Tag Archives: Entrepreneur

VC Funding Down 67% in December

Tough times in startupland show no signs of ending. Venture funding fell 67% in December from a year earlier, according to a new report by S&P Global:


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The aggregate value of venture capital-backed funding rounds worldwide dropped 66.7% year over year in December 2022 to $19.71 billion, which is around the same level of annual decline seen in November 2022, according to S&P Global Market Intelligence data.

The number of completed rounds fell by 57%.

These grim stats match what I’m seeing in the market every day. Far fewer deals are getting done, and those that are take longer to close.

The weakest companies have left the market.

The $100 million “seed” rounds in crypto startups with no product or customers were everywhere in 2021. Now, those companies have either given up on fundraising or gone out of business.

The good news is that good companies are still getting funded. I’ve been a part of several multimillion dollar seed rounds in recent months.

These companies have annual revenues in the hundreds of thousands, growing fast. They also have a head start in huge markets.

Even for these companies, rounds take months to close and sometimes don’t fill completely.

If your startup doesn’t have rapidly growing revenue, your chances of raising today are slim. Instead, I’d focus on getting more customers first, which will make your fundraise much easier.

If you are fundraising, you want to raise enough to give yourself runway for two years at least. The 18 month standard I used in 2021 just isn’t enough in this bleak environment.

And don’t count on all that “dry powder” saving you. VC funds may be sitting on a lot of cash, but they’re also deploying more slowly.


As for me, I’m investing in about one company a month, same as I always have.

A few great companies are born every year. In venture, our only job is to own a piece of them.

What do you see in markets today? Leave a comment at the bottom and let me know!

More on tech:

They Passed on Apple, Google and Facebook…Here’s Why

How Startups Change Lives

Entrepreneurial ADD: The Startup Killer

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This platform lets me diversify my real estate investments so I’m not too exposed to any one market. I’ve invested since 2018 with great returns.

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How Startups Change Lives

Many founders work incredible hours. So what’s all this for…just to make someone like me money?

Hardly.


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I know startups can change lives because I’ve seen it happen.

My mom lives in a small town in Wisconsin. Getting around without a car is nearly impossible — but she can’t drive.

She was born blind in one eye, making depth perception a mess and driving a nonstarter. The basic things we take for granted — getting groceries, making a doctor’s appointment, or just grabbing coffee at Starbucks — are very difficult for her.

Or were…until Uber and Instacart!

When I was a kid, we often waited over an hour for a taxi home with our groceries. And we did that outside in frigid temperatures, lest we miss the car.

Now, neatly packed bags appear on Mom’s doorstep, like magic.

We stood in deep snow waiting for the bus if we wanted to go anywhere. I think I spent half my childhood saying “Where the heck is this thing?”

Now, an Uber glides up in minutes, taking Mom wherever she likes.

One of my companies got acquired today. It made me think that despite this financial win, we do this job for a lot more than money.

Whether you’re a founder, investor, or startup employee, we want to make something amazing! We want to make a nicer life for other people.

So the next time you’re staring at your computer at 3am, remember this: what you do matters. You’re creating the future, and it’s going to be awesome!

What motivates you? Leave a comment at the bottom and let me know!

More on tech:

They Passed on Apple, Google and Facebook…Here’s Why

Entrepreneurial ADD: The Startup Killer

Have We Reached SaaS-turation?

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This platform lets me diversify my real estate investments so I’m not too exposed to any one market. I’ve invested since 2018 with great returns.

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They Passed on Apple, Google and Facebook…Here’s Why

“Kid, haven’t you heard of Friendster? Move on. It’s over!”

VC Jeremy Levine passing on Facebook, 2004 (speaking to Eduardo Saverin).

Ouch.


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Bessemer Venture Partners passed on Apple, Google, Facebook and countless other highly successful companies.

In what they’re calling an “anti-portfolio,” the venerable firm explained their reasons for turning each founder down. How they arrived at these decisions can teach us investors a great deal.

I noticed a few themes:

Valuation: Bessemer passed on Apple, Airbnb and Atlassian because the valuations were too high. All went on to become massive companies.

The very best startups tend to go for a premium price. Google’s Series A valuation was around $100 million – scandalous at the time.

