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SaaSGrowth 2018 – Investors and Founders on Raising Capital

Thank you very much James I’m very happy to be here today I guess that we’re completing with this panel, an important part of your puzzle is how do you grow, and in my portfolio I noticed that we need about over three million of investment money, VC money to get to that first million of revenue, so most of the questions that I will try to complete that picture, that you have been forming here today. So I will start with the most important questions that everybody wants to know from the VCS in the room, so Barnaby and Steve: what do you look for in a SaaS company considering that right now most of the companies in London are SaaS based, can you detail your strategy?

First of all it really depends on the stage of the company right so we are a pre seed and seed stage, VC based in London and Dublin so looking really for the companies nearly pre-revenue, so it’s a very different sort of story when you’re looking say later on at Series A Series B stage companies so I think for us when you’re trying to preempt us our style company, what is gonna turn out to be you’re looking for a team that’s capable of getting a product to repeatability, you’re looking to a product that can be sold with very little friction, where the onboarding is really really straightforward, where the time – value for the customer is really short, and where they that team can build a sales machine which is really what power is every SaaS company, so by sales machine ultimately once you get to Series A in series B you’re looking at an ability to ramp on you know SDR’s, salespeople, AE’s, marketing, you understand fully your customer acquisition cost. You know, it costs X you can make Y lifetime value is Z and you just got machinery where you’re layering on revenue with each individual customer you get, so I suppose the key thing for any SaaS business is that core economic model of the incremental value that each customer brings, how long you get to keep that customer and how quickly you can get that customer on board. So it’s essentially retention and about ensuring that each individual customer accrues to the revenue growth of the company, so there’s a whole ton of questions that lead up to that but that’s essentially the core economic thing you do.

That’s brilliant, how about you Bart? It’s sort of similar but different, and maybe maybe because our focuses more on enterprise software; ie either the B on the other side of the B is quite a big fee and often IT departments as well you tend to pay quite quite a lot so I think what we’re looking for it in no particular order is team, probably the most important; I think the word team is important we have a lot more success when we invest in people groups of people rather than individuals have to say. Market size and and it’s it’s always great when the market gets big on you; you start in a in a reasonable market and then it sort of gets very big when you’re when you’re going through which is difficult, you know we like things which are a little bit harder than usual, so we think that gives some form of defensive moat, but I think the key for us is that we model pretty much all of what we do on businesses getting to at least 10 million pounds of other revenues we invested seed to Series round, so you know are sort of our first point if you like is can this business get to ten million pounds with a revenue therefore can it be worth depending on growth rate 30 to 100 million pounds let’s say, and how come, how cash consumptive is that journey gonna be I think what we what we are in at the moment is I think a world where growth is everything, but today we’ve got to do it more lean than we use it’s that right.

 

I agree with you well I think this question has to be contrasted with the entrepreneurs journey, so I will ask Tim and Tom to detail their experience fundraising, and how they’ve interacted with the VC MP community so far.

Okay well thank you. I think always fundraising is a hot topic for everybody and I think part of the the reason for that is is maybe an unfortunate one that people sometimes regarded as being free money, and I think that’s a mistake so I think rather than talking about raising money or raising funds, I think it’s better to say you’re selling something, you’re selling your company now the question is how much of that you want to do and at what value etc should really sort of govern how you go about this. And even maybe even take a step back from that and particularly within a satis context is to look at for example the recent developments in terms of now you can pretty much build a SaaS business entirely on Amazon or Google, with Amazon now with Amazon Lambda, you can start to you you know pay for compute cycle rather than taking out individual servers, the cost of setting up a SaaS business has actually dramatically come down even just over the past three or four years. So with that in mind I think always you should look at raising funding as being it’s something that does have a cost it’s got a cost in terms of equity ownership, equity ownership going it’s also got a cost in terms of management time, it’s hugely resource intensive for all the management team to raise funds and you know it takes a lot out. so that would be the sort of that the main point I want to make is is just sort of go into fundraising with a clear idea of why you’re doing it, and how that capital is going to help you, because it may be that there are other ways of reducing your funding requirements that might actually make things easier for you.

