This week I wanted to share some notes on a conversation that I recently had with Matt Wensing, Founder/CEO of Summit. We covered a variety of topics from de-risking software companies to the nuances of raising venture dollars.
On another note- If you're a capital provider to software companies, I'm interested in how you're feeling now and what you expect over the next 12 months.
If you have a few minutes to spare this morning and can share your thoughts in our capital provider sentiment survey, I'd really appreciate it.
Capital Provider Sentiment Survey
We're collecting responses and will share them back out in detail in July.
I got to know Matt Wensing, Founder/CEO of Summit about 5 years ago. I recently ran across an article he wrote 3 years ago on Low-Risk Software Businesses (which you should take 2 minutes to read). It prompted me to reach out to him for a chat.
“You’re a business, a software business. Or you’re a misfit.”
Or, As Matt says in his article: Many small software businesses — particularly SaaS, are not startups, but are in fact de-risked — albeit small, businesses.
“As a Founder who is more of an inventor, I de-risk things from a different direction, starting with tackling the product risk before the market risk. I build something cool that solves my own problem but that I also feel has broad appeal. I know the technology works really well. It’s the more risky approach but with bigger upside. If you start with the market, I think the odds that you build something that blows them away is lower because you literally built with a specific, narrow use-case in mind. That has pros and cons.. I’m going to build whatever I think is amazing and then find whatever hole to plug it into. Once I am confident that the whole business model is working [I take the business model canvas approach to this stuff], it’s about moving from existential risk to can this be big enough? risk.”
For founders, efficient access to capital that doesn’t expect a venture return or impose high-risk premiums could be the difference between shutting down or realizing their vision.
“Founders get on the VC train too early and never get caught up on things.”
“For me, what that means is the dream for founders is there are more places where they can go, be evaluated on the basis of numbers, and have a very mechanical, efficient experience because they don’t know how to play the VC game. Three years after I wrote this, it’s surprising the number of founders that still struggle to take advantage of non-venture capital because they still see it as see it as overwhelming. There’s still a cornucopia problem in that there are now a lot more options, but founders are unaware and confused regarding when to use which instrument or financing option.”
“So much of VC is who you are and how you pitch it. If you say hailing a cab is a venture-scale business, that sounds as bad as any other pitch, but if you are Travis Kalanick or Adam Neumann, you have the ability to convince.”
“But what if we could show that many small software businesses — particularly SaaS, are not startups, but are in fact de-risked — albeit small, businesses?”
Matt is an excellent and witty writer providing informative and actionable content, specifically around product-market fit and go to market.He’s regularly sharing his thoughts now on his website: https://mattwensing.com.
Here’s a somewhat related Tweet I ran across from the Co-CEO of publicly-traded holdco Tiny. Tiny acquire a broad array of businesses across services, ecommerce and software holding them for the long-term and harvesting the cash flow to re-invest.
The bit below on one of the types of companies they bring onto their platform aligns with Matt’s theme of “misfits”
ChartMogul data shows: Growth rates down about 33% from the peak 2 years ago, and maybe 20% from a year ago.
This is for private SaaS companies, heavily skewed to <$10M revenue.
Altimeter data shows: new bookings in Q1’23 were down about 33% on average from Q4’22. This is for top public SaaS and cloud companies.
Bigfoot Capital portfolio YTD YoY data through April shows (using medians):
Aggregate Portfolio: revenue growth of 15% on annualized revenue of $3.9M
Companies down YoY: down 17% on annualized revenue of $3.3M
Companies up YoY: up 28% on annualized revenue of $4.1M
1/3rd of the way through 2023 and 15 months into the dramatically shifted macro environment, it does feel that revenue performance, while still challenging relative to the past few years, is beginning to stabilize.
If you are looking for more industry commentary and quick takes, I frequently post on Linkedin.
Kyle has been writing about product-led growth (PLG) for a few years now, and at this point, I feel he owns the narrative around it, having done the most comprehensive research I’ve come across.
In this piece, he makes the case for applying some new metrics to PLG, vertical SaaS and usage-based software companies. Scroll down to the ‘Operational Metrics’ section to see his thoughts on some metrics to apply across the user journey (funnel).
I found his activation metrics (3rd stop in the funnel) to be the most interesting. That’s probably because I think this is the most important step in the user journey. If your product can’t get those trying it out to activate, your bottom of funnel metrics will suffer, and, as a result, your top of funnel metrics are at risk of being misleading vanity metrics.
If you could spare 3 minutes this morning to share your thoughts for our Q2 2023 capital provider sentiment survey, I’d really appreciate it.
Click the image below to see the results from last year’s survey (write-up and deck).
Bigfoot Capital offers growth-oriented loans for B2B software companies with $2M- $20M in revenue. We pride ourselves on partnering with companies and their stakeholders to provide a capital partnership that comes with stability and support.
If you operate or support a B2B software business and want to learn more about alternative capital options that preserve equity, get in touch with our team today.
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