The best entrepreneurs are often those who can articulate their vision and roadmap in a simple, elegant and purposeful manner. I have tried to analyze the elements which get me excited about a company – drawing from what I observed from CEOS of start-ups I have backed, like Nicolas Dessaigne (Algolia), Frederic Mazzella (BlaBlaCar), Stan Niox-Chateau (Doctolib), Graham Cooke (Qubit) or Jonathan Benhamou (PeopleDoc). This post is a summary of my findings, with a lens focused on SaaS businesses.
I highlighted five pieces of advice in part-one of this two-part post as illustrated in five words: Alignment, Preparation, Advice, Backdoor and ‘Wow’. Here are the final five pieces of advice. Hopefully this will help you pitch your SaaS company with greater impact.
While everyone wants to make money, good VCs look for more in an entrepreneur than the desire to cash out. They invest in entrepreneurs who want to change the world. When Elon Musk received $200 million from the proceeds of the PayPal acquisition in 2002, he re-invested everything to build the next big thing: $100 million in SpaceX and $100 million in Tesla. Talk about passion and commitment!
Don’t hold back your passion and your vision – give examples of crazy flights and nights in the office to meet a launch date, or epic stories with your first customers. Illustrate how you have pushed the limits of what’s possible.
Smart VCs fund entrepreneurs if they believe in their story. When you prepare slides, think about the narrative – it should be told as a personal story. A touch of humor also helps. Illustrating your points with personal stories help people relate and remember your message. For example, I have always remembered how Frederic came up with the idea of BlaBlacar:
“It all started one Christmas, when Frédéric wanted to get home to his family in the French countryside. He had no car. The trains were full. The roads, too, were full of people driving home, alone in their car. It occurred to him that he should try and find one of the drivers going his way and offer to share petrol costs in exchange for use of an empty seat. He thought he could do it online, but no such site existed.” (You can read the full story here)
Developing a scalable sales and marketing engine is a key element of success for SaaS companies. It’s very important to explain in detail how this engine is designed and how you can scale while maintaining quality and productivity. Here are a few typical models and some of the points I would find interesting to highlight:
- Enterprise sales (e.g., Docusign, Peopledoc): typical outbound sales model targeting mid market+ companies and relying on being able to hire consistently sales people making their quota. I like to understand for these models how many sales people are quota carrying, what is the distribution of quota attainment, and what is the profile of an ideal sales person
- Inbound model (e.g., Algolia, Twilio, Sendgrid): for companies targeting developers for example, the outbound model is harder to develop as developers rarely answer sales call. This model relies on grass root marketing of the targeted community, combined with smart online tactics (e.g., content development) to generate inbound interest. For this type of model, I would like to understand how the number of inbounds is scaling with the activities and how much virality there is in the model as the word spreads out in the community
- SMB door to door sales (e.g., Doctolib, OpenTable): this model is the little parent of the enterprise sales model but for SMBs. Typically, it is a combination of an inside sales engine generating leads and booking appointments for an outbound door to door sales team. These teams are typically run on monthly quotas. For this model, I like to understand how scalable the lead gen model is (e.g., how many searches are available on Adwords) and what is the quota attainment and churn rate of the sales people as well as their profile
- SMB online sales (e.g., Wix): for SMB product sold mostly online, the key for me is to understand the scalability on Adwords as well as the channel strategy
Entrepreneurs must concisely explain their own model and describe how the engine will churn out powerful results month-after-month and year-after-year. You might not add all of this in the slides, but be prepared to explain how your engine will scale, where your teams be located and how they will be structured for growth.
There’s a saying that “numbers raise dollars.” In other words, there are universal metrics that smart investors require to make investing decisions. I outlined five of these financial KPIs for SaaS, which I called the 5 C’s: Customer Monthly Recurring Revenue (CMRR); Customer Acquisition Cost (CAC); Churn; Customer Lifetime Value (CLTV); and Cash.
However, with the evolution of new SaaS models, I added three more that will likely pertain to your sales engine:
- Cohorts: when most SaaS models were targeting mid-market or enterprise customers, there was not a lot of volatility in the churn and upsells, so looking at the average was meaningful enough. Today, we are seeing more an mode model where the churn can be high but the upsells are also very high and looking at cohorts help see how they net out over time
- Concentration: I see more and more companies being built on the back of one or a few very large contract. Understanding the breakdown of the revenues by customer is something I like to see upfront in the discussion
- Country breakdown: with the development of the SaaS ecosystem, it is now more common, in particular for services targeting SMBs to see early stage SaaS companies with customers on all continents and it says a lot about the scalability of the model. For more traditional enterprise SaaS companies starting in Europe, showing traction in the US and outside of their home country is also very important.
A pitch is also an opportunity to get to know the VC, so prepare questions and take this opportunity to assess what kind of value the investor will provide. This is essential in determining whether or not you would like to work with him/her for the next five-seven years. When I ask entrepreneurs if they want an overview of Accel, I often get the answer “we know, we looked at the website.”
How would you feel if a VC were to tell you: “I know all about your start-up because I looked t your website!” You get the idea.
Bonus: European founders should spend a week in San Francisco. Why? Because telling European VCs that you are going to the US will add a bit of competitive dynamics to your fundraising process. They will assume you’ll meet Silicon Valley-based VCs (even if it is not the case!), which will likely help advance and deepen your conversations locally.