Tag: growth

Posted on

Startup Growth Metrics that will Hocus Pocus an Investor Term Sheet

Founders often ask me what’s the best way to cold email an investor. *in my best TV announcer voice* Do you want to know the one trick to get replies for your cold email startup pitches that investors don’t want you to know? Ok, I lied. No investor ever said they don’t want founders to know this, but how else am I going to get a clickbait-y question? Time and time again, I recommend them to start with the one (at most two) metrics they are slaying with. Even better if that’s in the subject line. Like “Consumer social startup with 50% MoM Growth”. Or “Bottom-up SaaS startup with 125% NDR”. Before you even intro what your startup does, start with the metric that’ll light up an investor’s eyes.

Why? It’s a sales game. The goal of a cold email is to get that first meeting. Investors get hundreds of emails a week. And if you imagine their inbox is the shelf at the airport bookstore, your goal is to be that book on display. Travelers only spend minutes in the store before they have to go to their departure gate. Similarly, investors scroll through their inbox looking for that book with the cover art that fascinates them. The more well-known the investor, the less time they will spend skimming. And if you ask any investor what’s the number one thing they look for in an investment, 9 out of 10 VCs will say traction, traction, traction. So if you have it, make it easy for them to find.

That said, in terms of traction, most likely around the A, what growth metrics would be the attention grabber in that subject line?

Strictly annual growth

A while back, my friend, Christen of TikTok fame, sent me this tweetstorm by Sam Parr, founder of one of my favorite newsletters out there, The Hustle. In it, he shares five lessons on how to be a great angel investor from Andrew Chen, one of the greatest thought leaders on growth. Two lessons in particular stand out:

And…

Why 3x? If you’re growing fast in the beginning, you’re more likely to continue growing later on. Making you very attractive to investors’ eyes – be it angels, VCs, growth and onwards. Neeraj Agrawal of Battery Ventures calls it the T2D3 rule. Admittedly, it’s not R2-D2’s cousin. Rather, once your get to $2M ARR (annual recurring revenue), if you triple your revenue each year 2 years in a row, then double every year the next 3 years, you’ll get to $100M ARR and an IPO. More specifically, you go from 2 to 6, then 18, 36, 72, and finally $144M ARR. More or less that puts you in the billion dollar valuation, aka unicorn status. And if you so choose, an IPO is in your toolkit.

image001
Source: Neeraj Agrawal’s analysis on public SaaS companies that follow the T2D3 path

For context, tripling annually is about a 10% MoM (month-over-month) growth rate. And depending on your business, it doesn’t have to be revenue. It could be users if you’re a social app. Or GMV if you’re a marketplace for goods. As you hit scale, the SaaS Rule of 40 is a nice rule of thumb to go by. An approach often used by growth investors and private equity, where, ideally, your annual growth rate plus your profit margin is equal to or greater than 40%. And at the minimum, your growth rate is over 30%.

For viral growth, many consumer and marketplace startups have defaulted to influencer marketing, on top of Google/FB ads. And if that’s what you’re doing as well, Facebook’s Brand Collabs Manager might help you get started, which I found via my buddy Nate’s weekly marketing newsletter. Free, and helps you identify which influencers you should be working with.

But what if you haven’t gotten to $2M ARR? Or you’ve just gotten there, what other metrics should you prepare in your data room?

Continue reading “Startup Growth Metrics that will Hocus Pocus an Investor Term Sheet”
Posted on

Four Signs of Startup Founders Prioritizing Growth Too Soon

scale, too soon, founders, startup growth metrics

Humans are one of the most awe-inspiring creatures that have ever graced this planet. Even though we don’t have the sharpest claws or toughest skins nor can we innately survive -50 degrees Fahrenheit, we’ve crafted tools and environments to help us survive in brutal nature. But arguably, our greatest trait is that we’re capable of writing huge epics that transcend our individual abilities and contributions. And share these narratives to inspire not only ourselves but the fellow humans around us.

A member of the our proud race, founders are no different. They are some of the greatest forecasters out there. To use Garry Tan’s Babe Ruth analogy, founders have the potential of hitting a home run in the direction they point. They build worlds, universes, myths and realities that define the future. They live in the future using the tools of today. In fact, there’s a term for it. First used by Bud Tribble in 1981 to describe Steve Jobs’ aura when building the Macintosh – the reality distortion field.

