The Bessemer Emerging Cloud Index is down more than 15% since January, and the question investors are wrestling with is whether the valuation reset has created opportunity or whether the pressure is structural.
Evan Scorpin, partner and head of public equity markets at Lead Edge Capital, argues the selloff has pushed public SaaS companies to roughly 19 times free cash flow, a discount to the S&P 500. For a category that historically grows faster and generates higher margins than the broader market, he sees that as mispriced.
His preferred metric is free cash flow per share, adjusted for dilution, rather than headline revenue multiples or stock-based compensation as a standalone figure. SBC, he argues, is a lagging indicator that can obscure a business's real earnings trajectory.
The deeper argument Scorpin makes is that AI is not the enemy of enterprise software. It is the latest chapter in a 50-year story of software replacing and optimising labour. The real competition is not between AI-native startups and established SaaS vendors. It is between software broadly and the labour market, which dwarfs software spending in the typical corporate budget. The average S&P 500 company spends roughly 3% of its operating expenses on software. The opportunity to take a share of labour is orders of magnitude larger
Why Workday is not going anywhere
The practical implication of that argument is that mission-critical enterprise software, the kind embedded in how large companies run, is more resilient than the AI disruption narrative suggests.
A company like Walmart has no incentive to replace Workday with a cheaper alternative. Switching would take years and save a fraction of what targeting labor costs could. What those companies are actually asking their software vendors is whether they can help reduce headcount in customer service, recruiting, or junior engineering functions. That is the pressure point, and it favors incumbents that can integrate AI capabilities rather than upstarts trying to displace them.
Lead Edge Capital is currently buying into businesses like Workday, Toast, and Kaxis, a Canadian supply chain company, at around 10 times forward earnings, targeting companies with low dilution, sticky customer relationships, and durable margins.