What's 🔥 in Enterprise IT/VC #310

Getting from seed to Series A - why chasing $1M ARR could be your white 🐳

Top of mind this week were many conversations I had with founders who are confused about what it takes to raise a Series A. Common wisdom from their conversations with Series A firms and from social media is that getting to $1M ARR will solve everything. What I can tell you is that there are no absolutes and the only things I do know are that:

1. There are very few pre-product, vision only Series A rounds

2. Round sizes of $15-$20M are not the norm but the rare exception

3. Traction does matter but there is no magical number like $1M ARR

My strong advice for founders is your company is what you target, and if you focus your whole team on $1M ARR then you may get it, but it may not be the revenue or customer base that truly gets your next round done. Too many times I’ve seen founders obsessed with revenue targets and take shortcuts or make decisions based on that versus focusing on the long term. Don’t let $1M ARR be your Moby Dick.

DALL-E impressionist oil painting of silicon valley technology founder chasing humungous white whale

As a day one investor, most of the founders we partner with are just getting incorporated and putting together their core team. The only thing these founders should be obsessed with is building a product that end users will absolutely ❤️ and can’t live without. These are mission driven founders who are always talking about the customer or future customer, and how this product feature or tweak will make the product experience 10x better.

We are not talking about magical ARR goals because if there is no product, there is no company. Rather than focus on $1M ARR, let me micro chunk it for you in terms of what you should focus on by sharing some of my thoughts from earlier this year: QUALITY OVER QUANTITY.

Ed Sim @edsim

Developer first + PLG founders, my strong advice from day 1 is to focus on "quality"+ not "quantity" Less is more when onboarding 1st few users - get those right b4 expanding to dozens + hundreds, learn, interview - scaling something that doesn't work does not lead to 💰

Ed Sim @edsim

Founders in search of your Series A, don't fall into the quantity trap, focus on quality first. More is not better on day 1 - need to know when to add more features or users but only after you have a product folks can't live without.

Focusing on the user and product experience will lead you to the right place. When it comes to metrics I like to think of how do you get 10 teams who absolutely cannot live without your product where it has meaningfully impacted their day to day work experience. This is quality. These are the types of “customers” that VCs want to talk to. Do they have to be paying? It doesn’t matter. VCs would rather have in depth reference calls with folks who deeply understand and interact with the product than talk to folks who have signed a contract but barely use it or articulate it. VCs who get it will tell you this. VCs who don’t will only say I need $1M ARR. Of course, it doesn’t hurt if you have 10 happy teams, and some of them paying but there is no magic ARR number that gets you a Series A term sheet.

Founders who chase the white 🐳 will make decisions like hiring sales reps too early or figuring out pricing plans before they get enough users in the door. They will focus on one large contract which will subsume all of their time and not show any repeatable future market potential. They will get friendlies to sign contracts contingent on delivery of features which means no one is using it. In addition these features may be items on your roadmap 3 quarters away and are more custom in nature than what the market needs today. Once again, these are all decisions made when optimizing for $1M ARR versus focusing on what your small initial user base wants now and getting to 10 happy teams.

Ed Sim @edsim

Reminder - small is beautiful especially in early days. Smaller seed rounds force constraints + intense focus. Also means smaller teams who can ship product faster than bigger teams. Stay small before you get big. Many forgot that lesson in a world of too much 💰.

To reiterate, this intense focus on product and users also means that you should under no circumstances prematurely scale. Only have the team you need to deliver the product, and it’s on you founders to discover the repeatable customer base that will help your product fly off the shelves. It’s also on you to close those first 10 customers. You can get help and advice but you can’t outsource it. If you can’t get folks to try the product and eventually buy it, how can you train someone else to do that?

Remember, there are no shortcuts to building an amazing company and don’t fall into the $1M ARR trap. If you do right by the customer, you will get there and far exceed it.

Rant over 😜. As always, 🙏🏼 for reading and please share with your friends and colleagues.