Yet, we humans are all prone to anxiety. A story nonetheless. Simply, one we tell ourselves of the future that restricts our present self’s ability to operate effectively. Anxiety comes in many shapes and sizes. For founders, one of said anxieties is attempting and worrying about the future without addressing the reality today. In the early days, it’s attempting scale before achieving product-market fit (PMF). Building a skyscraper without surveying the land – land that may be quicksand or concrete.

Here are four signs – some may not be as intuitive as the others:

The snapshot

  1. Your code architecture looks beautiful.
  2. You’re onboarding expensive experienced talent.
  3. Your cultural values lag behind the talent you hire (plan to hire).
  4. You’re bundling the market before you unbundle the needs.
Continue reading “Four Signs of Startup Founders Prioritizing Growth Too Soon”
Posted on

Fantastic Unicorns and Where to Find Them

As a venture scout and as someone who loves helping pre-seed/seed startups before they get to the A, I get asked this one question more often than I expect. “David, do you think this is a good idea?” Most of the time, admittedly, I don’t know. Why? I’m not the core user. I wouldn’t count myself as an early adopter who could become a power user, outside of pure curiosity. I’m not their customer. To quote Michael Seibel of Y Combinator,

… “customers are the gatekeepers of the startups world.” Then comes the question, if customers are the gatekeepers to the venture world, how do you know if you’re on to something if you’re any one of the below:

  • Pre-product,
  • Pre-traction,
  • And/or pre-revenue?

This blog post isn’t designed to be the crystal ball to all your problems. I have to disappoint. I’m a Muggle without the power of Divination. But instead, let me share 3 mental models that might help a budding founder find idea-market fit. Let’s call it a tracker’s kit that may increase your chances at finding a unicorn.

  1. Frustration
  2. The highly fragmented industry with low NPS
  3. Right on non-consensus
Continue reading “Fantastic Unicorns and Where to Find Them”
Posted on

On Scale – Lessons on Culture, Hiring, Operating, and Growth

flower, scale

One of my favorite thought exercises to do when I meet with founders who have reached the A- and B-stages (or beyond) is:

“What will his/her company look like if he/she is no longer there?”

The Preface

While the question looks like one that’s designed to replace the founder(s), my intention is everything but that. Rather, I ask myself that because I want to put perspective as to how the founder(s) have empowered their team to do more than they could independently. Where the collective whole is greater than the sum of its parts. Have the founders built something that is greater than themselves? And is each team member self-motivated to pursue the mission and vision?

It reminds me of the story of a NASA janitor’s reply when President Kennedy asked: “Hi, I’m Jack Kennedy. What are you doing?”

“Well, Mr. President,” the janitor responded, “I’m helping put a man on the moon.”

From the astronaut who was to go into space to the janitor cleaning the halls of NASAs space center, each and every one had the same fulfilling purpose that they were doing something greater than themselves.

And if the CEO is able to do that, their potential to inspire even more and build a greater company is in sight. Can he/she scale him/herself? And in doing so, scale the company past product-market fit (PMF)?

For the purpose of this post, I’ll take scale from a culture, hiring, operating, and product perspective, though there are much more than just the above when it comes to scale. Answering the questions, as a founder:

  • How do you expand your audience?
  • How do you build a team to do so?
  • And, how do you scale yourself?

And to do so, I’ll borrow the insights of 10 people who have more miles on their odometer than I do.

While many of these lessons are applicable even in the later stages of growth, I want to preface that these insights are largely for founders just starting to scale. When you’ve just gone from zero to one, and are now beginning to look towards infinity.

The TL;DR

  1. Build a (controversial) shocking culture.
  2. Hire intentionally.
  3. Retaining talent requires trust.
  4. Build and follow an operating philosophy.
    • Create, hold, and share excitement.
    • Align calendars.
  5. Upgrade adjacent users as your next beachhead.
  6. Capture adoption by changing only 1 variable per user segment.
Continue reading “On Scale – Lessons on Culture, Hiring, Operating, and Growth”
Posted on

#unfiltered #21 The Recipe for Personal Growth – Thomas Keller’s Equation for Execution, The VC/Startup Parallel, Helping Others, La Recette Pour La Citron Pressé

lantern, personal growth, light

Over the weekend, I was brewing up some mad lemonade. ‘Cause well, that’s the summer thing to do. Since I’m limited in my expeditions outdoors, it’s just watching the sun skim over the horizon, blossoming its rose petals across the evening sky, in my backyard, sipping on homemade lemonade. If you’re curious about my recipe, I’ll include it at the bottom of this post.

