Q: Dear SaaStr: What are Some Rookie Mistakes Founders Make During VC Meetings?
We did a version of this post answer / post pre-Covid, and most of it still held in the new world of post-Covid VC investing. But not all. The velocity, the pace, and the strategy has changed. And it matters so much less where you are based.
But still, founders make the same mistakes again and again.
Here are a few that are easy to fix:
The CEO not doing the outreach. You’ll see so many VCs talk about this on twitter, for a reason. VCs want to hear from the CEO, period. The odds an email gets a response from a non-CEO are 10% of that if the CEO reaches out, best case.
Being cagey with answers. Just answer the question. How much are you raising? Where are you in the process? Being direct (and honest) builds trust. With VCs, you want to build trust quickly, if you can.
Bringing the wrong people with you. Do not bring "consultants". Do not bring anyone with you that isn't part of the senior team. Period. As soon as you bring a "consultant" with you — I'm out. 100% of the time.
Not sending the deck ahead of time. Just send it. You are wasting both a lot of time, and an opportunity, by not letting VCs do basically homework ahead of time. Make it easy on them.
Not doing at least basic homework on the VC firm. You should know their other investments in the space. VCs may be fungible, but no one wants to feel that way.
Spending more than 2 slides on "the industry". Do not do this, unless asked. Assume VCs understand what is "happening in the cloud". This not only is a waste of precious time … I'll fade away.
Going in too strong. If you have 2 signed term sheets, for sure, go in strong. It saves everyone time. But being too aggressive, too take-it-or-leave-it, if you don't have options — is a big mistake. BATNA, folks.
Going in too weak. Telling me you could succeed "if only you could raise $____" is just the wrong message. Winners always find a way to win. No matter how hard it is.
Settling artificial deadlines. If the deal really is closing Friday, then, great be aggressive and transparent. But if it isn’t … what do you do when it doesn’t?
Asking for coffee to "share notes". Some VCs may want to do this, but I sure don't. My job is to invest. Show me a product I want to invest in — I'm in. I already drink 4 cups a day. I don't need a 5th.
Hearing about how the founders met in elementary school. Even if this is true, I don't want to hear it, at least not as a part of the core pitch. That's not a positive for me. I want to hear why the founders are amazing.
Not answering the questions. If I ask a question, there's a good reason. Some VCs like to hear themselves talk. I don't. Just answer it. If you don't know the answer, tell me. Don't tell me "you'll get to that later". Because if you do, that may well be too late.
Not speaking with data. Always speak with data, if data is there. Even if it isn't great. I don't want some qualitative answer, once you have even just 10 customers.
Claiming pilots, unpaid users, and anything similar are "customers". They aren't. And don't claim they are MRR/ARR. They aren't. Be clear what is a pilot, what is paid, and what isn't. Otherwise, this blows up on you in diligence.
Hiding anything. It will come back to bite you. Some things may be more appropriate for a second meeting, but make sure whatever top level issues there are, come up in the beginning.
Poor understanding of competitive landscape. You have to get this right. You have to. First, always have a competition slide. Second, know it cold. Third, be respectful of any competitor larger than you. If you don't understand the competitive landscape cold, you don't really understand the market — or what you are going after.
Not having the >first< slide sell the company, and really, even the first email. If the first slide is the only slide you need. If it sells the whole deal. Your odds go up. Elevator pitches are important. So is a "1-slide" pitch. Make that first slide count, folks. Metrics, team, product, financial goals. Put it all on Slide 1. Position the company, and answer all my questions right then and there.
> Your job is to pass the 20 minute test. <<
To get a VC to want to invest no later than 20 minutes into the first meeting. Anything you do that handicaps a VC getting to a decision in less than 20 minutes dramatically harms your odds of getting funded.
And for some examples of what top VCs look for in cold outbound in particular, catch up here:
A ways back at SaaStr, we did a post “If Your VP Sales Isn't Going to Work Out — You'll Know in 30 Days”. At first, so many VPs of Sales I know hated the post. You need to give folks more time they said! 30 days isn’t enough they said! But I challenged them to re-read the post and think about it. And later, all the good ones agreed. A great VP can’t always double sales in a month or two. But they can improve things. For real. And just improving things quickly, in the first 30 days, has a big impact in SaaS.
