Emma Rees

When I invest I want to invest in a team of missionaries not mercenaries.... When deciding on an investment the most important points from the comparison are: Customer centricity: In my experience the best founders are driven by delivering value to their customers. The pitch: if the deal seems to be to good to be true it is most likely not true. I have made bad experiences when there is time pressure on the deal and the founders do not stop to drop names who else is on the captable. And like mentioned in my last post the lust for making money vs. the lust for meaning & making money. #venturecapital #vc #investments #startupinvesting

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Last week I advised startups to drop the 5-year revenue projection. If a VC asks for it, I said, I'll eat my hat. One common reaction was "but Europe!" So here I am eating a tasty beret. (See link in comments for last week's post and the discussion that followed.) Having eaten that beret, here's my analysis of the Europe point, as well as some others that were made in the comments: ¶ First, it's certainly true that where you stand depends on where you sit. I've lived in Silicon Valley for 30-odd years, and I currently do seed-stage VC. So there's that. ¶ In any geography there is a range of investor styles. As commenters made clear, European VCs are 𝘮𝘰𝘳𝘦 𝘭𝘪𝘬𝘦𝘭𝘺 to insist on these projections than their US counterparts, but individuals don't always match the stereotype, on either side of the pond. ¶ If we accept, though, that the detailed 5-year projection is a mostly European requirement, then let me ask a (deliberately) provocative question: how's that working out for you? Correlation is not causality; and there are lots of other factors at play; but it's also the case that US-style venture investing (and specifically California-style venture investing) has been empirically more successful than that practiced in other places. It's certainly possible that this success is despite us "doing it wrong" for all this time; and it's also possible that what's worked for the last 50 years is no longer valid in 2024; but neither of those seems like the most likely conclusion. If anything, time horizons are getting shorter, not longer. Now, all that said, there 𝘪𝘴 information content in a 5-year projection. Last week I mentioned four things that are important to VCs: 1) are you ambitious enough, 2) are you realistic, 3) what's your Price and Cost at Scale (PACAS), 4) what's your Customer Acquisition Cost at Scale (CACAS). (Et oui, je me suis bien rendu compte des autres significations :). To those I would add: 5) what's your level of business and financial sophistication? The thing is, these are all things I have to 𝘪𝘯𝘧𝘦𝘳 from a 5-year model. All of them can be gotten in other, usually better, ways. Such as the direct approach: "what's your ambition here? can you show me your unit economics? how much marketing spend do you think it will take to deliver $100 million in revenue?" Some founders in last week's comments said that when a VC demands a 5-year projection, that's someone you don't want to work with. That's an overreaction. More important is to get to the question behind the question: I understand that you're asking for this, but what is the real concern? It's good to figure out if it's one of the five things above, or something else entirely, as that will tell you a lot about the investor as well as how best to answer the request. OTOH, if they don't know why they're asking, or if they won't tell you - "that's just how we've always done it" - that's a red flag; you want your investors to be thoughtful and transparent.

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10 Lessons in building a $150m ARR SaaS business within 8 years Whilst also investing in over 200 SaaS Companies The Go to Market Handbook for B2B SaaS Leaders 🎯 I had the chance to be Interviewed by Rubén D. with my Co-Author Richard Blundell about our straight-to-the-point WorkBook for SaaS Leaders. Stoked to be in my favourite Newsletter The VC Corner 💙 The Go-to-Market Handbook for B2B SaaS Leaders pulls from our decades of experience founding, scaling & investing in companies. I invest in a new company every week, in fact 2 this week 😉 A few things Founders & CEOs are making a killing on from the Book: • 𝗨𝗻𝗱𝗲𝗿𝘀𝘁𝗮𝗻𝗱 𝘁𝗵𝗲 𝗰𝘂𝘀𝘁𝗼𝗺𝗲𝗿’𝘀 𝗽𝗮𝗶𝗻 💡—if you’re not crystal clear on this, you’re missing the mark. The proposition will miss the most valuable buyers.. ⬇ 💲 • 𝗚𝗼 𝘀𝗹𝗼𝘄 𝘁𝗼 𝗴𝗼 𝗳𝗮𝘀𝘁 ⏳—strategic, deliberate steps will get you further than rushing. Why 80% of Start Ups never find Product Market Fit... ⬇ 💲 • 𝗨𝗻𝗹𝗼𝗰𝗸 𝗵𝗶𝗱𝗱𝗲𝗻 𝗿𝗲𝘃𝗲𝗻𝘂𝗲 💰—pricing and packaging aren’t afterthoughts, they’re growth drivers. Price for the Entire Lifecycle to get richer... ⬆ 💰 For SaaS Founders & Leaders trying to nail product-market fit or scale efficiently, this interview is a must-read👇 https://lnkd.in/e-3uaGB9

