Abra: Innovation in Remittance

I’m really pleased to announce First Round Capital’s investment in Abra, the first global peer to peer cash money transfer network using the Blockchain/Bitcoin technology for secure low cost transfers.  As their founder, Bill Barhydt says “our mission is to replace bank driven financial inclusion with consumer driven financial inclusion.”

We have been looking at the Bitcoin space for a number of years, and trying to find the right models to invest in.  Better security and useful applications will be the key to widespread adoption.  Abra has found an important space in the $500 Billion remitted globally each year, mostly with very high fees paid by those who can ill afford it. By storing digital cash directly in the phones  of Abra Tellers ™ (via a Bitcoin wallet), which lets them take cash from workers and empowering the tellers to transfer it Abra Tellers™  who can dispense cash in the recipients home country, Abra creates a peer to peer global network of players for moving money around the world.  The tellers can charge a fee, and abra gets a small portion of that fee.  Because of the easy liquidity of Bitcoin, even amounts of less than $10 can be remitted, with most of the remittance going to the intended party, rather than being lost in high fees.

Another innovation is that while the value of Bitcoin in the teller wallets will fluctuate, Abra can guarantee the home currency value for the first 72 hours, making the transaction free of Bitcoin fluctuations  in dollars or other local currencies.

Bill has assembled a great team with experience at Boom, Opera, Goldman Sachs, Netscape, Verisign, eBay and other great companies.  And we’re thrilled to be partners with RRE, Lerer Hippeau Ventures, Mesa+ and other great investors.  We believe that Abra will finally show the world how the Bitcoin/blockchain infrastructure can help solve real problems in the financial world.

Here's a picture of how it works, you can get in line for the beta at http://goabra.com

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Abra: Innovation in Remittance

I’m really pleased to announce First Round Capital’s investment in Abra, the first global peer to peer cash money transfer network using the Blockchain/Bitcoin technology for secure low cost transfers.  As their founder, Bill Barhydt says “our mission is to replace bank driven financial inclusion with consumer driven financial inclusion.”

We have been looking at the Bitcoin space for a number of years, and trying to find the right models to invest in.  Better security and useful applications will be the key to widespread adoption.  Abra has found an important space in the $500 Billion remitted globally each year, mostly with very high fees paid by those who can ill afford it. By storing digital cash directly in the phones  of Abra Tellers ™ (via a Bitcoin wallet), which lets them take cash from workers and empowering the tellers to transfer it Abra Tellers™  who can dispense cash in the recipients home country, Abra creates a peer to peer global network of players for moving money around the world.  The tellers can charge a fee, and abra gets a small portion of that fee.  Because of the easy liquidity of Bitcoin, even amounts of less than $10 can be remitted, with most of the remittance going to the intended party, rather than being lost in high fees.

Another innovation is that while the value of Bitcoin in the teller wallets will fluctuate, Abra can guarantee the home currency value for the first 72 hours, making the transaction free of Bitcoin fluctuations  in dollars or other local currencies.

Bill has assembled a great team with experience at Boom, Opera, Goldman Sachs, Netscape, Verisign, eBay and other great companies.  And we’re thrilled to be partners with RRE, Lerer Hippeau Ventures, Mesa+ and other great investors.  We believe that Abra will finally show the world how the Bitcoin/blockchain infrastructure can help solve real problems in the financial world.

Here's a picture of how it works, you can get in line for the beta at http://goabra.com

Abra1

 

Abra2

Abra3

Abra: Innovation in Remittance

I’m really pleased to announce First Round Capital’s investment in Abra, the first global peer to peer cash money transfer network using the Blockchain/Bitcoin technology for secure low cost transfers.  As their founder, Bill Barhydt says “our mission is to replace bank driven financial inclusion with consumer driven financial inclusion.”

