What Really Matters in SaaS in 2025 with Jason Lemkin and Dave Kellogg

On the last installment of Workshop Wednesday , where we bring you some of the best SaaStr speakers live with new content and to answer your questions live on Wednesdays— SaaStr CEO and Founder Jason Lemkin and Dave Kellogg, Executive in Residence at Balderton Capital share what really matters in SaaS for 2025.

Will 2025?Be The Year Of The “It’s Just Time” IPO?

Jason just wrote up on SaaStr.com how Genesys may be the first of a flood of PE-backed SaaS IPOs in 2025 as it had just filed for IPO. So does Dave agree that 2025 will be the year of the PE-backed IPOs?

“When PE buys smaller companies, it’s easier just to flip it to another PE firm,” Dave explains. “There’s a whole ecosystem where they buy it at 20 million, grow it to 50 million, flip it, grow it to a hundred, and flip it again. But when you’re getting into those big numbers, like billions in ARR, the flip market is a lot smaller. So I do think it’s going to end up pushing people towards IPOs.”

But the IPO bar is just spectacularly high right now at around 500 million ARR, growing 50%.

That being said, going into 2025 what will it take to get private equity initially interested to make an offer to a SaaS company? What metrics is PE looking for today?

First, one of the nice things about PE is it operates as a largely undiscovered world. There are PE companies that specialize in buying 10 million dollar founder-owned businesses completely bootstrapped. They professionalize it, flip it to a bigger PE shop which will in turn use it, and then flip it again. So this ecosystem is really broad. So, on the one hand, you have all the giant check private sales in PE that make the news, but also all the way down, you find PE buying 10 million-dollar companies.

Second, there’s a big misconception that PE are “fixer-upper people.” That they’ll take a company at 30 million losing 20 percent EBITDA, buy it anyway and fix it, however many of them don’t like to do that. They want it fixed first. You should fix it yourself, prove quote unquote, that you can drive reasonable cash flow. That’s more like something that would still grab the attention of PE in 2025.

To summarize the rough rule of thumb to get PE interested is 20/30/0. You’ve got to hit 20 million ARR, with 30% growth and 0% losses.

Can AI Really Enable SaaS to Dramatically Access More Budget?

Can AI enable B2B companies to access more budget, or is it all just being shifted around by CEOs?

Dave thinks the answer to both is ‘yes.’

So, what does he mean by that? First, a recent study from Battery Ventures called the State of Enterprise Tech Spending , and its enterprise tech spend sentiment index?hit its low in the first quarter of 2023 at 50. But it’s been coming up every quarter since and its latest reading is up to 65. 1. So the data shows we’re coming out of the tunnel of this ‘downturn’ and that people are opening up their budgets again.

The study also noted that 74% of the respondents say they expect their budget to rise in the coming year, with 59% stating the driver is experimental budget for areas like AI.

“And I think the budget comes from headcount,” Dave explains. ” If I want to pay for an AI SDR, I know where to get the money. As a line of business owner, if I want to do something, I can find the money from headcount.”

Is Customer Success Dead, Now That it Reports to Sales?

Dave and Jason have slightly opposing views on this matter, as Dave is a true believer in customer success.

“I’m going to twist this one back on you,” Dave says to Jason. “Your book Predictable Revenue says go specialize roles in sales, and that’s all CS is supposed to be. I think CS lost the plot. I think it was a good idea. I think it was specialization, just like SDRs specializing outbound.? I think customer success / account management is a specialization of sales that you argued for. Salespeople are like airplanes, they only make money when they’re in the air?and customer success helps you do that.”

So here’s the part on customer success where Dave and Jason agree: the concept that your customer success manager is your best friend is dead. They lost the plot and lost sight of driving up each customer’s NRR by keeping them happy and helping them achieve better business outcomes.

Jason agrees and gives a recent example. He just interviewed Sanjit Biswas the CEO and co-founder of Samsara (which will go live on saastr.com shortly) but they went from $1M to $7M to $70M. So how did Samsara do that? They have customers so happy, that they want to buy more products. Samsara went multi-product not because they had to, but instead because their customers begged them to build out functionality to track drivers and trucks when they were already tracking fleet.

That’s how you drive NRR up. When your customers love your product so much that they say, please build more for this. Not when an AE shows up and tries to trick you into buying something you don’t want. We’ve lost the picture that if you are a beloved product or app, everyone will want to buy more from you.

If Growth <25% What Should You Do?

If you’re a founder, the real opportunity cost you face in this situation is time. We have only so many years on this earth, so many years to do things and you don’t want to find yourself running a zombie company, just grinding along at 15% growth and 0% free cash flow. You can live a long time like that, but what kind of life is that if you’re not going to have room to innovate?

Your company is not going to trade for very much when you sell it in the end. “So the answer to me,” Dave explains, “is go one way or the other. Either make a credible growth reacceleration plan or drive up pre cashflow.”

If you can’t get the growth, you’ve got to get the cash flow.

Has Pricing Really Changed?

Don’t we all mostly, basically, charge the same ways similar apps and competitors do? Or are clever pricing models worth the friction?

Dave answers: “Unless your business plan is predicated on price model disruption, do what everybody else does.”

The problem with AI right now is those pricing standards are not yet set. So we’re in a swirling sea of confusion where everyone’s doing it differently, but once it’s set, it will become the standard. Using the same model as everybody else will open up the discussion of vendor selection to move past pricing and more into features and functionality.

Can vendors keep raising prices every year now?

Have price increases become productized and will it last where we’re going to keep raising prices every year without value?

“I always think of the two endpoints,” Dave answers. “The value delivered and the price of alternatives. The other thing I’d add to that equation is the switching costs. In enterprise software, there are always switching costs. And what enables vendors to say, ‘I’m going to raise the price to 50% and I know that’s going to piss you off but, go ahead, switch to the other guy.’ And you’re going to say, ‘Oh my God, that’s a full project.'”

So that’s the dynamic. It’s a bit abusive towards the customer but you do have a position of power where you can do that to a certain point. But.

You can’t do it forever.

What happened in the downturn was vendors started to abuse their power because they were having trouble finding new deals or maybe they didn’t have new things to sell. So you may renew that year but you may also start a project mid next year to do your replacement, right? So if you’re the vendor it may come back to bite you in the rear.

When one of your customers talks to another, no one should feel ripped off.