Eric Vishria – The Past, Present, and Future of SaaS and Software

**Patrick O'Shaughnessy** (0:00)
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**SPEAKER_2** (1:17)
Patrick O'Shaughnessy is the CEO of O'Shaughnessy Asset Management. All opinions expressed by Patrick and podcast guests are solely their own opinions and do not reflect the opinion of O'Shaughnessy Asset Management. This podcast is for informational purposes only and should not be relied upon as a basis for investment decisions.
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**Patrick O'Shaughnessy** (1:42)
My guest this week is Eric Vishria, a general partner at Benchmark Capital. Eric joined Benchmark after spending the first part of his career as an operator and CEO.
The topic of our conversation is the past, present and future of software businesses. We begin by explaining why public software companies trade at such incredibly high multiples today. We then explore the several different generations of these businesses and why the future remains so bright for companies building software as their primary product. I'd go one step further and suggest that the information in this episode is even more valuable for non-software businesses and investors because it's crucial to understand the impact that these products will have on the overall business landscape. Covid has accelerated the long-running transition to digital across the corporate world and Eric serves as the perfect guide. Let's dive in.
So Eric, I thought an interesting place to begin would actually be away from what you do in your day job in the private markets and talk a bit more about public market software companies. I know you follow them. I'm sort of obsessed with them in part because they are so expensive. By any measure that I can drum up, they look sort of absurdly priced and they've performed incredibly well in 2020 when so many stocks have had such huge trouble. Maybe we could just begin there. I'd love to get your take on what's going on in public markets around SaaS businesses.

**Eric Vishria** (3:00)
It's so fascinating. It's incredible. I was actually looking at it yesterday just in terms of performance year to date. So get this, the Dow and S&P are down 5 to 10%. The Nasdaq, as we all know, is up about 10%.
And if you look at the Bessemer Emerging Cloud Index, which is a good proxy because it's the basket of whatever 100 or so public SaaS companies ranging from Salesforce and Adobe and Shopify all the way down, it's up 50% on a year in the middle of a global pandemic.
And it's this really fascinating thing because there have been all of these companies where you could literally over the last six or seven years, you could get venture returns in the public market. So you'd have all liquidity that you'd want. You'd have the ability to trade in and out and you'd have literally venture returns. So it is really astounding and it's very interesting.

**Patrick O'Shaughnessy** (4:04)
I always try to look for the reasons behind these sorts of moves. One of the things I've learned in my career is when something seems ridiculous, it usually isn't. Markets are quite smart in aggregate and highly efficient and so it's easy to dismiss these things as an aberration and as silly valuations and everyone says.com valuations.
But usually markets are pretty good. So I'm curious what you think is going on under the hood here. Obviously the business model is incredibly impressive, very highly profitable.
But what do you think is going on? Why do these continue to trade at 10 times revenue multiples, which is like a startup valuation?

**Eric Vishria** (4:39)
Interestingly, I feel a lot of them aren't profitable P&L sense of the word, but it is a really good question. So at Benchmark, we do this thing where we were just kind of looking at these public companies in an effort to help our kind of growth stage private companies and even mid stage private companies. We were trying to understand what happened in the public markets to forecasts because one explanation possibly would be in the middle of the pandemic, digital became more important and everybody's forecasts jumped.