We have been looking at the Bitcoin space for a number of years, and trying to find the right models to invest in.  Better security and useful applications will be the key to widespread adoption.  Abra has found an important space in the $500 Billion remitted globally each year, mostly with very high fees paid by those who can ill afford it. By storing digital cash directly in the phones  of Abra Tellers ™ (via a Bitcoin wallet), which lets them take cash from workers and empowering the tellers to transfer it Abra Tellers™  who can dispense cash in the recipients home country, Abra creates a peer to peer global network of players for moving money around the world.  The tellers can charge a fee, and abra gets a small portion of that fee.  Because of the easy liquidity of Bitcoin, even amounts of less than $10 can be remitted, with most of the remittance going to the intended party, rather than being lost in high fees.

Another innovation is that while the value of Bitcoin in the teller wallets will fluctuate, Abra can guarantee the home currency value for the first 72 hours, making the transaction free of Bitcoin fluctuations  in dollars or other local currencies.

Bill has assembled a great team with experience at Boom, Opera, Goldman Sachs, Netscape, Verisign, eBay and other great companies.  And we’re thrilled to be partners with RRE, Lerer Hippeau Ventures, Mesa+ and other great investors.  We believe that Abra will finally show the world how the Bitcoin/blockchain infrastructure can help solve real problems in the financial world.

Here's a picture of how it works, you can get in line for the beta at http://goabra.com

Abra1

 

Abra2

Abra3

Why This Tech Bubble is Worse Than the Tech Bubble of 2000

Ah the good old days.  Stocks up $25, $50, $100 more in a single day.  Day trading was all the rage.  Anyone and everyone you talked to had a story about how they had made a ton of money on such and such a stock. In an hour.  Stock trading millionaires were being minted by the week, if not sooner.

You couldn’t go anywhere without people talking about the stock market.  Everyone was in or new someone who was in. There were hundreds of companies that were coming public and could easily be bought and sold.  You just pick a stock and buy it. Then you pray it goes up. Which most days it did.

Then it ended. Slowly by surely the air came out of the bubble and the stock markets declined and declined till the air was completely gone.  The good news was that some people were able to see it coming and get out. The bad is that others were able to get out, but at significant losses.

If we thought it was stupid to invest in public internet websites that had no chance of succeeding back then, it’s worse today.

In a bubble there is always someone with a “great” idea pitching an investor the dream of a billion dollar payout with a comparison to an existing success story.  In the tech bubble it was Broadcast.com, AOL, Netscape, etc.  Today its, Uber, Twitter, Facebook, etc.

To the investor, its the hope of a huge payout.  But there is one critical difference.  Back then the companies  the general public was investing in were public companies. They may have been horrible companies, but being public meant that investors had liquidity to sell their stocks.

The bubble today comes from private investors who are investing in apps and small tech companies.

Just like back then there were always people telling you their idea for a new website or about the public website they invested in, today people always have what essentially boils down to an app that they want you to invest in.  But unlike back then when the dream of riches was from a public company, now its from a private company.  And there in lies the rub.

People we used to call individual or small investors, are now called Angels.  Angels. Why do they call them Angels ? Maybe because they grant wishes ?

According to some data I found, there are 225k Angels in the US. Like the crazy days of the internet boom,  I wonder how many realize what they have gotten into ?

But they are not alone.

For those who can’t figure out how to be Angels. You can sign up to be

Continue reading "Why This Tech Bubble is Worse Than the Tech Bubble of 2000"

Sang Lee: 3 Benefits of Alternative Investments

Alternative investments often require a certain level of patience as many of these assets lack the liquidity inherent in the public markets. However, there are several benefits associated with taking a long-term approach by investing in illiquid alternatives.

Read more: Alternative Investments, Online Investing, Illiquid Investments, Financial Advisors, Venture Capital, Private Equity, Hedge Funds, Stocks, Alternative Assets, Financial Education, Money News

Initial Thoughts on Meerkat and Live Mobile Video

In just a little over 4 days, I have a developed a love-hate relationship with Meerkat and the discussion surrounding it (more to come on this second topic in another post tomorrow).

