prepare not to fundraise for 12-18 months

Valuations will fall in the short run, so avoid down rounds by tightening up your operational processes. 113/bNfN04/VVx_8t5TYwWJW7JzMYB1bqDn6W1MKd8X4MtK6hN7swVvS3lLB3V1-WJV7CgRV0W1TKlTK1zYGbmW7QTPDV4223LHM2c1kyGrz4DW2qVTWN69qwKHW6T8_Fz7-wgLsW3mH25z8C-jrXW6L7rtL7hbMs8W3NvBWz3j-1_rW5xnyyT7HvKrzW5zDqTP5jn-t_W8GKGh51pw208W1_fhD18fTf7KW4XrCnx6QpcYtVPGy7y19C_x_W40YSlJ6zyM07W8Gpvs18DydKyW5wJ_QP22HYt6W7ks_098CxsGVW10g4XD1_0hx3W2t00Zc8ZqlCG36p31 [pw-paddle-logo-white@4x] PRESENTS Building runway for a down market You've likely seen that we [joined forces with Paddle](113/bNfN04/VVx_8t5TYwWJW7JzMYB1bqDn6W1MKd8X4MtK6hN7swVvS3lLB3V1-WJV7CgJfXW2Dkgvd6hZ9SgW7mxtCW8HKhJgW7XJwpP3sNhC0W1SzJCn6KFzHyW69m40Z1xLr_CVZwY736XKzhVW3HvTVk4Qs3c5VZHDD54MDJNxW7JXzj_8S7gWJW2jCrCv7XgjTwW444g5b5Ymbs0W6r5VZY7tvFbzW2L8DwF3KDTtqW8RGmcM1J2lPLW43tZsT4WxWB9W3jz0sh3gXqyfW1mjdGz5mZ8LqW6kcW-n3ff5xxVxrHgR82HN3lW8FHDVL6tFlng2nV1). Together we're removing the invisible barriers that get in the way of operating and growing SaaS companies. The Paddle team brings a wealth of SaaS financial expertise. So we wanted to share their insights on what’s coming in the fundraising market through 2023, and how to improve your runway and burn in the meantime. [Read more](113/bNfN04/VVx_8t5TYwWJW7JzMYB1bqDn6W1MKd8X4MtK6hN7swVwr3lLBGV1-WJV7CgKcGW11wF8s7HWtJJW85R-7g8HjnvBW1kTrb-95klgWVps1Zc3YQLYNVKC_Vg1Tf0GtW5pwq_N5bdjH_W6fRL9K3pLsYGW3fK59x3SfG4fW9kD7sR8brcVrW5VVt835CT39hW2QmQmd2r88m0W8J56hL5q7_vNW6MNjFs4WFpy5W1HNKtJ5YZRgCW61J06g7VgFk1W6K-QRL41ZCjnW6cdLPF4CcXPSW8G4dNk5sxtW1W5J5hxM2N9-CZW5HhWmv6_Rm3FW4SzC_m6McHwbW1_Swwf8Rjx4gW53zXkc1BPdLLW72q7R03Mc0Hc3nrg1) The intense market distortion post-Covid-19 and the uncertainty surrounding the Russia-Ukraine war has ushered in a new era of volatility. How will this affect SaaS companies’ funding and valuations over the next 18 months? We spoke to SaaS founders to get their insights on shoring up valuations in the current market. The most important: lengthen your runway and tighten up daily operations. Lesson 1: Valuations will fall in the short-term The past decade has seen sky-high SaaS valuations, with enterprise SaaS companies seen as synonymous with long-term profitability. But that's only true for behemoths like Salesforce, explains Social Capital CEO, Chamath Palihapitiya. Citing Brad Gerstner's analysis (CEO of Altimeter Capital), Craft Ventures Co-Founder, David Sacks, said that valuations had risen to insane levels during Covid-19 and this expected drop will see valuations revert to the historical average. But this trend could be temporary. 113/bNfN04/VVx_8t5TYwWJW7JzMYB1bqDn6W1MKd8X4MtK6hN7swVw73lLBmV1-WJV7CgKXNW81Vfsd5V2CmyW2T62SF2wwvBRVSwcSF6KdNsTW2SrmNL6pyRNFW7k46Mg78C6XCW1L_MCD7q83_bN3jRWmvmVLQFW3YXfbs6YHC5hW54y7Cv5wV__1W9lSxTm8nFL1xW5phWYz6nhxDnW3gwxdx7ZrLQRW2BvR2m4z-NqyW781s168zhCGlW98YJBN21W67xN5M93wmYYsyjW3spvZp1hF7dfW6h7MS559Z_GgW4SF2LS2FFhnxW41j3BC7CTdz3W4ScDXD6M0xbvW3-SNmW4Bgb1l3q6q1 Lesson 2: Lower valuations could lead to down rounds "Down rounds" are fundraising rounds that are lower than the previous round. According to Sacks, they can lead to a “death spiral” of falling morale, confidence, and growth. Yet Gerstner thinks that “the vast majority of companies that come public in the next 12 months are going out below their last round of valuation” and late-stage investors of some unicorns will very disappointed. That's