So I just have one tip here, a variant of the 30 Day Test, but trust me, it will save you a lot of time and stress:
You’ll know if that new VP is going to fail at the first board meeting.
Now first, this trick requires you have your VPs present at board meetings. And of course, that you have board, or at least investor meetings, at all. More on that here. But if you do, make sure each VP presents for 10 minutes at least. And each new VP, give them a little extra time at their first board meeting.
And watch and listen. See if she/he:
Evaluates their team. If the VP hasn’t decided who to keep, who to promote, and who to replace by the first week, let alone the first board meeting, they aren’t a real VP. They can’t hire. A good/great VP presents the state of their team at the first board meeting, and how they are leveling it up. It’s the most important way to put more points on the board — in any department. A mediocre or fake VP doesn’t have any changes to make.
Shares what’s working, and what isn’t, and why. A great VP has this figured out by the first board meeting. Because they’ve seen it before. But a mediocre or fake VP is still “learning” what works and what doesn’t. They’ll say they don’t know yet and are “still digging in”.
Shares the key metrics they plan to improve. How they are going to grow revenue, or leads, or story points, or whatever. A great VP has figured out the current velocity of their department, and has a clean, quantitative plan to improve it. By the first board meeting.
Shows a lot of respect for what’s working in other departments. A great VP of Sales highlights what’s going well in marketing, or product, etc. in their first board meeting. Because they know it’s a team effort.
Has a clear, sensible 60-90 day plan. Whatever the exact period is, a good/great VP always has a 60/90 plan they present at the first board meeting. It isn’t perfect. But it almost always makes sense at least.
Speaks with data. By the time you hire a VP, you should have data. Data on your first 100 customers. Your first 1,000 prospects. Data. The best VPs dig into it quickly and have opinions based on data. Not just the seat of their pants.
If you don’t see this in the first board meeting with that VP, you don’t have a real VP. They can’t recruit. They can’t scale. They can’t figure it out. Or at least — it’s not the right fit for them.
A mediocre VP is often “still learning” at the first board meeting, and doesn’t present any of the above, or very little of it.
So sorry. Sorry that VP you just brought in is a mismatch. At least, when you see it in the first board meeting, you can course-correct faster.
But a few thoughts on "the hardest part" for the first few stages:
From $1-$100k in ARR, the hardest part is often how little revenue you get from each customer. Most SaaS products are inexpensive. You work so, so hard to close 100 customers … at $10/mo/customer … and that's only $1,000 a month! Not enough to pay even a single salary. So much work, so little revenue.
From $100k-$1m in ARR, the hardest part is how slow it is. It seems to take too long to get anywhere. Yes, you now know how to make customers successful and happy now. But it is so slow. You have 2,000 customers now. But at $10/mo, that's still just $20,000 a month. Enough to pay some salaries and AWS bills, but it's not that much. And each month, you barely add enough new revenue to hire just one of those great engineers you need.
From $1m-$10m in ARR, the hardest part is you don't have enough people or patience. And finally hiring a real management team. You finally sort of get the formula working, but you need 2x-4x the number of people you can afford, or even find.
From $10m-$40m in ARR, the hardest part is growing fast enough. At this point, your customers start to generate most of your growth going forward, and you know you'll grow a certain amount a year, more or less. The hard part is growing 20% faster than that. So much work and stress to grow a smidge faster.
From $40m-$100m in ARR, the hardest part is rebuilding the team. Again. And human churn. Here, you often have to start hiring B players because you just need so many people. And team members start to leave routinely. Your life becomes all about recruiting, even more than it was. It's harder to find that Magical VP that can make a huge difference. You start making up for it in volume — with headcount.
At $100m+ in ARR, the hardest part is you have to add a Unicorn each year. If you are at $100m in ARR, and your goal is to grow $50m next year … that's an entire, new, super-successful start-up itself! The absolute numbers begin to weigh on you after $100m+ in ARR. It's just so much revenue to add in absolute terms.
