Episode 729 | 9 Things I've Learned Investing in 170+ SaaS Companies
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Rob Walling Thank you so much for having me. to only those where TinySeed has written a check in the past. I guess the first check was written about five years ago. And so that gives us a pretty tight timeframe and a more cohesive decision-making approach because we've been much more deliberate about the types of businesses that we fund. So today's episode is stemmed from a question I got in a private Slack group I'm in where someone said, you're basically five years, we're six years from the announcement of TinySeed almost, but we are just over five years from the first check being written. And he asked, are there any patterns or takeaways that you're noticing across TinySeed? These 170 plus companies. And there are.
And that's what I'm going to share today. Now I want to make a note. I have almost two dozen of these takeaways. And that's too long for a podcast episode. It would run well over an hour. So what I did is I split off six of them and I put them in a YouTube video on the Microcom channel. And it has a name similar to this. It probably just came out a couple days ago. And it's six things that I've learned investing in more than 170 companies over five years, something like that. So if you head to microconf.com slash YouTube, it should be one of the last couple videos published. Or you can look in the show notes of this podcast and click through directly to that video if you want to get the other takeaways that I didn't include in this podcast.
I'm going to list these in no particular order. They just came to me in this order as I was trying to think of what are the patterns that we've seen. First one is the survivability of B2B SaaS, and maybe specifically within our portfolio, because obviously we are pretty picky, pretty choosy about the companies we let in. But broader than that, B2B SaaS in general, once you get a little bit of traction, it doesn't fail very often. So more than 170 investments in approximately 2% of those have been written off, have shut down, not sold, and basically moved on to their next stack. So very, very small, what I'd call a failure rate, much, much smaller than you would see in a traditional, more risky venture fund.
Now I want to couch this. It's still early. We funded, I don't know, approximately 45 companies in the past 12 months. And so obviously the failure rate of those would be much lower because they haven't had time to fail. So I don't want to act like for eternity, for the next 10, 20 years, there's going to be a 2% failure rate. But we did start writing checks five years ago. And even among those companies, the failure rate is still extremely low. The other number that I found interesting, and I just confirmed these as of this morning, is that 4% of tiny seed companies have exited, meaning sold for enough cash that tiny seed at least got our money back. And in some cases, as you've heard with Iran Galperin's exit on this podcast, we received many, many times our money back. But 4% have exited, 2%. have been written off. So there's still a lot of companies in play. And as I said before, it's still early.
I mean, we are in the first inning in terms of B2B SaaS taking five years when a traditional startup might take two years because the long, slow SaaS ramp of death just takes a long time for things to unfold. Now, my second takeaway is just how valuable SaaS is. You've heard me say this on this show, where I talk about if you're over, say, 2 million in annual recurring revenue, and you're still growing at 40, 50% a year, whatever it is, you can sell at a 4 to 7x multiple. And so this is all loose numbers. Please don't, you know, I get quoted on Twitter saying this stuff, but I'm just trying to give you a general idea. But let's say a 5x multiple. So if I add 1000 MRR to my company this month, That is 12K ARR, multiple of that times a 5X, multiple if I were to sell it. And I'm adding $60,000 in theory to my net worth every single month that I had 1K of MRR. So now think about adding 5K of MRR, which many, many tiny C companies are doing. 5K times 12 is 60, times five is $300,000 to the value of that company.
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