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Lessons From the 2018 Amazon Letter to Shareholders Since his original 1997 shareholder letter, Jeff Bezos’ shareholder letters have become known as valuable resources that could feel right at home as material for an MBA course. The 2018 letter to shareholders is not different. Jeff drops loads of knowledge on customer obsession, intuition, curiosity, and the power of wandering. Innovation has always been a core part of Amazon’s rapid growth. It’s almost as if Joseph Schumpeter was writing about Amazon in his economic theory of creative destruction. Schumpeter strongly believed that capitalism was fueled by innovation and the entrepreneurs who are willing to innovate. Creative destruction can be defined as, “a process in which new technologies, new kinds of products, new methods of production and new means of distribution make old ones obsolete, forcing existing companies to quickly adapt to a new environment or fail.” Going back to Jeff Bezos’ original shareholder letter, he claims it will always be “day 1” at Amazon. The idea of “day 1” is that Amazon will always act as a startup, always be an innovator, and will always avoid creative destruction. Not only is Jeff a perfect example of Schumpeter’s entrepreneur who will innovate, so, it seems, are his employees. As Bezos’ puts it in his 2018 shareholder letter: “From very early on in Amazon’s life, we knew we wanted to create a culture of builders – people who are curious, explorers. They like to invent. Even when they’re experts, they are “fresh” with a beginner’s mind. They see the way we do things as just the way we do things now. A builder’s mentality helps us approach big, hard-to-solve opportunities with a humble conviction that success can come through iteration: invent, launch, reinvent, relaunch, start over, rinse, repeat, again and again. They know the path to success is anything but straight.” On their march to a $1T market cap, Amazon has hired talent that matches the description above and put an unbelievable emphasis on their customer base. If Amazon continues to deliver great value to their customers, they will continue to innovate. Intuition, curiosity, and wandering come together to uncover outsized discoveries that can radically change a product or market. Following and executing a plan is the most efficient way to build a business but if you truly want to innovate there has to be a keen desire to wander and test your intuitions. While listening to customers fuels much of Amazon’s growth curiosity and intuition has been at the center of some of their biggest decisions. The story of AWS is a great example: “The biggest needle movers will be things that customers don’t know to ask for. We must invent on their behalf. We have to tap into our own inner imagination about what’s possible…No one asked for AWS. No one. Turns out the world was in fact ready and hungry for an offering like AWS but didn’t know it. We had a hunch, followed our curiosity, took the necessary financial risks, and began building – reworking, experimenting, and iterating countless times as we proceeded.” This simple, yet powerful, idea can be a lesson for all companies. Of course, it is vital to the life of your business to diligently listen to your customer base and deliver what they want, it is also important to listen to the market as a whole and your internal talent. By trusting your intuition and the talent around you, you can take a chance to “invent on their behalf.” While not every company has $40B cash to lean on, implementing a culture of builders and wanderers can help your company innovate and continue to spur rapid growth.

Y Combinator has funded over 1900 startups since their inception in 2005. In the process of funding those startups, YC receives thousands of investor updates on an annual basis. As Aaron Harris, Partner at YC, puts it, “At YC, we get lots of updates from our alums. There seems to be a correlation between quality and frequency of updates and the goodness of the company and founders.” Over the past year, we’ve had thousands of founders share Updates with their investors and other stakeholders. While investor updates come in all different shapes and sizes, we’ve found that most, if not all, include some form of the following: a quick recap of the last month, metrics and KPIs, and specific asks for your investors. To this point, Aaron Harris of YC suggests using the same components but has interesting thoughts about the order of these components what specific information should be shared. Metrics & KPIs Metrics and KPIs are included in almost every Update template we’ve seen come across our table. Including your key metrics with growth percentages is widely expected. Aaron Harris suggests sharing your KPIs and growth percentages first when reporting to your investors. Sharing high-level growth metrics and financial status metrics are what you are looking for here. Examples include revenue, cash in bank, and burn rates. No matter what you decide to share, make sure the metrics are defined and explained to your investors and repeated on a monthly basis. Targeted Asks Making targeted asks to your investors is arguably the most impactful part of an investor update. If engaged properly, investors are more than a source of capital. They have experience, advice, and networks you can leverage. Don’t be afraid to ask your investors help with closing deals, finding talent, and future fundraising. Regardless if you put asks first or second in order, Aaron recommends putting it as close to the top as possible to make sure your investors see it and can help where needed. Quick Recap Interestingly, Aaron suggests putting the qualitative recap of your month towards the bottom of your investor update. While we often see founders lead with a recap, ending with a recap will ensure that your investors see both your metrics and targeted asks. Make this as short as possible and be sure to only add things that are vital to your success. At the end of the day, investors are busy and you want to make sure they read your entire update. These are just a few elements to consider when deciding on the structure of your investor update. To see these elements in context or create an update yourself, check out our Y Combinator update template below. Check out an example of the Y Combinator Investor Update Here >>>

What is a Business Pitch Deck Overview A pitch deck is a vital part of a successful fundraise. Nurturing and constantly communicating with your investors and potential investors throughout the process can double your chances of raising follow-on funding. Founders and other startup leaders choose Visible for their investor reporting because we make it dead-simple to compose, distribute and track all of your updates in one place. Being able to quickly and effectively pitch your business or product is vital to raising capital, attracting talent, and closing customers. A pitch deck should tell a compelling story and give reason for outside stakeholders to invest their time, money, and resources into your business. There are hundreds of free pitch deck presentation templates on the internet. Below we lay out our favorite free pitch deck templates and examples. Recommended Reading: The Understandable Guide to Startup Funding Stages What is a Business Pitch? A Business Pitch Template for Success. A business pitch is a presentation to a group of stakeholders, mainly investors, but can also include potential customers, team members, and potential hires. A business pitch can be given in many forms including a pitch deck, email, PDF, or an impromptu conversation. Once you have a business idea you most likely work on putting together a business plan. Once you have a business plan in place it is time to get a pitch dialed for your startup. The most effective business pitches include a combination of the forms listed. Everyone in your business should be able to pitch your business in some form (e.g. elevator pitch). So what makes up a great business pitch template? First, make sure your business pitch is concise and easy-to-understand. You should be able to pitch your business in a few sentences and should be easy to understand what your business does. Everyone in your organization should be able to complete a simple pitch of your business. Second, you need to answer this question; who is your audience? You need to tailor your business pitch to who are you pitching. Think about what you are trying to accomplish and what the person’s ultimate end goal is. If you’re pitching an investor, why should they give your business money? If you’re pitching a customer, why should they pick your solution over other options? If you’re pitching a potential hire, why should they pick to work for you over a different company? Create a business pitch template to make sure everyone in your business can tell the same story and pitch your business in an effective manner. Below we lay out a free pitch deck template that will help turn your business pitch into a compelling story. Related Resource: Investor Outreach Strategy: 9 Step Guide How to Build Your Investor Pitch Deck (A Best Practices Template) The free pitch deck template here is largely based off of the Guy Kawasaki Pitch Deck Template. Guy’s free pitch deck template is a great start for putting together your pitch deck then tailoring it to your needs. The pitch deck design is built for a total of 10 slides. Below are the pitch deck design and slides that Guy recommends using to pitch your business or product. Download our free pitch deck template here or below: Related resource: 23 Pitch Deck Examples Pitch Deck Slide 1: Company Information The first pitch deck slide of your business pitch is straightforward. A simple slide that shares an overview of your business. Use this slide to set the stage for your pitch deck design. The most important thing to remember when making your cover slide is this is often your first impression with the investors you’re pitching. These are investors who have seen a lot of pitches, so getting their interest and attention quickly is important. Your cover slide is your best shot at doing that. Related resource: Our Guide to Building a Seed Round Pitch Deck: Tips & Templates So what makes a great cover slide? Just a few important elements: Sharp design. If there’s a slide to fuss over, design-wise, it’s this one. Remember, you’re making a first impression here. Good design is key. Related Reading: Pitch Deck Designs That Will Win Your Investors Over Your logo. Obviously. What you do (or tagline). This is the element that is most often omitted, but it’s critical. You want to provide context right away, orienting the listener to what your business is all about. Don’t get cute here—the more straightforward, the better. Contact info. This is especially important when you’re sending the deck via email before or after the pitch. You want the names