The Market Is Open: Fundraising, Efficiency & the Future of SaaS

Speaker A: Uh, on today's show I'm talking with Sami Abdullah, the co founder and chair of Blossom Street Ventures. And we will be talking about the state of the market and how it has swung back to founders, how AI will or won't affect SaaS companies, and the unique approach Blossom street takes in investing. Welcome to Bootstrapped 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 dot com. Thanks for joining us. Uh, Sami, it's great to have you here. Let's start with, can you give us just a brief overview of Blossom Street Ventures? You are about to raise your 12th fund. So you've been at this for a while.

Speaker B: Yeah, and I don't want anyone to think we're too big when they hear 12 fund. I raise a new fund every year. We call the capital right away, we deploy it over the following year. So we started in 2014. We're 11 funds in, about to raise our 12th. So that's how we work. In terms of the fund itself, I would call us a special situations venture fund or even early stage growth equity fund. What we really do is B2B SaaS trying to invest it, call it 6 to 8 times current ARR. And generally speaking, we are the last fast or small investor. So what does that mean? Last fast or small? Last round prior to exit fast round, whereby speed matters more than almost anything. And small rounds in, uh, larger companies whereby other VC can't get their ownership stakes. I don't have an ownership stake threshold. I have a revenue multiple threshold. So that's somewhat of the special situations mandate. But we're also, I would say classic early stage growth equity.

Speaker A: Okay, great. Yeah. And you put out a great report that we republish every quarter. It's the, is it the SAS index?

Speaker B: We put out SAS metrics on our website. They're publicly available for free. It's a lot of data. We update it constantly. But quarterly is when you really need to update the multiple section, which I think is the juiciest part. And we put out our newsletter once a month. We're pretty active on the content side.

Speaker A: Yeah, you're pretty prolific for a one man band. It's quite impressive. But let's get into the state of the market. So we've been hearing for the last, really almost three years now how difficult it is to raise venture and for companies that are out There seeking investment capital that it's just not around. So what are you seeing?

Speaker B: I am not seeing that. Uh, I think the pendulum has swung back to the founder materially. We're seeing deals getting done. We're seeing multiple term sheets in rounds. It's been very hard for us to get something done. We have not. We are closing a deal now, but we have not closed one since last January. Right. And that's a very long time for us not to do a new deal. In fact, I'm behind on deployment on this fund. So we are seeing a very good market for founders. You know, lenders are doing very interesting things. The riversides of the world, Bigfoots, lighter recurring capital, they're all putting out really interesting term sheets that replace equity. We just saw Comerica put forth a really aggressive term sheet into um, a company that, that we're interested in without venture backing, light venture backing. So back in the day, whereas Comerica would have done, you know, underwritten to sponsor kind of like an SVB does or used to kind of do it this time. So we're seeing, on the private credit side, we're seeing strong demand for venture deals. We're seeing plenty of companies ask for very aggressive valuations that we certainly won't sign up to, but somebody is signing up to because those companies are not boomeranging back to us. Right. We'll email them three months later. And uh. Oh yeah, Sammy, we closed our round. Thanks. So we are seeing that the market is open. Additionally, the investment banks at our level, at the call, at the mid market level, they're putting out data that says this is the most active M A market they've ever seen. You know, Software Equity Group especially is citing a very robust M and A market. You're seeing it in the IPO space. Netscope just went public. That's a very good SaaS business. Navon. That's not SaaS, that's travel tech. They just went public. And then of course you had, you know, service titan Sailpoint, you had a few go recently that were, you know, they're good IPOs. They got their IPOs done. Whereas 18 months ago. Right. There was no IPO market.

Speaker A: Yeah. So we're starting to see some liquidity, hopefully because there's been a lack of DPI for years.

Speaker B: We're seeing founders get funded. I don't know where exactly that capital is coming from, but it is there. So the market has opened back up for sure, in our view.

Speaker A: Well, you like Blossom, like lighter capital, has a strong focus on SaaS. Companies and for the last year plus there's been a lot of hype that AI will kill SaaS. What's your view on that?

