Jason Lemkin on SaaS Growth, Venture Funding and the 2023 Reset

In this January 2023 conversation, SaaStr founder and investor Jason Lemkin and 20VC investor Harry Stebbings discuss a changing venture market, SaaS sales and limited-partner behavior. Both have investment and commercial interests; their market forecasts and anecdotes are specific to the time.

Lemkin says he invested actively after starting in venture in 2013 but made almost no investments in the preceding twelve months. He attributes this partly to a higher bar following a period of easy risk-taking. His experience is a limited sample, not a count of all venture activity.

He recalls a boom-era idea that even the third or fourth company in a category could become very valuable. In his view, investors in 2023 were again asking more carefully why a startup could lead its market. A company can still lead a narrower segment or vertical rather than the entire category.

For enterprise SaaS, Lemkin says investors want rapid growth and much greater capital efficiency. He uses a long-term ambition of reaching roughly $100–200 million in revenue and an illustrative total funding budget of about $100 million. These are his rough venture criteria, not a prerequisite for every successful company.

He asks founders to explain why they can win and why competitors stumbled. He sees more opportunities for category leaders as software markets expand, but stresses that the large exits implied by venture expectations remain difficult. This is his selection approach as an investor.

Buying conditions vary by customer segment, he says. Some suppliers to well-funded startups were struggling while other markets, such as healthcare and parts of e-commerce, appeared stronger to him. He cites companies in which he invested, including Gorgias and Algolia, and a shared investment in RevenueCat; these are portfolio anecdotes, not representative market statistics.

A public company can suffer a sharp share-price decline even while revenue grows, with consequences for employee morale. Lemkin says a private company that does not need immediate capital may be somewhat insulated from daily price movements, although it still faces financing and operating risks.

He observes that marketing teams were being pushed to spend only on revenue in the current quarter. He worries that cutting longer-term demand generation too deeply could leave insufficient pipeline later. His SaaStr events have sponsors, giving him a commercial interest in marketing budgets as well as a portfolio perspective.

Lemkin recommends assigning marketing and sales leaders a defined budget and letting them optimize within it, supported by finance and operations. A company may need to extend runway, but he believes cutting marketing to zero can be a mistake. Layoffs alone, he says, do not create growth.

He warns against assessing every marketing program by a simplistic acquisition-cost calculation. A customer may remain for years or refer others, while some acquisition comes through word of mouth and some through paid channels. His examples illustrate a framework; they do not establish the economics of a particular company.

For setting targets, he advises starting with recent trailing growth and burn over three or four months, rather than assuming a return to a prior peak. Leaders can then plan gradual improvement. Setting an unrealistic target may damage the sales team and obscure the need to adjust spending.

His first major concern is inadequate sensitivity analysis. If revenue falls short while the company has already committed to hiring, burn can rise sharply. He recommends modeling a worse case with lower growth and relatively fixed costs, not just the desired plan.

His second concern is assuming a future financing round will be available. Lemkin urges founders to test that assumption with credible investor interest and to raise or manage cash accordingly. His blunt “assume you are unfundable” is a caution for the 2023 environment, not a verified prediction for each company.

He describes the market as having adjusted to lower software revenue multiples, while investors differ about the eventual recovery. He cites a single growth offer at roughly 15 times annual recurring revenue for a larger, fast-growing company near profitability, and guesses most growth investors were inactive. Neither the offer nor his percentage estimate establishes a market-wide rate.

Lemkin argues employees joining highly valued private companies might find their equity worth little if the exit is insufficient relative to the capital and preferences ahead of them. His categorical claim that such employees will make nothing is a strong prediction, not a calculation applicable to every grant, capital structure or exit.

He expresses admiration for HashiCorp and GitLab and questions their public valuations at the time. These are his investment opinions, not evidence of fair value. He says he prefers spending most of his time finding exceptional early-stage companies rather than buying public shares.

His argument is about opportunity cost: a meaningful stake in an exceptional private company can produce a large return, while seeking it requires substantial attention. The example is hypothetical and excludes the many investments that fail; outsized outcomes are not guaranteed.

