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Adapt and Thrive in 2020s Black Swans

7 min read Indus Khaitan

Venture Investors, Entrepreneurs, CTOs, CFOs, CMOs have come together recently for our first-ever virtual event: Quolum Live. With SaaS powering business as never before, a responsible and strategic approach to software spending is crucial in the 2020s. 

Our six sessions at Quolum Live bring together critical and diverse perspectives on the growth trajectory of SaaS, key factors driving SaaS growth, pandemic impact on SaaS, and what lies ahead this decade.   

We’ve taken our live sessions and curated the best parts for your reading pleasure.

First up, I conducted a Zoom fireside chat with Managing Director of Sequoia India, Rajan Anandan, and Investor at Nexus Venture Partners, Abhishek Sharma, to share a joint Silicon Valley and Asia perspective on the pandemic and SaaS investments, new digital workflow opportunities driving SaaS growth, and how both sellers and buyers can navigating this uncertain time.

Sequoia Capital is one of the world’s leading venture investors in technology. They were early to call out the Coronavirus as the Black Swan of 2020 and provide guidance to entrepreneurs on how to survive this crisis. Nexus Venture Partners is a global early-stage venture investor that invests both in US and India based disruptive B2C and B2B enterprise startups. 

Let’s dive into how real-world investors view the current environment and what that means for startups looking to survive and grow in this decade of SaaS.

Session Highlights

Q: With regards to the ongoing global pandemic, how and when did you realize this was going to be the Black Swan of 2020?

  • Both Rajan and Abhishek and their teams looked at data late Feb and early March which indicated that the virus was here and would have a long term economic impact 
  • First time in a long time a health and economic crisis are at odds with each other. Become much harder to use past events to model the future e.g. the Great Depression
  • The biggest risks lie in the Services economy is businesses dependent entirely on people to people interactions. No one models for zero revenue and that is unprecedented

Q: What impact do you see on software and technology investments as a result of the pandemic?

  • A slowdown in early-stage investments because investor comfort based on in-person meetings has been affected. Harder to write $5M – $20M cheques without that comfort. The growth stage is less affected since metrics and reference points exist
  • Strong desire by investors to invest in technology is the answer to do more with less. Growing demand for technology and automation. SaaS companies are benefiting dramatically because of remote work. 
  • Live test for SaaS companies on what is essential and non-essentials. Companies solving real problems have a lot of tailwinds which helps investors continue investing
  • Heavy focus in initial months to spend time with existing portfolio companies to help survive the storm. For late-stage companies, tremendous uncertainty makes it harder to continue writing bigger cheques for companies because of the demand curve being affected
  • Open for business. Some growth teams on the VC side are busier than ever before. At the ecosystem level, there has been a slowdown also in a number of net new startups
  • In southeast Asia and India, EdTech and SaaS are the top two growth sectors. SaaS companies’ churn, Day Sales Outstanding, Contract cancellations impact are not as bad as they could have been, and net new closures continue in many SaaS segments
  • Purely digital businesses in the next 12-24 months will continue to be in the sweet spot of investors. Global SaaS companies (US, US+India, Global) like Postman (which just raised a $150M round) are likely to benefit also a lot in this decade. Companies in the region are able to now get to $50M ARR with just regional customers now without the dependence only on the US buyers market

Q: How can founders deal with the ambiguity of the current crisis? Should SaaS startups be worried about raising money?

  • Both Rajan and Abhishek emphasized they encourage their portfolio startups to have 24 months of runway versus 12 months
  • Great time to reimagine every part of business. Net new B2B sales of $200-$300K are happening entirely virtually. This is the time to reimagine every part of your business – Whether Sales, Customer Success, Marketing, or Product Roadmaps. Reprioritize the way you can do all those things digitally.
  • Rethink your industry and customer segments for e.g. Hospitality or Travel customers. Though Rajan has seen less impact on their portfolio companies even in such sectors
  • Showing some growth e.g. 30-40% growth versus 100% Y-o-Y is also good. The world is awash with capital. $20 trillion at negative interest rates looking for returns. That said, the era of burning cash for growth will be unsustainable. 
  • Core workflows are changing because of the crisis. How can startup sales be more product-led? How can a business have lesser dependence on sales reps to sell the product
  • There is a need for a sharper focus on value versus seats and users and usage. 
  • The power law is playing out – Later stage companies who were adequately funded are still attracting more capital. For early-stage companies, there is a need to hunker down on cash, and wisely invest in areas that pay dividends and help go beyond 
  • Can you refocus on customer segments having a tailwind in this environment, for example, customer success software for brick & mortar companies looking to move some or most of their business online.

Q: Will there be a boom in SaaS apps because of the current situation? What are some new categories of software you are excited about?

  • The big opening in the market for asynchronous products – async not just by time but also in a location independent way to drive distributed productivity. E.g. Remote learning via Zoom or fitness instruction
  • Whether you are old or new, large or small, WFH is no longer a luxury or a matter of choice, and now the question is how can we be productive from home
  • New types of categories and new opportunities emerging for firms in existing categories
  • Digitalization more broadly is accelerating as never before, we’ve been in the early innings of digital transformation. Most companies still have very little digitalization – CIOs were only saying they could move only some use cases to the cloud. Digitalization of enterprises of all sizes creating new opportunities for entrants in cloud categories 
  • The question to ask is how is this secretary going to change? So much legacy software and micro-segments each of which is a $100B, for e.g. scheduling software to help community centers manage swimming pool usage which has gone through the roof 
  • From March to June, there was an 18% to 28% jump in the US in e-commerce (which is where China already was), so across the world e-commerce is being seen now as more than just a nice to have a delivery model
  • New use cases may drive digital transformation faster than traditional use cases, for e.g. for companies like Unilever which now want to do real-time IoT based factory and health management on areas like tracking PPE usage, social distancing, and temperate checks
  • Understanding from first principles how the priorities of large companies are changing and their workflows are changing will create a lot of net new opportunities.

Q: Software spend is skyrocketing as more people work from home. How should executives be thinking about spend management for SaaS?

  • SaaS sprawl is a real issue. Abhishek has been surprised across his startups’ portfolio how quickly new tools are being adopted. In good times everything appears like a need, and in testing times, the balance between the need and the want
  • Decentralized buying of software is going to be here with us. There will be more confusion not less – who’s paying for it? What if the employee has left the company
  • Asymmetry of intelligence between buyer and seller of software. Sellers have collecting mechanisms to track usage, renewals, upsell, but if you look at the world of buyers, fragmentation of software buying is a hard problem within choices multiplying. More financial controls are definitely needed
  • You can only spend a fraction of your spend on technology, it is not only a CFO level priority, but it will also soon become a CEO and Board level priority 
  • Good comparison at a macro country-level issue – Healthcare spending is 20% of GDP – software spending inside a company as it spirals upward and looks bigger and bigger share of the cost structure, most controls are needed to stop it from being chaotic 
  • CFOs of large companies need different controls to manage the sprawl. Companies early in their journey just need to be more thoughtful. With hundreds of thousands of SaaS applications, how can CXOs better figure out what to buy and what’s being used

About Quolum

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