AI, Venture Capital, and the Future of SaaS: What Startup Founders Need to Know

Host: Welcome back to Bootstrap the Lighter side where we talk about the forces shaping capital companies and founders. Today's guest is someone who's seen the global financial system from one of the most important seats in the room. Mark Verissimo is the former chief risk officer at Silicon Valley bank where he spent years thinking about systemic risk, economic cycles and what can break when assumptions change. I think it's important to say that Mark left Silicon Valley bank in 2016 long before the bank's troubles in 2023. Mark is also we're so fortunate, the chair of Lighter Capital. Today we are going to talk about the current economic landscape, tariff and trades, political shifts, and most importantly, what all this actually means for founders and operators trying to build durable SaaS businesses right now.

Mark Verissimo: Foreign.

Host: The Lighter side, The podcast for B2B startup founders wanting to achieve success without giving up ownership or control. This podcast is brought to you by Lighter Capital, the leader in founder friendly financing for B2B SaaS companies. Learn more at AH lighter capital.com Mark, welcome back to the show. It is always great to have you here. I think that you're when we speak with you, it's typically our most popular podcast. So thank you.

Mark Verissimo: Yeah, thanks for having me on.

Host: And before we jump into the headlines and there have been a lot lately, I'd like to ground this in how you look at the world you've spent your career managing risk at scale. So when you look at today's economy, M what's the first thing you pay attention to?

Mark Verissimo: Well you have all the standard items you see. You know, if you googled something or you chat GPT they put gdp, unemployment, inflation, interest rates, you know, all these typical things what I tend to focus in on. I look at the 10 year bond yield because that gives me some sense of what the debt providers are looking at the economy, what they think about the future. I look at job creation and that's non government because again government jobs don't add value to the economy value in the way we look at it. And I look at labor participation of people, you know, who can work, whatever, how many are working. And right now I thought it was higher in the past but I think the most recent past Clinton economy sort of hit 68, 69% and currently we're at 62%. So the question is what's that 7% that's not working. And again if they were working at ah, jobs and we still have 7 million open jobs so yeah, it's not 12 million where it was but it's still 7 million. So there's still plenty of jobs out there. And then there's various reasons why that might be coming together and then productivity gains. Because again, when you look at how an economy is doing wealth wise and particularly with our current debt situation, you know, we're going to need productivity gains to continue to prosper and hopefully do much better going forward. And again, productivity was very high in the early part of the 20th century and it started to slow down towards the end of the century and it's, you know, sometimes in pretty meager as we started the 21st century.

Host: And of course the big topics, it's interesting, are uh, kind of the big topics that we had a year ago, which is AI. And again, tariffs. Tariffs are in the news lately. So specifically as we look at SaaS companies, like your capital fund SaaS companies, and we're in the middle of what is supposedly a SaaS apocalypse, how should we be thinking about AI and tariffs in relationship to SaaS companies with SAS?

Mark Verissimo: Uh, and again, I'll say that there's a wide variation of outlooks and what people think. But what I found more compelling, particularly regarding SaaS companies, was that direct AI or quote unquote, now they're calling agents of AI, they need data and they need data to explore, they need data to be trained on. And you look at Most of the SaaS companies, they're basically producing that foundational data in there, whether it's a Salesforce or Slack or any of these, these various tools that you use. So I look at saying SaaS companies are going to be needed because right now the AI doesn't do the actual data. Now why you're seeing re evaluations of the value of the SaaS companies is how that they can monetize it is. And so what I'm hearing more and more is that you're going to see sort of an overall you're not going to have in at least some people believe you're not going to have individual AI engines. For each SaaS product, there'll be an overarching AI and AI agent that does it. So Salesforce coming out with their own AI and all these individual ones, you know, I'm not sure that's going to allow them to increase their market and increase their revenue share with the client. I think they're still going to sell their base product, but there may be an overarching AI that does that work. So I think that's where you're starting to see some of the evaluations in the stock market and those Then they were pretty somewhat high valuations to start with. So they're bringing down sort of the total available market over the longer term form. But I don't think they're going away. Tariffs, uh, SAS is, it's tougher because it's not actually physical goods.

