Diving deep into B2B SaaS metrics with Kristina Shen, General Partner at Andreessen Horowitz

Episode Description

In this episode of Diving Deep, Subscript's CEO, Sidharth, has an engaging conversation with Kristina Shen, General Partner at Andreessen Horowitz.

Sidharth and Kristina go deep into B2B SaaS metrics as they discuss:

• The first slide a board member will jump to in your deck
• The dangers of calculating LTV (and what to use instead)
• Why trendlines matter more than benchmarks
• Why "The Rule of 40" isn’t good enough anymore
• And more!

Show Notes

Follow Sidharth: https://www.linkedin.com/in/sidharthkakkar/

Follow Kristina: https://www.linkedin.com/in/kristina-shen/

Follow Subscript: https://www.linkedin.com/company/subscript/‍

About Diving Deep with Subscript

Diving Deep with Subscript is a video series where we dive deep and explore SaaS metrics with leading investors, CEOs, and finance leaders.

Watch the entire series of Diving Deep with Subscript

Get caught up on the entire series right here: https://www.subscript.com/diving-deep

Episode Transcript

Sidharth Kakkar
Basically because you're talking to so many subscription companies, you're in so many boards, you spend so much time in talking to CEOs. I'm super excited to ask you some of these questions for my benefit, too. So the first one and I'll just start off there is when you get a board deck from a company, you're already in the board, what is the first thing you're looking for? What's like the first page you flip to?

Kristina Shen
Yeah, of course. A lot of it depends, actually. And I think we'll talk a lot about this on this session, which is like there's different metrics and expectations for different stage companies. Right? So when I joined the board of when I'm the first board member, and it's like a Seed or Series A company, it's a journey to kind of get the board deck and the metrics to a place that makes sense. But on a Series D, E, F, Pre-IPO company, there's a different level of expectation. So, I mean, I see the first page I always flip to is. There's two pages I really love. One is like the highlights and lowlights. Right? I just want to know what went well and what didn't go well. A lot of times there's metrics in there. And then I really love kind of like that one KPI metrics dashboard, which are always the three to six metrics that really matter. And I'm happy to go into detail on that as well. But I think every investor does it they get the board deck. It's like 100 slides by the time you're pre IPO and you go to like two slides.

Sidharth Kakkar
I think I and other people would kill for the detail on that. So I don't know if you're able to rattle them off the top of your head, but if you are I would love to hear that.

Kristina Shen
Yeah, of course. I think the goal is to get this slide by the time you're let's say like a couple million in ARR. But when you're just getting started, sometimes the metrics don't make sense. But when you're like, let's call it $5 million in ARR, the slide that you want is you'd want what is your top line metric, which could be CARR, it could be some other metered version of revenue, but you want top line Arr and growth. Then you want some measure of retention and retention changes based on different businesses. But most of the time we look at we would say logo retention. So just based off customers, and then we'll look at net dollar retention. So how much is your existing base of customers purchasing again one year later? Then we'll look at some version of sales efficiency. I have a strong preference for CAC payback because I think it's easier to understand it's just how many months does it take to pay back your gross margin affected revenue that you had? Some people will just look at like a sales ratio or like there's lots of different metrics here. I personally prefer cash payback and then some measure of burn efficiency.

Kristina Shen
I personally like looking at net new ARR to net burn. Some people just look at the amounts of runway of months you have until you run out of burn. But there's a couple of metrics there as well. But those are probably the four to five metrics I always look for. And then it really depends on your company, right? If you are a direct sales business, a lot of people look at ACV, what is your average contract value per customer? But if you are a PLG company, a lot of people look at like what is your percentage conversion from free to paid? Or they'll look at what is the engagement metric of DAU to MAU. So a lot of those additional metrics depends on what is your go to market and your business model. But those first five I think are the ones that everyone should have.

