Value SaaS is different from the Vanity SaaS mindset which chases vanity metrics of business building and usually requires $5-6 of investment for creating $1 in revenue. Vanity SaaS model, 'Go big or Go home' has given zero-returns to more than 85% of founders who have burnt years of their life, only to realize that majority of the returns are captured by investors that promote such a vanity mindset.
Large amounts of early funding lock startups into directions where product-market-fit and go-to-market may not be aligned. This causes premature scaling of marketing and sales with high churn and low conversion. When the funding runs out, the startup is unable to survive. When founders fail to reach high scale vanity metrics due to the large amounts raised, they are often forced out of their companies. Founders dilute too much too fast. Financial outcomes for 80% of founders are near-zero due to dilution, deal provisioning, forced exit, forced M&A.
Often a TAM chasm exists - while founders may be able to build sustainable highly profitable $10Mn ARR businesses in a $100Mn TAM space, they are forced to go for higher TAM markets, where there may be higher risk, founders have lower capabilities, primarily because of large fund economic models.
Many vertical SaaS markets may be early and small, and may need time to grow and mature. Impatience from investors leads founders to try to grow those markets too fast, or fail in the process.
At 80% of startups, employees make no financial outcome from their common shares. Investors struggle as well with the current power law model of returns - 90% of VC firms fail to beat their benchmark returns.
In the search for quick growth and scale, founders are moving from SMB/mid-market to enterprise. From a GTM perspective, they're moving from content marketing and organic growth to paid growth and sales-led models, too early in the journey.
Value SaaS startups avoid all these complexities by staying frugal while finding product-market-fit and build a strong go-to-market, to reach their mode of sustainable profitability. When raising capital they focus on return on invested capital and are are less focused on just getting an exit.