Speaker B: Um, yeah, I think it's silly. I think software companies, especially at the Series A, just call it Series E stage, are absolute best position to take advantage of AI. Right. These companies have the leadership, uh, they have the vision, they have the customers, they know the business problems that the customer wants to solve. They have the dev teams, right. They've got the CS teams getting feedback. You've got the sales teams with their feet on the ground. In other words, to count out the existing software companies which already have the infrastructure and the customers and the resources and oh, by the way, they're thinking about AI every moment of every day, uh, is really silly in our view. And if anything, we think the existing crop of software companies is absolute best positioned to find real business use cases for AI, of which there are very few right now. But if somebody's going to find them and deploy them at scale, it will be the existing crop of software companies that are nimble, that have the customers that have the teams to do it.

Speaker A: Yeah, we're seeing that in Lighter Capital's portfolio as well. I'd say at the beginning of the year we were pretty worried in terms of how should we change our underwriting given AI. And we do look at it. But what we've seen is so far at least our uh, companies have just become much more efficient. So they're able to grow without adding cost because they're using AI versus being replaced by AI early days, but we haven't seen that. So let's talk about how you underwrite when you're looking for deals. Because you, you describe yourself as not a home run VC.

Speaker B: Yeah, we are underwriting to generally at 3 times cash on cash return in let's call it 3 or 4 years. Uh, we are not looking for 10xs. We are not looking for portfolio returners. We like companies that I think the Valley would consider as modest. Right. That they won't get out of bed for. So when you're underwriting to call it a three to four times cash on cash return in three to four years, these are real businesses. These are companies with 30 plus employees. They've got at least 2 million of recurring revenue. Probably more. Probably more like 3, 5, 8 million of recurring revenue. They've had real experience. The founders have had some success. The founders have also had plenty of setbacks. They've learned on other investors capital, earlier investors. Right. Those are the kinds of companies we want to underwrite to. And when you are investing in what I would call a real company like that, with real customers, real icp, you can do real quantitative work. So for us it all starts with the numbers. We're looking at the uh, SaaS metrics, the retention, the cash efficiency, the cohort performance. Right. We're looking at who are the customers, we're looking at what kinds of contracts those customers sign up to. So it's that kind of more quantitative analysis, getting into the data and setting aside what we would consider qualitative fluff like size of the market, IP patents, who your competitors are, what moats you think you have. That's all really nice MBA talk, but at the end of the day we think the data tells us how good is the product, does it have real product market fit? So we're very data driven and it's part of what allows us to move so fast and really be, you know, kind of cold blooded about how we invest. It's a very clear analysis.

Speaker A: What does that mean, kind of cold blooded? Are you not looking at team?

Speaker B: No, not at all. Yeah, I mean, look, most of our founders are first time founders. Let's use an example. Let's suppose somebody comes to you and has this roster of all rosters on their team, but their numbers are pretty mediocre. And then somebody else comes to you and it's a first time founder and man, they've got 110% net dollar retention, they've got very good cash efficiency, adding at least a dollar of high quality net new ARR for every dollar of net loss. Right. But that person hasn't done anything before. Who should you invest in? To me it's not a question, right? Set aside the team that's got the crazy resume and the really good resume and go with the team who's actually posting numbers even though they might be first timers. So we think that numbers indicate the quality of the team or the quality of the IP or the strength of the moat, or any other qualitative saying one wants to throw out. The numbers tell you how good the qualitative is, not the qualitative does not tell you how good the quantitative is. Right.

Speaker A: That is a really different and unique take. Of course everybody says the numbers are important and they dig into the data. I mean every VC says that. Uh, but I think almost every VC I've spoken to when I was a VC will say that the most important thing they look at when making an investment decision is the team.

Speaker B: I don't even Know what that means?

Speaker A: Like, well, it's very subjective.

