Dreaming of Unicorns

Raising money and growing a unicorn startup is a common topic of discussion among entrepreneurs and founders. Thousands of articles, panels, videos are devoted to fund-raising and huge dreams.

As a part of the CXOTalk series of conversations with innovators, we put this exact question to Jason Lemkin, a serial founder of enterprise startups and a Managing Director with Storm Ventures. Jason is also among the most widely read VC writers on the planet. His blog is called SaaSTr, he consistently is among the most viewed on Quora and puts on a great annual event.

Jason described his specific criteria for funding companies. Although his comments are a useful guide in general, bear in mind that different investors have varying criteria. Angels and late-stage investors may look for something different than Jason.

With no further ado, here is how to get Jason Lemkin to fund your enterprise SaaS startup:

  1. Send a highly detailed email describing every metric, slide deck, and all important details. Be sure to include top-line growth and your cash burn rate.
  2. Demonstrate you can grow at least 15% month over month, without hemorrhaging cash, when you reach one million dollars in revenue.
  3. Be sure the team is right
  4. Make your market is huge

Obviously, this set of criteria is simple yet highly restrictive. However, that makes sense because a typical VC may fund only a handful of startups out of hundreds he or she sees during a year. So, be realistic when planning to raise VC money.

To get the full scoop, watch the short video embedded above. You can also see the entire CXOTalk conversation.

This article was cross-posted from ZDNet.

Transcript

I'm quirky, I'm different. The best advice is, send me the most detailed email you possibly can, with a deck, with every single metric, and with why you are building something that's great. Just everything.

I only meet with one founder a week, max, but I actually read and look at almost everything. And I can process a lot off-line because I've done it before. The trick is not a punchy line, and don't send me pinned documents or a teaser. I don't do coffees and I've had plenty of coffee, here's my third cup and I do not want a fourth coffee today.

Send me the world's most amazing email, plus deck, plus metrics, plus everything. Tell me why it's insanely great. If it is, and even if it's a totally cold email, I will probably take the meeting.

A lot of people care more about the metrics than I do. I've learned that a lot of them don't really matter in the early days. I don't really care what your customer acquisition cost is, because if you have a good start-up it's always low in the early days and then it gets high.

I don't really care what your customer lifetime value is - I already know what it is. If you have true enterprise customers, they're going to last like five or seven years.

If you sell to very small businesses on a credit card, they're going to churn out three or four percent a month. I know this like clockwork. I don't care what you're CAC [customer acquisition cost] is, I don't care what your customer lifetime value is. I don't care about any of these things.

But one of the reasons is, I can distill it all just from two metrics: what's your top line growth and how much money are you burning. Then I know the whole story.

I'm interested in startups that when they get to a million in revenue (most of all my investments have been before that stage). when they get to a million in revenue, they'll grow at least 15% month over month, without hemorrhaging cash. As long as the burn rate is tolerable, and you can grow 15% or more and a million in revenues, and your great founders in a great space, probably I'm going to write a check.

Amazing founders, as we talked about that are better than me. And then, the ability to go from one to ten million in ARR [annual recurring revenue] in five quarters or less. That's what gets my attention. And beyond that, I'm not sure I care what your SaaS product does.

The best ones do today. The Slacks, the Zenefits, the TOPdesks, the other ones, they do it in five quarters or less. I didn't do it, no criticism if you didn't do it, because I didn't do it. But the best ones do it, they find a way.

And it's not just because the founders are better, the founders actually aren't a lot better. The markets are bigger than we all started this. They're all bigger. The percent of the CIOs budget that is going to SaaS is higher. Just a one percent transition of the CIOs budget to SaaS ... that's a lot of unicorns.

So that's why the best ones, if they hit it, if they just hit that product / market fit, and they have great teams, they will just grow faster than old people like me, that did it in 05, 06, or 08, or 09, like a Marketo; these new ones grow faster.

I'm quirky, I'm different. The best advice is, send me the most detailed email you possibly can, with a deck, with every single metric, and with why you are building something that's great. Just everything.

I only meet with one founder a week, max, but I actually read and look at almost everything. And I can process a lot off-line because I've done it before. The trick is not a punchy line, and don't send me pinned documents or a teaser. I don't do coffees and I've had plenty of coffee, here's my third cup and I do not want a fourth coffee today.

Send me the world's most amazing email, plus deck, plus metrics, plus everything. Tell me why it's insanely great. If it is, and even if it's a totally cold email, I will probably take the meeting.

A lot of people care more about the metrics than I do. I've learned that a lot of them don't really matter in the early days. I don't really care what your customer acquisition cost is, because if you have a good start-up it's always low in the early days and then it gets high.

I don't really care what your customer lifetime value is - I already know what it is. If you have true enterprise customers, they're going to last like five or seven years.

If you sell to very small businesses on a credit card, they're going to churn out three or four percent a month. I know this like clockwork. I don't care what you're CAC [customer acquisition cost] is, I don't care what your customer lifetime value is. I don't care about any of these things.

But one of the reasons is, I can distill it all just from two metrics: what's your top line growth and how much money are you burning. Then I know the whole story.

I'm interested in startups that when they get to a million in revenue (most of all my investments have been before that stage). when they get to a million in revenue, they'll grow at least 15% month over month, without hemorrhaging cash. As long as the burn rate is tolerable, and you can grow 15% or more and a million in revenues, and your great founders in a great space, probably I'm going to write a check.

Amazing founders, as we talked about that are better than me. And then, the ability to go from one to ten million in ARR [annual recurring revenue] in five quarters or less. That's what gets my attention. And beyond that, I'm not sure I care what your SaaS product does.

The best ones do today. The Slacks, the Zenefits, the TOPdesks, the other ones, they do it in five quarters or less. I didn't do it, no criticism if you didn't do it, because I didn't do it. But the best ones do it, they find a way.

And it's not just because the founders are better, the founders actually aren't a lot better. The markets are bigger than we all started this. They're all bigger. The percent of the CIOs budget that is going to SaaS is higher. Just a one percent transition of the CIOs budget to SaaS ... that's a lot of unicorns.

So that's why the best ones, if they hit it, if they just hit that product / market fit, and they have great teams, they will just grow faster than old people like me, that did it in 05, 06, or 08, or 09, like a Marketo; these new ones grow faster.