Friday, July 20, 2007

Love at First Site

This was forwarded to me in an email so I don’t know the author or I’d give him credit. I think this a good story/lesson for positioning a company for funding.



Love at First Sight

Yesterday I joined my fifth board and my first for Crosslink.

Years ago I had just received a term sheet for Series A venture capital and went looking for a looking for a bank.   My accounting firm suggested we consider a certain banker at Summit Bank (New Jersey).  I came home that evening to my little rented house, called my friend Steve, and declared I had just had lunch with the perfect woman for me.   We have been married for 21 years. When you know, you know.

My partner Gary Hromadko and I met with a small SaaS company about six weeks ago.  (I will keep the specifics out, as they have not yet announced the funding.) Not knowing what to expect, we sat down and began to listen.

What unfolded was a crystalline and complete story.  The whole package was so clear and compelling, I walked out of that meeting 90 minutes later with a sense of déjà vu. We had just met the perfect deal for us.  When you know, you know. 

So what was it that rang such an obvious and compelling chord?  I can easily enumerate the points.

Greenfield Opportunity
SaaS is a platform shift in the delivery of software.  Every bozo vc knows that by now.  And we all know that existing product markets always get replicated on new platforms, resulting in new businesses built in the ashes of old ones. is built in the ashes of Seibel.  Netsuite is trying to build itself in the ashes of SAP or Quickbooks.  This one was a SaaS version of a category that was multi-billions in annual enterprise software revenues, and there is no clear leader in the SaaS version of the category, yet.

Experience and Domain Knowledge
The founders had strong credentials (both business and academic) with a record of real achievement in exactly this product category.  They knew who the customers would be, why they would buy, and why a SaaS version would be appealing.  They also recruited strong, experienced marketing and sales executives whose experience and approach to the job were context-appropriate.  The sales strategy is the right one for the business and the VP of Sales has deep experience with exactly this kind of sales process.

Clear and Simple Product and Roadmap
The product demo was short (10 minutes) and drove home all the key points.  The key success factors were well established in the earlier part of the pitch, making it very easy to see how the product met those market requirements, and why the scheduled future releases amplified the core story and did not take the company in a new direction.  The product can become a franchise.

We Came Prepared
We knew what we were looking for.  As a firm, we have been developing a SaaS practice for some time.  While we were looking at this company, Gary was finalizing our investment in OpSource, which was announced about two weeks ago.  We also are investors in Omniture, which has blossomed into a franchise in SaaS web analytics, and several other smaller SaaS companies.  I had come close to two other SaaS investments earlier in the year.  So by the time we showed up, we had a clear idea of what quality looks like, how to value it, and how to assess it. 

Our diligence confirmed our instincts.  Not only did the team check out as we expected, the customers raved about the product.   When we asked customers about switching, we uniformly heard the “from my cold, dead hands” response.

Why am telling you all this? It is not to puff up the Company. This is part of why I left the company specifics out of the story.   The truth of this business is that it is often one of love at first sight, or never to be loved.  It is rarely the case that the second or third impression is the one that charms.  Probabilities asymptote to zero, not to one. Test yourselves against the first three points, because this is the simple set of criteria most investors use.  Test your audience against the fourth.  Are you talking to someone prepared to appreciate the opportunity you are presenting?

I think we went from first meeting to term sheet in about 10 days. It did take me a little longer than that to get married after that first lunch.  She needed to do a lot more diligence than I did.  When you know, you know



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