Over the past year, amid so much uncertainty and volatility, SaaS companies have continued to outperform. As Emily Brungard, Marketing Analyst at High Alpha has explained, “In many ways, 2020 has been the best year yet for SaaS — the very business model of SaaS lends itself well to uncertainty. Its flexibility has led to more IPOs, more revenue, and more interest in SaaS than ever.” With entrepreneurs striving to build the next best SaaS company, who are the venture capitalists they are turning to for investment? Here’s a rundown of seven top-notch venture capital firms when it comes to SaaS.
Accel Partners has a track record of stellar SaaS investments. They’ve invested in companies such as DocuSign, Dropbox, and Slack. Many know Accell for its commitment to backing teams at very early stages in their journeys. Over the past decade, Accel has been the initiating or lead investor in more than 70% of its portfolio companies. Accel says:
Our primary objective is to be the very first investor in our companies, take active, constructive roles with founders, and work patiently side-by-side to build incredible businesses. No short cuts. No company is too early and no check is too small.
Matrix Partners boasts a stellar lineup of esteemed SaaS-focused investors who have invested in the likes of Carbon Black, HubSpot, and Zendesk, among many others. General Partner David Skok, who has been at the firm for nearly two decades, is at the top of the list. Skok is the creator of forentrepreneurs.com, and is instrumental in creating the annual Private SaaS Survey, which has become the industry's go-to benchmarking report. The most recent report sheds light on top-of-mind focus areas for investors—churn, cost structure, and capital consumption
Many entrepreneurs choose Matrix for its commitment to “openness and candor.” It explains, “We evaluate ideas based on their merit and potential as well as your ability to execute, not the polish of your pitch. We discuss challenges frankly and directly. We want the truth and to hear your opinion. Open debate and honest discussion are how we arrive at the best solutions.”
The SaaStr Fund is the brainchild of serial entrepreneur Jason Lemkin, who closed the first fund in 2016 with $70 million. Lemkin has lived and breathed SaaS for decades. He sold his SaaS company, EchoSign, to Adobe for $400 million in 2011. Since then Jason Lemkin has developed a cult-like following with his SaaStr blog, a highly popular blog that is focused on helping founders launch and scale SaaS startups.
Despite being a relatively new fund, SaaStr Fund already has an impressive SaaS portfolio with companies such as MixMax, Pipedrive, and Greenhouse. The Fund invests in just four or five SaaS startups per year in the $0.1m to $2m ARR range. As for its selection criteria, SaaStr says “We prefer Outsiders + Outliers. Folks that didn’t go to Those Schools, or Work at That Hot Tech Company. The ones that did it on their own, that earned it, and got to 10+ Unaffiliated Customers on their own.”
Sequoia Capital is known for its impressive track record of investing in top-notch SaaS companies such as Square, Zoom, and Drift. Sequoia is known for its founders-focus. What types of founders is Sequoia on the lookout for? It says,
The creative spirits. The underdogs. The resolute. The determined. The outsiders. The defiant. The independent thinkers. The fighters and the true believers. These are the founders with whom we partner. They’re extremely rare. And we’re ecstatic when we find them.
Shasta Ventures is an early-stage venture capital firm that has been around for 15 years investing in both enterprise and technology consumer startups. Recently, the firm has narrowed its focus to enterprise after impressive wins from Anaplan, Zuora, Apptio and several other publicly traded SaaS players.
The firm recently launched Elevate, which gives founders the map, advice, and tools they need to scale. For SaaS getting to $1MM in ARR is impressive, yet scaling revenue to $10MM really separates good startups from the unicorns. Workshops, 1-1 mentoring from industry operators, and validated templates are all part of the program.
Andreessen Horowitz (a16z), founded by esteemed investors Marc Andreessen and Ben Horowitz, has invested in many numerous SaaS companies, including Asana, Coinbase, GitHub. a16z is known for being stage agnostic and invests in companies from seed to late-stage. For SaaS enthusiasts, Andreessen Horowitz’s blog, a16z.com is one of the best out there. a16z deal partners frequently discuss the latest SaaS trends, as well as predictions for the future. One of our favorite SaaS-focused pieces of 2020 was a16z’s post “The Enterprise in 2020 — what 24 company builders had to say.” As part of the post, a16z general partner David Ulevitch shares one of his predictions for the next generation of SaaS:
The importance of minor users. Traditionally, if enterprise software were sold to the finance leader, the major users would be the CFO, a controller, and maybe some accountants in the finance team. Nobody else in the company would really know, or care, about the software. But in today’s world of remote work and bottom-up SaaS, the winning products provide benefits and visibility for minor users.
Bessemer Venture Partners knows the ins and outs of what’s involved in building a SaaS company. Bessemer has invested in SaaS standouts such as Twilio, Shopify, and PagerDuty. Like a16z, Bessemer is stage agnostic. Its track record is impressive, having been part of 130 IPOs in the past 50 years.
Bessemer produces some of the best content on SaaS investment trends and philosophies. Check out their recent post on “Ten lessons from a decade of vertical software investing”. One of our favorite lessons is: “Monetizing data remains one of the most under-exploited opportunities in vertical software.” As the post explains, “Capturing valuable data” is a bit of a cliché in the technology world. But over the years, we’ve seen a handful of companies develop clever ways to monetize their data. We think this is one of the most challenging but under-served opportunities for vertical software companies to grow revenue and build a moat of defensibility.