More companies are embracing product-led growth (PLG), but these transitions can come with some serious growing pains. We've experienced this first hand at Reprise, and if you enjoy learning from the mistakes of others, then you're in for a treat.
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Before Product-Led Growth
Our target market is US-based enterprise sales, marketing teams, and companies with software. And because "Every company is now a software company," according to Microsoft CEO Satya Nadella, that's no small market. We flooded this market with the now-classic double funnel model:
The "Inbound" Funnel. We never gated our content and operated on demo requests only. Those requests went to our AEs, who scheduled everything through Chili Piper.
The "Outbound" Funnel. We had about ten BDRs handling our target account list, although we still took the time to tailor our message. This included videos, social posts, and all the "show-me-you-know-me" that embody effective outreach.
Even though we empower other companies to use PLG, Reprise had a fairly classic approach to enterprise sales. Potential clients might find themselves enticed by our product, work through a gauntlet of qualification calls and BANT questions — until, finally, they get their hands on a demo. And then, in evaluation — maybe — you might buy the product itself.
But do companies want to buy this way anymore? Whether it's Uber or Airbnb, the new B2C landscape means that more and more clients want instant gratification.
So how can PLG provide this?
How to Approach Product-Led Growth
We decided to offer a free, lightweight version of our product on our website. Our vision, at the time, was to capture sign-ups that we could then transform into PQLs. But how did this work in practice?
Figure out what it is. Getting into PLG prompted a bit of an identity crisis. (We thought we were enterprise!) But it also required that we sit down with our product team so that we could better understand how and why our started product needed to exist at all.
Figure out how to market it. Now that we know what we have, we have to determine if we should put money behind it, and if it should be our primary CTA. In our case, we decided – for better or for worse – not to do either of those things.
Sales, marketing, and product flow. How do you smoothly transition your starter sign-ups into genuine PQLs? We had to bifurcate both existing customers and owned accounts, but we also had to decide on a trigger for when, in that product flow, something qualified as a PQL. From there, the sales team can swoop in to provide a more human touch, while simultaneously working to maintain tight alignment between product, user data visibility, and marketing.
Train sales. Informing your sales team is crucial. Try to frame the purpose of your product so that the sales team understands how PLG can actually be a source of empowerment, creating both a frictionless experience and developing a pipeline for future opportunities. And don't forget to develop strong outreach sequences and call scripts so that sales knows how best to follow up and collaborate with your sign-ups.
Launch. You made it!
Metrics So Far
Fair warning, "so far" is the operative term here. We usually have a four- to six-week lag between developing a market qualified lead and funneling them into the appropriate pipeline. We have found, thus far, a solid 34% conversion from product sign-up to PQL.
Of course, many of these PQLs come from small businesses and emerging segments. But as all sizes of organizations work towards full-product PLG, we are more than happy to be there for them when they're ready.
Avoiding Our Mistakes
What did we learn from this experience?
Beware of product delays. We honestly thought that three months should be enough of a buffer after our soft launch. Little did we know; even if you're launching a free, scaled-down version of your current product, it's still something new, and you should expect just as much delay, or more, as that of a feature launch.
Stand your ground. We spent so much time worrying about what to expect from our release that we ended up adding a lot of friction to the process so that we wouldn't be flooded by thousands of sign-ups. In the end, sometimes you have to pick a direction and move forward. Trust the process.
Time for ops. More systems lead to more complexity. Start the conversation with ops early and often. Your ops team will thank you.
Demand generation. We may have, three weeks after launch, realized that we had forgotten to turn on our how-to nurture, on top of sign-ups going to the wrong team. Please, think through your target accounts thoroughly (or, at least, more thoroughly than we did).
Don't freak out the sales team. A little tension between traditional sales and PLG is totally natural, but that doesn't mean you should neglect their fears. Reassure your team that a PLG approach can be additive, and not a harbinger of customers circumventing sales entirely. Loop them into the company's broader vision, and how important they still are.
Go time. PLG can drive down acquisition costs, increase customer NPS scores, and more. But be ready to roll with the punches.
PLG requires immense planning and change management. Mistakes are unavoidable, but the key is to make better mistakes and then learn from those mistakes.
BeKind
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