Host: Right.

Mark Verissimo: You know, per se being moved. And particularly for a lot of companies that we may be working with, I don't think it's a huge issue for them versus auto companies and some of these where there's more heavy metal being delivered.

Host: Most of our companies aren't directly affected by tariffs, but their customers are. So that could change their demand and willingness to pay for their products. But getting back to AI you as the head of our investment committee and credit committee we've had a lot of discussions on this topic and how it will affect SaaS companies. And I would say, and jump in if you see this differently. We were probably more concerned a year ago than we are today when the fear was uh, we will see large churn among our customers, customers as companies just decide to create these products themselves or have AI create these products rather than, you know, spend money with SaaS companies. But um, in fact so far we haven't seen that at all. So far the primary effect that we have seen is that our companies have just become more efficient because they're able to grow without adding costs or even cut costs in some cases and still grow. And we haven't seen this mass movement to our customers. Customers, you know, deciding they're going to create their own um, healthcare management system instead of contract with a SaaS provider to do so. But, but do you think long term that's a risk? And if, if so, what is the timeline?

Mark Verissimo: There could be a couple risks. One risk is does my current product rely, let's say on Google searches and how people are currently searching for products and there I think they need to be cautious. You know, how will AI affect that when it becomes fully, fully implemented? Now partially right now what's going on is listening to somebody who's, they're putting basically that it's a system on a wafer. So you no longer take the wafer, chop it into chips, you just put it all on one wafer and it's the um, CEO of Cerebras. And their issue is right now it takes you, you go into a chat, GDP or something, you ask them questions. It takes some time. You go to Google, you get almost instantaneously, very quickly. So there's a time lag there. And their job is to reduce that timeline down to, you know, something that, that we as humans will take a couple seconds, five seconds, not a minute and a half, not three minutes, not four minutes. So what he says is once we get that done, then there'll be a massive shift towards AI. So as a customer, you just have to be, how's it going to affect me? And the timeline may be a year or two off because clearly they're just coming out with their wafer on a thing in June and then, um, who knows how long it takes after that. The other is just for the SaaS customers in general, it seems like, you know, that they constantly. I'm trying to keep with all the new names, there's a Kimmy, there's all these new agents coming out there and I've heard of, you know, an agent coming out. I think it's Kimmy that basically they give it access to everything. Yeah, all their databases, all their emails, everything. And then they're saying it's helping them manage the business at the CEO level, down to the manager level, um, giving them access. Now the issues there are security.

Host: Right.

Mark Verissimo: Um, and cybersecurity. And this data is going somewhere, which paradoxically, when I talked about Cerebrus and bringing into the data centers, you're now seeing some real thoughts about going. Well, we originally, back in the 60s, we had dumb terminals and we had big computers and then the PC revolution flipped that on its head. And also we had distributed power out there and then Amazon, whatever, you know, shared resources, started to build these big data centers and you started to rent out, you know, spaces in them. Now they're saying with large language models, let's say I'm a large insurance company with a lot of proprietary information on, on fires and costs, etc. Do I want that going into a large language model that then, you know, basically pierces and everybody gets it, or do I want to keep it proprietary to myself? Which means then it's a flip back to I've got to own the data processing in my own house. So it's a flip back to that where I'm going to have to spend

Host: money then out of the cloud and on prem. Right?

Mark Verissimo: Yeah. And so, yeah, on prem. And so to get cost efficiencies from AI, maybe, but then you're going to lose them as you, as you're doing all this infrastructure to build it. So it's still pretty fluid out there. And again, as a business owner looking at that, you just have to keep up to speed as to what's going on there. Again, for sas, again being foundational to the data. Ah, I don't see it harming them that much. Um, unless something comes out of left field and I'm, you know, I'm not aware of, but I think all the AI is going to need those foundational systems and you just have to make sure your APIs are up so that they can get to them. Because I think you're going to have requests for the companies to say, I need to get into that data and I need to let the AI get into that data. And then you just need to work with the customer to understand the privacy, the security issues, et cetera. So maybe is OpenAI the best way to do it, or do you want to closed AI that means you can have the security you need.

