Capital Chronicles #33

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.

Note: this will be the last Capital Chronicles for 2024 as yours truly takes a break over the holiday period to rest and recharge. I sincerely appreciate every one of you legends for reading. Keep an eye out for the next Capital Chronicles hitting your inboxes in the new year!

As subscriber #TBD, read on for the latest…

🛠️ On venture building…

Adopt an authoritative management style to foster assertive, self-reliant teams (Roger Martin): there are three dominant styles of parenting: permissive (lackadaisical), authoritarian, and authoritative (principled). The authoritative style, characterized by high responsiveness and high demandingness, is the most effective for both parenting and management. This approach involves clear rules and expectations, two-way communication, and joint problem-solving. It is important to strike a balance between providing direction and fostering initiative.

Learn how to apply the authoritative management style to improve team performance.

🧭 On venture investing…

ServiceTitan’s compounding IPO ratchet a sign of things to come for VC-backed IPOs (Meritech Capital): ServiceTitan raised significant VC capital, including a $200M Series G in 2021 at $9.5B. Its S-1 filing revealed the Series H round included a compounding IPO ratchet, a rare structure in SaaS IPOs, triggering anti-dilution protections if the IPO share price is below the Series H price of $84.57. While dilution would be minimal (1-2%), it represents a cost to existing shareholders and has pressured the company to go public as soon as possible.

Use Meritech Capitals’ analysis to better understand the mechanics of a compounding IPO ratchet.

📖 Learning resource…

Evaluate sustainable value creation by understanding the competitive landscape and strategic positioning (Michael Mauboussin): companies must focus on maintaining or expanding their economic moats, defined by a high ROIC relative to their WACC. Essential tools for this analysis include: Industry mapping, Five Forces analysis, Disruption theory, Profit pool distribution, Market share concentration and Value chain analysis. These tools help investors and entrepreneurs evaluate investment opportunities.

Understand the principles from Measuring the Moat to better build or assess sustainable competitive advantages.

Bonus: the Michael Mauboussin Index: 150+ Research Reports / 50+ Articles, Presentations Transcripts / 50+ Videos / 30+ Podcasts / 600+ Books all available via a Google Sheet.

📊 Market insight…

SaaS growth expectations have dramatically reset in 2024 (High Alpha): while early-stage companies (<$1M ARR) maintain strong performance with 100% median and 250% top quartile growth rates, larger companies have seen material declines. Growth rates for mid-market companies ($1-50M ARR) remain challenged, and a $50M+ ARR company now only needs 25% year-over-year growth to be considered "great" - less than half the growth rate expected in 2021/2022. This aligns with public SaaS markets, which have stabilized at 17-18% growth.

Benchmark company performance across growth and efficiency metrics using High Alpha’s detailed benchmarking report.

🎲Lucky dip essential reads…

• “The Three Months of Strong Growth” rule in raising VC

• AI Eats the World Presentation from Benedict Evans

• Running Board meetings that don’t suck

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Have a great week and see you in 2025!

Josh