Brilliant thank you. I think I’m definitely gonna be the odd one out because in my last company we did two exits and in company we raised a couple of times and I’ve never done VC so, it’s definitely an alternative way of funding, I think if fundraising this doesn’t have to be you know one particular path and I guess I’m talking from experience of being like a Sales Leader and a founder you know for those of you who’s relevant in the room, I probably try and today try and stay privately funded as long as you can, like the guy was saying down there you know in terms of how easy it is to get to the points that you want to prove in terms of what you’re trying to achieve as a business, so many things can change and go wrong in those first two or three years if you can keep hold of the because you are selling something right you are giving up your business and what no matter how much percentage that is when you do it it changes, it changes the landscape, it changes the environment, it changes how you operate, so you know one thing in terms of fundraising would be definitely think about it it’s very easy to go out and just say all right we’re gonna do some convertible notes we need to spend money on this, and just because everyone else does it doesn’t mean it’s the right thing to necessarily do. So that’s kind of my take on it from the kind of starting point of view, fundraising can can happen in many different ways, you just got to choose the right path for you.

Okay there’s a very important point. I guess I’m gonna dig a little bit deeper, and I want to know as investors how do you work with your portfolio companies to help them scale. I have a very large portfolio so I always find new ingenious ways of bringing the knowledge the investment the opportunities to our founders in whatever format, and I’m always curious to learn more about what other fellow colleagues are doing so that we can understand whether we have a best practice in our sector, or if we if we should start building one if we don’t have anything. So I’m gonna start again with Steve and Barnaby, and then we’re gonna put this question on its head for the founders.

Okay I’ll jump in again it I think in in most cases well let’s talk about our companies we’ve got 40 companies in our portfolio, I think the biggest value we can do for those companies as part of what we provide is to connect those companies together. So we have a platform you know we bring our companies together frequently they come together at CEO summits and at CXO events, and sort of workshops that we organize, but in some respects it’s about just getting out of the way of these companies and allowing them a sort of a safe network that they can communicate and share I would very like-minded peers now of course as a VC fund, we also hope to bring to bear the network that we’ve built, you know over years we’ve a network buzz, is being sort of long-term investors and also operators, I’ve been an entrepreneur myself for over 20 years. And so we have you know a fairly dense contact network that we can sort of weaponize effectively for these companies and make it available to them, hopefully to help accelerate and grow those companies so it’s all of it doing everything you possibly can to remove barriers, but at the same time you know, you’re not managing these companies you need to stand back and just let the company you know do its thing do what you it was that you invested in them to do in the first place.

 I could not agree, more Barnaby what’s your take?

I agree, I think our particular or my particular thing is a real aversion to premature scaling as we like to call it. I just think, and kind of talks to what you’re saying earlier I just think there is a there’s a hell of a rush in life, in certain industries to to grow, and unfortunately that can be extraordinarily wasteful at best and sometimes really quite damaging to organizations, and so I suppose we we’re quite hot on making sure that businesses do things kind of in the right order, but look you know and when I say in the right order, you know we all talk about product market you know we will talk about niche marketing and sort of hiring the right people and all these sorts of things, but you know we see lots and lots of companies which hire loads and loads of people and spend loads and loads of money, before they’ve got any of that you know. And it just seems like really bonkers to us, so I think I think one’s got to be very careful in the initial engagement and be very collaborative in terms of what the plan is, and then let it be, but get involved if things if people start doing things in a crazy order.

Thank you so much. Okay for our founders I would like to know if you had investors in the past, what have you found particularly beneficial from your interaction how have they helped you on your journey to grow, and what sort of experiences have you had? Are there any bad investors out there?