I’ve been a fan of what this team has been building for over 9 months. I posted the team’s original app, Yevvo, to Product Hunt after originally discovering it, of all places, from an Ashton Kutcher Tweet.

Despite relatively little adoption of that first app, major props to this team on continuing to crank and make the necessary minor tweaks to get some initial traction on the latest iteration of its core product. Minus a few caveats, I am a big believer in live mobile video, and as my friend Ryan Dawidjan pointed out in his post last night, the timing, from a technological capabilities perspective, seems to be ideal. I think there are myriad use cases for Continue reading "Initial Thoughts on Meerkat and Live Mobile Video"

Affordances in Texting Apps

Jonathan Libov over at USV wrote a nice post about how texting is a great way to engage with apps, particularly in a mobile context.  It’s a long read, but well worth your time.

I agree with how effortless a quick text exchange can be, and in combination with sufficient advances in NLP, I think it will be a terrific new medium through which we all communicate with apps. But this market won’t wait for perfect NLP to emerge. And while CS PhDs keep eking out a couple basis points of improvement in NLP accuracy each year, important apps are going to get built using texting. But, there’s one user interface restraint I want to focus on that I feel holds back most texting applications. My point requires a brief history lesson.

In the beginning was the command line. The interface design was a little blinking cursor after a “>” or a “$” depending on your OS flavor of choice. It was infinitely extendable, flexible, and lightning fast in the hands of a power user.  But most people are not power users, and for everyone else, the primary problem of the command line was the lack of affordances.  Specifically, the ability to do anything at all with the system requires prior knowledge of keyword commands that trigger apps, and none of these options are visually represented on the screen for the user. If you want to see the contents of your current directory, you needed to know to type “dir” or “ls” (flavor dependent, again). For me personally, the worse was “rm”… I would always type “delete” or “erase” instead; I had some mental block that always made me forget the keyword “rm”.

By contrast years later, the GUI was invented (thanks Xerox PARC), and brought many affordances with it via the skeuomorphic desktop metaphor. Files are laid out visually in front of the user, and there are clear affordances for the most popular actions, which requires far less prior knowledge and memorization in order to use the system. If you want to delete a file, you don’t need to remember “rm”, instead you just drag a file icon into a trash can, which is a wonderful metaphor because a trash can affords throwing away unwanted stuff.

Most texting apps I have used fall into the trap of the command line; a blinking cursor and hidden keywords lack affordances. Jonathan touches on this issue briefly in his post when he refers to the advantages that Apple’s QuickType interface offers in response to text-based prompts. However, that really only works for a level of engagement with an app that as complicated as a Choose Your Own Adventure book’s interface Continue reading "Affordances in Texting Apps"

The Missing SaaS Metric – Customer Retention Cost

A few months ago, on a quiet Sunday, I was reading through some of my board decks getting prepared for the upcoming board meetings.

A common theme among all of those decks was a section on churn and the impact it was having – both positively and negatively – on my portfolio companies. Some of those companies, fortunately, are experiencing negative churn as their customers increase the footprint of the portfolio company’s technology. I got to thinking about this issue. We have a significant number of metrics we use to measure top of the funnel health for our companies that use a SaaS business model – Customer Acquisition Cost Ratio (CAC Ratio), Customer Lifetime Value, Churn, etc. These are tried, tested and proven metrics management teams and investors use to evaluate how well a company with a recurring revenue model is performing. However, with churn  a critical component of the SaaS model, I
Continue reading "The Missing SaaS Metric – Customer Retention Cost"

The Missing SaaS Metric – Customer Retention Cost

A few months ago, on a quiet Sunday, I was reading through some of my board decks getting prepared for the upcoming board meetings.

