Capital Chronicles #24

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…

The laws of strategy do exist for startups (Roger Martin): the core principles of strategy, such as defining an integrated set of choices to compel desired customer action, the nature of competitive advantage, and competition, remain the same for startups as for established companies. Key differences: (1) starting with a customer gap based on non-existence versus unsatisfactory outcomes, and (2) focusing obsessively on mental and physical availability, ensuring customers are aware of their existence. Obscurity is a major adversary for startups.

Apply competitive strategy to startups in a more sophisticated way by balancing the similarities with the differences from established companies.

🧭 On venture investing…

Accessing corporate data: the key to unlocking AI’s next innovation cycle (Emergence Capital): the next revolution in AI will not be driven by more powerful algorithms or larger public datasets, but by the vast, high-quality corporate data currently locked within enterprises. Four key areas of emerging opportunity for startups: engaging experts for high-quality data, leveraging latent data within business apps, capturing data in context without disrupting workflows, and securing proprietary data by helping enterprises build their own custom models.

Look for unique companies applying novel methods to unlock corporate data and generate value.

📖 Learning resource…

Understanding your unit economics is even more critical in 2024 (OnlyCFO): with a heightened focus on balancing high growth with efficiency in post-ZIRP markets, software company leaders and investors must know the nuances of the basics to allocate capital effectively and understand future cash flow potential: risk (payback period), cash burn impacts (the cash flow trough), capital efficiency (burn multiple and ARR per FTE), unit profitability (LTV/CAC ratio), expansion potential (net revenue retention) and timing investment (stacking S curves).

Learn the basics of cloud unit economics and know how to react to changing conditions.

📊 Market insight…

SaaS isn't dead (yet) and AI could make it bigger (Meritech Capital): despite many predicting the end of SaaS due to significant technological advancements in AI, SaaS has never been stronger. In 2024, the median top 10 public SaaS company boasts nearly $2.3B in ARR, growing at 26% YoY, and achieves a Rule of ~50, with high structural retention and upsell capabilities. As a sustaining innovation, AI will make the strong companies even stronger. Successfully embedding AI technologies into core offerings could see TAMs expand dramatically.

Refine your SaaS investment thesis by better understanding how these market leaders can navigate the transition from cloud to AI-enhanced solutions.

🎲Lucky dip essential reads…

• Being an "N of 1" VC firm

• Surprising lessons on website conversion from 20,000 experiments

• The 3 types of hires you can't make: the Jaded, the Broken, and the Done

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Have a great week!

Josh