of the people who are pitching, some direct contact info (probably email) and a place online where the investor can learn more about you, whether that’s your home page or a social media profile. As I mentioned, a lot of startups get this slide wrong. A good example is the cover slide from SteadyBudget, which is now Shape.io. Pitch Deck Slide 2: Problem Solving The second pitch deck slide consists of what problem you are solving. This can take form in what the opportunity is or what the pain your potential customers are feeling. Use social proof or a story to clearly demonstrate how potential customers are evaluating and solving the problem with current solutions vs. your solution. The problem slide from Airbnb’s original pitch deck is a great example. Related Reading: How to Write a Problem Statement [Startup Edition] Pitch Deck Slide 3: Value Proposition The third pitch deck slide should explain the value proposition that you are offering. This explains the direct value that your customers receive when choosing your product or solution. This is where your business pitch template will come in handy as you describe your value. Statistics, stories, and first hand data can be a valuable tool for the third slide. Pitch Deck Slide 4: Your Differentiator The fourth pitch deck slide explains what differentiates your solution than others in the market. Guy Kawasaki suggests using a visual pitch deck design here by using images, charts, and diagrams of your “secret sauce.” Instead of using text to explain the differentiator use visuals. If your secret is in the product, use this as an opportunity to show product screenshots or a demo video. Pitch Deck Slide 5: TAM & Opportunity Breakdown The fifth pitch deck slide should contain your business model. This shows how you are, or plan, to make money. The goal of this slide is to demonstrate the addressable market and portraying why your company has the ability to generate huge amounts of revenue to attract a large payout for the investors. Check out our Total Addressable Market Template to help get started with your TAM model. Mathilde Collins, CEO of Front, has a great example of an opportunity in her Series C pitch deck. The slide clearly shows how the large the opportunity is (and later details how the Front product can win the market). Pitch Deck Slide 6: Customer Acquisition and Go-to-Market Being able to show a repeatable and efficient process for acquiring new customers is a must. Investors want to make sure that they will not be throwing their money down the drain. Going into a pitch with potential investors you need to understand your revenue model and go-to-market strategy like the back of your hand. Make sure your GTM strategy slide is easily digestible and can be easily understood without added context. One of the key metrics that investors will want to understand is your costs to acquire a new customer. (Learn more about CAC here). It is important to demonstrate to your investors that your customer acquisition costs are less than your customer lifetime value. This will help showcase your path to profitability. Ablorde Ashigbi is the Founder and CEO of 4Degrees. Earlier this year, Ablorde wrapped up a round of financing for 4Degrees. We went ahead and asked Ablorde what tips he has for founders looking to showcase their CAC in a pitch deck. His response: Don’t present CAC without a corresponding view of LTV Don’t present a blended CAC (including both organic and paid – only include conversions that came from paid channels) For earlier stage companies, payback period equally (maybe more) important than pure LTV / CAC When it comes to presenting your GTM strategy and customer acquisition costs it all comes down to simplicity. An investor should be able to take a look at your slide and know exactly how your business functions. The CAC slide from Vessel below is a great example. Pitch Deck Slide 7: The Market The seventh pitch deck slide should show what the market looks like. This includes your competitor landscape. Guy suggests that “the more the better” for this slide. If comparing yourself to competitors be sure to prepare for questions and conversation. You shouldn’t be afraid to mention your competition in a pitch deck. If there are already players in the space, it proves that there’s a need to fill. Addressing your competition directly and sharing your competitive advantages is a way to assert confidence in investors that you truly understand the market. Too often, though, pitch decks include a competitor slide, but don’t address how the startup will win against those competitors. A Gartner Magic Quadrant alone doesn’t get the job done—you need to convince investors that your company can be bigger and better than those that already exist in the market. The competitive landscape from Airbnb’s original pitch deck is a great (and dated) example. Pitch Deck Slide 8: The Team The eighth pitch deck slide should be a highlight of your management team. Include a brief profile of your company’s managers and any other associated stakeholders. This can include your investors, board members, and advisors. Related Resource: Crafting the Perfect SaaS Board Deck: Templates, Guidelines, and Best Practices The team slide is included in almost every pitch deck example and outline, and for good reason—investors consistently say the team is one of the top criteria they look at when making an investment decision. What often goes unmentioned, though, is how to structure the team slide so that it’s actually effective. A few headshots with names and titles underneath isn’t going to cut it. A good team slide not only covers the who, but the why, as in “why is this a team I should believe in?” That means an effective team slide includes some context. Things like relevant experience in the market, previous startup exits, and key accomplishments are all worth including. If you have impressive advisors, include them, too. If an investor is deciding whether to fund you based on your team, you want to make the best argument for your team that you can. An example of a great team slide is this one from Square. It’s a little dated now, but it does a good job providing some context for why the Square team was worth investing in, features logos to boost credibility, and includes advisors as well. Pitch Deck Slide 9: Financial Projections & Key Metrics The ninth pitch deck slide should contain your financial projections and key metrics. The key to building a business is generating revenue and having a financial plan to effectively scale and grow. Use a top-down, not bottoms-up, projection to wow your investors. A visual pitch deck design will also help here by using charts to make your projections easy-to-understand. To learn more about financial modeling and projections check out our guide here. Related Resource: Important Startup Financials to Win Investors If the founding team doesn’t take the top spot of what an investor care about, it usually goes to financials and metrics. And while investors want the full picture of your startup’s financial metrics before they invest, the pitch deck should really only include the highlights. What investors want to see in financials is evidence of traction. What that means for your pitch deck is you should include a splash of metrics that are easy to digest and tell a good story. A few key metrics in a big, bold typeface beats a more thorough selection of metrics that are hard to parse. This example from Moz’s Series B Round shows the impact of highly readable traction metrics that tell a good story: Pitch Deck Slide 10: Timeline The last pitch deck slide should be an overall timeline of your business. Where have you been in the past? What are the major accomplishments you’ve achieved so far? Where is your business headed and will the person you are pitching fit into this timeline? It is important to clearly showcase how you will deploy an investor’s capital to hit milestones and goals over the coming months, quarters, and/or years. Front does a great job of showing where Front can be with the capital they need to grow into new markets. Download our free pitch deck template here or below: Related Resource: Pitch Deck Design Cost Breakdown + Options Pitch Deck Examples There are countless websites that share popular pitch deck examples from companies like LinkedIn, AirBnb, and Facebook. To help you put together the perfect pitch deck, we’ve laid out pitch deck examples from our favorite companies and the best pitch decks of 2018. You can find a library for pitch deck examples using this link. LinkedIn Pitch Deck One of our favorite pitch deck examples, the LinkedIn pitch deck is one of the original pitch decks that companies still look to today. While design and details have certainly changed since the 2004 LinkedIn pitch deck there are still relevant lessons and trends that have stood the test of time. One of the most interesting aspects of the LinkedIn pitch deck is their ability to turn it into a compelling story. Keep in mind, at the time of this pitch deck, LinkedIn had zero revenue, were not leaders of a “hot market,” and had little to show for hypergrowth. Reid was aware that investors would have hesitations with LinkedIn’s lack of revenue so he steered immediately into their plan to generate revenue. Instead of immediately jumping into their product, LinkedIn’s first slide is their 3 strategies for generating revenue. Now, it would be ill advised for a consumer facing company to show multiple revenue streams with no conviction in a single product. Luckily for LinkedIn, they launched all 3 products and were an exception. Regardless, Reid does a good job of addressing any push back that he’ll eventually see from investors for their lack of revenue. One of the most interesting aspects of the LinkedIn pitch deck is their plain to become “Professional People Search 2.0.” LinkedIn’s main argument and reasoning for deserving venture capital, is the fact that the way people do professional research was inadequate and the market was ready for a new way to conduct professional research. Ideally, the investors believed that professional people search was in need of a revamp. The next step in LinkedIn’s story is to show investors examples of the “1.0” to “2.0” jump in other companies Reid then offers examples of other markets and verticals that have been lifted going from “1.0” to “2.0.” Using analogies Reid was able to paint a picture of how LinkedIn can radically change the market just as his presented examples, Google, PayPal, and eBay, had done in the past. The LinkedIn pitch deck is a great example of how you can still build a compelling story with a lack of revenue and hypergrowth. Facebook Pitch Deck Another classic pitch deck example is Facebook’s pitch deck from 2004. The Facebook pitch deck comes from about the same time as the LinkedIn pitch deck as above. While it originally was not a pitch deck, rather a media kit, the original Facebook pitch deck has interesting examples that are worth mentioning. It is also fun to see how much Facebook has transformed from their original pitch deck to now. The original Facebook pitch deck has a laser focus on the numbers. Covering everything from their own product to market data, Mark Zuckerberg uses data to tell the Facebook growth story. Facebook drills the stickiness and engagement with their product throughout the pitch and how Facebook can be a powerful advertising platform. While it may not tell as compelling a story as the LinkedIn pitch deck, the Facebook pitch deck is an example of a company using their growth metrics as the driving force of their pitch. Pitch Deck Template by Guy Kawasaki Guy Kawasaki is a marketing specialist. He worked for Apple in the 1980s and is responsible for marketing the original Macintosh computer line in 1984. Guy is infamous for coining the term evangelist in marketing. He might be most famous for his simple pitch deck template and the 10/20/20 rule of Powerpoint and pitch decks. Guy Kawasaki was one of the earliest Apple employees and was largely responsible for marketing the original Macintosh. The pitch deck template by Guy Kawasaki has almost become a staple in the startup world. Simple, yet effective, the pitch deck template by guy kawasaki is a great starting point for any pitch. The pitch deck template is based off of a rule that Guy calls the 10/20/30 rule: 10 – A pitch should have 10 slides. 