Host: We were talking about earlier, we hear so many mixed signals. I mean, you touched on this, that we have strong employment in some areas. Um, it certainly doesn't feel like strong employment in tech compared to 21 and before. It doesn't feel that way, but the employment numbers are still strong. But we have tightening capital and others, especially in venture when it comes to, um, SaaS companies and SaaS companies, especially in the last month, saying they can't get funded even and really high performance. SaaS companies with, you know, growing 100% year on year are having trouble raising venture. And I think that's largely because venture capitalists right now are worried about terminal value. You know, valuations have gone down, so it's difficult to invest in this asset class. They all seem to have switched. You know, a year ago, everybody was still focused on SaaS companies, but we have persistent inflation concerns and there's geopolitical risk layered on top of everything going to the inflation side. We provide capital to companies in Australia, where we have a warehouse facility, and we have the same in the US with different providers. And our cost of capital is dependent on. In the US it's sofr. In Australia, it's the BBSW or the bank rate we just had. Trump is saying we're going to lower rates in the US and in Australia we just had a rate hike of 25 basis points. So we've got two countries looking at the world very differently. Would you dare to predict what SOFR will be at a year from now? And we're focused more our business on the short term.

Mark Verissimo: I'll combine this with something with GDP expectations, et cetera. If you look at the cbo, the GDP expectation, particularly the last one they put out there, they haven't maybe going to 2% over 2% this year, maybe next year, and then dropping down to 1.8% which then you've got this huge increase in our debt, you know, over the next 10 years. If you listen to some people, they're thinking, oh no, we're going to see 4% GDP growth this year, maybe even 5% GDP growth because of stimulus from the tax refunds. And you can say, yeah, we're still pumping in a trillion and a half of extra liquidity in there. We've got all this AI boom, we've got some manufacturing coming back. So they're saying there's all these positive things going on. So my issue is if you see all that going on and if productivity increases dramatically, then I could see rates coming down some. If it does increase dramatically stays, you know, pretty tame, then I'm thinking no rates might stay, although they're never stable, but they might stay, you know, where they're at. Because I'm going to have, if I'm seeing 4 or 5% GDP growth, what's unemployment doing with that? Is it a, does it stay flat? Because a lot of this, because we're getting so much productivity growth, we don't need all of that. But to me it's always tempered by, I remember um, Mark entries and saying they were talking about job losses and AI and he says, listen, almost half the economy is housing, education and government. All three are highly regulated and there's not going to be job losses. They're going to regulate the heck out of it to make sure it's not. So then you're talking about half the economy, job losses, and again, scar tissue of living through the 70s and early 80s. Uh, I'm not sure we're going to see big decreases in short term rates. The long end might move up a little bit simply because I don't think he's going to be as active on the mortgage buying side of it than he was as he tries to bring the balance sheet down.

Host: So we're hearing flat to slightly lower, but we're not lady back into 21 levels anytime soon.

Mark Verissimo: I don't, you know, I don't, don't think so. Although when I say flat to lower, clearly there's a few governors that think rates, we have to start thinking about rate hikes. So yeah, yeah, but rates have helped the dollar. So the dollar has stayed relatively okay because of the higher rates.

Host: We touched on this a little bit earlier, but we've seen a dramatic pullback early in the last month with venture capitalist financing. SaaS, companies in particular venture capitalists have pulled back since 22, but we started to see some pickup last year. But now I can't find a venture that invest in SaaS companies. There's still a few out there, but most of them have said we do, you know, we're into deep tech or agentic AI. And if you're a SaaS company and you think that you're going to need dilutive funding or venture funding for growth versus non dilutive funding, if you have revenue, you have access to non dilutive funding, how should you be thinking about this? Do you think this is a temporary movement by VCs or have they really switched and, and they're just not going to be funding Sassany in, in the near future?