A common theme among all of those decks was a section on churn and the impact it was having – both positively and negatively – on my portfolio companies. Some of those companies, fortunately, are experiencing negative churn as their customers increase the footprint of the portfolio company’s technology. I got to thinking about this issue. We have a significant number of metrics we use to measure top of the funnel health for our companies that use a SaaS business model – Customer Acquisition Cost Ratio (CAC Ratio), Customer Lifetime Value, Churn, etc. These are tried, tested and proven metrics management teams and investors use to evaluate how well a company with a recurring revenue model is performing. However, with churn  a critical component of the SaaS model, I
Continue reading "The Missing SaaS Metric – Customer Retention Cost"

The Missing SaaS Metric – Customer Retention Cost

A few months ago, on a quiet Sunday, I was reading through some of my board decks getting prepared for the upcoming board meetings.

A common theme among all of those decks was a section on churn and the impact it was having – both positively and negatively – on my portfolio companies. Some of those companies, fortunately, are experiencing negative churn as their customers increase the footprint of the portfolio company’s technology.

I got to thinking about this issue.

We have a significant number of metrics we use to measure top of the funnel health for our companies that use a SaaS business model – Customer Acquisition Cost Ratio (CAC Ratio), Customer Lifetime Value, Churn, etc. These are tried, tested and proven metrics management teams and investors use to evaluate how well a company with a recurring revenue model is performing.

However, with churn  a critical component of the SaaS model, I asked myself, “Why don’t we have a common metric to measure the health of the bottom of the funnel?”

Key questions are:

  • Shouldn’t we know how much we are spending to retain a customer?
  • At what point should we “fire” a customer?
  • Should that point vary by industry or type of customer?
  • When should we parachute in our “customer success” teams?

It seemed to me that if we have a Customer Acquisition Cost metric, shouldn’t we have a Customer Retention Cost (CRC) metric and what would be the elements we would use to measure the CRC and CRC ratio?

So, I put together a bunch of thoughts on what should go into the calculation of such a metric and sent that over to one of our portfolio companies – Totango.

Totango provides a customer success platform. Software companies and others use their platform to determine whether or not a customer is deriving value from a software product. This enables customer success teams to “parachute in” and help a customer derive value from the vendor’s software product and mitigate a key issue associated with churn.

Given they are “in the business of reducing churn”, it seemed to me only natural that they take my initial concepts, flesh them out,  and launch the CRC  and CRC Ratio metrics into the industry as a whole.

I am happy to report they have done that with a fantastic white paper on the subject. I would encourage anyone dealing with churn/retention, to read this paper and add to the conversation.

The CRC and CRC Ratio are not metrics to be owned by any one individual or company. They need to be owned by the industry and your contributions are welcome.

 

Women that are helping bring about the drone revolution

In How Google Works, Eric Schmidt talks about how the company approached recruiting its top talent that were internally referred to as “smart creatives”. Schmidt shared “These are the folks who combine technical knowledge, business expertise, and creativity”. Steve Jobs often talked about the importance of top talent and how a small company depends on great people much more than a big company does.

Kristen Helsel
Kristen Helsel

Today, I am very excited to share that one our portfolio companies, CyPhy Works (UAS/drone systems), has successfully recruited Kristen A. Helsel to lead their commercial efforts. One of top female hardware executives, Kristen is an established successful leader (and former entrepreneur) who brings a demonstrated track record of new business innovation, industry sales and marketing, and executive management to CyPhy Works. She has had a front row seat for the evolution of the drone space in the USA as the former vice president of sales and business development for Aerovironment’s Commercial UAS business, and in her previous life she also ran Aerovironment’s electric vehicle charging business where she saw that new industry grow from near zero to billions of dollars in the US. Prior to that, she held sales and executive positions with Eclipse Management, Swift Engineering and General Motors. Needless to say, she is at home in the world of mechanical, electrical, hard-core engineering based products.

Kristen is joining Helen Greiner, founder and CEO of CyPhy Works, who is arguably one of the best engineer-entrepreneurs of our country. Helen previously built iRobot to disrupt the commercial and consumer robotics industry, and now Kristen and Helen aspire to do the same in the world of drones. It will be exciting to see what bringing vertical motion to robotics does to the world, from productivity and data based decision making to future commerce and saving lives. It has already been a great experience for me to be associated with CyPhy Works as an investor and a Board member. The team is uber-geek, they hack hardware and software for fun, and nerf-gun fights is how they release stress at work! And women rule the place: 3 out of 5 executive team members, and 2 out of 4 Board members are women.

