On this episode of the FINITE Podcast, we sit down with Arthur Nobel who gives us his uniques perspective on marketing from a B2B tech, venture capitalist lens. He talks us through the role of marketing in different rounds, how marketing’s structure changes as each investment round is met and how to leverage marketing to attract investors.
Arthur is a Principal at Knight Capital – an investment firm that specialises B2B software businesses.
This episode covers:
- About Arthur’s experience in VC and marketing
- When should companies invest in marketing?
- How does product-market fit affect investment?
- How different funding rounds influence marketing
- Dealing with investors as a persona group
- How involved in an investor in company operations?
- How investors view long term growth vs. short term marketing initiatives
- How should marketing be structured for different rounds?
- Which marketing metrics does an investor look at?
- What should companies be demonstrating for their next investment round?
Listen to the full episode here:
And once you’re done listening, check out our other episodes here!
Hello everyone, and welcome back to the FINITE Podcast. Today’s episode is a slightly different one in that I’m welcoming Arthur Nobel, a Principal at venture capital firm Knight VC onto the show. Investors and VCs can be an important persona for marketers to consider when they’re working in fast growing B2B tech companies.
So I want us to talk to Arthur about how VCs view the marketing function, what they look for in marketing teams when making investments. Arthur is a marketer by background and at Knight now specialises in B2B SaaS investments. So I hope you find this episode full of interesting insights.
The FINITE community and podcast are kindly supported by 93x. The digital marketing agency working exclusively with ambitious fast-growth B2B technology companies. Visit 93x.agency to find out how they partner with marketing teams in B2B technology companies to drive growth.
Hey Arthur, thank you for joining me today.
Thanks Alex. Really looking forward to having this conversation.
Likewise, we’ve got lots to talk about. I feel like the venture capital perspective on marketing is you’re kind of like the hidden persona that lots of marketers often fail to think about. Some do, some don’t, but I think our audience is going to be really interested in hearing a bit more about the VC perspective on marketing and growth overall.
So I appreciate you giving up your time to chat with us. But as we always do, I’ll get you to start by introducing yourself. Tell us a little bit about you, your experience and what you’re working on at the moment.
About Arthur’s experience in VC and marketing
Awesome, thanks a lot. I mean, you already mentioned the topic for marketeers and venture capitalists. I think that that’s spot on, I’m a marketer by trade then into the venture capital world. So I hope to be valuable for the listeners.
About myself, in 2014 I joined the startup world and joined Rocket Internet back then in Berlin and Asia, and then moved off to some projects into the venture capital world in the Netherlands. First with series B funds and then afterwards I would say pre series A funds, maybe late seed.
And then I was ready to start a business myself, I felt I had everything I needed. So I did in 2017, I started the company that was focused on enabling the future of remote work. I mean, now it’s 2020, we actually figured out that remote work is normal but back then it was definitely a big culture shift for organisations. So, I would say it was too big of a culture shift. The time wasn’t right so I had to find a job again. And that helped me move into the growth hacking area. And from there, I transitioned back into a VC and I’m currently working for Knight Capital.
Cool. And tell us a bit about where you’re based and what you focus on at Knight.
I joined Knight in January this year. Knight Capital is a second fund, we invest solely in software companies. We invest across Europe, we’re by the way based in Amsterdam, but I would say we’re a remote based investor. We particularly invest in series A to B in companies that usually have between 2 and 5 million annual recurring revenues, that are operating it from a large market with a stellar team, with a leading product.
And something we’re really like is a replicable sales model. So it might be relevant for the audience and my role per se is in principle and funds. I joined as an associate and practically this means that I’m overlooking dual sourcing on the one hand and being involved in affiliation of the companies basically, and to process afterwards in terms of portfolio companies I’m supporting, sometimes on the board sometimes unofficially like companies in their growth.
Very nice. I guess to kick things off, I was going to ask you a bit about how you see the marketing side of things in terms of when the companies that you’ve been involved in, from an investment angle, really become serious about scaling their marketing. And I guess you mentioned that you’ve got experience at Rocket Internet with all kinds of ventures.