Sidharth Kakkar
That makes a ton of sense. It feels like when I was doing my first company, people paid a little bit less attention to the burn multiple and stuff like that. Not that people didn't care about burn, but just I guess it wasn't framed that way. Do you find that some of this is changing? Like what are the things that are now important versus used to feel important? Or do you feel like this is like fairly stable?

Kristina Shen
I think there's two dynamics. One is like what stage company you are. So if you're 5 million in revenue, I didn't think people care about what is your CAC payback and what is your level of burn. A very frequent thing we'll look at as investors is like how much new ARR did you add this year and how much did you burn? That's like a very common discussion when you're over 5 million revenue. But if you're 1 million in revenue, honestly, they're all kind of made up numbers because your business is changing so rapidly and quickly. So when you're a very early stage business, actually we're looking a lot at momentum. So we care a lot about how much did your net new ARR, the new ARR that you gained either from new logos or from your existing customers every month? We're looking at how is that increasing in the growth rate on a month over month basis? And then things like CAC payback because it's a little bit made up to have a CAC payback number because ultimately you have one salesperson and you go to two suddenly, does your cost double? It's just like the math doesn't quite work out.

Kristina Shen
So we try to encourage people to set up the instrumentation to be able to track all these metrics. And the trend line matters more than the actual number when you're an earlier stage companies. But by the time you're say 5 million in revenue, you should have a really great understanding of what these metrics are for you and what levers you can pull to improve them.

Sidharth Kakkar
I love that point about the trend line, just being able to see it over time because if you're not seeing it at all, then you have no clue. Do you expect your CEOs to know these numbers off the top of their head?

Kristina Shen
I'd say when you're an early stage founder, we probably don't expect it too much. So if you're like a couple of million in revenue, I think we do expect you to understand it's more about understanding your business and what works and doesn't work and understand the levers than the output of these metrics. In many ways these metrics are just outputs, right?

Sidharth Kakkar
Yes.

Kristina Shen
And so if you're a very early stage founder, I actually really care that you understand the ICP or ideal customer profile that you're selling to and how much they're willing to pay, what other things they are buying. And you should understand what your top line metric is like just knowing the momentum of the business. Yeah, but I probably don't care as much about burn multiple or CAC payback depending on the type of business you are. If you are PLG or month to month or self serve, you should have a very good understanding of churn from the early days because you get so much information. Like if you have a month to month customers, you actually get information on your churn every single month. But if you're selling an annual subscription, realistically you won't have a renewal for twelve months. And so it's just hard to have that level of expectation. So a lot of it depends on what type of business you are.

Sidharth Kakkar
Actually, that's a really good point. I want to pull in that thread a little bit because when you're a month to month business, you have to such a good rapid feedback loop every single month. When you're an annual business, not only is the feedback loop longer, but if your business is changing rapidly, that one year, everything has changed for you since you acquired that customer. And maybe you're acquiring different types of customers or maybe your ICP is changing all this stuff. How do you advise founders and dealing with that, like that feedback loop issue when it comes to more annual contract type of businesses?

Kristina Shen
That's such a good question. I'm such a big believer in investing in customer success earlier, because if you think about it, your customers are your bread and butter. They are like the ones who help you grow. They're your biggest marketers and advocates. They are your biggest input into the product. And so I'm a big believer in whether you I love hiring customer success reps early, but also in the early days, you are customer success, right? You are talking to your customers all the time. And so I'm a big believer in having a lot of touch points with customers even from day one. Right. Because they will inform your product. They will inform and they'll let you know how happy they are. And you'll get the sense from product engagement as well. But those are I think retention is an output metric, right. Even if you are an annual product or annual subscription, you should really know and have a very great sense as to what that renewal looks like a quarter or two before you hit the renewal cycle. And you can do that through NPS surveys, lots of engagement, constant feedback that's actually really important to us as well.

Kristina Shen
So there's all these pre metrics before you get to the output metrics

Sidharth Kakkar
Yeah, such a good point. I was going to ask this just for fun. It seems like NPS has become a very polarizing thing for some reason. And I'm curious about what your NPS on NPS was.