Speaker B: Right, right, right. So, like, what do you like the person's handshake? Like, does the person are, uh, they charismatic? I don't know what it means to look at the team, especially if you have real data that you can look at. Real performance, real metrics, real retention, real cash efficiency figures, real margin data. Like, what does it mean to say, oh, we analyze the team, like what? All right, so does that mean all first time founders are just out? Uh, first time founders welcome, come to Blossom street. Right. Sammy@blossomstreetventures.com.

Speaker A: well, they might have a good handshake, so they might be in.

Speaker B: Yeah, no, email me. We welcome the cold inbound. Look, I'm 12 years in. That's not 50 years, but that's not two years. So far, so good. Putting the quantitative ahead of the qualitative. I really don't have the qualitative skill set. I'm not the person that can sit there and meet a founder and just tell, um, this person's got it. I don't have that. So I have to rely on the numbers. Maybe, uh, that's a friendlier way of putting it where I emphasize quantitative over qualitative, whereas other VC emphasize qualitative or quantitative. Maybe because they're better at it than I am.

Speaker A: I don't know if that's the case. Tell us about your evaluation process. When companies come to you, what's the best way for them to approach you? Do you need a warm introduction?

Speaker B: No. Sammylossomstreetventures.com Email me anytime you want. Uh, and what I tell all founders is if you're approaching any vc, all you really need is a very tight four to five sentence paragraph saying who you are, sprinkling some metrics, right? Sprinkling the structure, what you're raising, how much you're raising, the pre money, name drop, a couple customers. That's it. Right? That should be enough. So if you're reaching out to Blossom street, if you're reaching out to me, just reach out. Cole, four to five sentences, we'll get on the phone. If we're not a fit, I'll tell you no, right away. If we are fit, we'll get on the phone, we'll talk about the raise, what you want to do, who your ICP is, why you think you're nailing them, and hence why you should raise money. And then we'll get right into the data. The most important piece of data, in my view is, uh, MRR by customer by month. That is where the analysis starts. That's the crux of any software investment. Income statement comes next. How much is it costing you to add high quality, highly retentive net new ARR? So in my view, if you're adding about 70 cents of net new arrival for every dollar of net loss, you're doing well. What is the reciprocal of $0.70? Right. One divided by 70, that's about 1.4, 1.5. In other words, if in a year you add a dollar of net new ARR and it costs you 70 cents to do that, then your payback period on that net new ARR is about a year and a half. That's m quite good, especially if your net dollar retention is above 100%. Now you're creating that annuity and you're creating annuities at the cost of one and a half dollars for each dollar of annuity. That's a SaaS business. Right. Do that all day. So if you're at at least 70 cents of net new ARR for every dollar of net loss, you've got roughly a 1 1/2 year payback period. We would love to invest in you.

Speaker A: You said something before that I think really goes against the grain, which is reach out to me cold. We've heard other VCs say, don't reach out cold. We'll. And if you can't figure out a warm introduction, you know, that's a leading indicator that you're, you know, maybe not good at sales. So that's really a different take.

Speaker B: Yeah, I think those guys are jerks. Uh, like look, if you're a founder, you have better things to do than to mine your LinkedIn or a connection to some VC so that somebody can then take time out of their day to introduce you both. And it's the same thing that could have been achieved with a cold email. I don't know why any VC is so arrogant to think that that is the best way to be contacted.

Speaker A: Right.

Speaker B: Like saying no is very easy. I say no constantly. That's the job. The job is to say no. That's your job. That's my job. Saying no. Right. And so if you send me an email and it's not something that fits our mandate, I will say no very fast and I just move on. And it takes seconds, truly. It's just not a time suck. My email address is all over the Internet. Pretty sure it's all over our website. It's on every blog we write or close to every blog. You know what else? If it is a warm intro. Let's say one of my investors says, you, hey, man, you gotta meet this SaaS founder. And let's say that person's really not a fit. Well, guess what? I now feel obligated because it was my investor that made that introduction to burn in 30 minutes of my time and maybe 30 minutes of that founder's time. Right. Just so I can say to my investor, ah, uh, you know what? Out of respect for you, I took the call and it just wasn't a fit for either of us. What a waste of everyone's time. I'd almost rather you reach out cold so that if it's a no, I can just tell you no and we can both move on versus we have to do a dance because somebody important made a warm intro.