I imagine then different stages of venture venture capitalism, I know that I often see businesses around that series A series B stage getting much more marketing focus when it comes to scaling marketing and growth. But I’d love your perspective on when you start to see companies becoming serious about marketing, just to set the scene for everybody.
When should companies invest in marketing?
Yeah, sure thing. So if I define scaling marketing it’s about building a replicable process that you can show me from the book predictable revenue. But in the end, that’s what I am looking for so that you can attain a growth phrase of at least two on an annual basis. And basically marketing is not a one man band anymore, replicable process. That’s how I personally look at scaling.
And I would say that scaling marketing starts right after you’ve found product market fit. If you start too early, it’s premature scaling. If you start too late you lose out on growth. And I would say this is usually between seed and series A, but if you raise to a seed round to build a product with other data markets, your series A starts about the initial stages of scaling up.
And you already want to start scaling before your series A, because you don’t raise the money to start scaling, you raise the money to show your initial proof points, then you continue doing that.
Something that I often see is that initial growth and traction is very outbound lead. So it’s sales people, it’s maybe the founder themselves doing that. And then there’s this pivot point of becoming, I guess to your definition of scaling, it’s repeatable, there’s more than one person involved, those kind of things.
Obviously we have a B2B audience and B2B Tech and SaaS and everything from monthly fees for SaaS through to enterprise and everything in between. But do you see that too, in terms of initial growth and so-called product market fit, we can come on to talk about that concept in a sec. But typically being more led by knocking on doors, outbound opportunity sourcing, and then once there’s product market fit, it becomes more about how do we open the top of the funnel up?
Yeah. So I think you’re right. If I just look back from my own experience with losing my company, definitely online was our acquisition, our mode of distribution. However, in the early stages when you’re finding product market fit, I won’t say too much about it yet, but you generally see that you first want to validate: there’s a problem, you have a solution, you want to validate whether that’s the right solution. And the best way to do that is by doing things that don’t scale and basically you have to be there in person.
So that’s why I usually see that people start individually. Nevertheless, I would say the answer really depends on your annual contract value. So if you have a company like TypeForm, which has maybe like a contract size of a thousand euros, or like a company which is like around 10,000, £50 per 100,000 basically that changes whether you’re sales lead or a bit more marketing, product or growth lead.
How does product-market fit affect investment?
So product market fit is one of those concepts that has been around in the tech startup world since who knows how long. I think I shared with you that I recorded an episode recently with Rand Fishkin who’s well known in the SEO world, but now founder of another business. And he was a founder of Moz, the SEO software.
The reason we had him on the podcast was because he had a pretty clear view on product market fit being a relatively broken concept. And argued that it’s not as simple as black and white, you’ve got product market fit or you don’t. And there’s a number of ways of cutting it, but rather than it being this binary concept that forces people to make a series of decisions before you’ve got it. And then suddenly overnight you make a new series of decisions the next day.
I mean, to some extent, pointed his finger at the venture capital world and suggest that they were in part to blame for the term being so popular and misleading. But I’d love your perspective on what you think of it as a concept and how it fits into your view of the world as such.
No sure thing. I mean, very basically speaking I actually evolved my thinking quite a lot around this because from the operator point of view, transitioning into VC, I’ve also always been thinking a lot about this topic. I would say how I define product market for myself is, there is a problem, and you come up with a solution and that problem that you have to solve, the solution and the person that you’re targeting your persona, should really think okay wow my problem is solved.
I want to trade money or time or whatever to work with the solution. That’s a very nice, concise definition. However, the problem is that it doesn’t exist. So then the thing I would claim is that product market fit only serves, and I think marketers understand that maybe even more. So if you go for a Facebook audience and you target that specifically, so you have product market fit for that specific audience, that doesn’t say anything about the wider audience that you’re targeting.
Another point that I’d like to make is that in the past, I always thought that you start a company, you find product market fit, then you start scaling and you happily live ever after, but that’s not how it is. What I came to see more is that even in a series A rounds or in series B rounds, or even further you constantly have to find product market fit for different groups also with expanded products.
So I think it’s a never ending story, however there is definitely a starting point that you find your first product market fit, which you then have to make scalable. And from there you have, I would say cash flow, and you hope that the market is big enough that you can start scaling and you have to make the process replicable.