Kristina Shen
The funny thing is, I don't know if you know this, but at Andreessen Horowitz, we treat our GPs and investors like a product. Have you ever received my NPS score?

Sidharth Kakkar
No.

Kristina Shen
Yeah. So we NPS, all of our founders, not just people we invest in. By definition, VCs only invest in a very small percentage.

Sidharth Kakkar
Right.

Kristina Shen
So we survey every meeting, every founder we've ever met and get an NPS score. I'm a personal big believer in NPS. Now the problem is you can game NPS. So it's very funny. We looked at this. Founders who are product founders in general, will NPS lower because they understand how the math works and so they understand. I think 8, 9, 10 is your contributor and then six or seven is neutral and everything else is a detractor or something like that. Because product people understand how NPS works, they game the system more. Well, most people actually have no idea how that basically product people tend to score higher because they understand that if you give a seven, someone might be really happy with seven, but they know what everyone else follows a more typical distribution. So product people actually end up scoring higher.

Sidharth Kakkar
That's so funny. I also wonder how this works in geographies and different geographies. I remember the first time I was in Singapore taking an Uber. All the reviews were significantly lower. And this like really it totally made sense to me because my wife's from Singapore and the attitude that she always has is like, there's always room for improvement. No one's perfect. And so like, to her a 7 is like thumbs up.

Kristina Shen
Sometimes eight is neutral as well. A lot of people will be like, oh, 8's really good. But no, it actually could be a neutral score for some NPS. So I think the NPS methodology isn't perfect. But again, it's all back to trend lines, right? Like whenever you're tracking metrics, every business is different, every circumstance is different. The population that you sample is different. The methodology in which you sample is different. And so what really matters is you're trying to be consistent and have a trend line. It's why I get really excited about products like Subscript because you need to have a baseline to track the business over time. And what's most important is understand what the direction is going and what levers impact it. And less the exact number itself. Because for one business, net dollar retention might be more important. For another business, logo retention might be more important.

Sidharth Kakkar
When it comes to businesses that have some revenue. So they're starting to make the engine work. When you're evaluating opportunities. How do you view how well the team understands this stuff? Is this like if they seem a little bit less fluent in it, how do you view that if they're super organized about it? How do you view that as an investor? Where does this like does this factor into your decision making process? If so, how?

Kristina Shen
It actually depends on the type of business. So I would say if you are an open source infrastructure company and your project is taking off but you don't initially have as much commercial or metric DNA, it's actually not a huge concern just because when you are a PLG product, if your viral network effects are just kicking off, then you don't need as much direct sales or commercial DNA or metrics oriented nature to have the business take off. Now it's very helpful, but you can hire that type of DNA into the company. On the flip side, I think it is much harder if you are selling a product that needs to be sold as a direct sale tends to be more of an annual subscription and theoretically in a market that could have more competitors merge then the focus and DNA around metrics and having a more commercial DNA, I think we value more highly, especially in at least the founding team. But it may not necessarily have to be the CEO because how you go to market does have a very big impact and influence on a company's success. If a lot of competitors do enter into the market.

Kristina Shen
So for us it depends on a lot of what is the right go to market fit and right kind of DNA match for each product?

Sidharth Kakkar
Totally.

Kristina Shen
As opposed to saying blanket. And I think there's a preference based on founders. I think I am a very analytical person and so I naturally jive with very analytical founders as well. But I think it really comes down to the type of product you're selling. The customer base you sell into.

Sidharth Kakkar
That makes a ton of sense when it comes to hiring for that first finance person and team. Do you have any advice for founders on when and then, I don't know if this is like too far, but also what to look for?