20 – A pitch should last no longer than 20 minutes. 30 – A pitch should contain no font smaller than 30 point font. The presentation template by Guy Kawasaki embodies the idea that “less is more.” By having only 10 slides, you are forced to focus on the things that are absolutely necessary. A 20 minute pitch, allows time for discussion and is a reasonable amount of time for everyone involved to stay focused. 30 point font, makes sure that you and your audience are in sync. The pitch deck template by Guy Kawasaki is a great starting point for any point. Airbnb Pitch Deck Airbnb is one of the most infamous stories from Silicon Valley. From their radically different idea to their scrappy early stages the Airbnb story is filled with plenty of tips and stories for startups. The original Airbnb pitch deck has turned to one of the most popular pitch deck examples for companies to turn to. AirBed&Breakfast at the time of the Airbnb pitch deck, Airbnb is now on the path to an IPO with a value north of $30B. We’ve laid out a few of our favorite slides and ideas from the Airbnb pitch deck. One of the first things that jumps out from the Airbnb pitch deck is on the first slide. The description, “Book rooms with locals, rather than hotels.” is straightforward and easy-to-understand. Airbnb clearly lays out what they do in the first 10 seconds of their presentation. From here, Airbnb uses a good combination of market data and the problems that their users face to create a compelling story. The Airbnb pitch deck also does a good job of clearly stating how they generate revenue; “we take a 10% commission on each transaction.” A common, yet well done, slide from the Airbnb pitch deck is the “Competition” slide. They use a common 2-axis diagram to show where they stand amongst their competition. Just like everything else in the Airbnb pitch deck, the competition slide is easy to understand and you get an immediate grasp where Airbnb stands. Airbnb went on to raise $600k with the pitch deck. Their identity has obviously changed since their original pitch deck but the lessons and practices still stand today. We hope the slides laid out from the Airbnb pitch deck will help as you gear up for your venture raise. While every business differs, the Guy Kawasaki pitch deck template is a great place to start. Lay out your pitch using his style and see what you think. From here you can tailor it to your businesses’ needs. Once you’ve got your pitch deck in place, it is time to kick off your fundraise. Uber Pitch Deck Starting as a daring idea, to raising $25B in venture capital, to being publicly traded with a $60B+ market cap, Uber is arguably the most famous VC backed company today. Just like any successful company, Uber was once a tiny startup doing their best to raise capital for their business. Uber’s fundraising journey started in 2009 with a small $200,000 seed round. Since then, their original pitch deck has almost turned into a folklore. An almost ludicrous idea at the time has turned into everyday vocabulary across the globe. Even the founders of Uber had a limited understanding of how truly large their business could be back then. For example, their “UberCab” concept slide presents a black car type experience. At the time, the only way to book an Uber was via SMS. How the times have changed! One are that really sticks out is the total addressable market that Uber originally modeled. At the time, Uber shared that their original target market was $4.2B. In 2019, they almost tripled their original estimated market opportunity in revenue ($14B+). Although they were a niche service at the time and have expanded globally and horizontally in the market it is still shocking to look back at the opportunity they originally presented and how they’ve managed to dramatically change the market. Related Resource: Check out our free guide and downloadable template, Our Favorite Seed Round Pitch Deck Template (and Why It Works) Best Pitch Deck of the Past Year The pitch deck examples above are great starting point but it is also good to get a look at more recent pitch deck. We have found the Front App pitch deck to be our favorite startup pitch deck of the past year. The pitch deck was used to raise Front’s Series C round. Front has certainly experienced hypergrowth — they’ve raised their Series A, B, and C since 2016. All of which were more than $10M. Luckily for other founders, Mathilde Collin, the CEO of Front, has made all of their pitch decks available to the public. While some founders may not be able to directly compare numbers to their Series C deck there are still a number of important takeaways. The Mission From the get-go of Mathilde’s pitch deck it is clear that Front is a mission driven company. The first 5 slides add a personal touch from Mathilde and clearly demonstrates that she, and her team, care deeply about the problem. This sets the stage for the story and kicks off a compelling pitch. The Opportunity Slide 6 shows just how huge the opportunity is. The market data is straightforward and jumps off the page. It clearly demonstrates that there is a huge market there that Front’s product can penetrate and become a successful exit for an investor. The Metrics & Data The metrics and data slide is one of the most impressive in the pitch deck. While it may be to difficult to compare to the actual data it is a powerful narrative for the pitch. Mathilde knows exactly where Front is world class and focuses on the data to portray why an investor should back their business. Simple and powerful. Pitching your company is equal parts storytelling, data, and passion. To best pitch your company you need to personally understand why and how you are going to tackle a product, market, or problem. The next step is to truly understand what an investor looks for in an investment and how you can fit into their vision. Putting together a pitch deck is only the start of a successful fundraise. You need to find the right investors, manage conversations, and distribute your pitch deck. To get started with your next fundraise check out our investor database to help you find your investors. Related Resource: Best Practices for Creating a Top-Notch Investment Presentation Looking for best practices for sharing your pitch deck? Check out our template for sharing your pitch deck here.

Our Thoughts on Do Better Work There are two basic types of leadership book. The first is the philosophical book. Books in this category are full of fresh ideas and illustrative stories that are meant to inspire. Reading them feels good, and finishing them feels even better. They’re empowering. The best books of this type include one or two key concepts that stick with us long after we’ve turned the last page, influencing our future behavior; the others give us a temporary boost of energy and enthusiasm before they’re forgotten. The second type of leadership book is the practical book. These books forego inspiration and ideology for marching orders. Full of specific guidelines and tactics, the most effective practical books become trusted manuals for doing business well. The majority get bookmarked and put down about a third of the way through, never to be picked up again. Do Better Work is a rare book that falls in both categories. In it, author Max Yoder weaves the philosophical and the practical together, seamlessly and to great effect. The result is a leadership book that is not only helpful, but delightful and surprising to read—one where step-by-step instructions for, say, sharing work before you’re ready or achieving clarity, fit neatly alongside the lessons we can learn from philosopher J. Krishnamurti or the vulnerability of superheroes. I’m acquainted with Max—Visible and his company, Lessonly, share common investors—and his warmth and optimism, both immediately obvious when you meet him, make up the DNA of Do Better Work. Other touches, like the Vonnegut-esque sketches scattered throughout, make the book feel less like a typical leadership volume and more like a diary. Although Yoder writes about himself very little in Do Better Work, it still feels like a deeply personal read. Each of the book’s chapters is a vignette, with a simple title printed to look like handwriting. Fittingly, each of the chapter titles reads like it’s taken from a to-do list: Look For Opportunity, Ask Clarifying Questions, Get More Agreements. If there’s a central theme, it’s one of empathy and vulnerability, presenting interpersonal risk-taking and openness as the true path to better business outcomes. If there’s a flaw here, it stems from the author’s apparent reticence to insert himself into the work. It’s telling that Yoder gives a paragraph each to three of the major turning points in his life, but spends almost four pages on the lessons we can learn from production issues on the set of Jaws. It’s unclear whether more details about, say, Yoder’s failed first startup, Quipol, would’ve made the book better, but it is apparent that he’s more comfortable sharing others’ stories than his own. Do Better Work was self-published, largely because Yoder was resistant to publishers’ requests to inflate the word count. The final product is refreshingly free of fluff, but the book’s independent status may keep it from getting the full recognition it deserves. In the spirit of optimism, I have to hope that does not end up being the case. Do Better Work is a singular, winsome and challenging book for leaders and their teams alike.

