Duet Partners
Tel: +44 (0) 20 7416 6630 / Email: partners@duetpartners.com


Weekly Briefing Note for Founders

8th October 2020

This week on the startup to scaleup journey:

  • How to position your business
  • The rise of the multi-stage VC
  • The longer your deck, the less you know
  • Investors must build conviction before they invest

1. Insights of the week

How to position your business

Back in the day, when Jonathan and I were talking to investors about our plans for Duet, we stumbled upon an important insight. At a lunch meeting with Octopus Ventures, Luke Hakes said, "Make sure the companies you bring us tell us what they do". It was one of those moments where you're not sure if you heard it right. Luke went on to explain that too often they would meet a company and by the midpoint of the pitch would still have no idea what the company actually did! We took the advice on board, strange though it sounded. Octopus went on to invest multiple times in exciting companies we introduced. All made it absolutely clear what they did within the first few minutes of the meeting!

Positioning your business clearly is never quite as easy as it sounds. When startups are still on the journey to find product/market fit, many things are still in a state of flux, but once there it should be 100% clear what your positioning is. This is not only vital to provide a clear sense of direction to the team, it's essential for those on the outside, such as prospective new investors, potential new hires, the media and, not least, customers. Often the challenge is how to succinctly elaborate this. At its core, positioning is a statement. It’s a sentence or two that clearly defines the problem you're setting out to solve and why your solution is compelling.

Arielle Jackson cites a formula she learned from former Head of Marketing and Communications at Google, Christopher Escher, when she was an associate product marketing manager. The structure is as follows: For (target customer), Who (statement of need or opportunity), (Product name) is a (product category), That (statement of key benefit), Unlike (competing alternative), (Product name)(statement of primary differentiation). In her excellent article for the First Round Review, she provides some great examples, including Amazon: 

For World Wide Web users Who enjoy books, Amazon is a retail bookseller That provides instant access to over 1.1 million books. Unlike traditional book retailers, Amazon provides a combination of extraordinary convenience, low prices and comprehensive selection.

What's your company's positioning statement?

The rise of the multi-stage VC

As fund sizes have ballooned over recent years we have seen an increase in the number of funds investing across multiple stages. In the US, big VCs like General Catalyst (GC), Sequoia, Andreessen Horowitz and many others are now investing across Seed, Series A and Series B. This is pushing out other institutional funds that have either specialised in Seed only, or seen Series A as their entry point. What has largely been a US phenomena is now starting to happen in Europe, especially in burgeoning SaaS markets where the likes of Accel, Index, Atomico and others are looking for the earliest entry point into the really hot opportunities.

For founders this represents a quandary given the potential ramifications. Bringing is a multi-stage investor at Seed can take the uncertainty out of the trickiest round of all, Series A. Judging when a company is truly ready for Series A and about to start scaling is not always clear cut. Timing this right is one of the hardest things founders have to manage. Often this takes longer than anticipated requiring more runway than the Seed round anticipated, so having the Series A investors already 'on board' can relieve the tension. But some fear there may be a cost. Why should a multi-stage investor who has come in at Seed be incentivised to price up the Series A without a new lead investor to create a competitive dynamic?

Founders (and some marginalised Seed investors!) are starting to openly discuss these changing circumstances. Joe Thomas is the founder & CEO of Loom, the startup that helps you get your message across by making it easy to record instantly shareable videos. In his interview with seed investor Harry Stebbings of Stride.VC on the 20VC podcast, he discusses how he weighed up the pros and cons of this decision before allowing GC to come in at the Seed round alongside existing investor Point Nine Capital. Even though at the subsequent Series A round GC had the will and the means to lead, the founders still managed to lure in Kleiner Perkins to lead this new round. They repeated this feat at Series B, led by Sequoia. The story of their seduction by this Tier 1 VC fund - revealed by Joe Thomas in the podcast - will go down as one of the most unusual in fundraising history. 


The longer your deck, the less you know

One of the hardest things to convince founders to do is keep their pitch decks short. 20 slides should be the absolute maximum, 15 is better. It's not just about the attention span of the investor, or the time slot you will get to present, it's about something much more profound: A short, high impact deck conveys the deepest level of understanding about the opportunity and why you will succeed. This might sound counterintuitive - surely a longer deck tells a fuller story? That might be the case but investors don't want the whole story, they really want your key insights and the evidence that backs them up.

We regularly see draft pitch decks of 35 to 40 slides that founders have pulled together as a starting point. Keen not to miss anything out they can resemble a hybrid of an investor deck, a corporate intro presentation, and a business plan. There's nothing wrong with any of these elements in their own settings, but inevitably such an amalgam will contain lots of ideas and assumptions about the future of the business. Unfortunately, investors - especially at Series A and beyond - aren't going to be particularly interested in listening to your assumptions. They want to know which of your key assumptions have been validated, and consequently what your 'unique insights' are - in other words, the facts. 