If you know you have one of the hottest companies in Silicon Valley, why sell cheaply?

I expect valuations to be reasonable. But focusing too much on price can lead us to “value traps.”

These companies are cheap for a reason and never go anywhere.

Founders Too Young: David Cowan had incredible luck — his friend was renting her garage to Sergey Brin and Larry Page.

The two young comp sci students were working on a new search engine called Google.

The Bessemer partner was unimpressed with these student founders. And who needed another search engine?

“How can I get out of this house without going anywhere near your garage?”

David Cowan

What if Cowan had been willing to take just a 20 minute meeting with Sergey and Larry?

Too Much Competition: Bessemer passed on Facebook and Zoom partly due to competition.

There were already so many video conferencing tools. And haven’t you heard of Friendster?

What the Bessemer partners missed is that being first doesn’t mean you win. The best tool wins, and it’s often not the first.

General Hubris: Now, we come to one of venture capital’s worst scourges.

Sometimes VC’s are so overconfident they can’t imagine being wrong.

You see that in Levine’s treatment of Eduardo Saverin when he passed on Facebook. He knows everything and this “kid” is deluded.

You see it again in David Cowan’s rejection of eBay:

“Stamps? Coins? Comic books? You’ve GOT to be kidding. No-brainer pass.”

David Cowan

We investors must always remember that we do not know the future. The best we can do is take an educated guess.

We will be wrong most of the time. And we must never forget that.

So I try to keep an open mind. And even when I pass on a company, I try to be polite.

With all these misses, you’d think Bessemer is the worst venture firm in the world, right?

Wrong. It’s actually one of the best!

That’s the magic of our industry. We can be massively wrong almost all the time, and still be a huge success.

Bessemer was an early investor in LinkedIn, Twitch, Shopify and many other iconic companies. They may have missed Apple and Google, but they didn’t need them.

I applaud Bessemer’s candor in assessing its mistakes. That’s how we learn!

What mistakes do you see investors making? Leave a comment at the bottom and let me know!

More on tech:

John Doerr’s Biggest Mistake

The Power Law (Part Two)

Entrepreneurial ADD: The Startup Killer

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This platform lets me diversify my real estate investments so I’m not too exposed to any one market. I’ve invested since 2018 with great returns.

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If you decide to invest in Fundrise, you can use this link to get $100 in free bonus shares!

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Photo: Google founders Larry Page and Sergey Brin. “File:Google page brin.jpg” by Ehud Kenan is licensed under CC BY 2.0.

Entrepreneurial ADD: The Startup Killer

Every time I get the monthly update, I’m confused. Did I really invest in this company?


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There’s a disease that will kill a startup faster than anything else. It’s called Entrepreneurial ADD.

This deadly condition involves a founder who gets distracted too easily. Rather than nailing one business model, he’s always running off in new directions.

Hot new trend? He’ll pivot the entire business to work on it.

New product showing signs of working? Trash it and build something even cooler!

Entrepreneurs have boundless enthusiasm and tons of ideas.

This can help them innovate and succeed. Or it can have them running around like chickens with their heads cut off, accomplishing nothing.

Take the example of my portfolio company. After seeing some early signs of success with one product, they pivoted to something completely different.

The founder continued to chase down every hot trend in tech. Meanwhile, revenue shrunk and cash evaporated.

Now, runway is minimal and the chances of raising more money are poor. In this environment, a cash burning company with declining revenue is not investable.

What if they had simply hammered away at their original, successful business? They might be break-even by now and raising from a position of strength, if at all.

Venture capitalist Ben Narasin notes that in decades of investing, he’s almost never seen a pivot work. How many companies pivot over and over and succeed?

Probably almost none.

Don’t abandon a winning business model for the shiny new toy! Double down on what works.

And if your model isn’t working, fix it! If a particular problem is important to you, don’t just abandon it at the first sign of difficulty.

Because guess what? The next business will be difficult too!

Do you struggle with Entrepreneurial ADD? Do some of your founders have it?

Leave a comment at the bottom and let me know!

More on tech:

Have We Reached SaaS-turation?

Is 2023 the Best Time to Invest in Startups?