So one of Rand’s perspectives on the marketing side of things was that I guess pre-product market fit marketing are told that they have to sit around and wait and do nothing. And then suddenly product market fit arrived and marketing are told it’s time to scale.
So I think what you’re saying makes perfect sense in terms of, actually it’s not as black and white as it might imply and it’s a constant, ongoing process. But what does that mean? In terms of marketing can marketing happen earlier on? And should it be happening earlier on to help validate product market fit, almost rather than waiting before you do too much on the marketing front?
So I would say that even like finding out what the preferences are of the user, understanding their pains, coming up with a solution and crafting that, crafting your copy towards that. And there’s marketing being an input to product. I definitely think there is, I would say almost a business development type of aspect to marketing, which is definitely there before you can start scaling.
I would also say you still have, even if you come up for product, you have to get it out to people. For instance, I was starting remote, people that were interested in remote work. I mean, we still had to find distribution channels to even show it to the people because we couldn’t just go to people just around the corner and ask them do you like this new bag of chips? For instance.
So I definitely think that even in the product market fit states marketing has a role, it basically shouldn’t mean that if you’re just getting traction because of marketing, that is definitely not great, but definitely marketing plays a role. And then after you find product market fit you find the way to reach people. You solve the pain point for them.
But then it’s really about finding like, so how do I bring this product to the market? Then marketing gets a whole different role. And usually it also gets more resources in order to scale.
And I’ll ask you a question, which I think obviously varies hugely from business to business. And we’ve kind of touched on it already in terms of marketing, scaling at different points, but do you see different funding rounds that businesses go through influencing marketing?
Do founders come to you with a plan that says, this is going to be our investment in marketing? Are there any trends that you see across the impact that funding has on the marketing and growth function?
How different funding rounds influence marketing
Yeah. So I think there are many different aspects to the question, honestly. I think that at the seed stage, usually marketing’s a one man band and generally supported by the founder. And then once shortly before series A companies start hiring their VP of marketing.
If marketing is an important function or VP of sales if they are a bit more sales lead. And then there’s guys also overlooking marketing usually, or of course women, and then afterwards the series A you start seeing that they are building a bit more of an organisation. And you still have some generalists.
And then we’ll say from series B, but particularly from series C onwards, you start seeing a level of specialisation in terms of the marketing department. So if a person is doing like social media and SEO and PR then basically everything gets into different functions. What I would argue is that you always have the growth team, for instance, usually starts later than the marketing team.
So in the beginning, actually everybody’s in a growth team, then you’ve got a bit more marketing. And then usually once there’s significant traction in your series A, I would say definitely for series B, when you have enough manpower in the team, you start really getting a formalised growth team. And that starts then expanding over the lifetime and the attraction of a company. And the role of marketing really varies, I would say.
So in pre series A it’s about finding a replicable marketing or sales process. I say sales process broadly, not just sales, but also just attracting revenue. So that is really pre series A for one channel and then post series A and definitely post series B it’s about finding multiple channels and marketing constantly has to basically, as the company expands also the marketing role in terms of channels and functions is expanding.
I think I find quite often from talking to marketers in the community that investors are this persona. As I mentioned at the start that they have to kind of market to in some form. And I’ve definitely seen briefs for marketing work and website projects and things where investors are listed as a key persona and an audience to be talking to.
I guess, set the scene from your perspective in terms of how do you think marketers should be approaching, dealing with investors as a kind of stakeholder group, as a persona as such?
Dealing with investors as a persona group
I think what I really find important is that marketing can show that they build a machine, that there is a process for this machine, that the results are not a coincidence, that they can back up. Definitely a part of metrics is to support the story that you tell as a marketeer. And there are different levels of metrics that they look at.
And maybe we can talk about it later, but I think that is very important, that you also show this is where we were, this is where we are now, and this is where we’re going, and this is what we did. And I’m not buying into a dream or belief or a nice vision. I’m definitely willing to do that, but it should also be substance. I think that is the most important thing for a marketeer to show.
A bit of a side question, but you said that you were involved in some companies that you invest in quite actively, others less so. Obviously you get marketing, you’re a marketer, as you said by trade. Whereas I guess not all investors come from that position. And do you find it as valuable to be able to, with the marketing background that you have, to take a more active position in terms of an advisory role and to help the companies that you work with.