Mark Verissimo: Yeah. Having been in this since the early 80s, you know, I've seen definitely the VCs, that herd mentality that I've seen over the years with VCs. You could you. In the late 90s you had uh, the Internet and you just had a herd of companies going there. Then it just dropped off a cliff and nobody want to talk about the Internet. In fact, some people were saying we shouldn't even call ourselves Silicon Valley. You know, turn it, call it something else because that's such a big name. Then it comes roaring, you know, roaring back in different areas, different views. So, so yeah, if I'm a SaaS company, I think it's, if my premise that AI is going to have to have SaaS data sources, then I would say yeah, it's just temporary. Meaning at some point they're readjusting and VCs, you know, they always say they look out five or 10 years I looked, what's the stock market doing today? And they send, they tend to freeze like everybody else freeze. Even though intellectually it's saying no. When everyone, you know, it's Warren Buffett. When everyone is as scared, I'm aggressive when everyone's happy and aggressive, you know,

Host: I pull back greedy when those are afraid and afraid when those are greedy. Right.

Mark Verissimo: Yeah. And I, and it's history and venture capital. The few people or firms have done that, have done very well at the troughs. But if I'm a SaaS company, you know, do I find that one in a 50 venture capitalist or fortunately there are debt providers out there lighter being a, uh, prominent one that can help you get through some of these, these issues and not have to, one, try to find somebody. And second, if you do find somebody, not do it, you know, extremely dilutive to you and your company. So I Think it's temporary, maybe a year, two years. But you have to be able to get, you know, get over the chasm.

Host: Let's talk a little bit about just political shifts and general economic confidence. With political changes both here and globally, they seem to be happening faster and with more volatility, especially in the last year. Um, from a former risk officer's point of view, how do political shifts translate into economic growth risk and how should we be thinking about what's, you know, a pretty volatile political landscape.

Mark Verissimo: Yeah.

Host: When we're assessing economic risk.

Mark Verissimo: When I look at the situation right now, and I'm not, uh, I don't know whether it's an unappreciated risk or whether people are really factoring this in, but I think political risk now, in political, I'm saying, you know, what's, what's regulations, what's policies, you know, what are they trying to do? I think that risk is heightened over the last 10 to 15 years because we've seen dramatic differences. Um, and let me give you an example. One is that crypto they started talking about, like 2013. They were talking about it and some individuals were trying to make sure, let's get a U.S. regulatory overview of it so then we can, can do it. During the first Trump administration, there was some, you know, some movement doing that, and Biden administration came in and just wouldn't even want to talk to the crypto people. I had a CEO of one crypto company saying I was trying to talk because I, I didn't want to be tether. And tether's the crypto that's offshore mildly or no regulation. Uh, and he said, no, I wanted the US Regulated product to come out. He said, I couldn't even get a Biden official to talk to me. And then there's this thing, and then, you know, things be people being unbanked. Andreessen made a big deal about this, that there was crypto founders, etc, that were just being unbanked. And now it's come out. There's been some emails and memos that the administration was doing that. Then Trump comes in and we get the Genius act, which is meant to, let's bring that here. Let's make the US a big player in, in crypto and in stablecoin and all that. So it's a huge change for it. And you don't know what's going to happen in 2028, you know, or even 2026 when we get another, you know, Congress in there. So. And then, you know, for the, the Auto companies, they were just getting beat upside the head about fuel efficiency. And you got to go electric. And so they poured billions of dollars into this. And now you have the Trump administration coming in allegedly with their scientific panel and their scientific thing and saying, well, no, we don't have to do some of these things that you're doing. And all of a sudden Toyota looks more like a genius because they kept the hybrid, which seems to be a, you know, popular thing. So if I'm, you know, business, I'm just trying to figure out the tea leaves. And that's why I think policy is so important because there's as everything else, everything's politicized. So you start to see these things about what's the inflation rate in a red state versus a blue state. And right now for 25 was 2 1/2% in a red state, 3% in a blue state. Well, why is that? Well, most of it is energy Blue states it's 5.2% in 2025 and red states it's 3.5%. A lot of this, the mandates, you know, there's no green energy is not a free lunch in California. I think they try to push it through as a free lunch, but, you know, but it's not employment. You know, you look at employment growth same way. It tends to be more focused in the red states than the blue states. So again, if I'm a business owner, I have to, you know, just adds a little bit of complexity and maybe even cost because I've got to stay nimble to say, okay, right now the government's telling me this is what they want, but unfortunately, you know, in two years it could be something else. And here I'm trying to do a five year plan or something like that. It makes life pretty difficult. So for me that starts to become, you know, risk. That ranks up there with cybersecurity, AI, you know, the rest of them that I have to deal with. Problem is that the modulation is getting wider, meaning a Trump leads to a Mandami. You know, I so very, very different economic outlook view of the world. And the policies of both sides are tending to exacerbate, you know, the issues that we have right now and affordability, housing, educational costs, all those things. And my worry is that the modulation just swings way over here and it's going to swing way, you know, it doesn't come back to the middle, swings way over to the other side. And that for businesses that's even harder because I'm trying to run my business and I Prefer be sort of down the middle or at least have some idea what the variation.

