VCs Need You To Be a Potential Fund Returner

So venture capital turns out to be a pretty tough business. Imagine a $150m seed VC fund that buys 15% stakes in each startup. They write some follow-on checks, but ultimately, typically get dilutive to about 10% ownership.

Then one start-up in the fund is sold for $500m. An epic amount! How much does that return for the VC fund? $50m. A lot. But … but … it’s only 33% of the $150m fund.

And the job of the fund is to do at least about 4x “gross”, or to turn that $150m into $450m. So that $50m barely gets you 10% of the way there.  And note while VCs are often well paid, they don’t make profits or “carry” unless the full fund is first returned. Until that $150m is payed back.

So you can see here, even a $500m “exit” isn’t a fund returner for a $150m fund. It’s not even close. It’s not enough. You need a bunch — in every fund.

So we had a “SaaStr Royale” casino at SaaStr Annual last year and it was a big hit, so we’re going to do an invite-only VIP version on September 11 for 100+ top CEOs and 100+ top CROs (and VP of Sales).

The goal:

• The best CEOs never get a chance to know enough top CROs.
• The top CROs really only get a chance to meet new CEOs when they are job hunting

It’s rare 200 of the best CEOs and CROs get together just to have fun and chat SaaS!

If you’re at a high-growth SaaS startup as a founder or CRO/VP Sales, feel free to apply here.

We’ve talked a lot about this on SaaStr, let me summarize my top learnings from 15+ years

• Try to close at least 10–20 customers yourself first, before you hire a sales rep. You can’t teach them how to do it if you haven’t done it yourself.
• Then, hire a sales rep to help you. Hire someone that has sold at your price point / deal size. If they have, they’ll roughly know what it takes to close your type of deals. The number of calls, Zooms, demos, discussions, etc.
• Don’t hire someone that hasn’t worked at a startup. This almost never works. They can’t sell without a brand behind, without lots of sales ops help, without collateral, etc.  It’s not their fault.  They just rarely can survive without all that infrastructure and brand behind them.
• Most importantly — don’t hire someone you wouldn’t buy your own product from yourself. Everyone makes this mistake. Leads are so precious in the early days. You can’t entrust them to someone you wouldn’t buy from yourself. No matter how impressive their LinkedIn, or how smooth their talk is. I can’t tell you how many times I’ve talked to early-stage founders where their first few sales hires didn’t work out. I always ask, “Be honest. Would you have bought your own product from them?” The answer is almost always No, or a hedged Maybe.
• Ideally, hire 2 reps at first, not just 1. If you just hire 1, even if they do well, you won’t be sure why. You want to run an A/B test and see how different things work, and when they don’t.
• Remember a great sales rep is accretive. A poor one costs you money, though. The best reps close much more than they take home in comp, at least over the course of a year. So don’t be scared to hire a great rep. They’ll more than pay for themselves. And ultimately, move on from anyone that can’t close.
• You’re usually not ready for a real VP of Sales, even a stretch VP of Sales, until you have hired 2 reps hitting quota. There just isn’t enough process for them to build on and scale up. The job of a VP of Sales generally isn’t to get the flywheel going. It’s to accelerate it.  

You are going to obsess about competition. You won’t be able to help it. And mostly, it’s healthy.

Founders that arrogantly dismiss the competition as “stupid” or even just “too old to innovate” I find … generally fail. At least later. The best ones have a truly healthy respect for the competition. Even as they plan to disrupt them.

But one thing we’ve all learned is we worry just a bit too much — and the wrong way. It’s so easy to obsess about competition. They are all over Twitter, in every deal, every discussion with the sales team. It’s good, it makes you stronger. But if you have a great team, the competition generally can’t truly kill you. I’ve almost never seen that with a top-tier team.

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