Helen Greiner
Helen Greiner

It is an exciting time for the US drone industry. CyPhy Works is seeing tremendous growth both nationally and internationally. They have partners and customers in varied industries ranging from oil & gas, insurance and mining to package delivery. Kristen is joining to head the commercial activities to build on those relationships and scale operations, including manufacturing, customer support and services. She has already been schooling me on the regulatory landscape around drones and how it impacts commercial potential in different markets. Since I am Continue reading "Women that are helping bring about the drone revolution"

The BYOV Class

This morning I read Matt Yglesias’s incredible post on Vox about the apparent oncoming collapse of the democratic political system. His view, as described in the article, is that political parties are increasingly ideological; that parties are using the extreme political tools of the constitution to create zero sum scenarios in policy-making, eroding the effectiveness of the democratic process.

I thought it was interesting (and Chait’s response just as much so) because it got me thinking about the future of governance more generally. And so, a quick detour. The on-demand movement of the last half decade, powered by Uber, Lyft, Instacart, Shyp and others, is here to stay. The consumer of the day can come to expect that they can access goods and services from their mobile device, and that those goods and services will be at your doorstep day-of, and even hour-of. My friend Semil suggests that this is table stakes for companies developing consumer experiences today. There are some concerns about the unit economics of these models — many lose money on each transaction — and I agree there are many growing pains, some of which will be scary, to address before we realize the on-demand economy. But where my interest is actually most piqued is not in the sustainability of today’s platforms. If the consumer behavior has indeed changed, the platforms will — or should — adapt to continue to meet the demand. As of today, the platforms provide three primary services:
— Payment processing
— A fraud protection mechanism (insurance, background check, minimum quality)
— A dispatching service that dynamically matches work requests

What’s shared by all these platforms: *drivers, using their own vehicles*: It makes sense. On-demand in this environment means ‘delivered to me’ and someone has to, well, do the delivery. BYOV (bring your own vehicle), as Jonathan Matus from Zendrive calls it.

What’s *missing*, however, from all these platforms: *agency and ownership*. The BYOV class are, for the most part, considered independent contractors (for most, but not all of these companies) and as such do not get benefits, but also don’t get equity, or any other access to any of the decisive authority in managing the platforms. And they are the most important piece of the puzzle, after all. So what if we open these platforms? 

What’s to stop a community of drivers from partnering with a payment processor, integrating off-the-shelf dispatching technology, and going to market with the democratic version of these platforms? Is that like proposing a social networks be more open, which seems to have failed time and again?

I would be interested in the platform that offered governance tools to these drivers, so they could organize, impose a Continue reading "The BYOV Class"

Founder Leadership Models

There are a number of founder leadership models that can work well as a startup evolves. I have lived a few as an entrepreneur and worked with many as a board member. Getting the founder model right is critical because the founder is the soul of a company. If you can navigate a leadership model that keeps the founder involved and engaged in the business as it scales, it meaningfully improves your odds that startup magic will happen.

Putting aside the complexities of multiple founders (as I talked about in my post, The Other Founder), the founder leadership model tends to fall into a few buckets:

  • Ellison Model - Named after Oracle's Larry Ellison, who did this for over 50 years in one of the most amazing executive and entrepreneurial runs in history, this model is where the founder runs the show from end to end with no #2. Founders who pull this off are able to hire strong functional managers, weave them into an operating team and grow as leaders with the help of these strong managers. Steve Kaufer of TripAdvisor is 15 years into running on this model and going strong.
  • Zuckerberg Model - Named after Facebook's Mark Zuckerberg, this model is where the founder hires a #2 early on so (e.g., Sheryl Sandberg) that they can focus on one aspect of the business (e.g., product), while letting the #2 run most of the day-to-day operations.  You sometimes hear board members talking to each other in short hand about this model when they say, "we need our Sheryl".
  • Schmidt Model - Named after Google's Eric Schmidt, this model is where the board hires a professional CEO early on to provide company leadership to build the company around the founder's early vision (e.g., Sergei Brin and Larry Page).  Schmidt joined Google initially as chairman and then 6 months later as CEO.  That is VC playbook 101:  get the CEO-in-waiting on the board, let the founders and them get acquainted, and then see if you can make a match.  But even with the new CEO in place, the founders should remain deeply involved and lead major initiatives (e.g., the founder becomes CTO). And, in a few rare cases, founders return to run the company after the CEO retires, now that they have had time to grow as leaders (e.g., Akamai - where founder Tom Leighton succeeded operational CEO Paul Sagan, and of course Google, where Page succeeded Schmidt).

I have implemented each of these models in my portfolio.  The right model varies based on the circumstances, obviously, and most importantly based on the makeup of the founder and what Continue reading "Founder Leadership Models"

VC Ground Game

Conventional wisdom says that the best way to meet with a venture capitalist is to get a warm introduction.  (While it’s a good rule of thumb, it’s not entirely true, which I’ve blogged about previously.)

However, there’s another way that I’ve seen entrepreneurs use mutual connections that’s even more impactful than a warm introduction: a proactive inbound reference.  Rather than wait for a VC to ask for references later in the diligence process, savvy entrepreneurs have had people in our mutual network lob in an email or phone call as a vote of confidence and support.  If a person is merely on a reference list after the first couple meetings, the standard expectation of course is that she is going to say good things about the entrepreneur.  But a strong inbound reference from the same person can be even more productive.  Inside our partnership here at NextView, we informally and affectionately refer to it as “playing the ground game.”  When executed well, it can successfully get us to pay particular attention to and instill additional confidence in a Founder.

Tactical thoughts to having good ground game:

  • The person lobbing in support needs to not only be a mutual connection, but rather be truly trusted by the VC… a much higher bar. Again, otherwise, there’s risk in having the opposite effect, from merely noise to a negative signal on how you judged the relationship’s effect.
  • The inbound reference must say superlative things, not just positive ones. It’s a subtle, but impactful difference.  “He’s good – I’ve worked with him” isn’t as effective.  Because it’s going further than merely offering to be a reference, and instead they’re inbound, it’s incumbent that entrepreneurs absolutely believe that they’re going to be over-the-top good.
  • One or two inbound calls of support can make a positive impression, but more than that can have the opposite effect. Too many can come off that an entrepreneur is trying too hard, signaling that there isn’t enough substance to their pitch itself to stand on its own.
  • There’s an art to the timing of these calls and/or emails. The best strategy is a Goldilocks one timing: not too early (overwhelming) and not too late (less influential to outcome).  This point is especially true if the inbound reference is directed towards another partner at the firm who isn’t the primary point person on the potential investment.

If, as an entrepreneur, you have more than one strong mutual connection with a VC, don’t overlook an arrow in your quiver which you may not have realized that you already have.  Good ground game can be the subtle edge that pushes the financing process forward faster because an especially strong opinion from a trusted contact is a meaningful signal.  But at the end of the day, it’s merely a minor tactic which shouldn’t distract from the fundamental key to a successful fundraising process – clearly communicating the opportunity of the business.

The post VC Ground Game appeared first on GenuineVC.

Rare Diseases, Rare Opportunities

This blog was written by Tom Hughes, CEO of Zafgen, as part of the “From the Trenches” feature of LifeSciVC.

Last week on February 28th – as I sat down to write this short blog– was Rare Disease Day 2015.