Host: Well, and I mean on that note, if, if you were advising a bootstrap founder today, what are the top two or three risk principles you would want them to internalize?

Mark Verissimo: One is the, the political side. I mean what state am I in, what county, what city? Because they clearly have very different, you know, one way you could say that's what, that's the beauty of the Federation of United States, you know, that we have individual states and they somewhat can do their own thing. Although again it becomes when one party's in control, they think federal, uh, control is good when the other party's in control. And so the party, um, out of sorts thinks states rights is everything to do and then it flips. So the issues are where, you know, where are you operating, what state are you comfortable that there's at least some, some view of consistency in what's going to happen. And I think you're seeing it now where companies are moving states. And I think as an entrepreneur you have to be aware if I'm, if I'm sitting in Seattle, is that really a place where I can build a business?

Host: And what are you advising them to look at? Because I, what we would look at is um, labor costs and availability of talent if you're going to be a, um, if you're not going to be a remote company. Um, and then also there's tax policy which isn't, I mean other than incentives for smaller companies and startups, tax policy doesn't have a big effect on most of our companies of any effect because they're not profitable. Right. So they're not even thinking about what the tax rate is because they're not, they don't have a tax check. It's more, you know, access to labor that seems to be, or access to labor and proximity to customers that's driving our customers to make location decisions. If they're not remote, which, you know, almost, uh, all of our companies are hybrid or remote. There's very few that are fully in house unless they're really small.

Mark Verissimo: Yeah, labor's a, you know, a big issue. And the question is where is labor going to and the labor you need, where, where are they going in some of these places? I, I just saw something on the Bay Area where they, they lost jobs. Now somebody says, well during 21 we kind of, at 22 we sort of over inflated. You know, it was Covid. Everybody's being remote and Jesus, demand's going to last forever. So we just Hired a ton of people remotely, et cetera. Now with sort of the shift back to hybrid situations, whatever, you know, sort of demand has cooled a little bit. Part of that was just getting rid of some of the over hiring we did earlier. So they lost jobs last year, I think 20,000 jobs, something like that. So now they're looking at it and saying, well, we think we probably hit a bottom. They were going back up. But one of the big things is how can we attract people into the Bay Area? Um, because it's so expensive to live.

Host: Right.

Mark Verissimo: You know, so do we need to be in Austin or do we need to be, you know, Nashville, you know, or someplace that, you know, housing is, is not outrageously expensive. So. And I don't see. And then look at the policies. What's the policies of California? Are they doing anything to relieve that? Well, they, they spent $24 billion on something, but the state accounting, uh, for homelessness and housing, whatever else, and their own, the state government's own oddity department can't figure out where the money went and it didn't do anything. And then housing starts, haven't gone anywhere. Meaning Newsom was going to really increase housing starts. And that was what, six years ago when he first started. If you go today, they haven't really moved much of anything. So you're looking at that going, well, M. Housing isn't growing the way it should be and they don't, they're spending money but it doesn't seem to be having impact when I need. So do I have a long term, um, view that things are going to get better and if I don't, then I just have to look, you know, where are new employees going to go? Because I can't uh, afford to spend a two or three million dollars for a starter house in the Bay Area. So where is someplace that's decent to live and then my people can actually afford to live and are they going to migrate there there for that?