particularly worrying for companies that have been funded at exorbitant valuations, when rates were low and operate in a highly saturated market — like neo-banks and 15-minute delivery companies. Some investors are skipping the late-stage private financing market altogether for the time being. Lesson 3: Avoid down rounds by focusing on runway and burn Sacks advises “in an up market or a boom market the three things that matter are growth, growth and growth. In a down market, the three things that matter are growth, burn, and margins.” He's been telling his portfolio to lengthen their cash runway to 2-4 years, and be more capital efficient to avoid having to raise too quickly and face a potential down round. He also advised to temper fundraising expectations: “if you raised last year at 100 times ARR, you need to understand that the next time you raise it might be at 20 times ARR.” Lesson 4: Running a tight operation Public market investors are looking for high-quality and reliable companies with plenty of cash on the balance sheet. In the private market, VCs are going to avoid riskier assets and pay less for quality assets. SaaS founders should broaden their focus from not just growth, but operational efficiency as well. This will help lengthen your cash runway to be in the best position when the market upturns. With Paddle’s 3000 software customers, we see a few key strategies recurring again and again: - Reduce financial operating costs. Once you add up the costs of payment processing, platform fees, compliance, and support, this is often the third biggest expense in a software business (after salaries and hosting). - Simplify backend processes and systems. Your team's productivity cost to build, maintain, and run a piecemeal product stack is always more expensive than you forecast, and a frustrating distraction from building your core business and product. - Optimize customer retention. It's easy to overlook tactics like improving payment conversion rates and delinquent churn recovery in good times, but this reduces cash flow and LTV, which directly impacts burn rate and valuations. - Shore up your compliance. We’ve seen several funding rounds where compliance issues during fundraising due diligence (e.g. back taxes for sales tax in multiple countries) have been used as reasons for cutting valuations. As the pressure on valuation multiples is felt over the next months, don’t let unforeseen legal issues torpedo a round that’s about to close. Key takeaway Whether sitting pretty with a war chest from a recent fundraise, or getting concerned at the risk of a planned fundraise in late 2022, it’s time to get serious about your operating model. Any SaaS business with good fundamentals can succeed over the long run, but running out of cash will kill you now. [See full post](113/bNfN04/VVx_8t5TYwWJW7JzMYB1bqDn6W1MKd8X4MtK6hN7swVwr3lLBGV1-WJV7CgD2SW8MGtfB65SPG5VnMZ005MS3d5W6YHB3D7bl3kGW614VPg1jkhJKW1y96hN5MBC-yV3mCxR1cnRJ8N8hZXV7QCXPcW4jwDWy91N8j5W2js4nV2H-VMVW77C4l67_nq5SW6vFP566hztsDW8s7QPQ3yHV78N4V0sSCTXdJNW4R0c5m8h3q7GW8LX42V7H7ksFW3BYG1t8k7ppXVsR9ns6rx9PCVb0SS87TLchkW6KCGfm7VjPmpW4gcQFd2fH5HFW6GSP5R2v6vV2VrHpDp99c9LlW44ptpG8zx3BkW41jg6C8RD32B32Fk1) Do us a favor? Part of the way we measure success is by seeing if our content is shareable. If you got value from this, would you click below to share with your network? 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