The Magic of Milestone-Based Funding

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Fundrise

This platform lets me diversify my real estate investments so I’m not too exposed to any one market. I’ve invested since 2018 with great returns.

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I wrote a detailed review of Misfits here.

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Photo: Jack Dorsey, one of the very few CEO’s to successfully pivot a company. He pivoted Odeo to Twitter. “Jack Dorsey” by jdlasica is licensed under CC BY 2.0.

Have We Reached SaaS-turation?

Like many investors, I love a good SaaS business. But have we flooded the market with so many startups that customers are about to rebel?


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I was amazed when I saw how many subscriptions this founder was paying for…just for himself! That leads us to an interesting thread by Molly Wood, Managing Director at venture firm LAUNCH and co-host of This Week in Startups:


But if we look more closely at Gergely’s example, we find something interesting. He’s actually happy paying for all these subscriptions!

Automating so many tasks with SaaS may be why Gergely can keep this a 1 person business. Otherwise, it might be a 20 person business with way higher costs.

And while any business may look to cut subscriptions when times are tough, Gergely notes these subs are one of his smallest expenses. For him and many other CEO’s, cutting them may do more harm than good.

I agree with Molly that tech startups can be over-SaaSed. Many startups look to other startups as their first customers.

After all, startups are early adopters and can make a quick decision. That makes them an ideal first market for a SaaS product.

But in the economy as a whole, I think we’re actually dramatically unde†rusing technology.

Take SailPlan, an amazing SaaS company that tracks emissions from ships.

Competitors just provide a rough estimate after the fact. SailPlan tracks emissions in real time and can even give you suggestions of how to lower them.

And of course, lowering those emissions means lowering your fuel bill.

Before SailPlan, most emissions tracking was done with rough estimates in spreadsheets. If ships used a SaaS solution, it was basically a tarted up version of the same spreadsheet.

Shipping is an industry that desperately needs technology. And it’s not hard to think of 100 others.

Oh and by the way, Molly and I just happen to be co-investors in SailPlan! 🙂

Like any industry, I think SaaS will face headwinds in 2023. But a scalable software product, high margins and recurring revenue are a winning combination.

And with much of our economy barely touched by technology, they have a lot of room to run.

What do you think the future holds for SaaS businesses? Leave a comment at the bottom and let me know!

Have a great weekend everyone!

More on tech:

Is 2023 the Best Time to Invest in Startups?

The Magic of Milestone-Based Funding

Is SBF Laundering Money As We Speak?

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Fundrise

This platform lets me diversify my real estate investments so I’m not too exposed to any one market. I’ve invested since 2018 with great returns.

More on Fundrise in this post.

If you decide to invest in Fundrise, you can use this link to get $100 in free bonus shares!

Misfits Market

I’ve used Misfits for years, and it never disappoints! Every fruit and vegetable is organic, super fresh, and packed with flavor!

I wrote a detailed review of Misfits here.

Use this link to sign up and you’ll save $15 on your first order. 

Photo: “CNET’s Molly Wood” by NVIDIA Corporation is licensed under CC BY-NC-ND 2.0.

Is 2023 the Best Time to Invest in Startups?

It was a rough 2022 in tech — layoffs, shutdowns, and stocks falling off a cliff. But 2023 promises to be a golden age for startup investors.

Here’s why I’m more excited than ever to invest in 2023…


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Valuations

In 2021, you could raise venture capital for a fruit stand.

I saw crypto startups with no product or customers raising “seed rounds” at $100 million valuations every day. Deals moved so fast that if you did any diligence, you might miss it.

Now, the market has slowed to a crawl. The vaporware startups have disappeared.

What’s left? Great companies raising at reasonable prices.

I’m often paying half as much for a company as I did in 2021. Even fast growing startups with several hundred thousand in yearly revenue go for about $10 million.

A lower entry price means more upside. And since a seed investor like me probably won’t exit for 10 years, prices could skyrocket in the mean time.

Focus

Founders today are laser focused. They’re not speaking at conferences or rolling out NFT’s.

They’re fighting to make sure their businesses survive.

Founder distraction is a giant killer of startups. For better or for worse, facing bankruptcy concentrates the mind.

I think founders and teams will perform better under this pressure, difficult as it can be.

