A look back at SaaS with a long-time investor and an interview with a fintech Business Angel

#228 - Valentine Baudouin (Business Angel) and #229 - Hillel Zidel (Managing Partner of Kennet Partners)

May 12, 2024

The 'Serial Investor' in FinTech 🇫🇷

If there's one person you need to know when launching a business in FinTech, it's Valentine Baudouin. This sharp-minded lawyer has invested in dozens of seed-stage start-ups over the past 10 years, including Alma. The conversation gives us the opportunity to get a bird's-eye view of the major challenges these young companies face: navigating a complex landscape, balancing compliance with hyper-growth, and understanding upcoming trends.

In this episode we discuss three themes that are close to both of us: regulatory issues, the role of women in the industry and of course, entrepreneurs.

Valentine also talks about the projects she’s working on and how she supports the companies in her portfolio.

Female Networks

Valentine isn't part of any female Business Angels network, and we won't delve deeply into this topic in our discussion.

However, there are some networks worth knowing about in Europe:

Femmes Business Angels: Based in France, this is the first female network of BAs in France and Europe. It consists of approximately 160 women who personally invest in seed-stage start-ups and organise events to promote female investment.
Women Business Angels: This network of female BAs, established in Hungary, focuses on Central and Eastern European countries but has strong ties with Israel and the Nordics.
The Next Women: Founded by Dutchwoman Simone Brummelhuis, this network brings together around a 100 female BAs who finance businesses led by women, aiming to bridge the diversity gap in start-up investments.
Note that you can listen again to the episode I recorded in 2022 with Tatiana Jama and Laetitia Vitaud about Sista Fund 👉 here in 🇫🇷.

Business Angels Europe: Although not exclusively female, this network of 4000 BAs includes several initiatives and programmes like WA4E - Women Business Angels for Europe's Entrepreneurs to increase women's participation in early-stage investment. The network collaborates with various partners to encourage greater inclusion and diversity among Angels in Europe.
European Women in VC: This pan-European network increases the visibility and participation of women in VC. Although primarily focused on VC, this network and its hyperactive Slack community 🤯 also support BAs’ initiatives.

Here's a comprehensive list of female BAs (Source: Sifted) 👉 here.

SaaS: A comprehensive look with a veteran investor

I've been delving into SaaS on this podcast for years. In his celebrated article “Why Software Is Eating the World”, Marc Andreessen explained how software would seize control of significant parts of the economy, driven by the widespread adoption and triumph of the SaaS model.

Now, thirteen years on, what's the verdict on SaaS?

It's a topic I was keen to explore with an industry expert. Hillel, with his extensive experience investing in B2B SaaS.

We covered a plethora of topics, from the evolution of pricing models to value proposition, the transformation of traditional players, the migration towards cloud-based services, and more recently, themes related to AI.

This discussion also provided an opportunity for me to introduce you to Kennet, a firm I'm intimately acquainted with as I serve on the Boards of their Kennet V and VI funds. We delved into the funds, their investment thesis, and some notable investments, such as Eloomi, whose recent exit was announced 👉here. This investment opened the door to discuss KPIs and the significance of sustainable growth in investment decisions.

The evolution of SaaS

The SaaS model experienced exponential growth between 2008 and 2021, surpassing the S&P 500 or Nasdaq, as shown by the SaaS Capital Index 👉here.

This growth was powered by the cloud, allowing for affordable subscriptions, often through freemium offers. Customer acquisition costs were lowered through effective sales teams and established digital marketing methods.

However, the SaaS model peaked in 2021, followed by a crash in 2022 due to rising interest rates and capital costs. This downturn highlighted the limits of hyper-growth without immediate profitability. Established scale-ups like Peloton, Shopify, DocuSign, or Salesforce were hit hard by this decline.

I also discussed this with Nicolas in a special edition on the evolution of VC 👉 here in 🇫🇷. For sustainable growth, it's crucial to grasp the fundamental principles of the SaaS model. Unlike traditional sales models focused on customer acquisition, the SaaS model centres on the customer lifecycle, where most revenue comes after the initial acquisition.

Rather than merely increasing the number of leads, it's strategic to concentrate on lead quality. A relevant lead from the start is vital, as the costs of “false positives” are substantial in a subscription-based model.

In subscription models, Customer Success is vital for ensuring recurring revenue. Customer Success teams are essential not only for sales and onboarding but also for monitoring and expanding existing customers.

I recommend reading this highly relevant article on the Bowtie funnel 👉 here.

Companies should focus on customer retention and expansion through renewals, upsells, and cross-sells. Metrics like Net Revenue Retention (“NRR”) are more pertinent than merely acquiring new customers.

As Hillel explains, despite the crash, the SaaS model isn't dead. Investors must concentrate on sustainable growth principles, prioritising lead quality, customer success, and meticulous customer lifecycle management.

otherwise…

Hillel and Valentine's recommendations this week:

Shoe Dog by Phil Knight
Podcasts: Acquired, Huberman Lab by Dr. Andrew Huberman, Founders, or Invest Like the Best by Patrick O'Shaughnessy
L'entrepreneuriat, un nouveau féminisme (only available in 🇫🇷) by Tatiana Jama

As for me, I've just finished reading Caroline Franczia's book, which is both light-hearted and technical. I highly recommend it for improving your sales skills while immersing yourself in 80s culture. 👉 here.