's not just YC, but if you're in a top program, there's an assumption that Bessemer has an army of an…”
Deeter: Investors will treat downturn quarters as a wash for funded startups
“The other thing though, for those of you operating businesses that are already funded and are thinking through plans is that you're going to get a hall pass on the next few quarters in, in terms of the numbers. Now that doesn't help you if you're in a fundrais…”
Deeter: The 2020 market crash is the fastest 30% decline in history
“This by contrast is the fastest 30% plus decline by the broad market in history. I mean, this beats the great depression, the oh, wait, the dot com, et cetera.”
Deeter: Public SaaS multiples remain at 8x to 10x revenue after crash
“Even after this pullback, We're still looking at, you know, eight, nine, 10 X multiples in the public markets on revenue.”
Lemkin: Citibank advised withdrawing our startup's deposits in 2008
“Citibank called me and told me to take our startup's money out of the bank and put it in a mattress. Citibank, I don't know if they're the largest bank in the world, they're the largest US bank, told me to take my money out.”
Deeter: Bessemer invested in Twilio, Shopify, and Pinterest during 2008 crisis
“Three in the Bessemer portfolio alone, we had Twilio, Shopify, and Pinterest were all, you know, seed and series A investments coming out of that O eight crisis.”
Deeter: Startup exits cluster across market cycles, but entry points do not
“Great entrepreneurship, you know, happens across all cycles that the exits tend to be clustered, but the entry points aren't.”
Deeter predicts Slack, Peloton, DocuSign, and Box will benefit from pandemic
“Certainly a slack or a Peloton or a DocuSign or a box will probably benefit from this.”
Deeter: Recruiting and martech SaaS will struggle while financial systems stay resilient
“Recruiting solutions are probably going to have a tough go of it for the next couple of quarters. Martech solutions are probably going to have a tough go of it. Whereas core financial systems will probably be more resilient. If they're targeting mid-market or …”
Deeter: Some Bessemer portfolio companies dropped 30% to 40% within a week
“We literally have companies that last week said you know, we're seeing no impact that are down 30 or 40% already into this week.”
Deeter: Bessemer approved two to three bridge rounds this week
“I think we approved two or three in our Monday meeting this week, and I'm sure we'll, we'll approve a couple more next week.”
Deeter: Second-tier debt lenders recalled lines in 2008, killing a startup
“In oh eight, we did see several venture debt providers, not the tier one folks, but the level below them block lines or recall lines. And in, in one very painful case in our portfolio, it killed the company, a company that should not have died because of the c…”
Deeter: New and fringe investors in venture and debt will suffer the most in downturn
“So I think the, it's safe to assume that the new entrance or the fringe entrance in most cases are going to be the ones most impacted. That applies to venture firms, debt firms, corporate venture firms, et cetera. There, there's even potentially the crossover …”
Deeter: Bessemer takes zero courtesy meetings during downturn
“So we are taking no courtesy meetings right now or over the next several weeks. Any meeting we take, we legitimately think is interesting and could be an investment full stop.”
Deeter: Bessemer started its Twilio investment with a $125,000 seed check
“We started with a 125,000 dollar seed check and over many ground built.”
Deeter: Influential LPs will pressure small VC funds to pause deployment
“Yes, so that happens much more and absolutely will be kind of the brake pedal that you don't see. Will be a few influential LPs may call a small fund and say, look, we really would love it if you'd hit the brakes hard for a couple of quarters so we can service…”
Deeter: Bessemer raised a top-off fund to invest aggressively in 2008
“For us in oh seven oh eight. We once things stay stabilized and we've done the triage, we did the exact opposite. We actually raised an opportunity top off fund to be more aggressive. And we had LPs that said, you know, now's a buying opportunity and supported…”
Deeter: Economic Impact Will Be Worse Than Expected, Extending Into 2021
“I do believe the economic impact from this is going to be unfortunately more significant when than people are digesting yet. And this could take several quarters and well into next year for the overall economy to get started again.”