Access

These days, I can get into any deal I want. Founders have to cast the net beyond the most famous firms in order to raise a round.

For angels and new VC’s, this is a boon. If you ask to get into any deal out there right now, it will probably happen.

There are only a few companies founded every year that matter. Our only job is to get as big a slice as possible of those deals.

That’s a lot easier to do in 2023 than it was in 2021.

Uber, Airbnb, and Block were all founded during the financial crisis. Someone is out there creating the next Uber right now.

It’s our job to find them.

How do you feel about investing in 2023? Leave a comment at the bottom and let me know!

More on tech:

The Magic of Milestone-Based Funding

Is SBF Laundering Money As We Speak?

Zero to One

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Fundrise

This platform lets me diversify my real estate investments so I’m not too exposed to any one market. I’ve invested since 2018 with great returns.

More on Fundrise in this post.

If you decide to invest in Fundrise, you can use this link to get $100 in free bonus shares!

Misfits Market

I’ve used Misfits for years, and it never disappoints! Every fruit and vegetable is organic, super fresh, and packed with flavor!

I wrote a detailed review of Misfits here.

Use this link to sign up and you’ll save $15 on your first order. 

Photo: Uber founder “Travis Kalanick” by jdlasica is licensed under CC BY 2.0.

The Magic of Milestone-Based Funding

There’s a law in Silicon Valley as basic as F = ma: milestone-based funding. It’s why you can’t raise $100 million on day 1. It’s also why my positions in my strongest companies are many times larger than my weakest ones, as if by magic.


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…You show incremental progress. We’re engaged in milestone-based investing where the amount of money you raise and the valuation you’re able to get scales with the amount of proof you have delivered to investors about the company.”

David Sacks, All In Podcast #43

Milestone-based funding means that you don’t get all the money your company will ever need at once. Instead, you get a little now, go accomplish some stuff, and come back for more.

In venture’s early days, a company was financed once, and it either sunk or swam. Milestone based funding lets investors allocate their capital more efficiently.

The most successful companies need more money to grow. Meanwhile, throwing good money after bad rarely gets you anywhere.

Let’s see how this works in practice by looking at two companies in my portfolio.

A Tale of Two Startups

I invested in both Company A and Company B within weeks of each other in the spring of 2021. With high hopes, I sent in my wires and envisioned a wonderful future for both.

Well, I was half right.

Company B has increased revenue 6-fold since then. It’s expanding to new markets and signing up customers like crazy.

For Company A, the picture isn’t nearly as rosy.

Revenue hasn’t grown at all and burn is heavy. Raising more money is impossible and bankruptcy is a very real possibility.

How Milestone-Based Funding Played Out

My initial investment in both these companies was exactly the same amount. But now, my investment in Company B is almost 6 times as large.

The reason is very simple: I doubled down in Company B and did not reinvest in Company A.

Company B recently raised a much larger round at the same price as before. With amazing progress, I was happy to 6x my investment.

Add in a little dilution from this round, and my position in Company B is nearly 6 times bigger than my position in A.

If Company B continues to perform well, I’ll be putting in even more. That, plus increases in valuation, may eventually make my investment in B dozens or hundreds of times larger.

What This Means for Founders

Raise an amount appropriate to where your company is at today.

If you have only a couple of customers, you’re probably looking at around $500,000 in pre-seed. If you have $250,000 ARR, you may be able to raise a $2 million seed round.

Then, keep those investors updated on your progress. Remember, there’s more money where that came from!

Milestone-based funding is a brutal system, but it’s necessary.

I’d love to help Company A with another check. I love what they do and I want to see them succeed.

But I just can’t justify it when other startups are performing better.

What questions do you have about fundraising? Leave a comment at the bottom and let me know!

More on tech:

Is SBF Laundering Money As We Speak?

Zero to One

Why I Just Invested in Rilla, the Killer App for Outside Sales

Note: Shout-out to Fathom.fm for finding that David Sacks quote in seconds. Making audio searchable really is the future! Delighted to be an investor in this great startup.

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Fundrise

This platform lets me diversify my real estate investments so I’m not too exposed to any one market. I’ve invested since 2018 with great returns.

More on Fundrise in this post.

