I am writing this on an Amtrak train returning from the last board meeting of the third quarter earnings season. I sit on a bunch of boards and am an observer on several more. This cycle there were at least five conversations where the competitive intelligence discussion went something like this.
CEO: “Two of our competitors recently raised rounds of between $15 million and $20 million and they have each raised between $40 million and $50 million since inception. A new company that was in stealth mode just raised $25 million and we have never heard of them before. We are falling behind and need to raise more capital. Maybe we should think about a much larger capital raise.”
Osage: “How big are these guys?”
CEO: “Well, they have a lot more people than us and their booths at trade shows are always the big ones in the expensive slots, but we have beaten them in most customers where we run into them and from what I hear, their revenue is within the range of ours.”
Osage “Is the amount raised the right metric?
The problem is that we are dealing with private companies and the only data that is public is the amount of capital raised and sometimes the valuation. This means that the data on the amount of capital raised is what people fixate on when, in fact, large amounts of capital being raised often suggests capital inefficiency, founder dilution, layers of preference, and the inclusion of very large venture funds who need to write big checks. Maybe CEOs need to focus on other metrics.
My suggestion to CEOs is to compare their companies instead on performance metrics. Openview Ventures, Pacific Crest, and others provide great benchmarks of SaaS performance. If your company is more than one standard deviation above the mean for companies your size on growth rate, is better than your peer groups on CAC and CAC recovery, and your retention rates are much better than the average – then you are killing it. If you have done this with less capital than other companies, then you are killing it and you own a ton of your business.
My message to CEOs – if you are growing faster, outperforming benchmarks, and you have raised less capital than your peer group – congratulations. Keep it up and you will win.