In the words of entrepreneur and startup guru Steve Blank, from his recent article on the subject"If you find yourself trying to shoehorn your 35-slide presentation into a “VC-ready” format, you don’t know enough yet...The irony is the more you know, the easier it is to make your presentation short and concise." A great way to slim the draft down is to pull out every slide that doesn't have a compelling fact or clear insight you can personally back up. If you end up with 5 slides remaining then you probably have some customer-facing work to do. But often, with some judicious pruning and reworking to allow the real insights to surface, you should end up with something much more compelling. Less is definitely more in this case.


Investors must build conviction before they invest 

Understanding how investors evaluate prospective investments is a constant study as the early stage market evolves. Gathering these insights and integrating them in a useable framework for investment preparation is one of our passions. Our Investment Analysis scorecard is the point where all this converges: this incorporates the 16 most commonly used investor assessment criteria for each stage of company development. Any investor evaluation takes time, but there is a tipping point along the way when the investor has seen enough, when they make the emotional buying decision. At that point it becomes 'yours to lose' - yet it's often hard to tell when you have crossed this threshold.

Our experience is that there is a subset of critical factors that have undue influence with most investors. If any of these don't meet the mark they will likely scupper the whole deal. They are: the size of the market opportunity (the scale of the 'Problem'), the founder's unique insight (the Problem/Solution thesis and the evidence that backs this up, leading to Product/Market fit), and what we might call 'low friction revenue repeatability'. i.e. can we really scale this and keep on a consistent growth trajectory? If these 3 ingredients work together then you have a virtuous circle to support growth and, almost certainly, a step change in investor conviction. 

Different investors will have their own spin on these.  J. P. Bowgen at Morpheus Ventures builds out his thinking on these core ingredients in a recent articleEvaluating early-stage startups: a framework for building conviction. His thinking aligns well with our core elements, but also adds in 'Strength of Competitive Moat.' He writes down all his core points of conviction when he believes he has reached his threshold, e.g. "I believe this company’s moat is significantly challenging to replicate because of x, y, and z." If these points of conviction all look really solid, he's over the emotional hurdle.


2. Other pieces that are really worth reading/listening to this week: 

80% of European enterprise exits are valued at less than €50m
An appeal by Daniel Keiper-Knorr, a partner at VC firm Speedinvest : stop chasing unicorns and start creating serial founders! "For the sake of founders, the industry and VCs themselves, we need to do more to generate exits among the long tail of startups that aren’t going to become outsized." Some really interesting data points around valuation in this piece.

A customer acquisition playbook for Consumer startups
For Consumer companies, there are only three growth “lanes” that comprise the majority of new customer acquisition: 1. Performance marketing (e.g. Facebook and Google ads); 2. Virality (e.g. word-of-mouth, referrals, invites); 3. Content (e.g. SEO, YouTube). So, how do you pick, and win, a lane? Too often startups pursue this choice in a haphazard way, ending up betting on the wrong lane, or trying to win too many at once. To help you through this process, here is a three-step framework, just published in First Round Review.

Helping startups to navigate policy and regulation
An insight into new venture fund Form Ventures that has a contrarian investment thesis - to fund startups in any market or business model where the decisions of politicians, policymakers and regulators can have an influence. "We believe the collision of tech and policymakers will be one of the defining features of the next fifty years...you can barely read news sites or twitter without it being right there, and this is just the start." Read more on this interview with Leo Ringer of Form Ventures.

72% of startups aren’t happy with their corporate partnership — this is why
The number of partnerships between established corporates and nimble startups is skyrocketing — but not many have been successful. In fact, only 27% of startups surveyed in a recent report by McKinsey and Company were satisfied with how their partnership with a corporate was working. Corporations weren’t happy either, based on the comments McKinsey cited.  As Sifted subsequently reported: the report sets out five recommendations for how the corporate-startup partnership can run more smoothly and avoid being — as one corporate leader described it — “a zoo for suits”.

New $1B Deep Tech fund for Europe - footnote
Last week we mentioned a new fund: "Spotify CEO Daniel Ek pledges $1Bn of his wealth to back Deep Tech startups from Europe." This week we can go much deeper into the mind of this hugely successful entrepreneur and share insights from a wide-ranging interview on 'The Observer Effect'. He reveals how he manages his time, ensures effective meetings, and a whole raft of other leadership topics. This is a really excellent piece to chew on.

Happy reading (and watching)!

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