And obviously your time is limited and there’s only so much you can do by joining board meetings and the levels of interaction that you have. But I’d be interested in how actively involved you are in some of those cases.
How involved in an investor in company operations?
You know for me as an investor on the one hand you want to be as supportive as possible to founder, but on the other hand you don’t want to sit on their chair. They have to run the business. So what I usually do to companies just say you can ask me for anything and I can provide input on anything and definitely have monthly meetings where I can ask proactive questions. But if you really need my input, then basically ask me, and then I will give the input.
And in all honesty, I usually like to get involved more, but it’s a challenge for me as an investor to not step in operationally because the organisations won’t always like it. Regarding what I do, it really varies depending on the pain point there is. So sometimes it’s about suggesting practically about some tools that you use or that companies should focus a bit more on, a multiple touchpoints strategy, because it’s too much to go directly for the kill.
And in general what we do in our due diligence process is that we’ve developed a growth scan. And this growth scan touches specifically on marketing and sales aspects, where we ask questions about which tools do you use, what are the processes for upsell, how to mitigate churn, and also very practical things like what have you set up in terms of Facebook ads or in Google analytics?
And a reason why I do it is not because I want to control, but I want to understand how sophisticated the company is so that I can assess whether the company’s at the right level or does it need to hire people that are more specialised in something? Or what I can actually contribute with some value? And this is actually something I developed only recently and I start to implement. And the reason is that I felt like that I have much more to share.
And usually in a funding process, you don’t go as deep as that. But I actually think there is a lot of value that you actually can add as an investor. Even if you’ve done good yourself, you can even look for people who can support the founder and the team with solving the challenges they have.
That makes sense. And I can imagine that that’s tough in that the more you become available to founders and the more you help, I guess it can be a bit of a slippery slope and they become used to your help. But really it’s about empowering them to make decisions and guiding them rather than kind of doing it for them, I think is what you’re saying.
Yeah, exactly. And I’m not going to say that the teams I’ve worked with are like, well I’m not going to say. But I sometimes also see that the people I work with are very smart, very capable. They can be, let’s say 40 years old, have 20 plus years of marketing experience.
It’s not that they don’t want to listen, but they know their basics. And they rather sometimes like to have the strategic discussion only, and not go too much into the details. Whereas it can be very valuable, but on the other hand that can not always be appreciated.
One of the big challenges we see in the marketing world is this kind of balance of building a brand over the long term with short-term results, whether that’s lead generation or cost per clicks on ads. So all of these things that marketers could report on as numbers that are impressive, when they’re kind of under the pressure of founders and investors wanting results, is there a risk that the short term, tactical digital marketing stuff that generates short-term results actually works against the longer term stuff in terms of the importance of building a brand?
And I think most marketers listening will be able to relate to the idea that building a brand these days is hard to fight for sometimes. It’s hard to attach numbers and attribute results to brand building stuff. But I just thought I’d get your view on that because I think partly some marketers would say that investors are one of the groups that are putting the pressure on to generate results quickly.
How investors view long term growth vs. short term marketing initiatives
So I definitely think, to all the marketeers, that if you’re attracting investors, it’s very important that you will find investors that buy into your story and the belief into the strategy. And therefore understand what’s going to happen. And therefore also have, for instance when they have like a forecast, that they know what’s going to happen. So I think that’s the most important point. If you have an investor that is not like that, then you can quickly end up in the problems that you mentioned.
I think for the audience, there are two types of scenarios that you have to ask for yourself which company you are. So company one would be the company that cannot really sustain its growth. And is basically developing long-term initiatives because in the long run, it will work out. If that’s the case, I would tell you usually you’re not really a fit for an investor. And that’s a problem.
In general for, I would say investable companies, you are at least able to double your business with your existing approach and go to market. And then there are some strategic bets which are in the long run going to play out. Of course you have to be able to measure them and see if there is some sort of progress. But I think when you have a baseline, then you can just set apart experiment budgets for which you basically dedicate to your long term initiatives.