Founders are in constant competition for 2 resources — capital and talent. In order to attract the best talent, founders need a culture, strong business model, capital, etc. to bring in new talent. However, talent will also require financial means and ownership to take the leap to work for a startup. Related Resource: How do you Determine Proper Compensation for Startup CEOs and Early Employees? In order to best attract top talent, founders need to have a gameplan to split and distribute equity in their business. Learn more about splitting equity with co-founders, early employees, and advisors below: What is the difference between equity and stock? Stock and equity are generally one in the same. As put by the team at Investopedia, “Equity, typically referred to as shareholders’ equity , represents the amount of money that would be returned to a company’s shareholders if all of the assets were liquidated and all of the company’s debt was paid off in the case of liquidation.” This is largely made up of shares or stock, which can be defined as, “A stock, is a security that represents the ownership of a fraction of the issuing corporation.” Understand Options vs Shares When determining how to split equity amongst your founders and early employees, it is important to understand the language you’ll encounter. Learn more about the difference between equity and stock below: What are options? Note: When determining your startup equity structure, we recommend consulting with your lawyer. Investopedia defines employee stock options as, “a type of equity compensation granted by companies to their employees and executives. Rather than granting shares of stock directly, the company gives derivative options on the stock instead. These options come in the form of regular call options and give the employee the right to buy the company’s stock at a specified price for a finite period of time.” What are shares? As defined by Investopedia shares are, “Shares are units of equity ownership interest in a corporation that exist as a financial asset providing for an equal distribution in any residual profits, if any are declared, in the form of dividends. Shareholders may also enjoy capital gains if the value of the company rises.” Key differences between stock options and shares Options and shares are closely related. Ultimately an option gives the founding team the “option” to buy shares at a set price at a later date. When determining how to split up equity among your early team and founders remember that it can be a tool to keep everyone involved motivated and invested in the success of your business. Related Resource: What is a Cap Table & Why is it Important for Your Startup Company ownership When it comes to company ownership, stock options and shares have slightly different meanings. As put by the team at Seed Legals, “Shares give the holder immediate ownership of a stake in the company. Options are the promise of ownership of a stake in the company at a fixed point in the future, at a fixed price. Option holders only become shareholders when their options are exercised and have converted into shares.” Related Resource: Startup Syndicate Funding: Here’s How it Works Vesting Schedules As we wrote in our Employee Stock Options Guide, “when you receive a stock option this is not actual shares but rather the ability to buy shares at a later date. In order to retain employees, most companies will include a vesting schedule with their offer. This is the schedule in which you will have the ability to exercise your shares. A vesting schedule usually takes place over a period of time and may be split over the course of a few years or milestones. The most common vesting schedule for startups is a time-based schedule. This means that you’ll receive a set amount of shares over a set amount of time. Usually, there is a “cliff” which is a set date when you get the first portion of your shares. The most common startup setup is a 4-year vesting schedule with a 1-year cliff. This means that after working for a company for a full year, the employee will receive the first quarter of their shares (1-year cliff). After the first year, the employee will receive their remaining shares over the next 3 years on a specific calendar. Usually 1/36 of the remaining shares each month.” Cash Requirements As options are the ability to buy stock at a future date at a set price, employees will likely need cash to exercise their stock options. On the flip side, stockholders will not need to cash to exercise, as they already have their ownership/stock in the business. Taxes Determining when to exercise stock options can have tax implications. As put by the team at Crunchbase, “For incentive stock options—popular among startups—in addition to paying the strike price to buy those stock options, employees face taxes based on the difference in a company’s fair market value, and could potentially be exposed to alternative minimum tax as well.” Splitting Startup Equity with Founders There is no “one size fits all” strategy for distributing startup equity. Determining how to split equity among investors and later employees is fairly straightforward, but determining the equity split among founders and the earliest employees can be tricky. You can learn more about dilution and distributing equity with investors here. Even the most experienced leaders struggle with the issue of fairly dividing startup equity. To help alleviate the stress, we laid out a few thoughts for determining how you want to split your startup equity. Related Resource: The Main Difference Between ISOs and NSOs When do you split founder equity? Generally speaking, you will want to split founder equity in the earliest days of the business. If you are approaching investors for a pre-seed or seed round of capital and have yet to split equity with the founding team that could be a red flag for investors. By getting the buy-in from the founding members you’ll be able to approach customers, investors, and partners easier knowing the founding team is motivated and invested in the success of the business. Generally, if you are about to make the leap to be a full-time founder you will want to understand your equity split by this point too. How do you split founder equity? Splitting startup equity among startup founders is one of the first tough decisions a founding team will make. If you do a quick Google search for how to split startup equity among founders, you’ll get countless different ideas and suggestions. Commonly, you’ll see lawyers, startup founders, and VCs recommending to split depending on a number of different qualities. We’ve listed a few examples below: Experience – Do you have experience running and scaling a successful startup? Expertise – Do you have knowledge in the specific market you’ll be operating? Ideas/Intellectual Property – Did someone come up with the original idea for the company and turn it into intellectual property? Time – Are you dedicated to the company? As investor and founder Mike Moyer puts it; “The right way to think about equity is to think about a startup as a gamble… The value of each person’s bet is always equal to the unpaid fair market value of his or her contribution. Each day people bet time, money, etc. The betting continues until the company reaches break even or Series A.” On the other hand, Michael Siebel, CEO of YC, offers a controversial take for splitting startup equity: equal equity splits among co-founders. Michael shares many reasons why it makes sense to equally split your startup equity and not use the factors listed above. The more equity, the more motivation. The more motivated your founding team, the higher the changes for success. Another reason Michael shares is the idea that if the CEO or Founder does not value co-founders, no one else will, either. For example, if co-founder equity greatly varies, this suggests to your investors that the certain co-founders might not be as valuable or qualified. As Michael puts it, “Why communicate to investors that you have a team that you don’t highly value?” Related Reading: How do you Determine Proper Compensation for Startup CEOs and Early Employees? + 4 Ways To Find the Perfect Startup Co-Founder Still searching for your co-founder? Check out why Yaw Aning, Founder of Malomo, believes finding a solid co-founder is one of the best things you can do when building your company: Equity for employees Once you have determined your equity split among founders, you’ll be able to use your remaining equity and option pools to attract top talent. If you want your earliest employees to be your most impactful, creating an emotional attachment to your startup’s success is vital. Your first hires are key, and creating the perfect split between their salary, equity, and benefits can be difficult. There is no magic formula for splitting startup equity among your earliest hires. When do you give equity to employees? Leo Polovets, VC at Sosa Ventures, studied job postings and laid out the typical amount of equity depending on what number hire the person is: Splitting startup equity with your first hires will often require negotiations, and the process will vary from employee to employee. Once you start hiring outside your core team, you’ll want some type of predictable system in place for sharing equity. There is no right answer for sharing startup equity with co-founders and early-stage employees. It is more art than science in the earliest days. Just remember to be fair as you’ll be spending every day with these people. A solid relationship among the founding team will greatly increase the chances of building a successful company. How do you distribute equity to employees? As we wrote in our Employee Stock Options guide, “Deciding when and how to issue employee stock options can be a difficult task. A startup or founder needs to understand how much they should pay employees in cash and then add in stock options. When setting out to issue stock options it probably looks something like this: Define the role you are looking to hire. Decide what their total compensation should be. This can be taken from similar job postings and the market as a whole. Decide how much of their total compensation you would like to pay in cash (AKA their salary). Determine the gap between their salary and total compensation. This is entirely up to the startup or founder. It can be difficult to place a number here as the value of the company is solely on paper. Samuel Gil of JME Partners recommends doubling the value here. For example if there was a $10K difference in their salary and total compensation a startup should offer $20K in added compensation. The next step is to determine the exercise price for the stock options. As Samuel Gil writes, “As we have previously reasoned, we will assume that a fair price for the stock options is the same as the price of the common stock. So, how much is the common stock worth? The most frequent procedure is to apply a discount (e.g. 25%) to the latest preferred stock value, since common stock doesn’t have the same economical and political rights that preferred stock (what VCs usually buy) does.” Issue the number of shares. This is up to the startup and founder but can be calculated with the logic above. If you find the common stock price to be $5 and need to compensate an employee $20K that would be 4000 shares. This can be quite subjective as we need to remember dilution and valuation can rapidly change.” Splitting equity can sound intimidating when approaching it for the first time. By taking care of it and having a game plan in your early days will help as you continue to scale your business. To learn more about specific stock options and equity structure check out our employee stock options guide here. Related Reading: How do you Determine Proper Compensation for Startup CEOs and Early Employees? Dividing equity for directors and advisors Outside of employees and investors, startups have the ability to give other stakeholders in the business equity. One of the common/debated people startups grant equity to are both directors and advisors. Equity for directors Ultimately, determinig to give equity to directors is a choice startup founders can make. If you do decide to give equity to directors, you should expect to give up less than .25% of your business. As put by the team at TechCXO, “Independent directors also expect to receive equity grants along with their cash compensation. The amount and frequency of such grants also varies by the stage of the company. However, an early stage company should expect to grant 0.1% to 0.25% of equity with a vesting period of 2 to 3 years. Additional annual grants are also expected” Equity for advisors As we know by now, equity is a prized possession for startups. However, there are countless people and shareholders along the way that will help move your business forward. We constantly are asked if you, as an early-stage founder, should share equity with advisors and mentors. Support your startup’s growth with Visible In order to best keep all of your stakeholders headed in the right direction, founders need a system in place to keep tabs on their most expensive asset — equity. By regularly communicating with investors, teammembers, and advisors, founders will be able to tap into their capital, resources, network, and experience. Raise capital, update investors and engage your team from a single platform. Try Visible free for 14 days.

