Capital Chronicles #23

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.

As subscriber #TBD, read on for the latest…

🛠️ On venture building…

Proof and FOMO are critical for raising a successful Seed Round (Lenny’s Newsletter): demonstrate proof of commitment, proof of work through thorough customer development and research, and proof of insight by having a clearly expressed thesis. Additionally, create FOMO among investors by compressing timelines, researching investors, crafting quality materials, getting powerful warm introductions, practicing the pitch and building social proof via cashing smaller investments and maintaining a degree of promiscuity with potential leads.

Follow Lenny’s practical how-to guide on raising a seed round, based on the prior experience of 1000+ seed rounds.

🧭 On venture investing…

Early-stage investors need to determine their “right to win” (Equal Ventures): valuation premiums of late to seed-stage companies historically ranged between 20-25x. This ratio propelled upward in 2021, peaking at 40x in 2021. That premium has dropped to below 10x today, making seed investing the least attractive it’s ever been. Investors need to figure out their “right to win” and practice price discipline to generate alpha. For VCs stuck with beta, returns are going to be more tied to entry points and access to liquidity than skill.

Understand the nuances between alpha and beta seed-stage returns to refine your investment strategy.

📖 Learning resource…

Use the four vital signs of SaaS to monitor company health (Scale Venture Partners): four critical metrics can be used to gauge the performance and potential of a SaaS business quickly: quarterly GAAP revenue growth, sales efficiency via the Magic Number, gross and net revenue churn, and cash burn via operating income (as a percentage of revenue). For easier monitoring and benchmarking, opt for simplicity and accessibility when calculating these metrics. Once an issue is identified, greater precision can be used for a deeper investigation.

Implement the Four Vital Signs of SaaS as a standardised framework for monitoring performance and potential.

📊 Market insight…

Refined ICP targeting and flexible pricing strategies are proving most effective (Theory Ventures): The 2024 Theory Ventures Go-to-Market Survey reports startups are increasing quotas by 14% despite facing longer sales cycles (12 days) and increasing payback periods (12%). To balance these impacts, startups are improving lead conversion (9%) and combining usage and seat pricing to generate 3x greater net revenue expansion over other pricing strategies. AI’s measurable impact on sales performance remains elusive despite widespread adoption.

Gain valuable insights into how startups are evolving their go-to-market strategies in response to shifting buyer behaviors and the increasing adoption of AI.

🎲Lucky dip essential reads…

• 5 Metrics that Matter When Raising Your SaaS Series A and B Round

• Executing the ‘Killer Wedge’ strategy for entering markets

• The “Idea Bake Sale” and Why It’s a Bad Idea to Have One

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• Investment toolkit: tools, templates, and how-to guides to help you evaluate and analyse venture investments. (3 referrals)

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Have a great week!

Josh