Capital Chronicles #6

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: developing a framework for R&D spend with a16z, Lead Edge Capital outlining the eight qualifying criteria that matter most when screening investments, and finding extreme product market fit with First Round Capital.

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…

How to Think of R&D Spend by David George, a General Partner from a16z. David argues that R&D should be viewed as an investment rather than an expense, and provides a framework for evaluating R&D efficiency.

• Why you should read it: there are plenty of metrics out there that help you measure ROI on sales and marketing or assess the capital efficiency of your business, but what about R&D? R&D is perhaps the most important capital to allocate, yet it can also be the hardest to allocate efficiently. I really like David’s approach, in essence: (1) start with benchmarks; (2) map spend to your product roadmap; (3) performance manage your product and engineering teams.

🧭 On venture investing…

The 8 Criteria that Matter Most, from the Founding Partner of Lead Edge Capital, Mitchell Green. A discussion on the ‘Lead Edge Eight’, a set of eight criteria that provide a simple yes or no answer when screening companies.

• Why you should listen: a really thoughtful and honest discussion with Mitchell drawing from his experience at Bessemer Ventures Partners, providing insight into how a growth stage firm is run at scale. Mitchell also provides guidance on how the ‘Lead Edge Eight’ is used in practice, which can be a great reference point for investors thinking about their own screening criteria. Only 80 of the 8000 companies (1%) contacted each year meet all eight!

📖 Learning resource…

Increasing Your Odds of Finding Extreme Product Market Fit, a 14-week intensive run by First Round Capital. A program designed to help exceptional B2B founders build epic companies.

• Why you should apply: FRC are a specialist seed-stage Tier 1 US VC and run the popular First Round Review (like HBR but for startups). The firm has distilled what successful enterprise companies have done to find PMF into a series of tactical lessons for sales‑led B2B founders. Bonus: if you don’t want to wait for the next program, Lenny Rachitsky recently had Todd Jackson (Partner at FRC) on his podcast to breakdown their PMF framework in more detail (check out the ~2-3 minute synthesis here).

📊 Market insight…

The ICONIQ Growth Enterprise Five, from Vivian Guo from the ICONIQ growth team. A market report outlining the five critical metrics for assessing the health and growth potential of SaaS companies.

• Why you should read it: this research summarizes quarterly operating and financial data from 96 B2B SaaS companies into a succinct set of metrics that the team believe are “highly representative of a B2B SaaS company’s overall growth and efficiency.” Even better, the team explicitly define how they calculate these metrics which makes it a lot easier for entrepreneurs and investors to benchmark against.

🎲Lucky dip essential reads…

• The Empty Promise of Data Moats

• You Can't Fix a CAC Payback Period: compound versus atomic metrics

• The State of State of AI Report (that’s not a typo!)

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Have a great week!

Josh