What Is Happening To Over-Funded SaaS Companies This Year

Most SaaS startup founders who raised $10M, $20M or more in 2020/21 when VC funding was “cheap and easy” will never win a prize for their startup efforts.

Investors knew this was the game when they raced in and paid high prices for cool startups. Everyone else was doing it. Maybe one or two will win big.

But it was a different game for the new SaaS founders who were told “Raising money is just what you do if you’re cool” and “Raise as much as you can at the highest valuation possible!”

It’s like taking nutritional advice from McDonald’s. “You should definitely Supersize it and come back again tomorrow.”

One of these things will happen to founders who raised more than $10M for their early-stage SaaS companies just 2-3 years ago.

  1.  A very small minority are doing fine. They are growing revenue 100%+ annually, they have low-burn rates with cash in the bank, and they don’t need to raise more funding soon.If they didn’t raise too much money at too high a valuation before, their investors are probably happy right now too. No indigestion here.But most SaaS startups that raised big funding have burned through their cash and didn’t grow fast.
  2. They raised a big seed or Series A round at high valuations and their revenues didn’t grow superfast as they expected. This is the majority of startup experiments that take on big funding, boomtime or not.Now these founders are stuck. And their investors are all over them.Their funding-fueled growth rates can’t be sustained without more funding. And more funding is not happening right now for these companies. They are stalled with breakeven profits and no hope of future funding.They are trying to pivot and figure it out, raise bridge rounds to stay alive, and keep their reduced staff engaged.
  3. Many funded SaaS startups won’t make it another 12 months, especially the ones that didn’t have real product-market fit yet and aren’t getting new traction.These will wind down slowly and painfully. Or be sold off at a discount. But their VC investors have preferred shares with liquidation preferences, so most founders won’t make any prize money at all with a sale.The tech startup experiment game works this way. Experienced investors and founders can live with “It was worth a try and we tried hard, but it didn’t work out. What’s next?” Others will have deeper scars.
  4. If you aren’t growing fast with more funding or you haven’t moved on, you are a “zombie” company with flat revenues and nowhere to go. Can’t get funding to grow, nobody will buy you at the price you expect, and top talent won’t join your cause.

These would be great, profitable SaaS companies for bootstrapped founders who never took on outside investors.

But most big VC investors would rather you close it down than stay alive with slow growth for another 5-10 years. You can’t get “unfunded” to go back on the happy bootstrapper path.

The first rule of the game is to know what game you are playing.


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