You’ve just gotten through an exhausting fundraise, congratulations are in order, and now you have an unsigned Series A term sheet in your hand. What’s next? It’s often assumed that you will know what you’re looking at when handed a Series A term sheet, but if you’re a first-time founder, that usually isn’t the case. To help you navigate your Series A term sheet we’ve briefly summarized common fields and terms and what you should be looking for under each one. The fields below are largely based off of Y-Combinators post and Series A Term Sheet template, “A Standard and Clean Series A Term Sheet.” As a note, this is not legal advise and we suggest consulting with your lawyer while reviewing your term sheet. Liquidation Preferences Liquidation preference is simply the order in which stakeholders are paid out in case of a company liquidation (e.g. company sale). Liquidation preference is important to your investors because it gives some security (well, as much security as there is at the Series A) to the risk of their investment. If you see more than 1x, which means the investor would get back more than they first invested, that should raise a red flag. To learn more about liquidation preferences check out this article, “Liquidation Preference: Everything You Need to Know.” Dividends In the eyes of an early stage investor, dividends are not a main point of focus. As Brad Feld puts it, “For early stage investments, dividends generally do not provide “venture returns” – they are simply modest juice in a deal.” Dividends will typically be from 5-15% depending on the investor. Series A investors are looking to generate huge returns so a mere 5-15% on an investment is simply a little added “juice.” There are 2 types of dividends; cumulative and non-cumulative. YC warns against cumulative dividends; “the investor compounds its liquidation preference every year by X%, which increases the economic hurdle that has to be cleared before founders and employees see any value.” Conversion to Common Stock Common practice will automatically convert preferred stock into common stock in the case of an IPO or acquisition. Generally, Series A investors will have the right to convert their preferred stock to common stock at any time. As Brad Feld puts it, “This allows the buyer of preferred stock to convert to common stock should he determine on a liquidation that he is better off getting paid on a pro rata common basis rather than accepting the liquidation preference and participating amount.” Voting Rights On a Series A term sheet, the voting rights simply states the voting rights of the investor. Generally, your Series A investors will likely receive the same number of votes as the number of common shares they could convert to at any given time. In the Y Combinator example, as with most term sheets, this section can include some technical jargon that is not easy to understand. The most important vetoes that a Series A investor usually receives is the veto of financing and the veto of a sale of the company. Board Structure One of the more important sections when navigating your Series A term sheet is the board structure. Ultimately, the board structure designates who has control of the board and the company. How your Series A investors want to structure the board should be a sign of how they perceive you and your company.  The most “founder-friendly” structure is 2-1. A scenario in which 2 seats are given to the common majority (e.g. the founders who control a majority of the common stock) and 1 given to the investors. This allows founders to maintain control of their company. On the flip side, there is a 2-2-1 structure (2 founders, 2 investors, 1 outside member). In this scenario, it is possible for the founders to lose control of the company. While a common structure, be sure that the board structure is in line with conversations while fundraising. As Jason Kwon of YC puts it, “So when an investor says that they’re committed to partnering with you for the long-term – or that they’re betting everything on you – but then tells you something else with the terms that they insist on, believe the terms.” Drag Along As defined by the Morgan Lewis law firm, “Drag along is the right to obligate other stockholders to sell their securities along with securities sold by the investor.” Drag along rights give investors confidence that founders and the common majority will not block the sale of a company. While there is no way around drag along rights, some people will suggest that founders negotiate for a higher “trigger point” (e.g. ⅔ votes as opposed to 51%). You can learn more about drag along clauses in this post, Demystifying the VC term sheet: Drag-along provisions. While there are countless other aspects and negotiations tactics when navigating your Series A term sheet, we’ve found the ones above to be most difficult to understand and offer an opportunity to negotiate. Always be sure to consult with your lawyer before signing your term sheet. Ready to start your Series A fundraise? Check out Visible to nurture your potential investors through your fundraise.

It’s never been easier to get started on the pitch deck for your startup. There is no shortage of pitch deck examples online, and pitch deck best practices are ubiquitous as well. Despite a wealth of available knowledge on the subject, creating a pitch deck is still challenging work. A great pitch deck is concise, but thorough, informative, but not boring, simply designed, but with personality. It’s little wonder creating them causes so much stress. At Visible, we spent a good 20 hours iterating on our most recent pitch deck, and we’re still not sure we have it “right.” No matter what outline or template you use, there are a few slides that you should pay extra attention to. These are the slides that can make or break your pitch deck, so take the time to make sure they’re right. Check out the slides below: The Cover Slide This one feels obvious, but so many startups get it wrong that it’s worth calling out. In this list of 30 “legendary” pitch decks, maybe ¼ of them get the cover slide right. The most important thing to remember when making your cover slide is this is often your first impression with the investors you’re pitching. These are investors who have seen a lot of pitches, so getting their interest and attention quickly is important. Your cover slide is your best shot at doing that. So what makes a great cover slide? Just a few important elements: Sharp design. If there’s a slide to fuss over, design-wise, it’s this one. Remember, you’re making a first impression here. Good design is key. Your logo. Obviously. What you do (or tagline). This is the element that is most often omitted, but it’s critical. You want to provide context right away, orienting the listener to what your business is all about. Don’t get cute here—the more straightforward, the better. Contact info. This is especially important when you’re sending the deck via email before or after the pitch. You want the names of the people who are pitching, some direct contact info (probably email) and a place online where the investor can learn more about you, whether that’s your home page or a social media profile. As I mentioned, a lot of startups get this slide wrong. A good example is the cover slide from SteadyBudget, which is now Shape.io. The Team Slide The team slide is included in almost every pitch deck example and outline, and for good reason—investors consistently say the team is one of the top criteria they look at when making an investment decision. What often goes unmentioned, though, is how to structure the team slide so that it’s actually effective. A few headshots with names and titles underneath isn’t going to cut it. A good team slide not only covers the who, but the why, as in “why is this a team I should believe in?” That means an effective team slide includes some context. Things like relevant experience in the market, previous startup exits, and key accomplishments are all worth including. If you have impressive advisors, include them, too. If an investor is deciding whether to fund you based on your team, you want to make the best argument for your team that you can. An example of a great team slide is this one from Square. It’s a little dated now, but it does a good job providing some context for why the Square team was worth investing in, features logos to boost credibility, and includes advisors as well. The Metrics Splash If the founding team doesn’t take the top spot of what an investor care about, it usually goes to financials and metrics. And while investors want the full picture of your startup’s financial metrics before they invest, the pitch deck should really only include the highlights. What investors want to see in financials is evidence of traction. What that means for your pitch deck is you should include a splash of metrics that are easy to digest and tell a good story. A few key metrics in a big, bold typeface beats a more thorough selection of metrics that are hard to parse. This example from Moz’s Series B Round shows the impact of highly readable traction metrics that tell a good story: The Competition You shouldn’t be afraid to mention your competition in a pitch deck. If there are already players in the space, it proves that there’s a need to fill. Addressing your competition directly gives you credibility and demonstrates that you’re familiar with the market. Too often, though, pitch decks include a competitor slide, but don’t address how the startup will win against those competitors. A Gartner Magic Quadrant alone doesn’t get the job done—you need to convince investors that your company can be bigger and better than those that already exist in the market. Mint did this well in one of their early decks by not only including a competitor breakdown, but also sections for competitive advantages and defensibility: As difficult as it can be to get your pitch deck to a place you’re happy with, if you focus on doing these key slides well, you’ll be firmly on the path to having a deck you can present with confidence. For more startup tips and advice, make sure you’re subscribed to The Founder’s Forward, our weekly email that helps you grow your startup.