Kristina Shen
So the one question gosh, it's coming up so much even in my portfolio right now. Again, it comes down to the DNA of the founding team. So a lot of times you have a more analytical individual in the founding team and thus they inherently are more metrics oriented. And thus you actually don't need that metrics or finance bizops or first finance person hire until a little bit later. It's not uncommon until like the Series B or even later. Sometimes they have the individual give the DNA in the team, some other teams, they just don't have that DNA or it's not a first priority. And I think the moment you know the answer when you need it is if nobody in the company is tracking it. So nobody knows anything past ARR and burn, it's probably time. Right. And that first persona, it depends again, on the type of product and business you are. Sometimes the first persona ends up being a little bit more of a sales ops person because it's more about optimizing having the right Salesforce metrics and optimizing the pipeline and understanding what the right ICP and conversion through is and what marketing channels are working and what aren't.

Kristina Shen
Sometimes it ends up being more of a sales ops type person, but the other people it's hey, accounting is a mess and I need to be able to close the books and like have baseline forecast and financials. And a lot of times that's the same role. Right. In a first time company. So it kind of depends on what you're looking for. I would say in the most ideal scenario, it's like great to, and this is a general statement on hiring and recruiting, it's great to hire, say, a biz ops person who has done it at a great company and seen growth. Who was the number two and now wants to be the number one. That's obviously always the best option, but not always the outcome. Right. I think what's more important is a little bit less the skill set and more like the self starter, someone who can build everything from scratch. And so sometimes that could be the ex banker or consultant who is just really scrappy and hungry to build everything. And sometimes it's that biz ops or finance person who saw it at a bigger growth startup and saw scale and now wants to build on their own.

Sidharth Kakkar
Yeah, sorry, I lost the question I was thinking about. Okay. Another one is when you think about all the boards you're on and thinking about executive teams as a whole rather than just the founders or CEOs. What do you think sets apart the executive team as a unit from the rest? What are the great ones do?

Kristina Shen
That is a great question. I think the great executive team hire people who are smarter than them. I think the greatest executive members understand where their flaws are and are able to hire smarter, sharper, stronger people, in particular the areas they are weak. For example, I am a person of finance and analytical background. And so thus I'm really probably stronger in evaluating other people in finance, biz ops, sales ops type roles. But the best executives would be someone like me, but I'd be really good at hiring a VP of Eng. That is the best. Where you can identify strength in areas that you are not strong in, and those people can rise up and grow teams and things like that. So that's what I really look for, like executive team members who just you almost feel like every time they hire someone like, wow, they're even smarter than you. And I didn't think that was possible. That's what I look for.

Sidharth Kakkar
Yes. Do you ever end up in this, I don't know whether this bias where if someone's really good at something that you're not good at that you assume that there must be a genius at everything. I feel like I do this sometimes. I'm curious whether you feel like you do this.

Kristina Shen
All the time. No, I think it's hard. Right. Because in an area that you don't know, everyone sounds smarter than you.

Sidharth Kakkar
Yeah.

Kristina Shen
I do this test, which I'm happy to share this secret with you, but I think it's a great test because I always try. Let's say I'm interviewing as you describe an area that I'm not an expert in. Maybe I'm interviewing VP or Eng or more technical role where I've never practiced in. I will somehow get the conversation to overlap with an area that I know really well, and I'll make it happen a couple of times. And if they BS that answer, then I know they're BSing everything else. That has always been my biggest trick to interviewing the interviewer doesn't have to be the smartest person in the room. Sure. You have to get the interviewee to talk about something you know, well, that is a little bit in between or adjacent, and then see if you learn something or agree with that statement and then just apply it to everything else I said. And then the other thing I do is I always bring in experts, too. So I will bring in experts who VP or Engs across my portfolio or advisors that I'm really close to to get their viewpoints as well for the areas that might have lines pops in.

Sidharth Kakkar
And for that, do you feel like because the experts, by definition, don't have the context that you do, but you feel like if you sort of, like bound the interview enough, you're going to get the right types of signals that leave aside the context part of it?

