Capital Chronicles #2

Hello there! Welcome to Capital Chronicles, saving you hours every week with ~2-3 minute summarised insights from the best venture builders, investors and capital allocators out there. This week: strategic tech economics, scaling to $100M ARR with BVP, and a16z’s resources for leadership in crisis.

As subscriber #TBD, each web link below takes you to:

• A link to the original article (read time: varies)

• Summary / insights / implications per article (read time: 2-3 minutes)

Now, read on for the latest…

🛠️ On venture building…

Commoditising your complement, by Gwern. This strategy involves companies dominating a layer of a product stack while fostering intense competition in adjacent layers to create a quasi-monopoly for themselves and drive down the prices of complementary products.

• Why you should read it: if you are operating in technology or software markets, you need to be hyper aware of this strategic move to avoid becoming a commoditised product. One of the most topical examples today is Google and Meta defending their advertising businesses by open sourcing their ML tooling and frameworks (e.g. TensorFlow and PyTorch). Meta has even taken it one step further by providing access to their LLaMa collection of foundation language models.

🧭 On venture investing…

What scaling to $100m looks like, by BVP. The article provides a comprehensive analysis of the growth patterns and operational efficiencies necessary for cloud companies to scale their annual recurring revenue (ARR) to $100 million and beyond.

• Why you should read it: I think the sub-title says it best: “The definitive benchmarking report on how cloud companies grow operationally efficient businesses and scale to $100 million in ARR (and beyond).” Despite the focus on reaching the magical $100 million ARR mark, counterintuitively the analysis and insights speak to the fact that sometimes slower, more measured growth can be more beneficial and sustainable for cloud companies than rapid expansion.

📖 Learning resource…

A reading list for leaders in uncertain times, curated by a16z. A collection of writings designed to equip leaders with an ability to thrive in a crisis.

• Why you should read it: contains many seminal pieces on leadership, managing your psychology and professional development, business strategy and operating your company through a crisis. If you’re short on time, I’d highly recommend “Peacetime CEO/Wartime CEO”, “Which Way Do You Run?”, “ Managing Your Own Psychology”, The Map and the Terrain” and “Competing Against Luck”. Bonus: I re-read Nobody Cares (~1min read time) almost every week.

📊 Market insight…

Metrics That Matter in 2023, a presentation by Dave Kellogg. This presentation focuses on the significant shifts in the startup world and the SaaS metrics that companies should prioritize in the current economic landscape.

• Why you should read it: Dave’s work is always full of pithy, actionable insights and this piece is no different. He systematically breaks down the key metrics software companies should be focusing on in the current environment (e.g. ARR growth, ARR/FTE, FCF margin, Rule of 40 score), and offers up the requisite data to benchmark the operating performance of a company.

🎲Lucky dip essential reads…

• Root cause analysis: Why? (x5)

• Profit Metric or Risk Gauge? Unraveling the CAC Payback Period

• More is Less: The Deceptive Simplicity of ARR

Before you go…

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Have a great week!

Josh