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If you are going to sell — $10-$15m in recurring revenues is a GREAT time to sell. Relatively speaking, at least. $10m or so in ARR is often in my experience a “local maximum”. When your traction will be most valued by potential acquirers, because you’ve proven you are a market leader, with real revenues ($10m+), that the acquirer believes they can “easily” scale to hundreds of millions and beyond: And at $10m-$15m in ARR, usually you haven’t raised too much venture capital. So it’s fairly easy to get a deal done where everyone wins. More here: Acquisitions — If You Do Sell, Try to Make Sure It’s At a Local Maximum I’m not saying you actually should sell. But if you are going to sell — this is often a good time to do it. You can grow another 2x or 3x in revenues from this point, and not Continue reading "What amount of revenue is required for a healthy exit for a startup in an industry that is worth tens of billions?"
Now that we’re in a Touch Less than The Best of Times, an important but subtle issue is coming up for a lot of start-ups. A Weak Investor Syndicate. What does this mean? A Weak Investor or Syndicate, or group of investors:
- Is all tapped out and has no more money to invest in the company. This can happen even with great funds and investors.
- Doesn’t want to do its pro rata. Even if it has plenty of money; AND/OR
- Can’t bring you good leads for the next round. This can happen even if the current investors have fancy fund names.
When a great SaaS business starts to come together, and crosses Initial Traction ($1-$1.5m), growing nicely (8-10%+ Month-over-Month Growth) … often times, the founders start to see the first bit of real economic returns on the model. It finally starts to make sense, this SaaS stuff. As you cross $2.5m, $3m in ARR, you can start to see a path to real cash flow and financial independence, even though you aren’t there quite yet. Even if leads are still a bit lumpy, outbound is still stretching itself … you at least learn how to close by this point. It’s repeating, and repeatable … finally. And often, if you are capital efficient, your marketing cost will be close to $0 at this point (you are barely spending anything to acquire most customers), and your sales costs are pretty predictable. Your Magic Number is often well under 1.0 — you often
Continue reading "Your Sales Efficiency Will Probably Plummet Toward $10m ARR. Plan For It."
On the investing side of life, the toughest meeting of all for me at least is probably the Right Co-Founder, Wrong CEO start-up. Great product, driven team, good early product-market fit, great vision. Check, check, check and check. But clearly — the Other Co-Founder should be CEO. I always have to pass. And I think this is also one of the toughest companies to think about joining — or not — as a VP as well. It’s all looking strong, and yet … it’s really the other co-founder that should be CEO. This happens with some regularity in SaaS, I’ve learned (and to be clear: I’m not talking about any company I’ve invested in, am an advisor to, board member of, etc – Because when it’s still a very small team, with no true management team … co-founders can kind of hack it to $1m-$2m in ARR together. And both really Continue reading "Right Co-Founder … Wrong CEO"