• Jason Lemkin Just Raised a $70 Million Debut Fund; Here’s How He Did it

    Screen Shot 2016-07-04 at 8.27.35 PMTwo-time entrepreneur Jason Lemkin just closed a debut venture fund with $70 million called SaaStr Fund.

    It’s an impressive feat and the latest in a string of interesting opportunities that Lemkin has created for himself since selling his most recent company, EchoSign, to Adobe four years ago.

    It started with blogging. Lemkin also began actively answering questions about SaaS businesses on Quora — and people listened. Soon, he’d created a popular site that publishes SaaS-related tips and news, along with a growing events business, one whose yearly SaaStr Annual conference attracted more than 5,000 attendees earlier this year.

    All have worked together to lead Lemkin (who also worked briefly at 16-year-old Storm Ventures) to this point. Last week, we asked him to share a little more about how he did it.

    Your debut fund is huge, considering that you’re the only GP. Are your investors a mix of institutions and individuals?

    No. I have a handful of VCs who know what they’re doing, but I think high-net-worth individuals are a terrible idea. No matter how sophisticated they are, venture is too illiquid. The timeline is too long. When you’re an angel investor, you can maybe see a 50x return on your dollars. But in a tiny fund – even with a Union Square Ventures — you’ll do 8x in the best-case scenario and it’ll take the fund 12 years. It’s stupid. And I don’t want unhappy customers.

    So your backers are endowments? Pension funds?

    Top endowments, big universities, hedge funds.

    Hedge funds don’t mind being locked up for a dozen years?

    They’re interesting. They want to find a place to play where they can see high returns, so they want exposure to the best managers so they can see the best companies at their “pre unicorn” phase. They don’t want to do the $3.5 billion round but the round before that, including [by way of special purpose vehicles, which VCs organize when they want to make aparticularly large bet in one portfolio company]. So if you squint and look at a lot of emerging managers, a lot of time they [feature hedge funds as LPs].

    What’s in it for your VC investors — deal flow?

    When you have a fund like this, you want to build two downstream layers. One of Series A VCs, and whatever the next stage is. So I have folks who are involved with my fund who’ve also put money into my companies and who I want to continue to [know], from Emergence [Capital], Social Capital, Bessemer [Venture Partners]. Then, in a perfect fund, you want folks who can invest even later. What you don’t want to do is take second check risk.

    More here.

  • Jason Lemkin on the “Slack” Effect

    shutterstock_83855317There’s no shortage of talk lately about frothy private company valuations, particularly when it comes to enterprise companies. Slack Technologies, the company behind the increasingly popular enterprise messaging platform, is the current poster child. Less than six months ago, Slack raised $120 million at a billion-dollar-plus valuation that many found stunning. Now, Bloomberg says it’s talking with investors about a round that would value it at more than $2 billion.

    Very notably, Slack is growing at a torrid pace. As of mid February, it reportedly had 500,000 users, a number that had grown by 35 percent in just the first six weeks of this year. In fact, Jason Lemkin, a managing director at the early-stage, enterprise investment firm Storm Ventures, seems to think Slack is probably worth every penny at a $2 billion-plus valuation.

    “No one is dumb in Silicon Valley,” he argues. “Early-stage investors are rolling the dice on hypergrowth and betting companies like Slack will be decacorns” worth more than $10 billion one day. “These crazy valuations, generally in [business-to-business companies], are associated with crazy growth.”

    Lemkin notes, for example, that Slack is growing faster than the enterprise social network Yammer — and that Yammer grew faster than the online file sharing company Box. Both are success stories. Yammer, founded in 2008, sold to Microsoft for $1.2 billion in 2012. Box, founded in 2005, went public in January and is currently valued at nearly $2 billion.

    But in both cases, their rates of adoption can’t touch what newer startups are seeing, says Lemkin. “[Today’s crop of leading enterprise startups are] growing their month-over-month revenue by mid-teen percentages. And after they hit a million dollars in revenue, that’s a lot of compounding.”

    A variety of factors explain such accelerated growth, says Lemkin, including that the adoption of new business-to-business technologies often trails business-to-consumer adoption by three to five years. “That means lot of verticals are just getting ‘webified’ today, including doctors’ offices, e-discovery for regular people,” along with lots of other small and mid-size companies that are realizing what they can gain from the power and low-maintenance needs of hosted systems.

    Lemkin also points to the growing piece of CIOs’ budgets that are being spent on SaaS products rather than traditional on-premises technology. Instead of buying their own servers and storage systems, companies are now buying both as a service — along with enterprise analytics, security, and more.

    “You only need a few more percent of that roughly trillion dollars in enterprise budgets to create, say, 40 more Workdays,” says Lemkin, referring to the cloud-based HR and finance technology company that went public in 2012 and is now valued at more than $16 billion.

    It’s not an outrageous estimate. Global SaaS software revenue is reportedly expected to reach $106 billion by next year, an increase of 21 percent of projected spending levels this year.

    Indeed, while industry observers fret over soaring valuations, Lemkin says it’s those enterprise startups with monthly revenue growth in the single digits that should be doing some hand-wringing. While “you’d have gotten funded in days a couple of years ago, today, no one is going to take a meeting with you.”

    Slack is “sort of [the standard that] everyone wants now,” he says.

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