Host: If you're an in house company or an in person company, yeah.

Mark Verissimo: Ah.

Host: When you look over the next few years, um, what are you most optimistic about?

Mark Verissimo: I think I'm optimistic about productivity gains because I do think AI is going to drive that again, barring some policy decisions that stop that. There's been a lot of angst about data centers and environmental whatever and I've been listening to a lot of these people that seem to know they're in the industry talking about it. I think the people doing data centers or whatever have woken up to say, hey, if I'm going to use a lot of electricity. I'm not going to pawn it off on the, uh, homeowner down the street. And so now they're talking about we'll take care of our own energy needs. So this is this ambling one. They're going to take care of 100% of their own electrical needs and pretty green and the way they're going to do it. And it basically is 100% of their capacity. Now, 99% of the time they don't operate 100% of the capacity. So we're going to shoot the excess into the grid so that people in the area can partake in that and you know, get lower costs. And he, he likened it to, um. And I guess in France if there's a nuclear power plant, if you're within 30 miles of that nuclear power plant, you get free energy for life because they say you're, you're taking some risk. So I think, you know, some people gotten smart about what they're doing and I don't think the water. I think they're getting very, very efficient about water and having closed cycles and they just keep doing it over, over. So I think they're looking at how they minimize the impact, you know, on the area. So I'm, I'm um, optimistic about that. I am somewhat optimistic on AI that people want to put their heads in the sand and say, I don't like it, don't want to do it. And my issue is, well, okay, then the Chinese are going to do it and then we're going to be relying on Chinese AI. And I would prefer not to be reliant on Chinese AI. I prefer to have our own. Um, so I think we're going to have, you know, good I there. I do think growth, um, is going to be higher than people think going forward. But so I'm optimistic that way. And if we get high growth, higher productivity, whatever, can we make a dent in our deficits? Because I do think fiscally we're not on a sustainable path, although neither does one. Gentlemen say since the 1700s and you look at debt to GDP, it's just gone up.

Host: Right.

Mark Verissimo: Over years.

Host: Years.

Mark Verissimo: So he says it's relative. If everybody else in the world goes to 500 debt to GDP, then you're just part of the right group.

Host: It's um, not going to increase your cost of borrowing relative to other companies.

Mark Verissimo: Yeah, Other countries. Yeah. But I just get, I just get nervous. And the problem is you can't cut anything. You know, nobody wants to do austerity because the American people or worldwide, nobody wants to cut anything. Once I get something and it's free, it's mine forever. So then the only issue is, can you grow fast? Can you at least flatten the curve a little bit and grow fast enough to get that 6% down to 3? It can do that. But yeah, I, you know, the US Is pretty tough. Uh, I can't say it can't be killed. The, the innovation spark, whatever that's here. But it's still, uh, you know, I still think it's the most innovative country in the world when it's allowed to be. And I do think immigration is a part of that. And if we can just get control of it. I think the thing is you have to have a controlled border. Milton Friedman woods says you can't have a socialist country and open borders because everybody's going to come. So you do have to control the borders, but you do have to encourage immigration in the country that's kept the country, this country, dynamic and growing, you know, over time.

Host: Well, Mark, thank you so much for your time. It is always fascinating to hear your perspective and we look forward to the next one.

Mark Verissimo: Great. Well, thank you.

Host: Foreign. We hope you enjoyed this episode of Bootstrapped the Lighter side. To receive future episodes, subscribe using your favorite podcast platform. And if you enjoy this show, please share it with other fellow founders and entrepreneurs. For more insights, helpful tips, and to learn more about founder friendly financing options, Visit us at lighter capital.com that's L I G H T E R C-A P I T A L dot com.