The idea that startup leaders should have mentors isn’t new, nor is it especially controversial. At this point, it’s generally accepted that having a mentor is a good idea. Despite this, I still think mentors are underrated. A great mentor can have an exponential impact on both your personal development and the growth of your business. They can serve as a guide through tough times, a voice of warning about potential pitfalls, or a source of challenging feedback and honesty. The best mentors are a combination of collaborator, coach and friend. Finding a mentor like that isn’t always easy, though. Below, we’ll lay out how a mentor can help you succeed, and provide some suggestions on how to find one who is a good fit for you. Related Resource: Startup Mentoring: The Benefits of a Mentor and How to Find One What makes a good mentor? There is no universal template for what makes a good mentor. The traits that make a mentor ideal for one person might not work at all for someone else. Other factors, like where you are in your professional journey and what your natural strengths and weaknesses are can also inform the kind of mentor you need. While the attributes of a great mentor will vary, there are a few qualities that are important to look for regardless of who you are and what you need. If you start by looking for someone with these qualities, you’ll be well on your way to finding a good fit. They listen more than they talk. If you’re actively looking for a mentor, you probably want someone who can give you guidance and advice. That’s certainly something a mentor is meant to do, but if that’s all they do—pontificate and lecture in lieu of learning more about you and your business—they aren’t going to be very effective. A good mentor will always seek to learn more about your situation so that they can give advice that is appropriate and relevant. They offer a different perspective. We’re often drawn to people who are similar to us. While similar backgrounds and personalities might make initial conversations a little smoother, they will limit how useful the relationship can be in the long run. Go against your instincts and seek out someone who isn’t too similar to you, someone who can offer a fresh, unique perspective. They aren’t too far ahead. This is another quality that can seem counterintuitive at first. Often when we think of mentors, we think of people with a great deal of experience and success. I recently heard some advice that made me think twice of that approach. Instead of seeking a mentor who is where you want to be in 10 years, seek one who has gotten to where you want to be in one or two years instead. The mentor who is too many steps ahead of you professionally may have plenty of insight, but they likely won’t remember the details of where they were and what they were dealing with when they were in your shoes. Someone who has just recently overcome the challenges you’re facing has everything fresh in their mind, and their advice will be more relevant and practical. They’re committed. A strong mentor/mentee relationship requires commitment from both parties. It’s an involved relationship, and while it’s not necessarily a major time commitment, it does require both parties to devote time and bandwidth. When choosing a mentor, make sure they’re committed. Related resource: Should Your Startup Have Mentors? Key Benefits and Considerati How do I find a mentor? Once you know what you’re looking for in a mentor, the next step is finding one. This doesn’t need to be complicated. I’d suggest browsing your LinkedIn and Twitter connections for people you respect or admire. Using the criteria above, decide which of these people might be a good candidate for mentorship. From there, make a short list of 3-5 possible mentors. Write down why you admire them and why you think their perspective would be helpful in your professional development. Then, prioritize the list so that your #1 choice is at the top. Now it’s time to do a little research. Depending on how close you are with this person already, the research will vary. Ideally, you want to answer the following questions: What is their attitude toward mentorship? What are they currently working on? What makes you think they’ll be a good fit? If you can answer all three of those questions, you’re ready to reach out. Do this one at a time, starting with your #1 choice. Your best bet is going to be a short, straightforward email. Here’s a short template you can base your email: Hello Tom— I hope you’re having a great day! It was great running into you at the conference last week. I’m writing because I am currently looking for a mentor who might help me develop into a better leader as I work on scaling Kloud Co. I really admire what you were able to do with BiggerKloud Co, and I’d love to learn some lessons from you if you’re willing. I know mentorship can seem like a big commitment, so maybe we could start by having lunch later this month to see if there might be a good fit? My treat! If you don’t have the time or bandwidth right now, please don’t feel obligated. And if there’s someone else you think I should be speaking with, please let me know that, as well. Thanks Tom! Let me know what you think. Andrew There’s nothing too fancy here, as the key is being straightforward and respectful of the other’s time. You don’t have to use this template verbatim, but you should make sure to 1) explain why you’re reaching out to them specifically and 2) ask to meet with them once instead of asking them to commit right away. Those two things will make them much more likely to say yes. If you get a no, or don’t get a response at all, you can repeat the process with the next person on your list. Eventually, you’ll find someone who is willing to help. Assuming the first lunch goes well, it’s up to you to make the most out of the relationship. This article from the Harvard Business Review offers some great, universal insights on how to make the mentor/mentee relationship as productive as possible. If you’ve identified the right person and put effort into the relationship, a mentor will have a major impact on your development and success.

Point Nine Capital is one of the most—if not the most—sought-after early stage SaaS venture firm in Europe. With a portfolio that includes the likes of Zendesk, Front, and Algolia, the Point Nine team receives countless decks and pitches every day. Part of the reason they receive so many pitches is Point Nine Capital hosts a contact form on their website that allows visitors to begin the pitch process. We’ve scoured their blog to gather what we believe are best practices when filling out the Point Nine Capital pitch form. The Point Nine Capital Basics This is a pretty straightforward section with a few questions about the founder and firmographics. A couple of key questions: Which category/categories does your startup fall into? Point Nine is mostly known for investing in SaaS. However, they’re also interested in “internet startups” specifically marketplaces, AI, and crypto. If you fall outside of these categories, it may make sense to look to other investors. When did you launch? While your specific launch date does not necessarily correlate to what stage you’re at, Point Nine’s goal is to be the first institutional investor a company takes on. They consider this the “0.9 stage” or when you’re “too big for private investors, too small for most VCs – many startups find it hard to raise capital, and that’s when we’d like to get involved.” How much funding are you planning to raise? From the FAQ section of the Point Nine website, they generally invest from a few hundred thousand to 2 million Euros/USD. Point Nine generally has co-investors so if you’re looking raise much more than $3.5M, it may make sense to look elsewhere. To learn more about what Point Nine Capital looks for in terms of general company information check out A Sneak Peak Into Point Nine’s Investment Thesis. The Point Nine Capital Pitch Deck Point Nine has shared plenty of information for crafting and sharing the perfect pitch deck. It is their first filter when sorting through potential investments, and it can make or break your pitch. There is no formula for a perfect pitch deck, but it should always answer this question for a potential investor: “is this company likely to become far more valuable in the future?” According to Michael Wolfe—who is an advisor to Point Nine—a solid pitch deck will consist of the following: Summary – Orient the audience on what you’re doing, what stage, how much money you’re raising, etc. The problem you solve, and who has that problem – Pitch the problem, not the solution. Your Solution – Highlight your product. Show how and why your customers use your product. Customer Traction – Traction metrics and customer stories. The Market – Explain your Total Addressable Market Competitive Landscape – Talk about current market, future market, and your differentiators. Business Model – Talk about your revenue model, pricing, customer acquisition plan, etc. Team – Quick summary of your team and backgrounds. The Plan – Key milestones coming in the next 12-24 months. The Round – How much you’re raising, other investors, etc. If you’re interested in learning more about putting together your pitch deck, check out these posts from the team at Point Nine: A Simple Pitch Deck [Template] How to bulletproof your fundraising deck Why we politely ask for a deck first The Point Nine Capital Financials & Key Metrics Point Nine will ask for a set of your KPIs in the form as well. Don’t fret! They’ve shared content and templates for what they’re looking for. Christoph Janz put together a SaaS example of what they are looking for in this post. The team also put together a marketplace metrics template in this post. The metrics in the templates above can be fairly granular, so a lite version should do the trick. If you’re unsure about the state of your metrics, the team at Point Nine has also put together 6 SaaS metric frameworks to help benchmark against your peers: Revenue Growth: the T2D3 framework – The triple, triple, double, double, double framework. What your ARR should be growing at after every year. Revenue Growth Efficiency: SaaS Quick Ratio – Measures a company’s ability to grow it’s MRR in spite of churn. The LTV / CAC Ratio – How much revenue a customer generates as opposed to how much it cost to acquire them. Churn Benchmark – Benchmarks for SaaS company in different markets and stages. The 40% Rule – The idea that your growth % to profit % should be equal to or greater than 40%. Product Related Metrics – Find a “north star” unique to your business. While great financial metrics are important, they are not compulsory at the early stage for the Point Nine team. Clement Vouillon, Senior Research Analyst at Point Nine, put it this way: “we’re still investing in pre-PMF startups with barely no revenue, what will be important is that you have a huge potential, some early sign of interest from the users (great retention for example, even with a couple of B2B early adopters), or an outstanding team (with a trackrecord).” We hope these tips will help with your Point Nine Capital pitch. Ready to take your fundraising and investor relations to the next level? Check out the Founders Forward Blog to learn more about engaging and attracting investors.

“What should I include in my investor update?” If there’s one question we get more than any other, it’s that one. We hear it so often that we recently built a Template Library and filled it with example updates from well-known investors, industry experts and our own best practices. Some items, however, aren’t so easy to templatize, but they are great for engaging investors and getting them to act on your updates. Remember, the updates you send to your investors are for them, but they’re also for you. If you make it easy for investors to act on the asks you include in your update, they’re much more likely to do it. That means better outcomes for everyone. Related Reading: How to Write the Perfect Investor Update (Tips and Templates) Check out what we mean below: The LinkedIn Search Let’s say you’re trying to hire a senior engineer and want your investors’ help. There are two ways to ask: We’re trying to hire a Senior Full-Stack Engineer. Please let us know if you know of anyone who would be a good fit! OR 2. We’re currently looking to hire a Senior Full-Stack Engineer. Click here to search your network for someone you can recommend. Which option do you think your investors are more likely to act on? If you said Option 2, you’re right! If you click the link above, you’ll be taken directly to LinkedIn, and you’ll have a list of people that may be a good fit for a senior engineering role. By including a direct ask and a link like that in your investor update, you make it incredibly easy for your investors to take action right away, which means you’re much more likely to get the candidate introduction you want. Making that link is pretty easy—just do a people search based on the criteria you’re looking for in your own LinkedIn account. Here’s what that looks like: After doing your search, just copy the URL into your update. When your investor clicks the link, it will do the same search in their account. If you want to get really tricky, this article offers tips on how to build an advanced Boolean search in LinkedIn. You can also add filters based on location, past companies, and more. The more specific your search, the more likely you’ll get an introduction to a great candidate. Quick note: this technique was originally suggested by our friend Wes Winham at Woven Teams. Thanks Wes! The One-Click Tweet Your investors’ networks are an asset. If you want them to spread the word about your company, you should make it easy for them. That’s where the one-click Tweet comes in. Using ClickToTweet, you can create a pre-written tweet for your investors to share with their Twitter followers. Even if they don’t use your suggested text, directly asking them for a share—and making it easy for them to do it—greatly increases the chances that they will. You could use the one-click Tweet to get them to share a piece of content, a press mention, or anything else you want to promote. Here’s an example: We just launched our Update Templates Library! Click here to spread the word on Twitter! See how easy that was? The Bold Question If this one sounds simple, that’s because it is. We recommend putting an important question, written in bold, at or near the end of your update. Why? Because investors are busy people. No matter how much they like you or how supportive they are of your company, they likely aren’t reading every word of every update you send, especially not right when you send it. They may receive your update when they’re on the go, or a few minutes before they get on a call. In those cases, they’re likely going to check your key metrics, skim the text of the update a bit, and plan to come back to the rest later. Whether they actually make it back is dependent on everything from how they manage their inbox to their schedule for the week. When we talk to investors about what they want to see in updates, items like key metrics and progress toward goals come up a lot, but just as often we hear “I want my companies to tell me how I can help.” That’s why you should put a key ask toward the end of your update. Put it in bold so it stands out. If your investor takes away one thing from your update, it’ll be that question, which increases your chances of getting the help you need. The Reaction This last one only works if you’re using Visible for your investor updates. We recently added Reactions to Updates. It’s a simple feature that allows your update recipients to “react” to your Update with a thumbs-up. There are certainly times when an update is just an update, and it doesn’t need a reply or a particular action. In those times, it’s still nice to know that your work is being read and appreciated. A one-touch reaction is a low-effort way for your investors to tell you to keep up the good work. If you are a Visible customer and don’t have Reactions turned on in your account yet, shoot us a message and we’ll be happy to activate it for you. If you aren’t a Visible customer yet, consider signing up for a 14-day trial. Driving action with your updates is a great way to leverage your investors networks and expertise. Why don’t you try including one or more of these items in your next update?

