VC panel about funding SaaS companies in today's market

While attending the 2008 SaaS Summit last week, I was fortunate to listen in on a panel discussing venture funding of SaaS companies in today's market. The panel had a mix of early stage, mid and corporate, corporate investors and a view from the public markets perspective.

Panel: Ann Winblad, Partner - Hummer Winblad Venture Partners, Jason Maynard, Research Analyst - Credit Suisse First Boston, Jason Green, General Partner - Emergence Capital Partners, and Jon Krause, Investment Manager, Intel Capital. Moderator: Treb Ryan, CEO, Opsource.

Several things stuck with me from the panel discussion. First is the divergence of business funding models that have been funded in the current and past years. SaaS isn't just about funding investments of $50m, $75m or $100m in capital mega startup or roll up companies. Several companies were mentioned who bootstrapped, acquired a bevy of good customers, and then seek capital to increase growth. These aren't the days of "build it and they will come". SaaS and On Demand software enables companies to get products to market with fewer barriers, benefit from customer and market feedback, to more quickly prove out their business model, or at least spend less money doing so.

Another common theme was the patience that investors must have these days. Few startups are going to go from series A to a buyout or IPO in 3 years or so. Most take much longer for a liquidity event. Venture cycles are running 6.7 for a company IPO, and 5 years for a company is acquired, according to Ann Winbald, of Hummer Winblad. Though the VCs know this, most entrepreneurs are still learning that these timeframes are typical, not the quick pops during the '90s bubble.

A few other themes resonated with me. The importance of partners, and extending your reach through those partners, sales organization, branding and technology. My experience is that product managers, CTOs and product developers often overlook opportunities for rebranding and OEM products early in their development. I know I've been guilty of that lesson myself, and it's something I put a lot more emphasis on in the companies I work with today.

The other was the investment in the front end of the business that is necessary, sales and marketing. Some of the panel members felt it should be a 1:1 ratio, $1 of sales and market for every $1 of the most recent quarter of revenue. That's sounds like the spend of one of those capital intensive mega companies and seems pretty heavy to me, but I do believe you've got invest significant dollars in the front end. Products rarely market or sell themselves, and when they do, no one knew it would happen up front -- I'm saying they are lucking more often than smart. So don't put too much faith in luck and invest in the business.

Is your product aspirin or vitamins (metaphorically)? That's one prescription for telling how important your product or service is to the customer. How sticky is what you provide your customers and could they walk away during a downturn of the economy. That was some other sage advice from Ann, who talked about how they evaluate the customer portfolio of companies they consider for investment.

Note: I'm requesting permission to post the mp3 recording of the panel discussion. Stay tuned.

 

Comments

[Jim]

Did you find the MP3 from the SaaS VC discussion. Please also add me to your distribution list or for the Converging Network news letter ... interesting stuff! Thanks! J

[Jim]

Did you find the MP3 from the SaaS VC discussion. Please also add me to your distribution list or for the Converging Network news letter ... interesting stuff! Thanks! J

[vahila]

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