And I think generally speaking, investors with are aligned with your strategy will understand it. And for them, I think it’s important that the existing business will grow two to three X per year. And that the LTV CAC ratio of the existing business is healthy. And then I think generally speaking they’re fine.
That makes sense. I think that as we touched on earlier, it really takes an investor’s outlook that understands marketing. And I think even some founders don’t really understand marketing, right? Like there’s plenty of CEOs that think marketing is just like putting a billboard up on the street and they think advertising is marketing.
Definitely all the marketers here who are like practicing SEO, they will know that there is no magic button that you in three months time will double your SEO traffic. Only when you are like, we have like a hundred unique visitors a month, but not if you want to build SEO traffic to a large extent, that takes time.
There’s lots of stuff I see on LinkedIn that people share kind of saying, don’t work for a CEO that doesn’t understand marketing and the marketing community loves to talk about that. I guess you could draw parallels with, if you’re going to be a marketing led business from a growth perspective, then you’ve got to be working with investors that really understand marketing as well, and have some background, have some context, understand what works and are happy to be patient to see the results that come from marketing.
I think also every time we invest we agree on a budget and then usually go for I would say roughly two years. I think other stage companies can be a bit shorter. And maybe companies much further down the line can be a bit longer. But we go for two years and there we already see the allocation in terms of headcount for marketing, how much money is going to be spent, what’s going to be the expected results and all those types of things.
And I think it’s also the responsibility of a founder and a VP of marketing to really factor in all your strategic objectives. So that once you agree on it, it’s also like, this is everything we agreed on and this is the strategy we’re following. And then I think this will solve you quite a lot of headache. And that’s why it’s also very important to build a replicable marketing or sales process that you at least have some basis on which you estimate your future costs. And it’s not just like, we think it will be X or Y in the future, but it’s actually based on real results from the past.
Which leads nicely onto marketing team size structure. I think we’ve touched on this a bit already, but I guess just to cover it off, there’s always this balance between generalist versus specialist and in-house versus out-house and working with agencies and consultants. And there’s no completely clear rule book on how to approach marketing.
And again, I guess every company we’re talking about is going to be a little bit different, but do you have anything that you really look out for? Any rules of thumb? Do you encourage businesses to work in a certain way at certain stages? And obviously as companies get bigger, I think roles become more specialist. Is there anything else that is important from your perspective?
How should marketing be structured for different rounds
Yeah. To be honest, every business as you say is different. So that’s why it’s always with every business that you get, it’s very hard to estimate like, if they’re going to need three content marketeers. Is this actually going to be enough, or is it too much? It’s a very hard question for us.
So what we do with our portfolio companies, which they claim helps them quite a lot is to say, if we look to the benchmarks, initially 10% of the employee base are marketeers. And that basically goes down to 8/9%. And they’re really talking 9%, even at a 20 million plus company.
So I would say this is a rule of thumb that companies can see the benchmark is 8 to 10%. Of course, if you’re a product lead growth organisation, or like entirely sales lead focusing on wealth so to speak, it can be 4 of course, but this is in terms of size where you can focus at, in terms of team structure, that’s very hard to say whether you’re a field G company, or you’re really focusing on large corporates that will change the entire structure of your team.
If I look to generalist versus specialist, I would say pre series A for sure you need generalists. Then in series A and series B the percentage of generalist starts decreasing. And then from series B to C onwards you will only start seeing specialists, except if there is like a new strategic bet and the company says we want to aim for this new market or this new customer group or this new whatever. Frankly, then you again need to have some generalists where I would say part of a SWAT team.
I would always recommend companies in the earlier stages to work with in-house teams and don’t outsource. Of course, generally speaking once you develop over time and there are some non-crucial tasks for e-commerce companies it would be for instance copywriting. You can definitely outsource in certain parts but that’s really a case by case decision I’d say.
One of the things that I think we have to touch on and spend a bit of time talking about is the metrics and the numbers side of things. Because you’ll have things that you look at and they’re important. We’ve just been doing an end of year FINITE survey looking at the gone by, which has been obviously an interesting year, but looking at what people are looking at going into next year.