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Question for all the founders in my network: What tools are you using for your customer waitlists? 💡 I've seen everything from simple one page websites to more developed integrated engagement/management platforms. Keen to know what people think is good! #founders #vc #startup

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The SaaS industry is still growing. But much more slowly. Last month I shared an Aleph statistic. Over the last 3 years we have invested in 17 companies. Only 1 out 17 was a classic horizontal SaaS company. SaaS was the single best business model of the last cycle (2008-2021), but the category has since entered a maturity stage (see graph below). This new report from the wonderful software team at Avenir clearly illustrates it. Growth rates for the combined SaaS industry are quickly declining as we are entering the later stages of maturity. In other words, there’s already an established software company in most sectors - and there’s very little room for entirely new software categories. At Aleph we still believe there’s an opportunity to build successful SaaS companies, but new entrants would have to carve out market share in existing industries and displace existing vendors. Vertical software is one area where lesser competition makes it more attractive, but entrepreneurs in crowded horizontal markets would have to work harder than ever before. Another key takeaway from the report - there are only 72 publicly traded companies (with market cap > $5Bn) with a combined market cap of $5.8Tr. However, 56% of this value is attributed to Microsoft alone, followed by a very long tail of lesser performing companies. Moreover, only 2 of the largest 11 companies were funded after the year 2000 (ServiceNow, CrowdStrike). If you are building or investing in SaaS, you should definitely read the full report by Jared Sleeper, Hannah Bao and David Prilutsky (link in the first comment).

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Want to exit as an early-stage founder? Yes, it is possible. But it requires a different approach to typical M&A dealmaking. A bit of context… I get 5-10 messages per week from relatively early-stage founders (traction, but not massively profitable yet) who are looking to exit. There are many reasons why - one of several projects, need more stable finances, tapped out and unsure what to do next. Etc. This also applies to relatively small businesses (sub-£5M revenue), owner-operated with a good team where the motivation may be a life-style change or retirement. Now. To be blunt and honest, in 90% of cases there isn’t an exit path - usually because of mis-match in expectations. (Eg: “We’re just one small investment away from building a $BN+ company”) But. Most of the time you can salvage a £1-10M outcome over a 12-36 month period. How? By treating it as an investment case to deliver an outcome for a specific target company. For example: You have a software product that helps insurance companies manage supply-chain risk. Let’s say the business does £500k revenue and covers costs. Your average M&A Advisory would try to sell the company based on the revenue/EBITDA and (after many months of false hope) fail to do so. They will get offers - but rarely ones you want to accept. My advice - and what I always recommend founders / owners do below 1M EBITDA - is to approach specific targets with an investment case to deliver outcomes. For example: Making / saving a target insurance company Z benefits over an agreed timescale with milestone payments. Becuase taking supply chain risk. This is a multi-million, even billion, sized problem that all wrestle with - and invest significant CapEx and OpEx into annually. If you can solve that - or deliver X saving … you get Y. Sounds fair, no? This is a very standard deal in enterprise consulting land. And beats shutting the venture down and feeling like you’ve failed. No. It’s not the all-cash deal from Google. Yes. It will require work to implement. Yes. It is a viable path for most owners / founders to realise a good return for creating value in a relatively de-risked way. See. What many founders / owners overlook is that the most valuable thing they have created isn’t IP … software … their service offering … etc … It’s actually their understanding of the problem, how to solve it, and a team who can solve it. So. If you are in this situation and looking for an exit. But aren’t really acquirable yet, why not give this a go? First step is putting together a short-list of targets who you might approach and are already investing in the problem (bigger is better). Hope useful. I wish someone had given me this advice on the dozens of early-stage ideas I walked away from over the years! #exitstrategy #founder #openequity

