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Cautiously optimistic

5 months ago 5 mins read
Adam Schoenfeld
Adam Schoenfeld

*Welcome back and happy new year!

πŸŽ‰*

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Entering 2024, we have reason to be optimistic in SaaS.

Maybe a few green shoots?

I shared **this chart on LinkedIn today**.

Following a big drop in H2 2022, we saw the number of open roles in PeerSignal's index of 10K SaaS companies start to climb in the back half of 2023.

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Across our index there are ~92K open roles at the start of this month.

Not quite back to the levels we saw in mid-2022, but a positive trend since January 2023.

*Note: This focuses on startups and growth companies with 5-5,000 employees based in the US and Canada.

It's a smaller, curated index of the ~100K SaaS companies that* *Keyplay* *has categorized overall.*

The 30% drop in open roles between July 2022 and Jan 2023 lines up to the layoff activity reported by Layoffs.fyi. Both the number of companies with layoffs and the number of employees laid off peaked in Jan 2023, consistent with the big drop in open roles that we observed.

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Qualitatively, Q1 felt like the lowest point to me.

That's when the industry headlines were most brutal, general sentiment was in the toilet, and buyers were applying extreme scrutiny to every SaaS purchase.

*Some other seemingly positive datapoints entering the new year...*

1.) Altimeter's top 14 SaaS companies were up 100%+ Y/Y.

Of the 80 public SaaS companies tracked by Jamin Ball at Altimeter, we saw an impressive bounce back amongst the top names.

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For context, that is a BIG difference from the end of 2022 situation where 9 of the top 10 were down Y/Y.

More 2023 analysis from Jamin Ball here.

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2.) EMCLOUD was up ~42% vs ~25% for the S&P.

The BVP index covers a broader basket of SaaS companies then Altimeter.

After falling hard in 2022, EMCLOUD stocks bounced back in 2023, especially in the second half.

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​3.) Aggregate ARR growth turned positive in Q3.

Looking back to Altimeter's Q3 data, we finally saw YoY ARR growth cross the line.

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Surely a 1% growth rate won't get too many people excited, but the shape of the curve suggest some good news.

I'm not smart enough to predict how this looks going forward, but hope that we'll start to see a new normal with sustainable growth.

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4.) The AI mega trend continues

Hard to believe that ChatGPT's public launch was only 13 months ago!

There has been an explosion of AI platforms & enablers, with a handful getting very big very fast.

The top 10 AI deals in 2023 were a combined total of $16B according to Crunchbase.

Here are the top 10.

Deal summaries assisted by AI of course.

πŸ€–

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The eye-popping valuations and growth for Gen AI platforms is only part of the story.

In addition to a new platform opportunity, ~1/3 of SaaS companies are now marketing some AI features or capabilities.

This is creating new opportunities for both incumbents and startups.

Based on PeerSignal data, the categories with the fastest AI infiltration are: Customer Support (53%), Analytics/BI (53%), Sales Tech (45%), Marketing Tech (41%).

I think this is just the beginning across the board.

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For more on AI, I curated a spreadsheet with 120 examples of AI in SaaS if you want to find specific roles models or patterns.

There is a ton of development here and it's happening very fast.

That said, it's not all unicorns and rainbows for 2024.

Don’t get me wrong, I’m not suggesting it will be smooth sailing across the board.

Buyers will keep the bar high for new vendors.

The return to rigor is here to stay.

And although public SaaS companies are seeing green shoots, there are probably a lot more startup shutdowns coming.

Data from Carta shows startup shutdowns ramping in 2023 (lagging the public SaaS cycle).

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Just like the pain was not evenly distributed, it won't be good times for every business.

But as a SaaS founder and operator, I feel like it’s gotten a bit more positive overall.

We survived a pretty rough stretch in the market.

There was a lot of negativity in our faces and news feeds.

So I'm hopeful that the SaaS narrative gets a little more positive in 2024.

Not back to the crazy days of 2021, but maybe we reach a new normal and find a path to sustainable growth for those of us here to play the long-game.

*How do you feel about the year ahead?*

In the next newsletter I'm going to peal back the 18-month hiring data to look for differences by segments/size and compare open roles to actual headcount movement.

If there's any question or slice like to see, please shoot me a reply!

Reply here or join the conversation on LinkedIn.

I read it all.

Best,

Adam

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