If you decide to invest in Fundrise, you can use this link to get $100 in free bonus shares!

Misfits Market

I’ve used Misfits for years, and it never disappoints! Every fruit and vegetable is organic, super fresh, and packed with flavor!

I wrote a detailed review of Misfits here.

Use this link to sign up and you’ll save $15 on your first order. 

Photo: “David Sacks” by jdlasica is licensed under CC BY 2.0.

Zero to One

Founders should launch an MVP as soon as possible and iterate their way to success…right? Wrong, according to billionaire Peter Thiel.


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The controversial venture capitalist and co-founder of PayPal lays out a very different view in his book Zero to One. As I headed off on vacation last week, I dug into this classic.

Thiel is fundamentally opposed to the Lean Startup framework. Iterating on a minimum viable product (MVP) would never have produced the iPhone, Thiel notes.

Instead, we should create a fundamental innovation. Our new product should be 10x better than alternatives.

And forget about big markets. Thiel’s approach is to completely dominate a small market, then branch out.

“No sector will ever be so important that merely participating in it will be enough to build a great company.”

Peter Thiel

I find Thiel’s approach compelling. Total domination of a small market is a stronger indicator of product-market fit than a tiny slice of a big one.

A monopoly, even in a small area, means you have pricing power. This avoids a race to the bottom with margins headed to zero.

From that strong position, we can branch out to adjacent markets. For example, PayPal was able to move from enabling eBay payments for top sellers to sending money for any reason.

Thiel also includes a great trick for investors: ask founders what they pay themselves.

A reasonable salary of no more than $150,000 ($194,000 in current dollars) strongly correlates with success. This is one of the clearest patterns Thiel has observed from investing in hundreds of startups including Facebook.

I’m going to steal this one! It may lead to some awkward silences on Zoom, but ya gotta break some eggs to make an omelette.

I found Thiel’s take on entrepreneurship refreshing. Zero to One turns the standard startup playbook on its head, and it makes a lot of sense!

I’m going to look more closely at companies dominating an initial small market. And if I ask you your salary, blame Peter.

What do you think of Zero to One? Leave a comment at the bottom and let me know!

Glad to be back!

More on tech:

Seedscout: Where Underestimated Founders Win

Why I Just Invested in Rilla, the Killer App for Outside Sales

Seeing Through SBF: How One VC Found the Truth

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Fundrise

This platform lets me diversify my real estate investments so I’m not too exposed to any one market. I’ve invested since 2018 with great returns.

More on Fundrise in this post.

If you decide to invest in Fundrise, you can use this link to get $100 in free bonus shares!

Misfits Market

I’ve used Misfits for years, and it never disappoints! Every fruit and vegetable is organic, super fresh, and packed with flavor!

I wrote a detailed review of Misfits here.

Use this link to sign up and you’ll save $15 on your first order. 

Photo: “Peter Thiel” by jdlasica is licensed under CC BY 2.0.

Seedscout: Where Underestimated Founders Win

Every morning, I have dozens of new LinkedIn messages from founders. I seldom have time to reply. But what if there were a better way for founders and investors to meet?


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Enter my latest investment, Seedscout. Seedscout is an awesome new platform for founders to meet investors.

The magic of Seedscout is that there’s a monthly fee. This filters off people who aren’t serious.

What’s left? Awesome founders I want to meet!

I find myself meeting with almost every Seedscout founder who asks. Meanwhile, my LinkedIn requests languish in digital limbo.

I recently met an amazing founder on Seedscout whose startup is growing revenue at 70% a month. Once I wiped the drool off my chin, I reached for my checkbook!

When a platform gives me deal flow like that, I pay attention to their next intro. Meanwhile, since I rarely find solid deals via cold messages, I often don’t have time to respond to those messages.

For founders without a strong network in venture capital, Seedscout is a super power. You can buy your way in.

With plans starting at $100/month, a scrappy young founder can drive Uber for a few hours and pay for a membership.

Seedscout Founder & CEO Mat Sherman is fanatical about opening up venture capital to all great entrepreneurs. In an industry where just 2% of funding goes to women and just 0.4% to black founders, Seedscout is changing the rules of the game.

In time, Seedscout may replace LinkedIn and AngelList. For me, it already has.

