Startups For the Rest of Us
Episode 729 | 9 Things I've Learned Investing in 170+ SaaS Companies
Tue, 03 Sep 2024
In episode 729, join Rob Walling as he shares insights from the 170+ SaaS investments he’s made through his B2B SaaS accelerator, TinySeed. Key patterns include the survivability of SaaS, the lucrative value of these companies, and commonalities across the ones that grow the fastest. To see even more patterns that didn’t make this episode, be sure to check out the MicroConf YouTube channel. Episode Sponsor: Hiring senior developers can really move the needle in your business, but if you bring on the wrong person, you can quickly burn through your runway. If you need help finding a vetted, senior, results-oriented developer, you should reach out to today’s sponsor, Lemon.io. For years, they’ve been helping our audience find high quality, global talent at competitive rates, and they can help you too. Longtime listener Chaz Yoon, hired a senior developer from Lemon.io and said his hire ”definitely knew his stuff, provided appropriate feedback and pushback, and had great communication, including very fluent English. He really exceeded my expectations.” Chaz said he’d definitely use Lemon.io again when he’s looking for a senior level engineer. To learn more and get a 15% discount on your first four weeks of working with a developer at lemon.io/startups. Topics we cover: 2:24 – Survivability of B2B SaaS in TinySeed 4:09 – SaaS is extremely valuable 8:26 – Vertical and orthogonal SaaS face fewer headwinds 12:36 – A supermajority of TinySeed companies want a big exit 15:51 – TinySeed founder count aligns with the broader MicroConf ecosystem 17:04 – Ruined cap tables have prevented deals 19:35 – A quarter of TinySeed companies raise subsequent fundraising 21:17 – Common advisory topics: pricing, plateaus, cofounders, funding, selling Links from the Show: Apply for TinySeed Invest in TinySeed MicroConf YouTube: 6 Lessons From My Most Successful Investments (B2B SaaS) Episode 727 | Gymdesk Sells for More than $32.5 million, Hiring Gets Easier, and More Hot Take Tuesday Topics Episode 728 | Bootstrapping Gymdesk to a More Than $32.5M Exit State of Independent SaaS Report If you have questions about starting or scaling a software business that you’d like for us to cover, please submit your question for an upcoming episode. We’d love to hear from you! Subscribe & Review: iTunes |
Full Episode
Rob Walling Thank you so much for having me. to only those where TinySeed has written a check in the past. I guess the first check was written about five years ago. And so that gives us a pretty tight timeframe and a more cohesive decision-making approach because we've been much more deliberate about the types of businesses that we fund.
So today's episode is stemmed from a question I got in a private Slack group I'm in where someone said, you're basically five years, we're six years from the announcement of TinySeed almost, but we are just over five years from the first check being written. And he asked, are there any patterns or takeaways that you're noticing across TinySeed? These 170 plus companies. And there are.
And that's what I'm going to share today. Now I want to make a note. I have almost two dozen of these takeaways. And that's too long for a podcast episode. It would run well over an hour. So what I did is I split off six of them and I put them in a YouTube video on the Microcom channel. And it has a name similar to this. It probably just came out a couple days ago.
And it's six things that I've learned investing in more than 170 companies over five years, something like that. So if you head to microconf.com slash YouTube, it should be one of the last couple videos published. Or you can look in the show notes of this podcast and click through directly to that video if you want to get the other takeaways that I didn't include in this podcast.
I'm going to list these in no particular order. They just came to me in this order as I was trying to think of what are the patterns that we've seen. First one is the survivability of B2B SaaS, and maybe specifically within our portfolio, because obviously we are pretty picky, pretty choosy about the companies we let in.
But broader than that, B2B SaaS in general, once you get a little bit of traction, it doesn't fail very often. So more than 170 investments in approximately 2% of those have been written off, have shut down, not sold, and basically moved on to their next stack. So very, very small, what I'd call a failure rate, much, much smaller than you would see in a traditional, more risky venture fund.
Now I want to couch this. It's still early. We funded, I don't know, approximately 45 companies in the past 12 months. And so obviously the failure rate of those would be much lower because they haven't had time to fail. So I don't want to act like for eternity, for the next 10, 20 years, there's going to be a 2% failure rate. But we did start writing checks five years ago.
And even among those companies, the failure rate is still extremely low. The other number that I found interesting, and I just confirmed these as of this morning, is that 4% of tiny seed companies have exited, meaning sold for enough cash that tiny seed at least got our money back.
And in some cases, as you've heard with Iran Galperin's exit on this podcast, we received many, many times our money back. But 4% have exited, 2%. have been written off. So there's still a lot of companies in play. And as I said before, it's still early.
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