Generally, startups have very few things going for them. No one has ever heard of you. You have no reference customers. Your team is most likely new to business with few credentials.
It’s long been known that VCs live off home runs. And the problem is only getting worse. In last 3 years almost 750 VC funds have closed over $100 billion in funds to invest in startups. High valuations and large capital infusions from venture firms mean startups better be showing unicorn trending results or be ready to scrounge for capital.
The best venture investors are rarely long time company builders. Mike Moritz was a journalist. Chris Sacca was a lawyer and deal guy at Google. Bill Gurley was an engineer and investment banker. Peter Fenton and Fred Wilson have pretty much always been investors. The list could go on and on.
There’s a wealth of tactics floating around the SaaS world at the moment, and in terms of optimizing what’s working or creative fuel for new experiments — these are fantastic resources. But don’t confuse the myriad of tactics available with real business building. It’s easy make things complicated and get backlogged with a huge list of to-dos, many of which won’t move the needle or help solve for strategic priorities.
So many tech entrepreneurs believe that after getting an idea, building a prototype and hopefully getting some early traction, raising Venture Capital is the next step. VC’s have pushed that message for years as a way to get deal flow, and they’ve done an excellent marketing job, so it’s hardly surprising that raising VC is seen as one a step on the journey, not an optional route.
Valuing a company is typically done based on either Value Pricing or Market Pricing. Value Pricing is what mature, stable, normally profitable businesses are bought on, and how Private Equity evaluate companies. Market Pricing is VC’s (and founders) set a price using external factors. Scaleworks Venture Equity sits in the middle with a Growth Pricing method.
Founders are a unique breed. Driven entirely off their own motivation, and super passionate. A friend told me years ago that some founders relentlessly focus on their vision and accept no feedback; while others seek out lots of feedback and change course every time they hear a different opinion; but that the best founders are the ones who take in all the advice, process it and act on what makes the most sense.
We raised Scaleworks Fund I, a $50m first fund, and called it ‘Venture Equity’. Here’s what we mean by the term Venture Equity and where we see it in the world of equity finance.
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🔧 For a while, many venture investors avoided vertical software because they felt its comparatively small markets would not produce target VC outcomes. That has of course changed in recent years, and CRV does a nice job of outlining why. They use the example of auto repair software – with 167k auto repair shops in the US and the lower priced players charging $2.7k a year, you conservatively have a ~$440M TAM (not the $1B+ venture gets excited about). But over time these software are able to further specialize and innovate within their verticals, both creating more solutions (more things to charge for) and improving their current offerings (giving them the ability to charge more), thus growing their TAM. What CRV is most excited about in vertical software is embedded commerce. Using the same example, embedded commerce would be selling auto parts directly through auto repair software, putting your website, booking system, POS, etc. all in one place.