I guess if you if you look at it from from my point of view when you making a decision about an investor, I think Jos, the guy before was talking about how he made his decision and it was just about the valuation for me it’s all about the relationship, because if you haven’t got the same mindset on the end goal, you’re pretty much screwed from day one. You know I’ve met lots of investors in the States and you know not many companies are going to become unicorns, but they you know they will want the next unicorn for example, so if you actually really really think that your company is going to be a billion dollar company next five years, and you’re having those conversations with those people, that might not be the right fit right, because where you’re gonna take your company; so it’s all it’s all about being realistic I think in terms of that so we have non exec directors, we had high growth private equity, they believed in what we’re doing they believed there was a culture first business, what we try and achieve in the next five years and those goals were aligned, and it was it was a great relationship because of that – because everyone was on the same page and everyone wanted to deliver the same thing. And even with our investors now I’ll talk very candidly and only about our business we’re not just about top-line revenue, we want to grow a sustainable business that is profitable one day, yeah even if that’s many years, from now so a lot of VC’s won’t like to hear that and they won’t many like to know that and the goals are more realistic and there’s a base plan, and there’s a plan of what you want to achieve over the top, but I think you’ve got have an investor that is generally just aligned with what you’re trying to achieve and then you’ll you’ll have a great relationship.

That’s brilliant, how about you Tim?

I very much the sort of echo Tom’s point that is very important to have an alignment with the with the investor, but one thing I’d say which is a seems of kind of a small point, but it’s something I personally get a great amount of value out of is that when you are sort of plugged in to with some sort of VC investors, it is incredibly useful to Steve’s point to network with other CEOs because everyone’s got some hints and tips of how they do things, and it’s really useful and valuable to know that, and on that same line it’s I always find it incredibly useful to actually see pitch decks as they come through, and the reason for that it because it gives me just like tremendous intelligence on the market. And you know even if somebody’s doing something in you know automated kiosks which has got nothing whatsoever to do with my business, it’s just useful knowing it it’s useful knowing there are people thinking about it what kind of customers that might be looking at what kind of size and markets they are, it just gives me that sort of 360 view. And just just tie back to the very first question that Flavia asked; that’s one of the reasons why VC’s will never refuse to see a presentation because it’s just tremendous intelligence, it’s just so useful to understand what’s going on in the market to have that input into that with that field. So for me the value of the investor is certainly beyond just the cash, but is actually that opening into that broader network 

You know, you have provided me the right opportunity to actually start going back to the market; I think the substantial changes in within the investor, p/e, venture capital, and I want to hear everybody’s opinion what what do you think 2018 is gonna represent for SssS businesses looking to fundraise? In no particular order…!

Okay I’ll jump her there first I’m not sure that 2018 it’s a hugely different from the 2017 structurally. I do believe there’s a huge amount more capital in the market right now, there’s a lot of, particularly early stage, there’s a lot of you know venture funds being formed a lot of early-stage funds now available. I think the one thing that I’ve seen has changed that’s sort of turning everything on its head is obviously blockchain and ICO’s. It’s hard to know exactly how much of a venture industry that’s going to take over, but it’s certainly not a disruptive a chunk of, it I certainly believe that and I think the whole crowd funding model is another thing to keep an eye on.But fundamentally this is it’s a it’s a growth business right now there’s a huge number of opportunities and I think there’s still a lot of opportunity for disruption in the SaaS space, as you start seeing more and more AI for example come into play when you look at all the traditional sort of sass businesses all the traditional enterprise software, it was ripe for disruption still, so it’s a hot area for me.

I don’t think 2018’s a special year, there is a boatload of money out there and there’s a great deal of angel capital as well, talking about whether VC’s is the right route. I mean there there are businesses which are getting to you know 200 million pound market caps without raising venture capital these days. So you know there are plenty of other ways to do it, and it probably took the venture capital market 10 or 20 years to get used to working with angels. But but like what I say to entrepreneurs is look I I’m I I’m a tiny funds and venture capital probably doesn’t represent 50% of the market anymore, so it’s that there are so many opportunities. I don’t really have on ICS at all maybe somebody could explain it all to me later.