When I’m cooking or performing acts of flavor mad science, I enjoy listening to food-related podcasts, like Kappy’s Beyond the Plate, Kappy’s CookTracks or Bon Appétit’s Foodcast. Unfortunately, all are on a temporary hiatus. So, I opted for the next best – YouTube videos. And recently, a curious video popped up in my Recommended feed. A 2010 TED Talk with Thomas Keller.

Thomas Keller. An individual probably best known, among many others, for his achievements with The French Laundry. Needless to say, I was enamored by his talk. But the fireworks in my head didn’t start going off until the 12:46 mark.

Continue reading “#unfiltered #21 The Recipe for Personal Growth – Thomas Keller’s Equation for Execution, The VC/Startup Parallel, Helping Others, La Recette Pour La Citron Pressé”
Posted on

#unfiltered #20 You Will Be What You Eat, You Are What You Excrete – Leading vs Lagging Indicators, One of My Relationship-Building/Networking Practices

stars, starry night, networking tips

Yesterday evening, I sat in our backyard, sipping homemade lemonade and sketching out my weekly creative endeavor (why). Between sips and furtive glances upwards, I hoped to catch a glimpse of NEOWISE. But alas, I forgot to pray to the weather gods in the morning.

Disappointed, I packed up to head inside. As if by a stroke of fate, my phone buzzed. You know, this story would be more dramatic if my disappointment was telepathically transmitted to my friends. Tongue in cheek, I apologize if I got your hopes up. But, it was merely the influx of messages after my timed “Do Not Disturb” mode switched off. Yet one of these blips came from a good ol’ swim team pal into our group chat. Lo and behold – an HD cross section in time of the exact comet.

I propped my cell above my head, positioned just north of the horizon. And unable to hold my smile back, I stuck around for a while longer.

So what?

You’re probably wondering: How the hell does yesterday’s smile have to do with “You will be what you eat, you are what you excrete”. As the title of the post so kindly suggests. Trust me it does. Admittedly, probably not the greatest of blog post titles, but, hey, it rhymes. Which might be the lamest excuse you’ve heard this month. But I digress.

You will be what put in your body. You are already what comes out of your body. Literally. Well, I’m sure my cousins who are molecular cell biologists will point out some (or many) of the nuances I missed. But we don’t have to count the cards.

The same is true for your personality. You build your personality based on the inputs in your life from when you’re younger. Your personality is subsequently evidenced by what you say and do.

And, I can say the same for education, biases, and so on. For the purpose of this post, I’d like to underscore one other – relationship-building. Or as most others understand it, networking. But I have a mild allergic reaction to that nomination.

Continue reading “#unfiltered #20 You Will Be What You Eat, You Are What You Excrete – Leading vs Lagging Indicators, One of My Relationship-Building/Networking Practices”
Posted on

A Small Nuance with Early Growth Numbers

startup growth
Photo by Ales Me on Unsplash

My friend, Rouhin, sent me this post by a rather angry fellow, which he and I both had a good chuckle out of, yesterday about how VC is a scam. In one part about startup growth, the author writes that VCs only care about businesses that double its customer base.

The author’s argument isn’t completely unfounded. And it’s something that’s given the industry as a whole a bad rap. True, growth and scalability are vital to us. That’s how funds make back their capital and then some. With the changing landscape making it harder to discern the signal from the noise, VCs are looking for moonshots. The earlier the stage, the more this ROI multiple matters. Ranging from 100x in capital allocation before the seed stage to 10x when growth capital is involved. But in a more nuanced manner, investors care not just about “doubling”, unilaterally, but the last time a business doubles. We care less if a lemonade stand doubles from 2 to 4 customers, than when a lemonade corporation doubles from 200 to 400 million customers, or rather bottles, for a more accurate metric.

