These simple metrics will tell you if your startup is ready to scale

Welcome to Extra Crunch Friday

There’s a temptation inside early-stage startups to claim that the go-to-market strategy is fully operational. In reality, GTM is a stark numbers game, and even with a solid plan in place, it can be easily foiled by common problems like turf battles and poor communication.

Finding GTM fit is a milestone for any startup that includes everything from expanding the engineering team to launching your first media buy. But how do you know when you’ve reached that magic moment?

“You have to consider three metrics: gross churn rate, the magic number and gross margin,” says Tae Hea Nahm, co-founder and managing director of Storm Ventures.

High churn means customers aren’t delighted, low gross margins mean poor unit economics, and that so-called magic number?

“You can calculate it by taking new ARR divided by your marketing and sales spending,” according to Nahm. “But keep in mind that the magic number is a lagging indicator, and it may take you a few quarters to see a positive result.”

Thanks very much for reading, and I hope you have a great weekend.

Walter Thompson
Senior Editor, TechCrunch
@yourprotagonist

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China’s expected edtech clampdown may chill a key startup sector

China’s edtech industry is estimated to be worth $100 billion, but its leaders are reportedly considering a plan that would require these firms to operate as non-profits.

“When it comes to control, the Chinese government doesn’t mind wiping out a few dozen billion dollars in market cap here and there,” writes Alex Wilhelm in this morning’s edition of The Exchange.

“That’s not a great system.”

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How we built an AI unicorn in 6 years

Few startups go to market with the exact product their founders first envisioned.

Today, Tractable is known for developing tech that allows drivers to upload photos of their vehicles after a collision so its AI can assess the damage. Its first paying customer, however, used Tractable to inspect plastic pipe welds.

And as fate would have it, that customer also fired them just as the founders were raising their first round.

“We struck gold with car insurance,” says co-founder Alex Dalyac, as it was “a huge and inefficient market in desperate need of modernization.”

In an Extra Crunch guest post, he shares several takeaways from the last six years spent scaling a unicorn that have value founders of all stripes. Step one?

“Search for complementary co-founders who will become your best friends,” advises Dalyac.

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Startups and investors are turning to micromobility subscriptions

“Amid the chaos of the COVID-19 pandemic and the murky path to profitability for shared electric micromobility, an increasing number of companies have turned to subscriptions,” Rebecca Bellan writes in a roundup about the future of micromobility.

“It’s a business model that some founders and investors argue hits the profit center sweet spot — an approach that appeals to customers who are wary of sharing as well as paying upfront to own a scooter or e-bike, all while minimizing overhead costs and depreciation of assets.”

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The European VC market is so hot it may skip its summer holiday

Alex Wilhelm and Anna Heim continued their exploration of the scorching global VC market, this time taking a look at Europe.

For perspective, they analyzed data from Dealroom and spoke to four VCs who shared their thoughts about the continent’s investment climate:

• Diana Koziarska, SMOK Ventures
• Vinoth Jayakumar, Draper Esprit
• Simon Schmincke, Creandum
• Javier Santiso, Mundi Ventures

“There’s little indication that what we’ve seen thus far from Europe in 2021 will slow in Q3 or Q4, Alex and Anna write.

“Even though Europe has a reputation for lengthy summer vacations, investors don’t expect much — if any — slowdown to come in Europe during this sun-drenched quarter.”

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Silicon Valley comms expert Caryn Marooney shares how to nail the narrative

Caryn Marooney, Silicon Valley communications professional turned venture capitalist, spoke extensively on storytelling at TechCrunch Early Stage: Marketing and Fundraising.

Throughout her time in Silicon Valley, she helped companies like Salesforce, Amazon, Facebook and more launch products and sharpen their messaging. In 2019, she left Facebook, where she was VP of technology communication, and joined Coatue Management as a general partner.

Marooney uses the acronym RIBS to describe her basic strategy for startup messaging: Relevance, Inevitability, Believability and keeping it Simple.

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Dear Sophie: Should we look to Canada to retain international talent?

Dear Sophie,

I handle people ops as a consultant at several different tech startups. Many have employees on OPT or STEM OPT who didn’t get selected in this year’s H-1B lottery.

The companies want to retain these individuals, but they’re running out of options. Some companies will try again in next year’s H-1B lottery, even though they face long odds, particularly if the H-1B lottery becomes a wage-based selection process next year.

Others are looking into O-1A visas, but find that many employees don’t yet have the experience to meet the qualifications. Should we look at Canada?

— Specialist in Silicon Valley

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What Robinhood’s warnings about crypto trading say about Coinbase’s near-term future

After noting that Robinhood anticipates a decline in revenue in the third quarter as a result of slowing crypto trading, Alex Wilhelm got to thinking about what that forecast means for Coinbase.

“The now-public unicorn has lived through crypto ups and crypto downs,” he writes.

“A decline in consumer interest in the next few months or quarters is not a huge deal, assuming one keeps a long enough perspective and the crypto-infused future that its fans expect comes to pass.”

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Greylock’s Mike Duboe explains how to define growth and build your team

At TechCrunch Early Stage: Marketing and Fundraising earlier this month, Greylock Partners’ Mike Duboe dug into a number of lessons and pieces of wisdom he’s picked up leading growth at a number of high-growth startups, including StitchFix.

His advice spanned hiring, structure and analysis, with plenty of recommendations for where growth teams should be focusing their attention and resources.

Growth is everyone’s job; if a bunch of people in the company are working on one problem, and it’s just someone off in the corner working on growth, you probably failed at setting up the org correctly.

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Last-mile delivery in Latin America is ready to take off

Thanks to sprawling fulfillment centers, seamless logistics networks and ubiquitous internet access, consumers in many regions now order groceries and a new set of cookware during breakfast and can reasonably expect everything to arrive in time for dinner.

In Latin America, a lack of technology infrastructure makes delivery operations less complex — products are delivered from a retailer’s loading dock to a customer’s front door — but these supply chains are often managed with spreadsheets, paper and pen.

Algorithms that manage delivery routes or automatically dispatch drivers “are almost unheard of in the Latin America retail logistics sector,” says Bob Ma, an investor at WIND Ventures.

But thanks to growing consumer demand and expanding investment in last-mile delivery startups, the region is at a turning point, he says.

Since Latin America’s middle class has grown 50% in the last decade and e-commerce constitutes just 6% of all retail, several unicorns have emerged in recent years, with more waiting in the wings.

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Canada’s startup market booms alongside hot global VC investment

Alex Wilhelm and Anna Heim looked at Canada’s VC market in the first half of 2021, and if you’ve been reading their work, you know what’s coming.

Canada, like the rest of the globe, was absolutely scorching in the first half.

“Canada’s venture capital results now rival those of the entire Latin American region, with exits and mega-deals coming in roughly on par in the second quarter, and a similar number of total venture capital rounds in the period,” they write.

“That caught our attention.”

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