But with so much capital in the market, I think that that means valuations are going up, funding rounds are substantially increasing. Are you seeing any of this in the sector?

Actually I think the number of deals is going down so the the weight of capital is increasing for you know a handful of very very very successful businesses, I think is what the figures will say. So you know I don’t know if the deal numbers might be down 10-15 percent year-on-year for the last year or two so I think what that talks to is a you know a little bit of a flight to capital. So I I’m not so positive about venture capital, you know the the number of deals increasing if you like. I think it’s I think there’s a bit of a flight to quality.

I definitely see a bit of a trend visit us and what I see where I see a lot of like younger VC’s starting up and saying you know we do things differently here’s some seed money, I think you see you’ll see a lot of companies finding it easier to raise money in the early part, and then they’ll find it really hard when it gets to an A or B round because they’ll be stuck at 1 3 million ARR, they’ll have a lot of cost in their business and they’ll just be a bit of a brick wall with funding at that point like you’re saying because they’ll just go to the to the big boys who are doing really really well. So if you make that funding decision and you go down that path of angel and then VC you know just because you’ve done the first seed round, doesn’t mean the next round in the next round is gonna actually come, so I think that that’s definitely something in that as well. I think you know what we’ve just gone through funding recently and you know the question of IP comes up a lot, and you know in most everyone space is different right, but you know especially in in SaaS particularly in sales and marketing, there are so many products out there the market is so so crowded so for me, definitely how you different differentiate yourself in terms of how you sell your product how you service your product because SaaS is a a very crowded space now there’s an element of nothing is unique, so definitely what I see in 2019 and beyond is the consolidation of SaaS as well you know people generally get excited about having less tools that you know what less tools doing more for them, because they’re just overload people have all sorts of things going on and they’re paying lots of money for things that way, so that’s just a trend I see as well in the market.

That’s a very good point many players in our our space say that actually great companies they don’t sell out, they acquire other based businesses and do you think that 2018 and 19 are going to create that wave of acquisitions and consolidation; do we actually see that, do you agree with that trend?

I don’t see that I may be on bound at this point I don’t see 2018 or 2019 being any different than before in terms of acquisitions, I mean it as Josh explained into the presentation just before this, at some stage you’re going to want to exit, because you are going to want to basically buy the Ferrari and everything else, or the Volkswagen, so that’s always going to happen, and whether that’s a good thing or a bad thing really depends on the dynamics at the time obviously a lot of it is down to situations that you don’t have any control of like 2008 things like that, so I think that will just roll on. Just to make a comment on the earlier question about what may be generally going to happen, I do think we’re maybe going to get to the if you like the trough on the Gartner hype cycle for both blockchain and for AI. I think for slightly different reasons I think for blockchain we’re still to sort of understand what the killer app is, I certainly don’t believe that smart contracts are for what for one thing, and for AI I think chatbots are a great example of this there the use cases are certainly there, but the technology doesn’t quite seem to be quite there yet, so I think in both cases I think we’re going to see some disillusionment this year and next going forward and that will affect funding and everything else.

Arguably what happens after the disillusionment does, where the true value starts to get created right so I think you know it’s it’s very exciting news over coming through to the point where we’re getting to the stage of disillusionment of the trough, because there’s obviously something very interesting happening and once we start building out the infrastructural components of a blockchain or whatever that turns out to be, and once we start understanding more about how we can sort of pivot into these sorts of different economies and different ways but centralising you know the market, it is going to open up a completely different way of doing business and transacting and generating value and we’re in that cycle right now; it’s a nearly a privilege for us to be here looking forward to that and to have an opportunity to participate in that. Obviously we also have to take our pain now because there is going to be a correction, I saw a stat recently where I think 93% of all IC’s are deemed to be fraud, it’s some ridiculously large number so obviously there’s a huge amount of money that’s been invested on the back of enthusiasm around cryptocurrencies that is going to get lost, but out of that I think we’re gonna see a real disruptive change in in how software is created and distributed so that’s exciting.