Kristina Shen
Yeah. I think when you get other people to interview, you have to take everything with a grain of salt. Right. So I can have someone else assess their technical capabilities, but I probably would be more focused on their leadership management skills. And then again, in areas that we overlap, like making sure that you can learn something from them, too.

Sidharth Kakkar
Okay. That makes a ton of sense. Are there any things that you feel like in general, as, like, a SaaS industry that we should go, if we went deeper on, or if you understood better about our businesses as a community, then we would all be better off or it's like a missing or underdeveloped piece of our understanding of what we're doing or building or trying to evaluate.

Kristina Shen
It's a great question. It's one of these things where I do think every business is very unique and I almost sometimes think we have over indexed on metrics and benchmarks because by definition, benchmarks are average. If you really think about it. Right. Like if you were to take the top, top SaaS companies out there, they would not necessarily all look great on every SaaS metric. Probably one metric or one component just really stood out. Right. Like Slack was all about crazy early engagement and a great viral coefficient that people just kept bringing on their friends. And that's a standard metric that most people look at, but it was just their super power. And so I do think one of the challenges with a lot of SaaS companies who are very focused on metrics is like by definition, benchmarks are average. We kind of have to figure out for your company and your business. Like what is that superpower that makes you really stand out?

Sidharth Kakkar
Yeah. In contrast to like overthinking metrics or being too obsessed with them, are there ones that you feel like people always don't quite understand as well as they should or they tend to make a mistake with or they tend to misinterpret? Is there a metric or set of metrics that you feel like is like that?

Kristina Shen
Oh, that's a good question. I think. Let's see. That's just a great question. Well, let's take retention metrics for example. Right. If you look at gross retention, so just like either dollars lost or logos lost any given year, you can't actually benchmark across all companies because it is inversely related to ACV or what customer segment you're selling into. If you're selling to the SMB and you have like a $12k ACV actually having like a 70 or 75% annual retention is considered pretty good, a lot of your customers just as the nature of the business to go out of business. But if you are selling like a 50K or 100K ACV deal and selling more mid market or upmarket to the enterprise, you better be 90% retention or higher. And so there are some misunderstandings of what is good retention given that and similarly, actually, I'm going to change my answer. I think net dollar retention is actually the most incorrectly used number and cited number, because in actuality, if you are a metered billing business, let's say you're like Twilio and it just pay as you go and it goes up over time. Your net retention is just so infinitely high it almost doesn't even count as a metric anymore.

Kristina Shen
The way net dollar retention was created was really to understand if you sold as a sales team more product to your existing customer base, how much more would they buy over time? And it's just like if you have a direct sale business versus like a self service PLG business, you can't compare the net dollar retention between the two. It's just not even a reasonable comparison. It's just interesting that it's probably the most incorrect benchmark metric out there because in actuality what really matters is your go to market and your customer segment that you sell into and then you can maybe benchmark those numbers a little bit. But retention and the dollar retention are like massively misquoted and misused and actually miss defined all the time.

Sidharth Kakkar
Totally. Actually a related question, if someone comes to you and quotes that LTV to CAC number, that just makes no sense. The math is probably wrong. What is the first question you ask or what is the next thing you go to to try to understand? Like let's say they say oh yeah, my LTV:CAC is like 30:1. What's the next thing you say?

Kristina Shen
I am very opposed to LTV to CAC ratio. I think they make a ton of sense in the consumer world because the purchases are less repeat and thus you need an LTV:CAC ratio because retention is lower on the consumer side. So the LTV number matters more. On the SaaS side, retention is high, there's a lot of repeat usage and LTV assumptions are just incredibly volatile based off whatever retention number you assume. Right. And so it ends up being not a very accurate number. Two dissect it, I would say first I would say what is your CAC pay back? Because that's the real answer it should be. But then after that, if you are focused on LTV, I tend to time box LTV a lot and so some people will say three years, some people will say five years. But time boxing helps a lot in terms of what is the calculation. But I almost just ignore the LTV number and I just ask you what CAC is because if you tell me what CAC is I can make my own assumptions as to how important the LTV is. And I understand the one use case where LTV matters is if you have very high upsell.