This month we’ve brought you product improvements that are all about making your Updates better. Check out what’s new from the last month below. Reactions to Updates We all like to know that the work we put into updates is appreciated. Reactions make it easy to know when your stakeholders have engaged with your update. With reactions, recipients can simply give your Update a thumbs-up. Reactions are currently in beta, if you’re interested in having Reactions enabled for your account, send us an email to hi@visible.vc. Update Template Library Not sure what to include in your next Update? We’ve got your back with our new Update Template Library. We are in early stages of building out our Update Template Library. Add any template to your account with the click of a button. Check out the library here. Have a template you’d like to share? Shoot us a message to marketing@visible.vc Check out the Library >>> Tables in Updates The same tables you use in Dashboards can now be used in Updates! What seems like a simple feature from the outside was actually a complex user experience to nail. Feel free to contact us with any feedback or questions you have! Up & to the Right, -Matt & The Visible Team

Rewind to 2009, when a small company called UberCab is pitching the idea of a “next generation black cab service” to seed investors. Operating in just 2 markets (NYC & SF), offering an SMS system to hail a ride, and estimating a $4B market size, UberCab envisioned themselves as the black car leader for professionals in American cities. Fast forward to 2019, Uber operates in over 60 countries, has expanded into food delivery, added coverage outside urban area, become a rental car alternative, and their total addressable market is rapidly approaching $300B (with some estimates surpassing $1T). Investors go back and forth about the importance of TAM, as it is often inaccurate and is constantly changing. David Skok sums it up like this: “TAM’s role in a pitch deck is to convince investors that the company is chasing an opportunity big enough to achieve venture-scale returns with the right execution.” So what lessons can we learn from Uber, whose total addressable market has multipled by almost 50x over the last 10 years? Top-Down vs. Bottom-Up There are 2 distinct ways we generally see companies use to model their total addressable market: top-down and bottom-up. David Skok, Founder of Matrix Partners, defines them simply: Top-Down – calculated using industry research and reports. Bottom-Up – calculated using data from early selling efforts. David, an investor himself, tends to favor a bottom-up approach as opposed to a top-down one when evaluating potential investments. The reason being that a top-down approach relies on self-reported data from private companies, which can often be misleading, inaccurate or interpreted incorrectly. A bottom-up approach, however, uses firsthand data and knowledge of your own company and reduces the risk of the data being wrong or taken out of context. With this being said, for a pre-revenue product or project a top-down approach is often the most feasible option. A top-down approach is comparatively easy since the only parameters it really requires is the total market value for your area and the market share you expect to receive whereas a bottom-up approach requires firsthand data. As you may have already guessed, Uber estimated their market size at $4B by using a top-down approach. By using existing market data, Uber dramatically undersized what the “cab and car services” market looked like, and what it would look like in the future. Using a bottom-up approach, Uber could have used their data set from their first market, San Francisco, which would have shown that the overall market was expanding, as current users were taking more rides in Ubers than they ever had in cabs. Related Resource: Total Addressable Market vs Serviceable Addressable Market Related resource: Bottom-Up Market Sizing: What It Is and How to Do It Related resource: Service Obtainable Market: What It Is and Why It Matters for Your Startup Don’t Assume the Future Will Look Like the Past As mentioned, one of the issues with a top-down approach is the assumption that the market will look the same in the future as it does today. Using historical market data does not include the expansion you would eventually see from new price points, convenience, and increased usability. Uber’s initial model for their total addressable market did not account for the changes a disruptive product (AKA theirs) would have to the entire market. Sizing the market for a disruptor based on an incumbent's market is like sizing the car industry off how many horses there were in 1910. — Aaron Levie (@levie) June 8, 2014 Bill Gurley, General Partner at Benchmark and defender of Uber’s valuation, has deeply studied Uber’s market and its ongoing expansion. When discussing Uber’s total addressable market and valuation Bill said, “Uber’s ease of use and simplicity have led many of its users to greatly increase the number of times they use an alternative car service. Some customers now use it as a second car alternative. As such, the company is meaningfully expanding the market for black car services, which is in turn a huge boon to the suppliers that share in the economic expansion.” A “Wedge” Into the Bigger Market With a sole focus on black car and professional services, Uber’s initial market size was just a small segment of their business today. UberCab was current-day Uber’s “wedge” into a much larger opportunity. Determining a total addressable market for your current offering and segment is a must, but don’t be afraid to paint a picture of the adjacent markets and where you envision your company headed in the future. As Paul Graham, Founder of Y Combinator, puts it, “Your target market has to be big, and it also has to be capturable by you. But the market doesn’t have to be big yet, nor do you necessarily have to be in it yet. Indeed, it’s often better to start in a small market that will either turn into a big one or from which you can move into a big one.” At the end of the day, investors view TAM as a picture of how big your business can be. Correctly modeling the market is vital to proving that your business should be venture-backed. Check out our TAM Template If you need a little help painting a picture of the market your solution could address, try using our TAM template! It has everything you need to start modeling the market your business can capture. Related resource: What Is TAM and How Can You Expand It To Grow Your Business?

When an investor tells you they’d like to fund your company, it may feel like you’ve reached the finish line. The hard work and time you’ve put in to fundraising is finally paying off, and soon enough you’ll have the resources you need to grow your business. Not so fast. As any good salesperson will tell you, there’s a big difference between “I’d like to close” and actually closing. From getting partner buy-in to completing due diligence, there’s a lot to think about when closing a new investor. If you know this, and are properly prepared, you can reduce the time it takes to get your check, plus save yourself a lot of headache. Here are a few things you can do to make the process smooth. Be prepared OK, so this is cheating a bit. This part actually happens before an investor tells you they want to fund your company. This is the prep work you do before going in to formal pitch meetings to make sure you can respond quickly when a potential investor wants more information. Christoph Janz provides a great overview of how to do this kind of preparation in “6 things to pre-empt 90% of due diligence.” Most of the guidance here is around preparing the metrics that investors will want to see. Having all of this data at the ready can speed up the closing process dramatically. Janz encourages startup leaders to create a dashboard for investors that is clean, comprehensible, and uses the right terms. If you need assistance with that, I happen to know of a product that can help. Understand the process With preparation out of the way, we come back to the moment of investor interest. Once the investor says they want to fund you, it’s time to ask some questions. If you’ve done sales in the past, you should know what this looks like, because the questions are very similar to those you’d ask at the end of a good sales call: “Who else needs to be involved?” – As David Teten points out, you may only meet with one partner at a fund, but that doesn’t mean they’re the only one you have to persuade. Understanding the internal approval process will help you set your own expectations, and help you XXX “What will you need from me?” – This is where your preparation comes in handy. If you’ve done it correctly, you’ll have most of what the investor asks for ready to go. You can even send an FAQ doc and metrics dashboard right after the meeting, which will demonstrate your transparency and preparedness. Then you can gather any additional data while the investor has some internal conversations. “What’s the timeline?” – Again, you’re establishing expectations here. Not only does asking for a timeline allow you to plan accordingly, but it also injects a little accountability on the investor’s part. If they give you a time frame to complete the process, you can (politely) hold them to it. “What could go wrong?” – It’s a scary question, but it’s one you should ask. If you know what could stand in the way of securing funding, you’ll be able to work to prevent it. Do your part If you’ve done your prep work and asked the right questions, the closing process should be relatively straightforward. Bumps in the road do happen, though, and you should be ready to adjust accordingly. The key is good communication. That means responding quickly to new questions that come up, being as transparent as you can reasonably be, and being professionally persistent with follow-up. Establishing a timeline early in the process gives you something to reference back to later. Any updates or changes on your side should be communicated proactively as well. Above all, remember that this closing process is the beginning of a relationship—a relationship that is very important to the future of your business. By starting the relationship off with good communication and the right expectations, not only will you shorten the time it takes to get your funding, but you’ll also be setting yourself up for a successful and productive future with you new investor.