Okay, so nothing new considering that brexit is just a few months away you you don’t think that the European market and UK is going to be affected, we’re gonna still have the capital to compete with the US, because I’m looking at most of the largest deals are actually happening in the US I think that out of my portfolio 60% of them are SaaS businesses and they all wanna cross the Atlantic. How important is that and do we have what it takes to compete with the US VC market?

I think very much so and indeed one of the sponsors here pipedrive is a fantastic example of that who crossed not so recently into the US. Zendesk is another one I’m sure you’re all familiar with i think they’ll tow Barnaby’s point about doing things in the right order there can sometimes be a risk in trying to go across the US too early. One of the things that’s been very apparent to us is that you know because we’re in the CRM market it’s very very competitive, but very very big and the two things often go together: size of market and number of competitors. But it does mean that frankly you know we can meet a lot of our revenue expectations just with you know customers within walking distance for the office, so I think it’s important to to balance point to do things in the right order; you are going to have to go to the US at some point but you don’t necessarily you know need to do that from day one and build up all of those costs that you can’t necessarily support going forward.

It was an opportunity component to this as well. My impression is that you know US companies particularly based companies are really taking advantage of that incredibly strong network effect you have. And all your first customers are coming from the connections that the VCS who’ve invested in you have within that community so there’s this huge sort of self-sustaining bubble essentially, nearly a filter a bubble for sales and for growth, and then those companies sort of hit a bit of a ceiling as they start thinking about internationally so I’m thinking about moving say to the European market or to the Asian markets or whatever, I think that’s that’s where we’re seeing some of those companies falter a little bit, whereas in our experience at least you know European companies and sort of UK based companies nearly by default do you think about the US market or somewhere you want to go to very very aggressively and very very early in your in your life cycle. Similarly I think with Israeli companies, and I think that that mindset prepares those companies for international growth in some respects, I look better than if you’re based in the valley. Now having said that can’t write that the valley has more capital to deploy, and that network is really a superpower you know world perspective, but you know Brexit in itself I think creates issues structurally for funds, but I don’t think it really creates any huge issues for the companies trying to grow.

Yeah there are a lot of a lot of questions there are I think certainly in the enterprise world you know you have to be in the States at exit, and you’ve probably got to have maybe the centre of gravity has got to be in the states and exit as well, just because that’s where the fires are, and that’s where the big customers are. You know, I think it’s crazy to go there until you’ve got a very very good grip on what your product offering is and what your market engagement is in your domestic environment. I mean Brexit, I won’t go into it, but I find it really it really pisses me off the whole thing actually, not least the fact that you know our political governance is so so poorly aligned to what people you know what people think, it’s not about left-wing. I think it’s damaging to us I think it’s it’s a it’s like putting a kind of damp blanket on our on our quite vibrant economy. I think it’s gonna affect very talented people and if we haven’t seen it yet we will see it.

Tom do you have anything to add?

Yeah my guess this may sound the basis I was very lucky in my last company I got to set up the US office, I’ve lived in the New York for three years, lived in Boston for two years and I think you know one really simple simple thing is that in the US because of the size of the country, money, different things that have gone on travel, like they are the master of inside sales you know in that country compared to selling here and in the UK, everyone likes to get on a train give each other a handshake, it’s a very very different environment so I think how you sell as a SaaS company in scale is completely different until you learn how to do it in the US, that’s a blocker because selling is different over there; so I think if you’re a European startup and you’re thinking you know it’s just easy to call my doorstep how can I call my first few clients you’ve got got to understand that a little bit as well, which I think I think is is the key. But going to what Barnaby said if you if you’re in the UK market you’ve got to a point where you’ve got your first hundred customers or ever how many million of Revenue, there is no barriers or borders these days in my opinion, like if you look at our first 20 customers in my new company, everything from Australia, Singapore, Toronto you know all over the world for various different reasons and because I product lends itself to be scalable like that, butI think you know if you really home in your inside sales model as the SaaS company you can sell to anywhere in the world and if you can crack that you know and learn why you’ve got seats on bums in London and when you do put people on the floor in the US you’ll have much more chance of succeeding because you’ve done it that way that kind of makes sense.

