The irony of SaaS / Tech Banking
I was thinking recently about the irony of doing SaaS/Technology banking, where your entire job is to highlight or prove why a Company's recurring revenue streams are so valuable because of their future visibility, which makes them worth 8-12x ARR. Meanwhile, we are in a business that has literally 0 revenue visibility (deals can fall apart at the last minute), highly transactional by nature where every incremental dollar requires equivalent labor, and extremely long sales cycles (6+ months processes). Anyone else have similar thoughts? Feels like I'm playing the wrong game here and should just fuck off and go into building niche SaaS products lol that I can try scaling to $5M - 10M ARR. Easier said than done, sure but given the outcomes seems like it's worth a shot.
Yeah it’s pretty funny the best business models are everything an advisory firm is not, but the main reason you don’t see bankers doing what you’re proposing is because the type of person who is a talented banker and the type of person who is a talented tech entrepreneur are two very different people. IB is the best toolkit to learn how to analyze businesses which essentially gives you the blueprint on what the KPIs of a good business should be (you’d be surprised how many scaled tech companies are still trying to figure out what metrics matter lmao), but that’s not the same skillset you need to be a great operational CFO to get those metrics hit. Whether or not you could be a visionary CEO depends mostly on your personality and creativity,and you’d need a stellar cofounder to build whatever you imagine up. This is a long winded way of saying that most vanilla bankers aren’t cut out for the entrepreneur life, but I’d imagine the few that are are doomed to be very successful if they can build the right team of executors around them.
but i guess the argument is that quite alot of work in advisory could be re-occuring - and also you own much more of the econs rather than being a software engineer in tech. But in terms of an share holder I'd much rather own a tech business rather than stock in banks lol
It’s pretty funny, being a tech banker is the best job in the world - an immediate payoff of closing a deal without the long term repercussions of investing in a sub-par company - until you experience a deal that you worked on falling apart 2 weeks before close and realize you really aren’t in control of your own success
I did a brief stint in tech, decided against it. Here's the facts of a startup: Most people never exit, and if you do, you basically almost never make more than just in corporate jobs.
Let's say you found a startup and it does pretty well. You make it to a 100M exit at 10% equity. That's actually a very good exit, all things considered. That took maybe 10 years, for simplicity sake. That would go to 1M a year in payout. You can make significantly more than that in a role in big tech, unicorns, or finance.
A lot of people think that billion dollar valuations and such are normal. Even at a 10m dollar ARR, you're likely burning another 20-30m. VC firms give you money because they want you to burn it. So you end up in this loop where you have to constantly fundraise to grow so your previous investors can make more and more money. If you don't take outside capital, you can still grow, but bootstrapping is really hard.
I can comment at length about why I decided against tech, but I do think this "grass is greener" mentality isn't all that helpful.
That's why you bootstrap
Bootstrapping is incredibly difficult, and for most people they'd be better off starting another business than a startup.
Seed strapping is the way. Raise $5m and never raise again. If you can’t make that back with running out of money you have a shit business that shouldn’t exist (excl. outlier industries like hardware and biotech)
The loop dynamic you're talking about isn't unique to tech though. HFs are a “battery mill” of PMs getting stopped out and rotating to the next shop. In banking, as OP said deals fall apart all the time and you start from zero again. Pretty much every industry have their own version of that treadmill.
The difference in startups is the network effect + chance of outcomes. Yes, correct - 90% of equity won’t get realised, but at least there is a shot at asymmetric upside. In corporate or big finance, your ceiling is capped. In startups, it’s brutally hard and usually doesn’t work out, but the possibility curve is different - and correspondingly suits some people more than others.
The irony you’ve pointed out is a common sentiment among those in SaaS/Tech banking. On one hand, you're selling the dream of predictable, scalable revenue streams to investors, while your own business model is the polar opposite—transactional, unpredictable, and labor-intensive. It’s a stark contrast that many in the industry have noticed.
Building a niche SaaS product and scaling it to $5M-$10M ARR is definitely an appealing alternative, but as you mentioned, it’s easier said than done. SaaS businesses require significant upfront investment in product development, customer acquisition, and scaling operations. Plus, the competition in the SaaS space is fierce, and achieving product-market fit is no small feat.
That said, the allure of creating something with recurring revenue, scalability, and long-term value is undeniable. If you have a strong idea, the right team, and the willingness to take on the risk, it could be worth exploring. Just keep in mind that while SaaS businesses can offer more predictable revenue streams once established, the journey to get there is often fraught with challenges.
Sources: Sales in S&T - What's the catch? (best job in banking)??, PE recruiting technical questions (software specific), SaaS LBO, ECB Hikes, Markets Respond | The Daily Peel | 7/22/22, Net working capital and deferred revenue, SaaS Deal.
lol. Lmao even at the comment about starting a niche SaaS scale to 5-10 mm ARR. Brother, I posted an MVP post here on this site which literally automates away the data scraping of LinkedIn profiles and generates emails for you to cold email and all I got was silver bananas. Not even any indication of pull for my product.
Going to shamelessly plug my demo here since this comment is getting some views:
That’s because it’s a nifty app that nobody needs or wants to waste their money on. You can’t possibly think that’s a viable long term business model?
It's literally an automation that saves me a ton of time with networking, lead gen, and cold outreach. Scratching my own itch. If I have this problem, there's bound to be others that have the same problem. I built it because I was looking for something in the market that I could pay $15 to $20 a month on to handle email/lead generation for job searchers/people looking to network. If I'm willing to spend that much money, the question then becomes who else has this pain and who else is willing to spend the money. You're thinking too much like a banker and not like a builder/entrepreneur. Eventually if there is enough pull it can scale, but no one who ever started a business or product thought it would become a unicorn or scale infinitely, it's always incremental baby steps.
Networking is one of those things that will still be here 10+ years from now, how it's done will change, and my app is a solution to the annoying time wasting manual way of copy and pasting each single person's name, position, company, and then creating the emails from scratch like I did 7 years ago. Lmk if you'd like to give it a try, and if doesn't scratch your itch or solve your pain, that's fine. I'm not building the app for everyone, I'm building it specifically for people looking to save time on the lead gen portion of networking. I'm still building it out for myself because there are other features that I want on it and have been using it daily for cold emailing people to set up meetings.
OP here - I work in MM SaaS IB - i see the outcomes im talking about regularly. To your question, what effort have you put into actually selling the product other than just posting it on here (a place where people aren't looking to buy anything), have you talked to your ICP or selling to them directly, your demo lacks any sort of enthusiasm about the product (you start off by apologizing, why?). If you think the product is good and worthwhile, try to actually put some effort into selling it.
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