20 Minute VC – the schizophrenia of raising v.s. running the business

Listening this morning to Micah Rosenbloom via Harry Stebbings and heard something like the following at 16 minutes.

(Harry) as Jason Lemkin at SaaStr says… the best investors are those who know the benchmarks for the next round and then are able to help the founders attain them.


(Micah) I feel there is some wisdom there, but that it was possible to become obsessed with what was required for the next round, and as a result you focus on building the deck for the next round, not on building the business… The second challenge is that the goal posts keep moving, e.g. the MRR moves from $100K to $200K to do a series A. It’s hard to build your company just for the next round.


(Micah) wishes he could put blinders on his founders, have them not talk about the next round for 12 months after taking money. This is the venture train,… immediately after you get the hit, you are after the next hit.

An balanced focus on capital efficiency on business fundamentals. Good perspective and perhaps an antidote to VC echo chamber.

SaaStr 2017


This is a long post about my experience at SaaStr Annual 2017 this year. I attended as development in my role as board member of Inference Technology Group. Inference is a SaaS business and so the conference focus on scaling, management and governance, unit economics, and venture capital was highly relevant.

Challenges of Scaling a Saas business – Recruitment, Culture and the Goldilocks Pace

Stories of executive focus on recruitment, culture and the right rate of growth were common in the keynote talks. These included those running a number of now large and successful SaaS businesses: Chris O’Neill (Evernote), Geoff Lawson (Twilio), Peter Gassner (Veeva), Russel Fradin (Dynamic Signal), and Anand Sanwal (CB Insights).

All discussed extensive periods where recruitment had been more than half of their role.

Many also stressed the importance of being a little contrarian – pursuing little loved business hypothesis, or pushing back on venture capitalist ‘growth at all costs’ strategies. From the VC perspective, one cited the #1 reason for the failure of SaaS companies as growing too fast; another that the #1 reason for SaaS companies to fail to hit plan was delay in hiring sales resources. One CEO spoke to the challenge of hiring external VPs can send a signal to internal talent that there is limited opportunities for promotion.

Keeping Board and Founders Aligned (David Barrett, Founder & CEO of Expensify)

Expensify is about 100 employees and 25K customers. David spoke about the relationship between board and CEO. He suggested the board needs to understand it’s role as a check on the CEO’s powers. They must also understand that the CEO & Founder has an incredible emotional investment in the success of the business at the same time as usually being in an incredible stretch role.

For management, he outlined that they must know what is within their delegation and do those things. They must also work hard to have a rapport with the board members, and to keep communications with investors frequent (e.g. fortnightly).

From a mechanics perspective, Expensify board meetings are quarterly, for a couple of hours, focused on strategic decisions selecting between options; and mechanical resolutions, particularly regards equity.

In passing, he opined that independent directors offer limited value.

How to miss a quarter (Aaref Hilaly – Sequoia Capital)

Aaref shared that the Sequoia portfolio of companies, great though they might be, have collectively missed a lot of quarters.

His advice – you’ll almost certainly miss a quarter so prepare, and know how to execute when it happens.

This was outlined in three parts.

  1. Don’t manage the board, engage them. This starts with product over metrics – know what you are doing to win; perhaps oriented at earlier stage companies. For companies > $2.5M ARR with large ACV, perhaps guidance starts to become knowing what it takes to win deals, not just obsessing over aggregate metrics. In Aaraf’s talk he suggested the board must be able to
    1. Explain what the company’s offering does
    2. Why it is better than the competition’s approach
    3. How we will approach winning an important market
  2. Everybody misses at some point; so don’t deny, hope, or fall prey to doom or gloom; instead own the miss, be honest about the mistake, help the board process the implications.
  3. Put the board to work. Leverage what they can bring to the table in terms of customers, partnerships and alliances, or recruitment.

VCs on Metrics

David Skok (General Partner, Matrix Partners)

David Skok spoke about the SaaS funnel – comprising the usual sales funnel as well as the subsequent management of expansion within established accounts. Slides 77 – 82 show the 12 levers around product/market fit; sales funnel; customer life-time value (LTV); and Cash Requirement; and building a great organisation.

Of the 12, I feel that (4) CAC is an intermediate result of the more fundamental (6) productivity per rep and the unlisted marketing metrics (cost per marketing qualified lead); (11) Months to recover CAC is also an intermediate result, but obviously significant.

Finally, reverse funnel math (slide 67) makes a simple relevant point that you’ll need to find leads equivalent to the product of each funnel stage conversion proportion per win (required to reach MRR add requirements). When coupled with the sales rep as a unit of business growth, along with that rep’s productivity over time curve (slide 47), you have the basic kernel of scaling a SaaS business with [field] sales.