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Understanding the Rule of X for SaaS Scaleups For SaaS scaleups, the Rule of X offers a straightforward framework to estimate revenue multiples. It was originally developed by Bessemer Venture Partners and supplemented with data last week by Dealroom founder Yoram Wijngaarde. It emphasizes that growth significantly outweighs profitability, even amid VC crunches. However, when growth is constrained, profitability becomes essential. Framework Overview: The Rule of X combines growth rate and free cash flow (FCF) margin to evaluate company value, using a multiplier (typically 2-3x) on growth. Datadog Example: With a 25% growth rate and a 25% EBITDA margin, Datadog achieves a Rule of X score of 100%, implying a 15x revenue multiple for 2024. Importance of Growth: Growth has a compounding impact on valuation, significantly outweighing FCF margins. Subscribe to ‘Siliconnector’ Telegram channel for insights and news from Tech world and Silicon Valley: https://t.me/siliconnector

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I don't go in for 'building in public' in general, but every now and then I think it's worth sharing what I'm seeing in the market. The below graph shows the average time to close a deal over time at EmergeOne and you can see that this has been creeping up since last year (adjusted for seasonality) and is currently close to 3 months to close a deal. So what's happening? Well, I was recently at an CFO event where we got a bit of a data driven view into the state of private markets. Some key points that came out: 🏷️ Median post money at Series A has dropped from 80m USD in 21/22 to 65m USD in 2024. This is still up from 40m from circa 2020. ％ Top quartile is significantly over at 107m. 📈 Series B median post money is $137m, top quartile $287m USD, but bottom quartile significantly struggling. 🚀 Deal velocity has slowed but started recovering. 💰 Lots of deals are happening but not priced - bridges abound. So how does this therefore relate to what we're seeing in terms of time to close? Firstly, we are a consultancy providing fractional CFO support to venture backed tech startups typically post Seed and pre Series A so this data reflects what we are generally seeing in the market as well. But the two main issues that are seemingly impacting our numbers are around deal velocity and bridge financing. There are simply fewer deals being done and they are taking longer to close, so the volume of potential clients we can target has dropped significantly. This does, however, mean that the quality of deals we're working on is significantly higher this year. Secondly, as companies struggle to raise priced rounds, they are raising lower amounts of capital on convertibles. This impacts us as CFOs are only truly valuable when there is a significant balance sheet to manage, less capital = less need for CFOs and hence the decision as to when to bring us in gets pushed out. But equally, that insecurity over funds means that founders are much more hesitant to make significant hiring decisions, prioritising hires that can directly influence revenue / traction in the near term. But they also know that they need the support so are often waiting for the 'magic moment' where they hit an inflection point that gives them confidence to pull the trigger. Outside of the deal data, we are also seeing venture indexing towards more R&D heavy businesses (life science, hardware etc.) and these sort of companies are often not commercialising for several years. They have security over spend and regard finance as a future problem. We are seeing a lot of companies approaching Series B without anyone in finance, deferring that decision till they close. But we are also seeing leads come through from a multitude of sources proving there is appetite for strong commercially minded CFOs to support and grow these scaling businesses. So as the market stabilises, I would expect to see these numbers come back. Business wouldn't be any fun if it was all easy, would it?!

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Valuing Pre-revenue Companies One of the most common questions that every founder has is: How do investors value pre-revenue companies? Even most angel investors are not aware of the factors leading investors consider when valuing pre-seed or seed-stage startups. If you have similar questions, check this guide by Kauffman Venturing to learn about how to value pre-revenue companies... 👇 Check out my free newsletter for more insights: https://lnkd.in/eggvJJRE . #startups #vc #funding #valuation #founders #investors #venturecapital #founder #startup #startuptips

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Valuing Pre-revenue Companies One of the most common questions that every founder has is: How do investors value pre-revenue companies? Even most angel investors are not aware of the factors leading investors consider when valuing pre-seed or seed-stage startups. If you have similar questions, check this guide by Kauffman Venturing to learn about how to value pre-revenue companies... 👇 Worth a read! 💫 Check out my free newsletter for more insights: https://lnkd.in/d3QaTQwC . #startups #funding #founders #fundraising #money #founder #investors #invest #valuation #value #fund #investment

