Meritech is excited to partner with @asingla77 and the Lumilens team — enabling AI clusters to start talking at the speed of photons ⚡️. wsj.com/tech/startup-raises-…

@bgurley we have been doing some analysis on this...I don't agree that SBC is the root cause based on the data. == SBC (stock-based compensation) is not the root cause of the selloff in software — it's slowing revenue growth as AI threatens the core value proposition of sticky, recurring revenue and ever-growing absolute free cash flow. SBC is a derivative of this (to be clear, it should be treated as a cash expense). We looked at 1.5M data points from 10 years of trading data across 141 companies, and there is no discernible correlation between either dilution per year or SBC as a % of revenue and valuation multiples. The Street cares about revenue growth. Each time there is a correction and/or growth slows, as it did in 2022, the SBC comments emerge. That is not to say that dilution is not important, because it is, but high and durable revenue growth matters much more. For example, over the past 10 years, 88% of the time, there is a stronger correlation between revenue growth and valuation multiples than between any SBC, dilution, or free cash flow metric. Moreover, 100% of the time (by quarter) over the past 10 years, reported free cash flow had a higher correlation to valuation than free cash flow less SBC. The market has never, in any single quarter over the past decade, placed more value on SBC-adjusted free cash flow than on reported free cash flow…. A few other notes: we looked at every company that has been continuously in the public software index over the past 10 years (33 companies with full 10-year track records). Dilution explains 12% of return variance; SBC as a % of revenue has essentially zero correlation with returns (r-squared of ~0). Revenue CAGR is the single strongest predictor, explaining 41% of 10-year return variance (r-squared=0.41). The top quartile by share price return over the past ten years (SHOP, AXON, TTD, PANW, NOW, APPF, HUBS, TWLO) diluted a median 47% and returned a median 635%. The bottom quartile of share price returns (RPD, BLKB, OTEX, PRGS, FIVN, BL, SGE, SPSC), which included 4 net share buyers, returned a median of (7)% and had a median cumulative dilution of 4% (basically nothing!). The pattern is clear: the best-performing software companies used equity aggressively to attract top talent and fund growth, while the most capital-conservative companies delivered the weakest returns. Even during the 2022–2023 rate-hike correction — the most hostile environment for growth stocks in a decade — growth metrics only lost to FCF and SBC metrics in 3 consecutive quarters before reasserting dominance. Many public software companies are in a "burn the ships" moment, figuring out how to grow revenue faster, which requires getting into the token flow. It's almost akin to being an offline business in 1997 and needing to go online. Public technology markets care about high, durable revenue growth, and I don't believe that, looking back in 10 years, the companies that didn't make it will be the ones that just limited SBC. It will be the ones that failed to innovate / hire the best people, and failed to achieve high, durable revenue growth. This is clear when looking at this chart over time...the market cares about Rule of X (which is mostly growth).

Vertical software company @ServiceTitan ($TTAN) filed for an IPO, the 3rd SaaS company of the year. They’re almost $800M in ARR growing 25% year-over-year and should be trading in the next few weeks. $TTAN’s performance should be a barometer for the dozens of other SaaS IPOs thinking about the public markets. More in our post in the link below. Thanks @amdecamillo, @ausw2000 and @danKnightNews1

Rubrik ($RBRK) is the first SaaS company to file for an IPO in 2024. $RBRK is an almost $800M ARR business growing almost 50% year-over-year, the fastest LTM ARR growth rate among all current public SaaS companies. A lot more here: meritechcapital.com/blog/rub…

Meritech is excited to partner with @koenbok, @jornvandijk, and the entire Framer team on their mission of creating a new standard of web design. If you're building a site, check it out!!! framer.com/feed/series-c

Just published the @SumoLogic (SUMO) IPO | S-1 Breakdown. meritechcapital.com/blog/sum…

Just published the @BigCommerce (BIGC) IPO | S-1 Breakdown. meritechcapital.com/blog/big…