And we asked the question, what are your biggest challenges going into 2021? I think top of the list was balancing quality and quantity, which is an interesting one. Digital fatigue came up second, but actually third was measuring the right KPIs. And so I think this is a problem that 40% of the members that we surveyed said, this was their biggest challenge.
I think choosing which numbers to look at and measure can be tricky enough and then actually doing it and setting it up can be just as difficult, if not harder. But what do you look at from a venture capital perspective, an investor perspective when it comes to numbers that matter to you in marketing?
Which marketing metrics an investor looks at
Yeah, definitely. If I can just briefly touch on the first point, and then we’ll dive into the metrics, I always hear Gary V saying, and I think everybody knows him, is that he says it’s not about quality or quantity in the beginning. It’s about a lot of quantity so that you improve and also find out what works so that you can specialise afterwards.
I thought this might be interesting to share, but to dive into metrics, I always make four sets. I look at four sets of metrics. And again I can go into which metrics they are like later on if you like, but the categories I define are business metrics, I would say these are the legging metrics like MRR, LTV, CAC, payback periods. Those are usually, I think the things investors first look at when they see a company.
Then for your audience, I would say their are strategic marketing metrics. So think about how are your leads developing, how are the opportunities developing? Then you have the operational marketing metrics of course, which are your email list numbers, your open rates for newsletters, whatever. There are too many.
And then there are business mobile specific metrics. And I think this is for instance, for field G companies you have time to value. This can arguably also be like a product metric, but let’s say it’s a marketing metric for now. I think that’s just a framework I use to divide my metric set in.
For investors I would say the business metrics and the strategic marketing metrics are important enough. Sometimes when I see an issue I want to dive into the operational marketing metrics just to understand it, but this rarely happens. I’m never going to look at the open rates for newsletters, but I definitely think it’s important for you as a marketeer to measure it so that you understand your strategic results, especially in larger organisations. When marketing and the founders are a bit more detached from each other.
Something I particularly really like is how I look at businesses to combine the strategy model and a metrics model is where I first say, okay so what’s your aspiration for your company? Where do you like to play? At which customer group with distribution channels, which geographies, et cetera, et cetera? How do you differentiate in each? What are your critical activities that are necessary to reach there? And then afterwards, I basically write down your revenue formula.
So if I, for instance, take a product led growth company, it’s impressions, click through rates, traffic then conversion to free trial, conversion to product qualified leads. It goes on and on, average order size, conversion to up sell, average order size of upsell, retention lifetime in months, and then lastly coefficient. And if you have all of that, if you write all of these metrics down, then afterwards you basically write down your current numbers that attribute to that.
Then you define where you want it to be next year. And then you sort of see, which are the biggest gaps? That usually gives you a very good input on where to focus, but it also makes it very clear on how your business model really works. And I think if you can show that to me as an investor, it’s even more valuable than just showing for instance, the payback time where the MLR or something.
So those are nice and it has to tick certain boxes, but these are really your growth drivers. And I think that is really key for marketeers to focus. And a last point I’d like to make on that is that I think that the business and marketing metrics should be aligned. So if you think about, for instance marketing steers on traffic then the business steers on CPM.
I think for every marketing metric, if you can attach a business metric to it, you make sure that everything is aligned. And I think it often goes that the marketing comes back and says, I increased traffic lots and the business guy, the finance guy says but CPM is really bad. And if you align these type of things, I think you will be much more successful as a complete organisation. So I think two North stars in each stage of the funnel should be aligned.
Some of those are really interesting. One of them that jumped out is LTV to CAC. So lifetime value to cost acquisition. Is that something that you measure as a ratio? And is that something that you benchmark across across companies?
Yeah, definitely. In LTV CAC everything comes together because you can, and then the rule of thumb is that the value is three. So that basically means that the LTV that you get from customers is three times the acquisition spent. However, what I also often see is that companies who have a very high LTV CAC don’t grow. So there is like a relationship between them.
And the third angle I looked for is also the NPS. So if you have a good LTV CAC you grow fast, but customers are not happy. It’s still an unhealthy basis. But in general LTV CAC is the easiest metric to see if a company is growing in a healthy way. And then of course you want to segment everything in order to understand the real value drivers of the LTV CAC.
