So folks in venture are back to business.  2022 was a year of dealing with the fallout of fallen unicorns, terrible deals, and slashed valuations.  2023 was a year of capitulation, markdowns, and more.  But also — a year of AI excitement.   The epic growth of OpenAI, Databricks and more have enticed VCs at the Series A and later stage back to work.

It was 2 years with a lot of pausing in venture.  Now, venture is back to work.   The seed markets remain vibrant, and later-stage investors are looking at more deals.  Redpoint in our recent Workshop Wednesday noted 2024 is sort of back to normal for growth investing now … and that we may be reaching the end of the bottom in net new VC investing:

But … but … here’s the thing.  A reality has set in.  It’s Year 3 of the Venture Downturn in SaaS.  That’s OK, everyone has adjusted.

And what’s happened is optimism after the seed stage, so crucial in many ways, has given way to pragmatism.  Outside of a few crazy AI outliers, no one really wants to believe in the Series A or later stages that a start-up can grow into an outsized valuation.  No one wants to pay up anymore outside of seed and some crazy AI deals.  And if there are any concerns at all on a deal … Series A and later VCs are now mostly Default No.  In the go-go times of 2021, everyone was Default Yes if there was something good in a SaaS deal.

To be more specific, I’m now seeing SaaS startups with strong growth not get a Series A or B term sheet.  Folks doubling or even tripling at that stage.  Why?  It’s just if there’s anything not to like, it’s often now a “No”.

One VC told me they recently passed on a hot startup solely because the closest comp was PagerDuty, one of the great SaaS companies out there.  Why did they pass?  “Well, if PagerDuty is only worth $2 Billion, I can’t see this one hitting a billion even best case.”

It’s a fair point, if nothing changes.  Very few can exceed the huge success of a PagerDuty or many other SaaS leaders.

It’s back to brass tacks.  And that means the next round is almost always going to be harder.

(tough year image from here)

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• Source: https://www.saastr.com/its-now-year-2-of-the-venture-downturn/