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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:
There are very few pre-product, vision only Series A rounds
Round sizes of $15-$20M are not the norm but the rare exception
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.
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.
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.
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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💯 - 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
🔥 up about this new investment
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
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 🤯
🔥 Postgres WASM from Snaplet and Supabase
Everything you need to know about the state of DeFi
And it started as a Series D investment from Cap One Ventures
“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.”