Kristina Shen
And so I kind of really still only care about what is your one year LTV and two year LTV because maybe you get this huge bump up. But yeah, I would say not a fan of LTV:CAC.

Sidharth Kakkar
I think this is like close to the last question. When we talk to businesses, some of them really obsess over cohorts and some of them really don't for like often reasons around. Just like how do we even make sense of this or how do we connect to this? I'm curious, do you recommend that founders or finance leaders look at their businesses cohorted and if so, anything specific around things that you feel like people can get a lot of value out of.

Kristina Shen
So I really like cohorting the business because I think it really helps you understand at different points in time like how those cohorts are growing because a lot of times, sometimes your customer segments change over time, new product offerings emerge. And so when you time based the Cohorts, you actually learn a lot about your business. But obviously it's a lot of work. Right. Less so with Subscript, but it does take some instrumentation. And so I think for the business, it really is very valuable for is if you're a monthly business because there's just more iterations of your business over time and customers have more decision points. It's very valuable if you sell more than one product because then you can track how they potentially net upsell over time. And if you sell into the SMB or a lower ACV segment, because if you are doing that a lot of times in order to make your business model more attractive, you are trying to either sell more over time or expand in some way. So those are the types of businesses I think Cohorting is much more valuable in. But in general, I think it's great data and all companies should be doing it.

Sidharth Kakkar
Yeah. I generally agree with you. Cool. Any last thoughts on things that you wish I'd asked about? But I neglected to.

Kristina Shen
Well, I'm going to turn around on you, so I want to ask you questions, if that's okay.

Sidharth Kakkar
Right. Let's do it.

Kristina Shen
So I'm curious, because you get access to the most interesting data across all of your customers and probably design customers you're working with? What would you say is the most unique metric that you've seen companies track or start to track?

Sidharth Kakkar
Yeah. So it's interesting because when I was building my last business, I had never heard of CARR. It wasn't really a thing. And so it seems to be like something that has suddenly become incredibly important to a lot of businesses in like the last three years. I don't know if you agree with that time frame, but it seems to be roughly in that time frame and it makes a lot of sense to me. That one I was like quite fascinated by at first. I was like, I've never come across this and I'm a pretty metrics person, as you might imagine, given the business I'm building. So my last business I looked at everything, but that was an interesting one. The second one that I've started really liking people again is burn multiple. We looked at the rule of 40 or we looked at payback periods and stuff like that. But there's something really nice about burn multiple at the sort of one to 5 million ARR range as a way of just having a rough idea of how fast we're growing and how much overall, because there's like all these other nuances around. Like if I hire a second CS person, my gross margin is like totally destroyed, but it's not really a relevant thing or like if I hire a second salesperson, but it does matter how many engineers you have and how many product people you have and how many designers you have, sort of how far is your spend out running your revenue?

Sidharth Kakkar
And I think it's like particularly relevant now in the year 2022 when C rounds are like five X what they used to be and everything is like five times bigger. And so now you better start paying attention to that stuff. Otherwise you'll out run it.

Kristina Shen
Oh, I love that. Actually, you made me think of another thing that I actually think has changed in the market. So everyone does talk about Rule of 40. Like it's been like a topic for a long time. We talk about Rule of 60. We think Rule of 40 isn't good enough anymore. It really only matters when you're like a pre IPO or late stage company because when you're an early stage company, it actually matters more. This burn multiple you're talking about like net new ARR relative to net burn. Once you get past like 50 million in revenue. Actually, Rule of 40 is not good enough. If you look at the public market, higher multiples are correlated really to Rule of 60.

Sidharth Kakkar
It's so interesting. There's a couple of folks who publish these data sets and you're totally right. I have always been absolutely shocked at how much it's like not a linear relationship between Rule of 40 score and valuations. I don't know, it's exponential. I forgot which way the curve will go here. But the point being that it's significantly higher valuations if your Rule of 40 numbers higher. So that makes a ton of sense. And yeah, I like it. It's more aspirational well.

