1/ From vantage point of being able to see hundreds of companies, good & bad I have some advice for founders - Get to know and love "gross margin." Revenue doesn't pay your bills, GM does
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3/ Stop obsessing about LTV/CAC ratios. Payback periods on customer acquisition way more important to you in the near-term. Get paybacks wrong and you're out of business
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4/ LTV/CAC is to impress investors. Ultimately it matters a great deal. But in short-term you know that LTV is based on optimistic future assumptions and payback periods on acquisition are based on flying into a brick wall if you get them wrong
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5/ Unless you're scaling rapidly don't hire staff too quickly. More people aren't the answer if your core business isn't already productive. Hire when it feels like you're bursting at the seems or missing a critical skill on existing team or have figured out how to scale growth
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6/ Raising capital at very high prices helps avoid short-term dilution. But if you raise at too high a price you make it harder to raise next round. Be sure you can grow into your valuation by next fund-raising or your last raise could become existential or extremely dilutive
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7/ If you know an employee is a negative energy in the office don't delay parting ways. Negative employees affect others like a disease and you can't ever turn them around. There's never a perfect time - except now.
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8/ Don't spend undue time advising other people's startups until your business is successful, scaling & stable. Founder focus is the single most important resource that needs to be spent wisely
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9/ Don't spend undue time at conferences. Networking & relationships are important so some events are fine but if you're addicted to being out of the office that should tell you something. Or at least your employees will tell you what it means
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10/ Communicate to board early & often. Getting through hard times requires investors willing to spend time, to spend internal political capital & to be willing to go to bat for you in tough times. Strong relationships & trust based on transparency helps a great deal
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11/ Venture debt has its places (timing of AP vs. AR, inventory purchases, etc) but should be used very sparingly as a replacement for venture capital except at later stages of your business. Usually a terrible idea as runway extension. Debt comes home to roost
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12/ As you scale you should think about redundancy in every key role in the company - including CEO. Things happen, people tire, sometimes tragedies. You wouldn't build a single point of failure in your code - shouldn't in your company. Tech, product, sales - all need redundancy
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Agreed that LTV figures from the company itself will almost surely be optimistic. But that wouldn't be a problem with LTV, just how it is measured. I've spent ~all my time as an academic and a founder on highly accurate, well-validated LTV predictions.
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Ultimately, forecasting customer acquisition (volume+cost), retention, order rate, basket size and margin generate Q-by-Q revs, GM, and most of EBIT. We thus have to predict the determinants of LTV whether we want to or not, but view it "strung out" as per period cash flows.
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I co-founded and sold one company that focused on nothing but LTV predictions which we sold to Nike (https://swoo.sh/2NNeBNv ). I co-founded another, Theta, which is working with a number of PE firms to use similar models for valuation diligence (https://www.thetaequity.com/ ).
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agree! it is startling how little focus on ROC there is in VC. Is there a rule of thumb for payback period lengths that would be viewed as attractive? assume bird is a positive outlier on that metric?
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Yes yes yes. Especially true for consumer product biz
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