2024 AGM Meritech Market Section | Meritech Capital

*Check out the full Two by Two Playbook here.*

Original article

https://drive.google.com/file/d/1-FPhePILrhOvhMx-k0SfT0_uW5U3vHNm/view

2024 AGM Meritech Market Section (External).pdf

Key takeaway

For entrepreneurs: AI integration can significantly enhance your product offerings and market reach, but focus on delivering real value in your niche rather than just chasing the AI trend.
For investors: The AI-driven market shift is creating new opportunities, especially in companies that can effectively integrate AI to improve efficiency and expand their market. Focus on market leaders with robust growth metrics for potential high returns.

Summary

The 'Meritech 2024 Market Update' by Alex Clayton provides a comprehensive analysis of current market trends, particularly focusing on the integration and impact of AI in both public and private sectors. Key points include:

Public Markets: Despite a general upswell, it's driven by a few tech giants and AI companies. SaaS valuations are depressed, but market leaders are outperforming.
Private Markets & Liquidity: Funding has stabilized post-2021, with AI significantly driving investments and unicorn creation. However, IPOs are at a low, and liquidity through exits is diminishing.
AI's Influence: AI is considered a major platform shift, with vast implications for software markets, potentially expanding the total addressable market by integrating into services spend.
Market Dynamics: The market is witnessing a shift where software companies are evolving into AI companies, disrupting traditional business models and increasing efficiency.

Insights

AI is not just a trend but a fundamental shift: Companies integrating AI are not only enhancing their products but are also redefining their business models to tap into services spend.
Market Leaders will continue to dominate: Both in public and private sectors, market leaders are growing larger and more valuable, even with little AI revenue currently.
SaaS isn't dead, but it's evolving: While traditional SaaS metrics like revenue multiple are below historical norms, growth remains the king in valuation, and AI could amplify this growth.
Liquidity Challenges: The lack of IPOs and high anti-trust scrutiny on M&A suggests a challenging environment for exits, leading to an increase in "zombie" companies.
Valuation and Investment Trends: AI companies are driving funding increases, particularly in later-stage rounds, highlighting investor confidence in AI's potential.