Salesforce Acquires Braze For $5.66 Billion

The recent acquisition of Braze by Salesforce for $5.66 billion has brought attention to the go-to-market software category, according to SaaStr. This price may seem unremarkable in most B2B categories, but it represents a 58% premium in the GTM space. The reason for this discrepancy lies in the market's perception of GTM software's potential for growth and revenue in the face of AI adoption.

A comparison of public GTM and front-office apps with infrastructure and security companies reveals a significant gap in their multiples. While CrowdStrike, Cloudflare, Datadog, and Snowflake trade at much higher multiples, GTM companies like Braze, Klaviyo, and HubSpot have lower multiples, despite similar growth rates in some cases. This disparity suggests that investors have different expectations for these categories.

The growth rates of these companies are a key factor in their valuation. Cloudflare, Datadog, and Snowflake are growing in the mid-30s, about 10 points faster than Braze and Klaviyo. However, CrowdStrike's growth rate is identical to that of Braze and Klaviyo, yet it trades at a much higher multiple. This difference in valuation may be attributed to investors' expectations of how AI will impact each company's revenue over the next five years.

The impact of AI on GTM software is a significant concern for investors. As AI agents replace human sales and marketing representatives, the need for seats in GTM apps decreases. This shift could lead to reduced revenue for GTM companies, which charge per seat or per contact. In contrast, infrastructure and security companies, which charge on consumption, may see increased revenue as AI agents generate more API calls, store data, and create logs.

Private investors, however, are paying much higher multiples for GTM companies that sell AI-powered solutions. Companies like Clay, Sierra, and Rox have raised funds at valuations of 35x, 100x, and 150x revenue, respectively. These companies do not sell seats to human reps but instead offer data, workflows, and AI-powered services that are not affected by the shift to AI agents.

Strategic buyers, like Salesforce, are also paying higher multiples for GTM companies. The acquisition of Braze for 6.8x revenue is almost double its market price, indicating that strategic buyers value these companies more than public investors do. This trend is likely to continue, with more deals expected in the GTM space.

For GTM founders, the key to success lies in adapting their revenue models to the changing landscape. Charging on usage or outcomes, like Twilio, can help increase valuation. Reporting AI revenue separately can also provide more transparency and potentially increase growth. Ultimately, GTM companies that can demonstrate AI-driven revenue growth may be able to close the gap in their multiples with infrastructure and security companies.