Speaker A: Very refreshing. Take.

Speaker B: Love it. Thank you.

Speaker A: Advice for founders when they're fundraising.

Speaker B: Um, retight. You need extremely crisp and succinct messaging. Right? So for instance, if you're cold emailing, four sentences, maybe five at most, your pitch deck, I don't know why it needs to be more than 10 slides.

Speaker A: Right?

Speaker B: Maybe it dips into the low teens because you put a contact page there. Right? In other words, be very succinct and direct as to what you want. And fundraising is super hard. I do it, you do it. It's really, really challenging. The faster you can squeeze out a no, the better. We all know that that's not new information. But just being as succinct and direct as possible, I think, at least allows you to manage your time well, because you get those no's faster so that, you know, you don't burn out chasing individuals that you might be good enough, you might not be good enough, but you really haven't given them the information and all the data. And just be real open with your data. I. I, uh, I'm not a big fan of, oh, you need to sign an NDA. And like, oh, my gosh.

Speaker A: Do you ever sign NDAs?

Speaker B: Sure, all the time. It's our NDA. It's our form NDA. Right. And I send it over pre signed because I don't want to do all the back and forth. Now if you send me an NDA, I'm going to insist we sign ours. Right?

Speaker A: Yeah.

Speaker B: Because if you say, I'm not a lawyer, you just sent me a legal document as a responsible fiduciary, I now have to call a lawyer. My lawyer. Right. Velawood. They're fantastic, but no one's free. Just review your NDA. I'm not going to do that. So I'm just going to insist we sign ours. Mine's pre signed. It's pretty normal. Let's move on and get to the quick. No. Or three to four week, five week yes.

Speaker A: Best pitch you've seen from a founder in your almost 12 funds.

Speaker B: Nobody jumps out at all. Not even the people in our portfolio. And I think the insight from that comment or that answer is that fundraising no one's a professional fundraiser. It is hard. As investors, a good investor will give you plenty of grace. So for instance, you don't need to spend tons and tons and tons of time refining every word in your deck. You're going to do it. I do it when I'm fundraising. We all do it. But nobody has a, um, blow your mind pitch. At least when you ask that question. I can't rattle off a specific founder or group of founders. Oh, man. So and so's pitch so good. Let me tell you about it. It's just because this is hard and no one's a professional. And so be succinct, be direct. You will not be perfect. That is okay. The good investors will understand and they will find you and understand it changes

Speaker A: in the market you've seen since things have really cooled off in the last three years. And is it good or bad?

Speaker B: I think companies put too much focus on profitability.

Speaker A: Okay.

Speaker B: So we put out the data. Talk to any banker that's worth their salt. They will tell you a percentage point of growth is worth far more than a percentage point of profitability. Right. Operating margin is worth far less than percentage growth. And sacrificing growth for profitability is a very bad idea. Right. Let me take that further. If you are one of those SaaS businesses that is cash efficiently building that annuity the way we talked about earlier, whereby your payback period on net operating loss is one and a half years or better, please continue burning cash. Keep building that annuity. You will build far more enterprise value building for, uh, growth in that scenario than you will trying to squeeze out more profitability at the expense of growth. Because profitability is not free, Right. Turning up growth generally requires you to turn down profitability and vice versa. And the statement I've just made also flies in the rule of 40. I think the rule of 40 is a really lazy saying, right?

Speaker A: Yeah.

Speaker B: Because again, the rule of 40 is assumes that growth is worth the same as profitability and they are not. They are not valued the same. Not even close. The data is in one of our blogs that we've written Recently. So I think companies have come way too focused on profitability, whereas what they should be focused on is really good cash efficient growth. That's one dynamic we've seen in the past few years. I understand why we've gone that direction.

Speaker A: Well, when it's difficult to fundraise, you sort of don't have a choice, right?

