Early SaaS Investing (2023)
Stumbled on the napkin math investing breakdown for SaaS companies in 2023. (Shoutout to Luke Sophinos @ Linear)
Check it out:
This does a great job of explaining what the industry expectations from Pre-Seed through Series B.
Some additional context (from my experience personally)
In order to secure funding:
1 - Team matters
Having experience being a founder/knowing your space inside and out is crucial
2 - Momentum
More specifically: TRACTION
Opportunity
Users
Revenue
**For early investment purposes (Seed/Pre-Seed). After a SEED investment is locked in:
PMF is vital (I would argue it’s the only thing that matters)
listen to early users/iterate (cultivate evangelists)
build out the product
database
matching system
propriety structured data
Emphasis on capital efficiency is at an all-time high. (understandably so, given macro environment)
= KEEP BURN LOW
Metrics and financial models only get you so far in early-stage investing with tech companies. You don’t have a ton of real data. Many of the projections are a bit of a shot in the dark.
However, what you can directly control is your burn rate. Your burn rate is simply the amount of $$ you spend on a monthly basis.
The lower your burn rate, the longer the runway you have. (aka - the less money you spend, the more time you have till your bank account goes to $0 :)
Only spend money on technical folks until true PMF is really achieved. This is why you stick with founder-led sales for as long as possible/you’re ready to really start to scale.
This is where Naval’s famous quote comes from:
Learn to Sell, Learn to Build.
If you can do both, you will be unstoppable.
In conclusion:
Early-stage companies need small teams with dynamic founders who can do the roles of multiple people simultaneously. This allows them to keep their expenses low while they are building the initial version of their product and getting the traction necessary to justify institutional investment.