Oct 28, 2024

was growing 67% a year pic.twitter.com/nd2vJ3QAZM — Jason ✨👾SaaStr 2025 is May 13-15✨ Lemkin (@jasonlk) April 28, 2022 So what happened? It was a bubble. Plain and simple. A bubble of spending — when years of spend were brought forward by a black swan event. Covid. It messed up with spending timing and patterns. Things in 2023 reset to a new normal, and then in many ways got harder in 2024, when AI spend was often taken from the existing IT and SaaS budget. So looking back, WFH and Covid created an 18 month or so Cloud and SaaS bubble: March and April 2020 were brutal But by May 2020, buying had already accelerated Everyone immediately needed all the tools for WFH:  call center, sales, collaboration, e-commerce and store, WFH security, etc. in the Cloud. Immediately. They needed, everything, right now The massive lockdown-fueled mobile app boom had already plateaued by Summer 2020 Digital events had already seen attendance decline dramatically And by December 2021, it was all over. It seemed a long time, at the time. But with hindsight, it was brief: The last big SaaS M&A deal was probably Salesloft at $2.3 Billion in December 2021, where I co-led the Seed Round . Vista bought them in December 2021, but the deal likely would not have closed in January 2022. The era of mega-deals in SaaS at high multiples, with Slack as the poster child at 27x ARR, was mostly coming to an end. The last Cloud/SaaS IPO of that era was HashiCorp in December 2021. And then the IPO shut for almost 2 years. Klaviyo finally revived it, but just, in late 2023 . And that was it for 2023. Since then there have only been 2 more SaaS IPOs, OneStream and Rubrik. That’s only 3 SaaS IPOs since December 2021. So December 2021, the door shut. The Cloud / SaaS bubble was over. And it left us forever changed. It’s difficult to image the same won’t happen with AI. It’s different, no doubt. But ultimately, spend can’t grow at this incredible epic rate forever. At some point, you just run out of IT budget. Will this bubble end too after 18-24 months or so? If so, let’s pick a start date for the bubble: ChatGPT launched Nov 22, 2022 . It’s had one of the steepest adoption and revenue growth rates of all times. That’s coming up on almost 2 years now. Nvidia began its biggest run on January 5, 2024. It started before, but that’s when it accelerated even further. Maybe that’s when the true bubble started. Later than ChatGPT’s launch. AI is one of the biggest developments and accelerants in software — ever. It’s not a fad, it’s real, and it’s truly just getting going. But also, the rate of spend acceleration, like SaaS and Cloud spend in 2H’20, can’t last forever. It’s almost mathematically impossible. Maybe it can pull more and more from services budgets and headcount budgets, not just IT budgets. But we’ll see just how elastic all those budgets truly are. At some point, it has to slow down and normalize to just plain regular IT spend. IT is so huge, maybe its bubble lasts 24-30 months instead of the 18 months for the Cloud Bubble. That might give us until late 2025 or early 2026 until the AI Bubble bursts. That sounds about right. AI is just getting going in SaaS. It’s making all of our products better. The question is just when the hyper-accelerated spend … normalizes. Until then, if any of your AI Unicorns get a hot M&A offer at 100x or 200x ARR … maybe take it.