Kristina Shen
Also, you know why it's changed. So it used to be Rule of 40 and now it's just a data metric. Now it's Rule of 60. The difference is all the PLG companies that went public, they're all way more efficient. Yes, that has been the big difference is that there are way more PLG companies that are way more capital efficient and they're public now. And the public markets have realized, wow, this is an incredible business model and it has changed the valuation expectations. And so Rule of 60 is actually kind of, I think a more accurate standard now.

Sidharth Kakkar
What do you think that means for the sort of sales driven companies, especially in an age where SDR efficiency is probably lower now than it has been in the past, just because I don't know, people are oversold to and stuff. So all of this is kind of harder. I don't know. What do you think it means?

Kristina Shen
I think that there are two ways to view it. I agree. I think a lot of historical sales tactics that used to be very innovative on the direct sales side have decreased in efficacy. Right. Because you can only receive so many outbound emails realistically. And every VP of X role is getting just a crazy number of emails. So that on the flip side and this is true for direct sales and PLG. The flip side is that software budgets are bigger than ever. That's the other reason why companies are just growing faster. If you look at companies going public today, even though they're going public later, they are growing faster than companies historically. And it's because we won. SaaS is a thing. Everyone buys a lot of SaaS companies, and so the budgets are bigger than ever. So the growth expectations are higher, too. So the nice thing is that growth has still superseded, like how expensive it is to acquire these customers. Maybe one day that does start to converge the other way. But right now, companies are just going faster. That is kind of just the case, in part our fault. We give people more money, too.

Kristina Shen
So the venture landscape has given way more money over the last five years. People spend way more money on go to market, they're going significantly faster. But the standard of growth has gone way up.

Sidharth Kakkar
I mean, as long as we eventually sell to the rest of the economy, not just to each other, it's fine, right?

Kristina Shen
I think that's a big part of it. I do think before it used to be a real thing where, like, it was a real question of like, a SaaS companies only sell to SaaS companies. Is that a big enough can you build more than 100 million or 200 million in our business? That's no longer a question because there's enough SaaS companies.

Sidharth Kakkar
Right.

Kristina Shen
And then there are enough SaaS companies that are selling to true enterprise now category, of course, and the type of product. But that's growing as well. The real question, I think, is not how big top line revenue and how big the TAM is, because that's all growing. Yeah. There's two real questions that come up. One is how many different subcategories can you split up the SaaS market or do they have to reconverge? Like, are we at a point where, like, some markets will reconverge? And two, at some point, companies have to be free cash flow positive to actually be a valuable business. And at one point that convergence happened because even public markets, like right now at the bear market, the market values efficiency more. But even six months ago, it was such a Bull market that the multiples were too high and it didn't matter how efficient you were. So it goes back and forth. Public markets. I mean, in my world, honestly, public markets are useful to kind of follow and understand, but it doesn't really impact. If I meet a great founder and they're building something cool, if the public markets have it really doesn't impact me at a Seed or Series A ten years away, right?

Kristina Shen
Yeah. I mean, they could go back up again. Who knows? For growth stage investors is a huge impact. But for me, seed, A, even B, is not a big impact.

Sidharth Kakkar
Yeah, that makes a ton of sense. It's interesting because the free cash flow point is mostly subject to the public markets. Right. Like you, as private investors, that's usually not the stage. And companies are going public, obviously, with negative free cash flows. So it's subject to the giant voting machine. But to your point, the giant voting machine swings ridiculously month by month. So how do you even I would.