After early startup growth

Of course, in a utopia, no businesses ever plateau in its logistical curve – best described as it nears its total TAM. That’s why businesses past Series B, into growth, start looking into adjacent markets to capitalize on. For example, Reid Hoffman‘s, co-founder of LinkedIn, now investor at Greylock, rule of thumb for breaking down your budget (arguably effort as well) once you reach that stage is:

  • 70% core business
  • 20% business expansion – adjacent markets that your team can tackle with your existing resources/product
  • 10% venture bets – product offerings/features that will benefit your core product in the longer run

And, the goal is to convert venture bets into expansionary projects, and expansionary projects to your core business.

Simply put, as VCs, we care about growth rates after a certain threshold. That threshold varies per firm, per individual. If it’s a consumer app, it could be 1,000 users or 10,000 users. And only after that threshold, do we entertain the Rule of 40, or the minimum growth of 30% MoM. Realistically, most scalable businesses won’t be growing astronomically from D1. (Though if you are, we need to talk!) The J-curve, or hockey stick curve, is what we find most of the time.

The Metrics

In a broader scope, at the early stage, before the critical point, I’m less concerned with you doubling your user base or revenue, but the time it takes for your business to double every single time.

From a strictly acquisition perspective, take day 1 (D1) of your launch as the principal number. Run on a logarithmic base 2 regression, how much time does it take for your users (or revenue) to double? Is your growth factor nearing 1.0, meaning your growth is slowing and your adoption curve is potentially going to plateau?

Growth Factor = Δ(# of new users today)/Δ(# of new users yesterday) > 1.0

Why 1.0? It suggests that you could be nearing an inflection point when your exponential graph start flattening out. Or if you’re already at 1.0 or less, you’re not growing as “exponentially” as you would like, unless you change strategies. Similarly, investors are looking for:

ΔGrowth Factor > 0

Feel to replace the base log function with any other base, as the fundamentals still hold. For example, base 10, if you’re calculating how long it takes you to 10x. Under the same assumptions, you can track your early interest pre-traction, via a waitlist signup, similarly.

While in this new pandemic climate (which we can admittedly also evaluate from a growth standpoint), juggernauts are forced to take a step back and reevaluate their options, including their workforce, providing new opportunities and fresh eyes on the gig economy, future of work, delivery services, telehealth, and more. Stay safe, and stay cracking!

Stay up to date with the weekly cup of cognitive adventures inside venture capital and startups!

Posted on

What Does Personal Progress Look Like?

In the past two weeks, through conversations on my birthday resolution and what my success metrics are, my friends inspired me to write this post . That’s when you know I’m in Silicon Valley! Or startup Disneyland.

So, how do I measure my progress? This is by no means proprietary or original. In an annual email exchange, my mentor had me ask myself one question:

How ashamed do I feel about myself one year prior?

Although not comprehensive, I find it to be a great litmus test for evaluating personal development. If I don’t scoff at my former self for being dumb, I’ll know I haven’t progressed. At the same time, I put myself in the shoes of my future self, abstracting myself from my status quo, and ask two questions:

  1. What aspects of my past self am I embarrassed to see?
  2. What strengths of my past self would I find extremely unimpressive to show off?

This acts as an ego check and helps me look at myself more objectively.

I started this practice two years ago where I keep a checklist (on Google Keep) of wins I keep track of throughout the year. It included any magnitude of achievement, like:

  • A successful deal close;
  • Joining as a guest on a podcast;
  • An art piece I’m proud of drawing;
  • Cooking a meal that pleased my parents;
  • And, sleeping 8 hours a night.

Then one week prior to my birthday, Google Calendar reminds me to go through that checklist and review what I still feel proud of and what I find to be ‘normal’. I check all the ones I no longer gain contentment from. All that’s left are “My Proudest Moments at Age XX”. Then my goal for the following year is to make those moments feel ‘normal’. I’ll get to this step eventually. But I plan to review the annual lists every 5 years to see if I still feel the same.

In a way, this blog is also designed for me to reflect on earlier iterations of myself through my writing. As much as this one question has enlightened me, I hope it may act as your heuristic for your growth.

Proudly powered by WordPress