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Every (pre) seed stage tech founder talks to VCs about 'traction'. Here's the hierarchy of traction: Revenue / Annualised Recurring Revenue (ARR) --> Contracted ARR --> Paid Proof of Concepts --> Unpaid Proof of Concepts --> Trials --> Master Service Agreements --> Letters of Intent --> Pipeline value If you are pitching to VCs, focus their time and attention as far up the hierarchy as you possibly, credibly can. And don't even bother telling us about your awards. It doesn't move the needle at all. #founders #startups #vcfunding

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The highest valuation in a financing round might be attractive but often it is not the option you should chose. Because it will hurt you later. 1.) With an established valuation you also create an expectation for the exit price. E.g. if you raise at 50m you need to build a 500m company - ask yourself how feasible that is in your industry with your model 2.) The highest bidder might not be the best fit for you in terms of know-how and/or on a personal level. Given you will be "married" to your investor for a longer period of time a 100% match is important. 3.) Often raising at a more aggressive valuation takes longer, so you will put the money to work later than with a less competitive but faster round. It is worth asking yourself if some or maybe all of the additional dilution of a lower priced round will be offset by putting the money to work earlier and spending less time on fundraising. 4.) The high price might come with additional asks that can hurt you later 2x liq pref, additional guarantees.... So don't raise the price at all cost

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🚀 The State of Vertical SaaS in Europe 🚀 The European Vertical SaaS market has experienced significant growth in recent years. Key highlights include: 1. Increased Number of Companies: The number of Vertical SaaS companies in Europe has seen a steady rise, with a notable increase in yearly creations. 2. Focused Solutions: Vertical SaaS companies are targeting specific industry needs, providing tailored solutions that address niche market demands. 3. Investment Growth: There has been a surge in investment in Vertical SaaS, driven by the potential for high ROI and market penetration. 4. Market Maturity: The market is maturing, with many companies reaching significant milestones in terms of customer acquisition and revenue growth. 5. Innovation and Adoption: European companies are at the forefront of innovation, adopting new technologies and leading the way in digital transformation. These trends highlight the vibrant and dynamic nature of the Vertical SaaS landscape in Europe, making it an exciting space for investors and entrepreneurs alike. https://lnkd.in/gyEdzFmU #VerticalSaaS #Europe #TechTrends #SaaS #Innovation #Investment Zenith Venture Studio

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How much do founders pay themselves? A secretive subject with big implications: This week on 🌊 𝗦𝘁𝗮𝗿𝘁𝘂𝗽 𝗥𝗶𝗱𝗲𝗿𝘀 my friend Enzo Avigo from June.so takes us down the founder salary rabbit hole: 1. Founder salary benchmarks. 2. Founder financial rollercoaster management. 3. Reverse engineering exit success and patterns. Full article below, comment "interested" 👇 #tech #startup #compensation

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Has 'venture-backed' been replaced by 'bootstrapped' as the badge of honor? While economic downturns have undoubtedly hit everybody, bootstrapped startups have shown remarkable resilience. Sofia Faustino's insights only prove the viability of the bootstrapped model. Her data shows top-quartile bootstrapped companies reach $1M ARR only four months later than VC-backed companies. Barely a blip. This really challenges the whole “you need VC money to grow fast” notion. Sure, going bootstrapped doesn’t make you recession-proof and may slow growth, but it tends to be more sustainable in the long run, especially in niche markets where rapid scaling isn’t always necessary or beneficial. It begs the question: Is VC funding worth the significant equity dilution? Is the "grow fast or die" mentality fading away? How do we strike a balance between bootstrapped anti-fragility vs. VC’s rapid scaling? Are we overvaluing speed at the expense of long-term value creation? Either way, building a boot-strapped, profit-led firm to then realize a rationale and less feast-or-famine exit via acquisition seems like the best of all worlds (but we're biased)... What's your take? Credit: Chart Mogul and Crunchbase News Click 'Follow' for your regular dose of insightful micro SaaS content. For the love of the game... #Startups #Fundraising #Investing #VentureCapital

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"Platform" in VCs often feels undefined, and different at every firm. But one thing is clear: firms with dedicated platform teams are seeing higher investment returns. What is 'Platform' in VC? Think of it as a support engine for portfolio companies. Platform teams accelerate growth by providing: 1) Strategy & Growth 2) Talent Partner 3) Marketing & Brand Partner 4) Business Development & Partnerships Lead 5) Community Manager 6) Operations & Scaling Partner 7) Fundraising & Capital Advisor Platform in Venture Studios vs. VC Funds: The big difference? Timeframe. Venture Studio Platform: Involved from concept to exit, guiding startups from the very first spark of an idea. VC Platform: Steps in after the startup is funded, focusing on scaling and growth but not the initial concept phase. Both play critical roles—but understanding these distinctions helps founders and investors make the most of their platform relationships.