Kristina Shen
Say the way it impacts someone like me the most is my portfolio companies who are kind of growing up. It's more about always making sure that they can always raise their next round, at least some version of an up round in any funding environment. That is kind of the real responsibility from a financial fiduciary standpoint that like I have with our founders, is to make sure that they manage their cash burn for any environment. And that's what I talked to. Like, right now, some of my later stage companies, they've had the fortune of just raising a ridiculous amount of money in the last two years, as a lot of people have. Yeah. So a lot of them have like three, four, five. I think one has ten years of burn or something like that, something great. And the ones that really matter, if you're high burn and you were fortunate to raise very early and you're a little later stage and the market environment has now shifted, you have to be more cautious about burning at that same level because who knows when multiples go back up, if ever. Right. You have to be realistic that you can't always expect the multiples go back to a certain level because you just don't know.

Sidharth Kakkar
Yeah.

Kristina Shen
Anyone who tries to predict the market is just wrong.

Sidharth Kakkar
True. And so operators, that doesn't mean you have to be in some ways a bit more conservative because your downside is like the company is over. And so you have to manage that downside regardless of what market you're in. As a founder personally find that balance is fairly hard to strike because you want to play to win. You're not playing to not lose. But on the other hand, you also don't want to lose.

Kristina Shen
It's a hard balance. And so I think that's why just educating founders very early on as to look metrics, what's considered good and bad changes. Right?

Sidharth Kakkar
Yeah.

Kristina Shen
Everyone used to talk about Jason Lemkins, like double, like triple, triple, double, double, double.

Sidharth Kakkar
Right.

Kristina Shen
And that was like I mean, Jason did a phenomenal job. He coined that. Everyone followed it. It was the standard that would not be considered the top growth trajectory anymore. Right. Even though it's incredible, if you look at the recent generation of companies, many of them are growing five to ten X in the same time period that a historical company tripled. And it's because, again, SaaS budgets are bigger, companies are raising more money, they just change the standard. And so I don't think it's hard for a founder to always keep up with all the moving trends. I view my job is at least putting it all out there and educating them. Ultimately, they have to figure out the way they want to run their business and what makes the most sense for their company and product. But being able to track it, see the trend lines, and then compare it from a benchmarking standpoint to external is always very useful.

Sidharth Kakkar
The software budgets being bigger point is really sticking with me, in part because I realize this about myself. I spend more freely on software than I did in my last company, which was like, I guess it was founded eight years before this one. So in that eight year time span, my willingness to open the wallet for software is a lot higher. I'm a software person. I've been programming since I was a kid. I care about software, but still my willingness to spend so much and I feel like that's generally true for tech people. Is that true for the Fortune 50? Is that true for just like other regular old businesses that are not tech business?

Kristina Shen
I do think the Fortune 200 is starting. The Fortune 1000 is definitely looking at tech. We've seen it now with the larger cloud providers, like a Salesforce workday service now have broken into the Fortune 1000 and most of the Fortune 200 at this point. So wave one has already gone there. The next generation of SaaS companies I think are getting there, but probably don't have the same level of penetration. And there is a lot of complexity at the Fortune 200 scale that realistically if you are a really early stage company, may not be the best use of your time. Right. There actually is a huge benefit if you think about Salesforce. In the early days, they sold mostly in the mid market test and iterate their product get a lot of feedback and then moved up. I think there is a lot of value from learning and growing in the mid market where a lot of SaaS companies sell to other SaaS companies and they have great budgets and they get a lot of feedback and they're opinionated and all that kind of stuff and then grow up from there. But yeah, I mean, I'm a big believer.

Kristina Shen
I think SaaS is going to take over the world. Software is eating the world, right? I think that's always been our big belief.

Sidharth Kakkar
Yeah, it's an immortal tagline. Cool. Any other last thoughts?

Kristina Shen
I think I am. Good. Hopefully you get something out of this that you're excited about.

Sidharth Kakkar
Oh, man, this is so good. This is so good. You're amazing at this. I really appreciate it.

Kristina Shen
Oh, you're a natural, too. But it was fun and I love doing this kind of stuff. We're both fast nerdy metrics people, so we should chat about the stuff all the time for sure.