Greetings! We hope you’re having a great week and are getting your Super Bowl menu locked down. 🏈 🍕🏈 🍕
💭 Thought Bubble: The Power of Specificity
In the previous VC Minute newsletter, we discussed why investors place such a high value on founders being able to communicate key elements of their business. Spoiler alert: it’s because so much of a startup’s success, including hiring early employees and selling, comes down to the founder being able to simply articulate the vision.
Simplicity, though, is only part of the equation for a successful pitch. Another key component is specificity. Simplicity without specificity usually leads to broad statements that are in theory easy to grasp but in reality don’t say anything at all.
The first place a lack of specificity manifests is in the slide (and discussion) that describes the problem the startup is solving. Too often the problem is framed at such a general, high level, it seems like the company is boiling the ocean. But, we all know a startup has to focus, right?
If a founder is lucky, an investor can piece together the more specific problem being solved once the founder gets to the solution part of the pitch, but not always. Plus, this violates the “Don’t make me think” rule of any pitch. Ideally, an investor should have a sense of the solution and the target customer based on the description of the problem.
The framing of the problem is critical because it helps an investor understand the value proposition for the business and why customers will ultimately buy the product. Investors want to understand how deeply the pain is felt. The more generic the problem statement the harder it is for investors to conceptualize the pain and the potential ROI.
This brings us to the second most common area requiring specificity rather than overgeneralization: the return on investment (ROI). What does a customer get in exchange for using the product? More time? More money? How is this quantified? In the early days, it can be hard to identify a specific amount of money or time being saved, but investors like to see that founders have a keen understanding of how their product is going to add tangible value to customers.
When pitching for investment, the burden is on the founder to effectively communicate that the problem their company is solving is a truly hair-on-fire problem for their customer. Buyers have finite resources and will prioritize spending on only the most urgent, onerous challenges. A founder has to be able to convey the severity of the problem and the specific upside for solving it. Without both, investors know customers won’t buy.
💰 Benchmarks for Startup Valuations
Rubèn Domìniguez, an analyst at Mundi Ventures, compiled a list of startup valuation ranges and posted it on LinkedIn (here). This list has links to 10 different resources that identify valuation trends across different types of companies, including marketplaces and SaaS, along with details on burn rate and revenue at time of raise.
STV Take: One of the more interesting articles linked was a Medium post by Christoph Janz that highlights valuations, ARR, and revenue growth of SaaS companies that have successfully raised Pre-seed through Series B rounds. I thought seeing the growth rate of companies at the Series A was helpful—54.6% of companies that raised a Series A had year-over-year revenue growth at or above 100%. The other interesting data point was that 91% of investors polled value capital efficiency more in 2023 than they had in previous years. I’ve lost track of how many times we have said this, but investors, for the most part, have come back to basics.
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STV Take: Outsourcing your finance function is a no-brainer for startups. We’ve known AVL Growth Partners for over a decade and they have a stellar reputation.
🧭 Navigating a New Era of Digital Health M&A
Closing Time, a podcast hosted by Hallie Tecco and Michael T. Esquivel, released another great episode, Navigating a New Era of Digital Health M&A, that discusses M&A in 2023 and what is likely to happen in 2024. While it is focused on digital health, there are practical insights no matter which sector you’re building in.
STV Take: “Be bought not sold” is the best line in this podcast and is a quote from Surbhi Sarna, who sold her company for $275M. This gets at the overarching themes of this podcast, which are to build a great business and think about positioning yourself for an acquisition early. Even if you aren’t thinking of selling any time soon, building relationships with potential acquirers and understanding what they would look for in assessing the business for an acquisition prepares you for if/when the day comes to sell. Unfortunately, we’ve had our fair share of conversations with founders who are looking for introductions to acquirers but only have <6 months of cash in the bank & negligible revenue. At this point, it’s highly unlikely a founder sees a favorable outcome.
📊 Metrics that Matter in SaaS Today
In an episode of 20VC, The Metrics that Matter in SaaS Today, host Harry Stebbings interviews Dave Kellogg, a seasoned operator who draws on his incredible experiences to create insights for founders on tracking metrics, building a sales team, and managing a sales process in this market.
STV Take: This is a dense episode that requires a bit of concentration to get the most out of it, but it’s worth it! Dave does a great job of distinguishing the different types of metrics and what each is telling you. He tells it from the operator perspective, which makes this episode feel exceptionally actionable.
😴 Decompression Zone
It’s Super Bowl weekend in the U.S.! My favorite pre-game activity is putting on the Puppy Bowl and prepping snacks. If you aren’t familiar, the Puppy Bowl is broadcasted on Animal Planet and features puppies from shelters across the country. The purpose of it is to raise awareness of animal shelters and encourage folks to adopt a rescue rather than going through a breeder.
Here is the puppy I’ll be rooting for on Sunday!