Asked about companies that raised at very high revenue multiples, he mentions two portfolio companies with long runways. He says he marked down a company that was not growing, but had not broadly marked down growing early-stage holdings. Those private marks are estimates, not cash returned to investors.

He worries that raising very large amounts early can make an ordinary exit difficult for shareholders and employees. He suggests a combination with a competitor as one possible route, while acknowledging he has no general answer. Exit proceeds depend on the capital structure and terms, not valuation alone.

Harry asks whether employees will leave highly valued startups to found new companies or stay for salary and security. Lemkin expects mixed behavior and thinks many newer technology jobs were sought as relatively well-paid roles rather than as entrepreneurial bets. Their broad comments about employee motivation and quality are opinions, not evidence about a whole generation.

Lemkin usually invests at late seed or earlier and says he spends substantial time with the CTO or technical co-founder, using the CEO as a signal for sales and marketing. At a later stage he may meet more of the team. He recounts walking away after conversations revealed serious concerns that the founder’s presentation had obscured.

Harry suggests experienced founders may handle volatility better. Lemkin sees value in experience but says passion exists at any age. He worries that a brief strategic retreat can become permanent if a startup never resumes building and selling; this is his experience-based judgment.

He recalls canceling a SaaStr event in March 2020 and says it cost the business about $10 million. He describes moving quickly into problem-solving while a team experiencing its first crisis was distressed. The loss figure is his account, not an independently verified statement.

On limited partners, Lemkin says the investors he spoke with were not eager to add new managers, although an exceptional opportunity might still receive funding. His sample overlaps with other funds and cannot establish the behavior of all LPs.

He says experienced LPs appeared relatively calm and that some 2021 exits generated cash distributions in 2022 because payment lagged the transaction. He expects 2023 distributions could be weaker. Cash distributions, private marks and announced sale values are different measures.

The pair discuss whether a proposed Figma transaction could supply distributions across venture funds. Their figures are speculative illustrations at the time; an announced or proposed deal should not be treated as cash already received. Lemkin says the impact would depend on fund sizes and actual proceeds.

They anticipate a difficult fundraising environment for some new micro-funds. Lemkin urges new managers to use their opportunities carefully and acknowledges that 2021 allowed some managers without exits to raise funds. His statements are judgments and forecasts rather than an industry-wide verified failure rate.

He says he can often recognize operational promise early but did not initially know most of his large investments would reach billion-dollar outcomes. He cites Talkdesk as an exception, while stressing that the eventual scale and exit take time. An unrealized valuation is distinct from a realized cash exit.

On LP re-ups, he says he does not know the general answer. He describes one LP no longer earmarking him for a future commitment and says other indications were not the same as signed commitments. LP budgeting involves capital-call timing and many managers.

Stebbings says managers that failed to return cash when they could, or surprised LPs by deploying too quickly, may face harder conversations. He thinks existing relationships and planning still matter. Both speak from the perspective of fund managers seeking LP capital.

Lemkin strongly argues LPs should examine a general partner’s actual cash outcomes, but acknowledges newer managers may not have had enough time to produce distributions. His emphatic 2021-exit test is his personal view, not a validated method for judging all investors.

He distinguishes a small, curated seed practice from managing a very large pool of illiquid assets. He and Stebbings complain that some large funds give LPs little information, even if their track records attract capital. Their personal LP experiences do not establish how every firm reports.

Looking toward December 2023, Lemkin predicts public software multiples could rise 20–40% and capital deployment could recover somewhat. He also says he does not expect the exceptional conditions of 2021 to return. These were predictions at the start of 2023, not observed outcomes in this interview.

He advises founders not to rely on a magical market reopening: in his view a company that cannot raise at all still needs to improve its fundamentals, while a fundable company may benefit from growth and better multiples. This is his scenario and not a promise about future financing.

Reflecting on the preceding two years, he says he saw highly valued companies led by people he would not have chosen to back and felt pressure to reconsider his standards. He concludes he wants rigorous diligence and accepts that building startups is difficult. His descriptions of unnamed founders are personal opinions.

He uses blunt language about founders’ emotional responses and stresses persistence through hard periods. That is his attitude, not evidence that distress is a sign of weakness or that hardship is necessary for success. Harry thanks him and Lemkin closes with a hope that 2023 will end better than it began.