Jonas Ciplickas’ Post

Is T2D3 dead? Lots of ~discourse~ lately about how it’s uninteresting to VCs for a startup to follow the classic SaaS “triple-triple-double-double-double” pattern, or grow roughly $1-3-9-18-36-72M ARR over the course of five years. I think that’s BS. The math showing you can make money on T2D3 is very straightforward: 1/ Public SaaS today trades at 6x on average and ~10x if you’re one of the ~20 names growing 20%+ growth with 20%+ free cash flow margins. 2/ If you play forward T2D3 with 80% growth persistence after year 5, you mathematically get that by year 10 the company is at ~$450M revenue expected to grow ~30% NTM to $600M. 3/ A $600M company growing 30% and not burning too much is probably worth $6Bn at a 10x revenue multiple. 4/ A $6Bn exit is pretty awesome for the early stage investors! If you did the series A when it’s at $3M or the series B at $9M, you’re probably fine even if you paid 50x ARR at the series B ($6Bn exit / $450M entry = ~13x). Hell, even the late stage investors who paid $2Bn at the series E will still be happy with their 3x. It’s hard to argue against the T2D3 “happy path” laid out above: everyone makes their target return and we get to enjoy the wonders of compounding growth at scale. You could give the “opportunity cost” argument and maybe I have a low risk tolerance, but I’ll GLADLY use up a deal slot on something with a credible shot at a 10x+. What’s important to internalize is T2D3ing was NOT commonplace during the SaaS era. There are ~100 public SaaS names today and maybe another ~100 or so that went public and were taken out by Thoma / Vista / etc. That means that of the ~15,000 SaaS companies that have raised at least $5M in US / Europe / Canada since 2006 [per Pitchbook], 1.3% have successfully T2D3’d their way to returning capital. 1.3%! I think that’s the real “problem” with T2D3 today: it’s rare to see that kind of persistent execution over a long period of time and right now it’s really hard to call it early. T2D3 worked because software revenues were often high retention and could efficiently compound for years even if growth slowed. Today, when AI budgets are huge and “expand” is a lot harder than “land”, there’s a real risk that companies that look like they’re going to T2D3 are actually going to T2D0 and die when their first two cohorts of “pilot revenue we promise will turn into ARR” churn. When a company goes $0-10M, even if half that revenue churns it’s still $0-5M and there are a lot of shots on goal to get it right. But in this economy when AI budgets are flowing freely and you “only” go $0-1-3-9M that revenue better be 95% gross retention - and investors won’t know that until 1 or 2 renewal cycles. My guess is that if you can make it through a few renewal cycles with 95% gross retention, some upsells, and adoring customers investors will be throwing money at you even if you “only” T2D3 (esp. if you hit the 2nd and 3rd doubles). I’m one of them: please call me, I’ll gladly invest.