12 Key Levers of SaaS Success


David Spitz (Managing Director, Pacific Crest Securities)

David Spitz spoke on Measure your success and tell your story with SaaS metrics. It explored a simple analogy of filling a leaky bucket – recurring revenues [dissapating/growing] with [churn/expansion] – with a water can (or perhaps more appropriately, a hose) of new recurring revenue at the cost of customer acquisition.

His take-outs were that these metrics were crucial to understand your business (but you mustn’t overlook their shortcomings, particularly regards LTV); that investors love the unit economics, but the rate of capital consumption / generation governs long term success; and that while growth + profitability must exceed 40%, the public market more highly values growth.

After covering the complex ways that churn can be measured, the pitfalls of lifetime customer value (LTV) and Cost of Customer Acquisition (CAC) calculations, it focused on results from a sample of public (N ~ 10 – 35) and Pacific Crest SaaS survey results (generally N ~ 240) across CAC ratio, CAC payback period, ARR achieved v.s. cumulative burn, and valuation as a function of growth plus profitability.

Some key metrics for the 50 business with annual recurring revenues between US$2.5-5M include (all in USD) from that survey are as follows

Item 33rd %ile median 66th %ile
Revenue per FTE: $94K
Sales and marketing spend as proportion of revenue
(at growth > 40% p.a)
~ 48%
Growth 31% p.a. 70% p.a.
Customer Acquisition Cost per $1 annual contract value $1.13
Annual contract value ~ $10K $25K ~ $50K
Annual gross $ churn ~ 5% ~ 8% ~ 15%
Equity investment required to reach $5M ARR $8M

David also discussed what appeared to be a gating metric for the VC community, the “Rule of 40%”. In order to be attractive to fund, the sum of revenue growth and unlevered free cash flow margin (EBITDA / Revenue?) are to exceed 40%. This rule is taken to hold most particularly for business more mature business with ARR of more than $10M.  The median for survey respondants was only 20%, and only 26% exceeded this bar (N = 77).

Aydin Senkut (Founder & Managing Director Felicis Ventures)

Aydin presented a subset of the style of metrics gathered by the Pacific Crest survey for the businesses within the Felicis Ventures portfolio. Felicis use this as benchmarking to help CEOs of their business understand their companies performance.

There were 25th / 75th percentile data give for a couple of key metrics as follows

Item 25th %ile median 75th %ile
Revenue per FTE:
$55k $111K $214k
Annual revenue (not ARR) per $ raised:
$0.13 $0.4 $0.71

VCs on Raising

Elizabeth Yin, Partner 500 Startups.

Elizabeth spoke about 11 funding secrets learned from 1,600 startups.

Two in particular resonated; number (2), describing the basis for VC fund dynamics, and the need for winners to win big; and number (7), creating a forcing function for raising.

The first dove tailed with other speakers throughout the conference, describing how VC general partners are competing within a given fund to deploy capital, that they receive most remuneration based on the the initial deployment, and that these facts together with the asymmetric distributon of payoffs led to large amounts of funds being pumped into business’ that showed the best chance of being unicorns.

The second described that getting funding, and getting the best chance of funding on your terms required multiple VCs to be entertained in parallel, and statements such as the following used to create urgency.

  • I’m moving into three all partner meetings next week on Sand Hill
  • I’m doing four investor meetings a week

Meetings should be scheduled 4 weeks in advance. Multiple parties should be lined up in back to back sessions. You need to start by building a list of potential funders, doing research, and understanding the way the process progresses

  1. First meeting
  2. all partner meeting
  3. discuss terms
  4. receive term sheet

At each stage, specific questions and requests such as “Do you need to have an all partner meeting to make a decision” should be used in order to drive forward to the next step.

Founders Wisdom

My favourite founders were Peter Gassner (Veeva), Anand Sanwal (CB Insights) and David Barrett (Expensify).

Peter Gassner

  • When a trend is early, everyone thinks you are wrong
  • Sell yourself first, whether in negotiation or in a hire. Get the right value, not the most.
  • We are running a profitable business. We thought that was a good thing.
  • Engaged people working together. Your team is your peers, not the people you lead.

Anand Sanwal

The other 61 items available here from @asanwal

  • You can revenue fund a beast
  • Don’t take advice from non-customers
  • Don’t believe being outfunded will kill you
  • Don’t sell to startups
  • Once revenue scales you will need to plan to pay down technical debt
  • Don’t fear the grind – non elegant solutions can work
  • Don’t try to innovate in HR

David Barrett

  • (To a founder with a majority share asking for advice on hiring an independent director) If you want to get advice, why don’t you just call one hundred people instead of just one?