They were raising $5 million at a $30 million post-money valuation. I loved the founder and the product was innovative, but I had to pass. Here’s why…
“ProductPreview” connects brands with consumers to give feedback on products before their release. ”ProductPreview” is a composite, not a real startup, and the name is made up. But it shows why even companies with great ideas and committed founders may not make good investments.
The Good
“ProductPreview” has a really cool platform that lets brands test products before they release them.
If Acme Coffee is working on a new blend, they could send me some to test out. I brew it up and let Acme know if I like it or if this new blend is a dud.
No business wants bad reviews and product flops. So testing a product in advance makes a ton of sense.
When I met with the founder, I could tell how much she cared about the business. Her dedication was showing results. “ProductPreview” was closing in on $3 million a year in revenue.
The Bad
“ProductPreview” had significant revenue. But unfortunately, it was barely growing.
In the past year, revenue had grown only about 20%. The best companies at this stage are doubling or tripling year over year.
Worse yet, “ProductPreview’s” burn was out of control. The company was burning over $200,000 a month.
It took “ProductPreview” $10 of burn to add $1 of ARR. A great company at this stage would be burning $3 or less to add $1 of ARR (a burn multiple of 3).
The company employed 41 people, a huge number for a company its size.
Decision Time
I really liked this founder and admired her dedication. I also thought the idea had some real potential.
But the combination of minimal growth, excessive headcount and heavy burn were too much for me. I passed.
Wrap-Up
When I have to say no to a founder I really like, it sucks. I wish I could say yes to everyone!
But these investments have to make money. Otherwise, we won’t be able to keep making them.
Then, there would be no venture capital for anybody.
Would you have invested in “ProductPreview”? Leave a comment and let us know!
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