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🚀 The Top 100 SaaS Startups to Watch in 2024 🚀 Sifted has just released their 2024 Rising 100 ranking, showcasing the most promising SaaS companies in Europe and Israel. Here are a few key trends from this year's list: AI Dominates: No surprise, AI continues to lead the pack. Seven AI-focused startups made the list, with V7, a London-based GenAI company that automates office tasks, taking the top spot. Other standout AI companies include Parloa (Conversational AI) and Poolside AI (code-writing automation) 📈. Enterprise Software Leads: 45% of the ranked companies operate in enterprise software, catering to the growing need for businesses to streamline processes. Yokoy (ranked #8) exemplifies this trend by helping finance teams automate spend management. Younger Startups, Lower Funding: This year’s cohort is significantly younger, with almost 50% in seed or Series A stages, and their average funding has dropped by 24% compared to previous editions. The youngest company on the list, Adaptive ML, was founded just last year! 💡 Geographic Powerhouses: London continues to dominate with 31 companies on the list, followed by Tel Aviv, Berlin, and Paris. This reflects the sustained strength of London as Europe’s leading tech hub. Diversity Still Lags: Only 17% of the startups have women founders, showcasing the ongoing challenge of diversity in the SaaS sector. While this number is low, it’s crucial to acknowledge the progress and push for more inclusive growth in the future 🌍. 💼 Investors Take Note: VC firms like Balderton Capital and Speedinvest are leading the charge, backing 12 companies each. This indicates where major investors are placing their bets for the future of SaaS in Europe.

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How do investors price pre-seed rounds?  This is perhaps one of the most misunderstood aspects of fundraising.  Oftentimes, founders want some framework to better understand what market value is when raising capital into their business.  Public equities and later stage privates have a well defined matrix of revenue/margin profiles that dictate valuation, surely there must be some framework for arriving at a pre-seed valuation. So how do investors price startups that are pre-revenue, or have maybe one of two early customers? In reality, pricing is more a byproduct of a VC fund’s portfolio construction model than any metric of the underlying business.  VCs model out portfolios to include a certain number of companies with an ownership target in each startup.  There are variations to portfolio construction, and the chosen strategy will have a direct impact on the types of rounds a fund will participate in. For example, an early stage fund might raise a $60M fund to lead investments in 30 companies and target 12.5% ownership.   After management fees, there is ~$48M in investable capital.  Assuming a fund holds back ~30% for reserves(this number varies across funds) that leaves ~$30M to invest in initial checks.   In this case a fund must average $1M checks at $8M valuations to reach their intended ownership target of 12.5%.   When you are in diligence with a fund, they are first and foremost trying to get to a yes on the investment opportunity.  When arriving at a valuation though, the math outlined above is the determining factor, more so than any multiple of revenue on the business, or the stated desires of where a founder wants to raise capital.  At the end of the day, a VC is trying to arrive at a valuation that works within their portfolio strategy. This means they are very unlikely to price a deal at $15M cap given the aforementioned portfolio construction, as they would either not own enough($1M = 6.67% ownership) or have to cut too large a check( $1.875M = 12.5%). The thing that is most likely to move an investor off their target valuation is another investor in the picture that is driving the price higher, but even then there are upward bound limits of how high an investor is willing to price a deal. I always advise our port cos to ask an investor early in conversations what their ideal check size/valuation is to make sure there is alignment with the founder's objectives.    

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📊 Interesting chart from Meritech Capital on Public SaaS ARR Multiples by Quartile: With similar metrics, you can assume that the intrinsic value of your small SaaS company in terms of ARR multiples is at least 30% lower. Or to put it the other way around: If you are running a small SaaS business, you need better KPIs to get a similar market multiple. As you can see, the ACV / retention metrics of all groups are still quite decent. It's almost impossible to get there with a pure PLG SaaS business - which is why they are usually "worth a bit less" than Enterprise SaaS businesses with a sticky, mission-critical product. Exceptions prove the rule. What surprises you most about this diagram? For me, it was the high ARR/FTE values.

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