You mentioned that obviously you’re not going to look at email open rates or email engagement rates or all of these micro numbers. I guess you want to know that they are being measured and as long as they are being measured, that’s kind of the box ticked for you. You don’t necessarily need to know the number.
But when marketing as a function is reporting upwards to C Suite and to investors, you’re saying that these business numbers and the strategic marketing ones are the ones that really matter. And I guess eventually tie everything back to pipeline and revenue and real monetary value.
Yeah, exactly. And as a marketing operational function, you’ll have to understand how these metrics support your higher level metrics. But if an investor really wants to go on that level I would say he is sincerely micromanaging, which is not really good. Or there is like a big leakage, which is something that you have to solve for yourself.
Yeah. It makes sense. I guess to wrap up, I was going to ask you a little bit about, and this may be covered by what we’ve just talked about on the reporting side, but I guess a lot of companies that might be listening to this are getting ready for their next funding round.
Getting prepared to go back out to investors. Obviously again, this is going to be very dependent on company size, where they’re at and type of business, but beyond the reporting stuff, are there things that companies should be doing or demonstrating to you as they approach next fundraising money?
What should companies be demonstrating for their next investment round?
Yeah, definitely. I personally see metrics usually more as a hygiene factor. So even though I definitely think it’s important, it’s a, it’s a hygiene factor because we really wanting to look for that the company has an amazing thesis, that they’re operating in a large market. That there’s an amazing founder team that has built a replicable sales model and that they understand this multiplication of their business and they know X and Y to growth.
So the growth drivers have a strong, competitive difference. And each of these points, I’ve mentioned a lot, but I think that’s as important. Something which I think is quite underestimated in the investment evaluation process, which is something I definitely like is if you explain your process, how does everything work so that you can take away risk.
The most important thing that I learned is venture capital in the end of the day is like managing the risk largely. And then there are different types of risks. And if you’re approaching funding, I would just write down all the risks that you could think of. And then just come up with an answer on how you mitigate that. Or whether it’s it’s truly a risk, but there is also a very nice upside to it. There is no company without risk.
So each investment we make, we have like a list of the bets that we take. They’re offset by other things that we really, really like. And there is no perfect business, but the business should at least have a wow effect in some sense.
It’s really interesting. And I think there’s a lot for me to think about. I think the big takeaway for me is the focus on the process and scale and repeatability. And I mean, that should be obvious in terms of what venture capitalists are looking for, and investors are looking for in terms of being able to generate a return. And you need a business to reach a certain scale for that to happen.
But telling that story and demonstrating that within the marketing function is really interesting. But at the same time telling that story and the more the emotional side, the wow factor, it’s the layer of the boring stuff in terms of the foundations and then the wow factor on top. But, yeah that’s definitely some stuff for me to reflect.
What I learned from my first manager is that he said, if you know what the boss of my boss finds important you’re going to be an amazing employee, perfectly aligned. And I think you could also draw the parallel with venture capital. What we really look for as a company, for instance, who is now at 2 million annual recurring revenue, be aimed for 10 X return on our money.
So that means the business usually has to grow to 40, 50 million annual recurring revenue. So it has to grow for instance 20 X in terms of revenue. And why we find those metrics also important, and why we look for companies that can triple their revenues, because if you cannot grow triple from basically one to 3 million in a year, then growing to 40, 50 million, that will take a long, long period of time.
It’s just not good for the metric that we have to report to our investors. But also the likelihood of failing start getting pretty big because a company below 10 million AR is much harder to sell than the company post 10 million. And then of course I understand that this amount might sound not entrepreneurial to look this way to business, but that is in the end of the day how our business works.
And by knowing that you can sometimes also decide whether funding is the right strategy for you. Knowing that the investors have to be able to show five years time and with this type of outcome.
Cool. Well, there’s a huge amount to think about. I think that’s been really insightful for me, and I know that there’ll be lots of listeners and marketers in the community, and I’ve spoken to recently who are going through the fundraising journey and having to work to get ready for things that are coming up on that front.
So hopefully this episode will be super useful for them to listen to. I’m really grateful for you sharing your insights with everybody and thanks for joining.
Yeah, it was exciting. Thanks a lot for providing me this opportunity and good luck to all marketeers raising funding.
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