I’m delighted to be an investor in innovative startup. Best of luck to this scrappy team as they take Sand Hill Road by storm!

I’m on vacation for the next two weeks. I’ll see you again on Monday, December 19th!

Until then, please enjoy some classic posts from the archives:

The Startup Pitch Checklist

Mark Twain: Venture Capitalist

North Jersey’s Secret Campground

The Swami Who Taught Me About Politics

The Ultimate Score: Turning $300k into $2.4 Billion on Coinbase

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Save Money on Stuff I Use:

Fundrise

This platform lets me diversify my real estate investments so I’m not too exposed to any one market. I’ve invested since 2018 with great returns.

More on Fundrise in this post.

If you decide to invest in Fundrise, you can use this link to get $100 in free bonus shares!

Misfits Market

I’ve used Misfits for years, and it never disappoints! Every fruit and vegetable is organic, super fresh, and packed with flavor!

I wrote a detailed review of Misfits here.

Use this link to sign up and you’ll save $15 on your first order. 

Why I Love B2B Startups

Last year, most of my investments were consumer startups. But in 2022, I’ve done a 180.


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Of the 11 investments I’ve made so far this year, all but 2 are selling software to businesses. So why the about face?

Over the last year, I’ve noticed that many of my best performing investments sell Business to Business Software as a Service (B2B SaaS or just SaaS). Meanwhile, some of my consumer investments have struggled.

Here are some of the unique advantages of SaaS:

1) Less churn.

Consumers are fickle. We try a service for a while, say “meh,” and cancel.

But businesses don’t sign up for new software without thinking it through. And once they start using it, they’re much less likely to cancel.

Changing software tools disrupts their business. So if you’re product is solid, you’ll probably have a customer long term.

A good Enterprise SaaS company might have churn of 1-2% a month. But even a strong consumer company is likely to see 3-5% churn.

If your customers churn at 5% a month, you have to rebuild your company from scratch every 2 years. A SaaS company doesn’t have to do that.

This is a huge advantage.

2) Land and expand. SaaS companies have a unique ability to grow…even without signing new customers!

How the heck do they do that? By doing more business with the customers they have!

Let’s take Density as an example. Density is an awesome startup that sells sensors to measure how people use physical spaces.

Let’s say LinkedIn buys Density to track how its headquarters is used. It’s so helpful that they expand it to their New York office, paying Density even more!

That’s land and expand.

The best SaaS companies can grow at 50% a year without signing a single new customer. And that’s after accounting for their churn.

This rarely happens in consumer. I’m only going to buy one Paramount Plus subscription, no matter how much I love Beavis and Butthead!

3) You can afford a sales team.

I pay $5/month for Paramount Plus. My value as a customer is way too low for Paramount to have a sales team contact me.

They just have to hope I show up.

But SaaS subscriptions cost a lot more. This means they can afford a sales team to go find customers.

That makes bringing in new business a lot easier!

This is especially important now that online ads, the most likely alternative, aren’t working well. Apple’s removal of ad tracking made targeting difficult, drastically reducing their effectiveness.

So does this mean I’m only doing SaaS from here on out? Absolutely not.

But I’m focusing on consumer companies with a clear value proposition. An example would be a marketplace like Gauge, which makes it way easier to sell your car for a great price.

I’m avoiding social media startups. The sector is more hit driven and the value prop for customers is a lot less clear.

Do you prefer SaaS or consumer? And why?

Leave a comment at the bottom and let me know!

More on tech:

Talking FTX, Twitter and Startups at Starta VC

Is SBF Headed to Prison?

Bridge Rounds: The Path to Riches?

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Save Money on Stuff I Use:

Fundrise

This platform lets me diversify my real estate investments so I’m not too exposed to any one market. I’ve invested since 2018 with great returns.

More on Fundrise in this post.

If you decide to invest in Fundrise, you can use this link to get $100 in free bonus shares!

Misfits Market

I’ve used Misfits for years, and it never disappoints! Every fruit and vegetable is organic, super fresh, and packed with flavor!

I wrote a detailed review of Misfits here.

Use this link to sign up and you’ll save $15 on your first order. 

Photo: “candy hearts” by jamz196 is licensed under CC BY 2.0.