Okay that’s fantastic okay, so I will have my final question and then I’m gonna open it up to the floor. I want to know what companies are you really seeing in the market advancing SaaS models what companies do you think are gonna be the next unicorns that the market will really back. Everybody will have very different choices but I’m very keen to know what are your up and coming up and coming unicorns?

I am sort of morally obligated to talk about a company in my portfolio so I think that shouldn’t discount me from the answer. We have a company our portfolio we really like pointing is essentially bringing the offline sales process online, and surfacing local product search all the way through to to Google Maps and Google search and we think that’s incredible, that makes every mom-and-pop store visible now their inventory visible through Google search, so we’re very excited about that one.

Thank you keep an eye on that!

We’re not massive unicorn hunters,I have to say I think, but I you know but it is a phenomenon I mean they do exist, and they might be real. So yeah, I suppose we’re you know I let let me give you an example of a company that’s just raised thirty million dollars in our portfolio companies this is a company with about fifteen million dollars worth of annualised revenue. I think it’s possibly more helpful to think about when that when that big road equity thing happens because there’s all the luck as we’ve heard earlier. But to me that seems to be the benchmark it certainly it’s a ten million pounds worth of revenue fifty sixty percent growth, you know, you’re not too far away from the shore in terms of burning through cash, you know hundreds of customers and if you have that people from around the world will invest in your company.

Thank you. How about Tom, Tim, any unicorns?

I don’t know because I’m so focused on the space I mean which is sales tech, there’s only one winner and that’s Salesforce, whatever you like it or not! I don’t, I think it I think it’s interesting from the space I mean there’s some real battles going on if you look at companies like Drift in Boston who are really competing with Intercom just taking a load of funding, you know things like that would be interesting to see what they do, again they’re there at their aim is like to be multiple tools in a platform, so you know, I’m so in that space I’d say they’re probably one to watch.

Well I think Tom’s comment gives me the perfect entree into my own Salesforce story so I was very much impressed with Salesforce back in 2002, primarily because I’d lived through a particularly brutal Siebel implementation, and spent maybe like three months and got nowhere. And the company was a software company time spent almost a million dollars in both software and services to to fail with that that CRM system. So for me the whole idea that somehow you could have this no software model was absolutely disruptive, and in fact we put so we’ve got Salesforce in, in less than three weeks I mean nowadays we think that’s horrible onboarding has to take three weeks over it, but in 2002 that was incredible. And around 2003 I was actually trying to raise funds from Intel VC, and I was essentially coming out with all sorts of enthusiasms about the SaaS model, and in those days people thought SaaS was nothing maybe just it might just do something for SMEs something or it’s not wasn’t really real or sensible and I remember the guy mocking me, saying well Siebel sure have big offices when I was sort of suggesting that they would actually ultimately take over from Salesforce. Well the big offices down on highway 101 are actually now part of Stanford Medical Center, and indeed I’m not even sure they even bother with the brand anymore now they’ve been acquired with Oracle. The point though is that every dog has its day, and Salesforce is obviously the leader in SaaS not just in CRM but the whole sort of SaaS industry they did absolutely create it along with WebEx and others, but that does not mean they’re invincible at all. And it’s arrogant for me to suggest it but I do believe that SalesSeek can one day take them on. And somebody else’s here Pipedrive I think they’re well on the way to taking them on, so existing market presence is no guarantee of future success, and I say that as a former IBMer.

Oh thank you. 

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