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Scaling Startups

1. 💯 - great example is what many startups who raised too much capital and had to cut burn after they recognized there is more work to be done to get to product market fit

   Naval @naval

   Big companies and repeat entrepreneurs struggle to go from zero to one because they refuse to restart at zero.

2. 🔥 up about this new investment

   Shomik Ghosh 🇺🇦 @shomikghosh21

   Ever tried to grant equity to an international employee? It's 🤬 @EasopHQ solves this passing $5M+ equity granted through the app 📈 🥳 to announce @Boldstartvc & @PartechPartners are co-leading a $2.5M seed round 🍾@vhaarscher, Nael, & Thierry 🧵👇 medium.com/@shomik_89389/…

   

   medium.comEasop: Making It Easy to Grant Equity to International Employees…welcome to the Boldstart family!There is nothing that gets us more excited at boldstart than partnering with founders who have experienced the pain solved by the product…

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Enterprise Tech

1. Battery Enterprise IT Spend Survey:

   We found 35% of survey respondents expected their overall tech budgets to stay flat in 2022, while a surprising 54% expected their tech budgets to increase. Less than two percent of the respondents expected their budgets to contract by more than 10%. All of those more-cautious buyers were at companies spending less than $100 million annually on technology

   Also reminder for devtools founders, trick is moving from dev/test environments to production which requires more approvals from ops and security - need to wow developer but also support stakeholders with budget

   

2. Super excited for this new launch from Cape Privacy (a portfolio co) allowing any developer to build privacy preserving apps easily using serverless confidential computing 🤯

   Gavin Uhma @gavinuhma

   Super excited to announce Cape today!! Encrypt your users' data. Deploy your functions to Cape's auto-scaling secure enclaves. Any developer can build secure apps and respect end-user privacy. Serverless confidential computing is here! Try our beta, free.

   

   capeprivacy.comIntroducing Cape: Encrypt, Deploy, RunCape is serverless confidential computing. Build more secure apps with Cape: encrypt data, deploy functions, and run within auto-scaling secure enclaves.

3. 🔥 Postgres WASM from Snaplet and Supabase

   Peter Cilliers-Pistorius 🇺🇦 @appfactory

   We've open sourced Postgres WASM Hat tip to all the amazing engineers that made it possible for us to glue this together, including those at @supabase and @_snaplet Join the discussion on HN!

   

4. Everything you need to know about the state of DeFi

   Ignas | DeFi Research @DefiIgnas

   1/ The state of #DeFi in 15 charts🧵

5. What else?

   Kacie Ahmed @Haezurath

   Web2 Web3 AWS S3 → Filecoin Github → Radicle Paypal → Wallets Zoom → Huddle01 Spotify → Audius Upwork → Braintrust Twitter → Lens Protocol MongoDB → Ceramic

6. And it started as a Series D investment from Cap One Ventures

   Tanay Jaipuria @tanayj

   The largest customer on Snowflake (Capital One) spends ~$49M/yr and is still growing spend 🤯 (via seekingalpha.com/article/453829…)

   

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Markets

1. “How to make sense of Xi Jinping, China’s enigmatic ruler” and implications for ROW (The Economist)

   Whereas Mao united the country and Deng Xiaoping helped it prosper, Mr Xi believes he will be the one to make it great again. He talks of a West that is in decline and of the world experiencing “great changes unseen in a century”. The phrase has roots in the late Qing era, when China was humiliated by foreign powers. Mr Xi has turned it on its head.

   There is nothing odd about a big power wanting a big say in global affairs. But China’s regime sees today’s world order as a Western imposition, and wants to rewrite the rules. “The Chinese people will never allow any foreign forces to bully, oppress or enslave us,” he said last year, marking the centenary of the party’s founding. “Anyone who dares to try to do that will have their heads bashed bloody against the Great Wall of Steel forged from the flesh and blood of over 1.4bn Chinese people.”