Speaker B: Totally. There was a nuclear winter. 2022 was SAS's recession late 2022 into 2023, the rest of the world was fine. SAS went through its recession. Undoubtedly multiples got sliced in half from where they were during. In Covid. Right. And so if you are forced to achieve profitability, uh, of course, go do it. But if you are one of those companies that has a really good payback period on your high quality growth, there is equity for you. And continuing to build that growth and using equity from a firm like ours or using debt from a firm like Lighter will build far more enterprise value in the long term than rushing to profitability. That really stands out to me. That stands out to me.

Speaker A: It's obvious. But it's a contrarian view lately, in the last probably two years, super contrarian.

Speaker B: Everybody loves talking about profitability.

Speaker A: Yeah.

Speaker B: I think you have to get to profitability if you have to because there's really not another dollar out there for you because you've been so cash inefficient. Right. I think public investors maybe have a different view, at least IPO investors, let's use the word IPO. Right. Because all the IPOs we've seen, they are either profitable in their latest quarter or like trending there quickly. Right. So maybe from the public markets it could be different, but at this stage, at our stage, Series A, series B, Series C, there is equity for high quality companies building up that annuity cash efficiently. I do not think it's appropriate to rush to profitability because there is equity

Speaker A: out there if you don't have to. Right.

Speaker B: Or debt. Yeah. If you don't have to. If you have to, you have to. If you have to. That means there's no equity for you and there's no debt for you.

Speaker A: So Sammy, what's your, um, view on the market ahead? What's 2026 going to look like?

Speaker B: I don't think the AI bubble necessarily pops, but I do think AI does not prove Its value in 2026. At scale. At scale. Is it happening in pockets? Absolutely. At scale, economy wide? No. I do not believe AI has its panacea moment. I think software companies continue to grow nicely. I think the economy continues to grow, albeit, uh, not at the rate it could grow at. Uh, that's a political topic. I'm not going to continue to touch that hot iron any further, but we will continue to grow. Earnings are strong from all the publicly traded companies that are coming in. Right. Earnings are coming in strong. They're beating. You are entering an environment where interest rate cuts will happen. Right, because the president gets to pick a new Fed chair and that Fed chair will be biased towards lower rates. And so who cares what happens in December when, you know, during 2026 you' to get a material level of rate reduction. You've got a tax benefit coming to everybody in 2026 or at least corporations. So you've got quite a few tailwinds for the economy. Overall, I think it's a wonderful time to be a software business. I don't think AI proves itself, but I think cash efficient growth, at least in software, will never go out of style. And it's not going out of style in 2026. So the market, I think will continue to improve for software as it has since, let's call it late 2022 when I think software really bottomed.

Speaker A: Well, Samy, thank you for those very interesting and somewhat contrarian insights. Love it. You've said you welcome cold inbound from SaaS companies. Um, you don't need a warm introduction to approach Blossom Street Ventures. Is it Sami @blossom street ventures.com it is. Okay. And 2 million ARR minimum is what you want to see your ICP.

Speaker B: 2 million plus of ARR. Really? I want anyone to email me. That's a software business, period. If you're just starting, if you're at a million, if you're at 250,000, I'll say no very fast. But I'm going to record your name and in 6 months, 12 months, 18 months, I'm going to say hello and remind you that we exist. So that's Samy S A M M Y. And um, please reach out. I will respond.

Speaker A: Yeah, and we've worked with you, I think several times over the years and uh, you're in our preferred VC program now. And we can say that, you know, you're fantastic to have on the cap table. So I'd encourage anybody, anyone that, that meets that criteria to reach out.

Speaker B: Thank you. Thank you. Yeah, yeah, just software businesses. Reach out. If you think you're going to be raising equity at some point in your life, say hello, we will correspond. I really enjoyed this, Melissa. Uh, it's fun to chat. It's fun being contrarian let's do it again.

Speaker A: Thanks again to Sami for joining our podcast today. And to learn more about Blossom street ventures, visit blossomstreetventures.com that's B L O S S O M streetventures.com 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 lidercapital.com that's L I G H-T-E-R C A P I T A L.com

Speaker B: Sam.