How VC’s Get to “Yes”(robgo.org)
robgo.org
How VC’s Get to “Yes”
http://robgo.org/2014/02/09/how-vcs-get-to-yes/
13 comments
This is a Sales truism too. It's much easier to convince people who believe than people whose job it is to say "No". Early stage funding requires shared optimism between the funder and funded.
> For example, there is sort of a magic number for SaaS businesses to achieve $100K MRR, which is usually a good benchmark for being able to raise a decent VC-led series A or B.
Wait, what? If you have $100k MRR, why do you need any venture capital at all?
Wait, what? If you have $100k MRR, why do you need any venture capital at all?
100k MRR does not mean that much if you've got staff costs. Let's break down super simple costs:
Office - 5-10k/mo Employees - 10k/mo ea Servers - 5k/mo Legal/accounting/etc - 5k/mo Misc - 10k/mo
All of a sudden with 10 employees you're losing 20-30k/mo. Want to hire 5 new amazing engineers? Now you're losing 80+k/mo.
100k mrr is great if it is you by yourself or a tiny team, but to scale you need a lot more.
Office - 5-10k/mo Employees - 10k/mo ea Servers - 5k/mo Legal/accounting/etc - 5k/mo Misc - 10k/mo
All of a sudden with 10 employees you're losing 20-30k/mo. Want to hire 5 new amazing engineers? Now you're losing 80+k/mo.
100k mrr is great if it is you by yourself or a tiny team, but to scale you need a lot more.
For a whole bunch of reasons, ie to pick a few:
- you may have a NWC situation where cash isn't paid up front - you may want to continue to invest in R&D / tech development on newer projects that aren't currently generating revenue - you may simply want to grow faster / hire more than your current financials can support
It seems pretty logical to me - at that point, you probably have a solid stepping stone, and want to decide what to do next.
- you may have a NWC situation where cash isn't paid up front - you may want to continue to invest in R&D / tech development on newer projects that aren't currently generating revenue - you may simply want to grow faster / hire more than your current financials can support
It seems pretty logical to me - at that point, you probably have a solid stepping stone, and want to decide what to do next.
First two reasons I can think of.
Imagine you're doing that on an expensive cloud hosting setup and your expenses are really high. An infusion of capital could allow you the opportunity to build out your own server infrastructure(or pay annually on the cloud infrastructure) and dramatically lower your expenses and push your margins up a lot.
It would also offer you the flexibility in your funnel to offer back loaded deals to get larger clients onboard.
Imagine you're doing that on an expensive cloud hosting setup and your expenses are really high. An infusion of capital could allow you the opportunity to build out your own server infrastructure(or pay annually on the cloud infrastructure) and dramatically lower your expenses and push your margins up a lot.
It would also offer you the flexibility in your funnel to offer back loaded deals to get larger clients onboard.
An extra large EC2 instance is $360-$3311 per month. Maybe I have an imagination failure, but I can't see how cloud costs could be past 10k per month. So, how much could the infrastructure cost, and still be worth the investment?
Maybe I just don't understand the costs.
Maybe I just don't understand the costs.
First two ideas that spring to mind would be a realtime video encoding service and a CI service. In both cases your users to server ratio would be very low and in the first case your data costs would be very high. So you might be only making profit of $X per server per month even if your revenue is $XXX per server. When you're running your own servers you need a big investment up front but lower operational costs which is where the funding would come in.
Building a large sales team to go to market is initially expensive or your burn rate relative to the capital in the bank is growing despite your profitability (you may not want to risk your limited run way if the economy goes bad).
You might want capital, but perhaps a cheaper form of capital than VC?
Because revenue != profits.
Because you want 10m MRR?
Interesting and well said. Makes sense, but I hadn't thought of it in those terms.