Rare diseases, and there are estimated to be 7000 of them, impact almost 30 million people in the US alone, according to the National Organization for Rare Disorders (NORD). These diseases – such as Spinal Muscular Atrophy, Fabry Disease, Duchenne Muscular Dystrophy, obviously weigh heavily on the patients and families impacted, and on the healthcare system as a whole. It’s hard for many of us to appreciate the impact of having a child born with a debilitating or life-limiting disorder, to struggle with having a poorly understood condition, to be studied as a patient with an unusual and challenging condition, or to agonize with being misunderstood while seeking an accurate diagnosis or treatment approach. It’s tough to ponder. We have a long way to go in medicine.

One patient’s journey through a rare disease experience can be found in an incredible book titled “Brain on Fire” written by Susannah Cahalan. The book details her experience with anti-NMDA receptor encephalitis, which temporarily robbed her of her sanity, nearly destroyed her life, and for which treatment cost more than a million dollars over the course of less than a year. Devastating? Yes. Rare?   Certainly. Worthy of focus from our industry? Definitely, although existing medications and a gifted physician did save her life. The disease nearly robbed us of an incredibly talented journalist, and worse still, could have led her to be institutionalized and labeled as ‘insane’.

Until the Orphan Drug Act was authorized in 1983, many rare diseases remained unaddressed – in truth, orphaned by the industry due to complex biology, challenges with diagnosis, difficult patient identification, and other issues including navigating market access hurdles across multiple geographies.

Our company Zafgen is dedicated to significantly improving the health and well-being of patients affected by obesity and complex metabolic disorders. Through an interesting series of confluent events, we launched efforts in two rare disorders (Prader-Willi syndrome and hypothalamic injury-associated obesity) with our lead molecule over the past few years. I have to say, coming from a 21 year career at a major pharma company spent discovering drugs and tackling the highly complex and expensive development of drugs for common diseases like dyslipidemia and type 2 diabetes, it has been eye-opening.

This rare disease path has had very concrete impacts on our strategy, our ability to access funds and non-financial resources, and on our momentum as a team. Working on rare diseases with our first drug candidate helps Continue reading "Rare Diseases, Rare Opportunities"

How fast is fast enough?

Growth is the single biggest determinant of startup valuations at IPO, as my fellow SaaS investor Tomasz Tunguz concluded based on an analysis of 25 IPOs in 2013. Growth (a.k.a. traction) is also the most important factor that attracts VCs and drives valuations in private financing rounds. Of course your team, product, technology, business model and market matter too, but when you’re past the seed stage the expectation is that these factors will have resulted in excellent growth. At the seed stage you can sell your story and vision. At the Series A and later stages, you have to back it up with numbers.

This isn’t surprising. Past growth tends to correlate with future growth, and since tech markets are winner-takes-all (or "winner-takes-most") markets, investors are obsessed about finding the fastest-growing player that has the biggest chance of dominating the market.

If growth is so crucial, how fast do you have to grow?

The answer depends on the market you’re in and the type of company that you want to build. If you’re in a small niche market – let’s say a business solution for a small vertical, localized to one country – maybe you don’t have aggressive, well-funded competitors. In that case it may be sufficient if you’re the fastest-growing player in that market, even if that means you’re growing only 20% year-over-year. There’s absolutely nothing wrong building a company like this, and you could end up with a highly profitable small business (or Mittelstand company). This is not the type of company VCs look for though, and the rest of this post is written based on the premise that you’re a SaaS startup that wants to grow to $100M in Annual Recurring Revenue (ARR).

So how fast do you have to grow in order to become a $100M company? Again using data compiled by Tomasz “Mr. SaaS Benchmarking” Tunguz we can see that the 18 publicly traded SaaS companies that were founded within the last ten years took five to eight years to reach $50M in revenues, with 14 out of the 18 being in the six to seven years range. (1) Add another one or two years for getting from $50M to $100M, and we can assume that most of these companies took seven to nine years to get to $100M.

$1M, T2D3, 50%?

If you want to get from 0 to $100M in revenues in seven years, your growth curve will likely look very roughly like this: Get to $1M in ARR by the end of the first year, triple to $3M in the next year, followed by another triple to $9M by the end of year three. Double your revenues in
Continue reading "How fast is fast enough?"