What is Venture Capital? Venture capital is oftentimes a glorified funding option in Silicon Valley and the startup world. In short, it is a funding option that allows VC funds to buy equity in a startup. In turn, a startup is giving up a percentage of its ownership with the hopes of growing its valuation and creating a successful exit for everyone on the cap table. As put by the team at Investopedia, “Venture capital (VC) is a form of private equity and a type of financing that investors provide to startup companies and small businesses that are believed to have long-term growth potential. Venture capital generally comes from well-off investors, investment banks, and any other financial institutions.” To better understand the topic, find out more about the types of venture capital funding, when it’s used, potential benefits and pitfalls, the origins, and what it’s like to work for a venture-backed business. Related resource: How to Get Into Venture Capital: A Beginner’s Guide Who is Involved in Venture Capital? To better understand venture capital, you need to understand the people and players involved. For a quick rundown check out the definitions below: VC Fund — As put by the team at Investopedia, “Venture capital (VC) is a form of private equity and a type of financing that investors provide to startup companies and small businesses that are believed to have long-term growth potential. Venture capital generally comes from well-off investors, investment banks, and any other financial institutions.” General Partner — As put by the team at AngelList, “The general partner of a venture fund raises and allocates investor capital and supports the founders of the companies they invest in.” Limited Partners — As put by the team at VC Lab, “Limited Partners (LPs) are investors in your fund that provide capital. The most common types of LPs are high net worth individuals, pension funds, family offices, sovereign funds and insurance companies – just to name a few.” Let’s start with the entrepreneur or startup founder. If a founder is looking for capital for their business they might look to venture capital. As we mentioned above, venture capital is an equity funding option for startups. VC firms and funds invest in many companies (and the best ones are able to raise multiple funds). At the end of the day they are looking to create outsized returns for their investors. So who are their investors? Limited partners. LPs have limited control over the management of the VC fund. However, it is important to understand the LP <> GP/VC fund relationship to understand a VC fund’s motives. Limited partners are generally large investment firms that are investing across many asset groups — many of them public markets. As investing in VC funds is typically a small % of their overall portfolio, it is important for VC funds to generate returns in line or greater than the public assets in their portfolio. Because of this, VC funds will turn to founders and startups with the potential to create massive returns. Related Resource: Understanding Power Law Curves to Better Your Chances of Raising Venture Capital How Venture Capital Firms Work To best understand how a VC fund works you need to understand where they get their capital from and how they make money themselves. As we wrote in our Ultimate Guide to Fundraising, “In simplest terms, VCs go through a consistent life cycle that goes something like this: raise capital from LPs, generate returns through risky venture investments, generate returns in 10-12 years, and do it again.” At the start of a VCs lifecycle, they raise capital from limited partners (LPs). LPs are generally institutional investors (pension funds, endowment funds, family offices, etc.) that use venture capital funds to diversify their investments. From here, a VC deploys the capital they’ve raised from LPs into startups and other investments with the goal of generating returns for their LPs. Venture capital funds have traditionally been a very risky investment (with a huge upside) so LPs will generally only put a small percentage of their capital into venture funds. As Scott Kupor, Managing Partner at Andreessen Horowitz, mentioned in his book, Secrets of Sand Hill Road, “If you invested in the median returning VC firm, you would have tied up your money for a long time and have generated worse results than the same investment in Nasdaq or S&P 500.” 10-12 years after raising a fund, VCs are expected to generate returns for their LPs. If a fund manages to generate meaningful returns for their LPs they will raise another round and repeat the cycle. In fact, VC funds follow a power law curve — a small % of funds, generate a large % of returns. Internally, VC funds also follow a power-law curve — meaning a small % of their startup investments create a large % of their returns for LPs. This means that VC funds are in search of startups that have the opportunity to generate massive returns and “return the fund” to their LPs. As we wrote in our post on power-law curves, “This means that a small % of VC funds take home a large % of venture returns. VCs are constantly working to make their way into the “winning” part of the curve so they can continue to attract capital from limited partners. How does a VC fund become a “winner?” The best VC funds portfolio returns also follow a power-law curve. A small % of a VC fund’s investments will yield the majority of its returns. What does all of this mean for a founder?” Only a small percentage of funds create large returns, which means a majority fail. If a VC fund fails it means that its investments are also failing — or failing to generate the huge returns they need. Related resource: Understanding the Advantages and Disadvantages of Venture Capital for Startups Private Equity vs. Venture Capital Venture capital is technically a form of private equity. However, venture capital focuses on all equity and smaller investments that reward high-risk, high-reward scenarios. On the flip side, private equity firms are generally geared towards later stage companies that have a proven track record. Related Resource: Private Equity vs Venture Capital: Critical Differences Angel Investors vs. Venture Capitalists An angel investor is generally a wealthy individual who is looking to invest spare cash in an alternative investment. Unlike a VC, angel investors are not professionals nor do they have limited partners investing in them. Angel investors are typically more hands-off and can be a great source for introductions to other investors, customers, and others. Related Resource: How to Find Investors Types of Venture Capital Typical explanations of the types of venture capital divide it into three main groups, based on the business stage that needs funding. This list provides a brief explanation of these venture capital types and the various business stages that they may apply to: Related Reading: A Quick Overview on VC Fund Structure Early-stage This might include seed financing, Series A funding, etc. which is usually just a small amount of capital that will help the founders qualify for other loans. True startup financing provides enough capital to finish a service’s or product’s development. In contrast, startups might also get first-stage financing after they have finished development and need more funds to begin operating as full-scale business. For example, Crunchbase and newsletters are full of new VC deals being completed every day. You can check out Uber’s timeline of early-stage funding rounds here. Expansion This kind of venture capital helps smaller companies expand significantly. For instance, a thriving restaurant may decide it’s time to open more locations in nearby communities. Sometimes, it also comes in the form of a bridge loan for businesses that want to offer an IPO. For example, if you take a look at Uber’s timeline of investments you’ll notice they start raising massive rounds via private equity around 2015 as they gear up for an IPO. Acquisition Sometimes called buyout financing, this type of funding may help acquire other businesses or sometimes, just parts of them. For instance, some groups may use acquisition financing to buy into a particular product or concept, rather than using it for buying the entire company. Pros and Cons of Venture Funding for Startups and Small Businesses Pros of Venture Funding Venture funding comes with a number of advantages. One of the beauties of venture capital is the fact that a founder has to invest no capital of their own so they can grow at a rapid rate. No Personal Capital One of the biggest advantages of raising venture capital is that you do not have to use any of your personal capital. You can grow your company and valuation while deploying others’ capital. However, this does come with high expectations and responsibility. Investor Support As VC funds continue to innovate, the support they provide startups has continued to evolve. VC funds will help founders with anything from determining go-to-market motions to mental health to hiring & fundraising. Extensive Network The startup & VC world is a tightknit community. Many VC funds and their partners have extensive networks of other funds, founders, potential hires, and customers. Enhanced Growth VC funds allow companies to deploy millions of dollars in capital and grow at a quicker rate than they would with alternative venture funding options. Cons of Venture Funding Of course, on the flip side there are some disadvantages. While venture capital offers the opportunity to grow rapidly, it also has some downsides when it comes to ownership. Increased Dilution Raising venture capital means you are selling equity in your company. Because of this, founders will own a smaller percentage of their company. Convoluted Decision-Making Because of their diminished ownership, founders can potentially lose their ability to make decisions solely based on their needs and have to take into consideration the needs of their investors and partners. Long-Winded Time Commitment Fundraising can be an incredibly time-consuming and difficult process for many startup founders. It can take away a founder’s time from focusing on building or selling a product. If you’ve determined that venture capital may not be the best option for you there are always alternatives. Over the last few years, there has been an explosion of funding options that are founder-friendly. Check out some population options here. The Process of Getting Funded by a Venture Capital Firm At Visible we like to compare a venture capital fundraise to a B2B sales funnel. You are adding potential investors to the top of your funnel, taking meetings and nurturing them in the middle, and closing them, and onboarding them to your cap table at the bottom. Below are 6 high-level steps. If you’re interested in a more in-depth look check out our Ultimate Guide to Fundraising. Step 1: Determine if VC is Right for Your Business The first step to getting funded by a venture capital firm is to understand if venture capital is right for your business. This means that you believe you can grow at a rapid clip and generate massive returns for a VC fund to return to their LPs. Before setting out to build a list of investors, we suggest picturing what your ideal investor looks like and building out a list from there. Over the course of a fundraise, we recommend building a list of 50+ investors. It is important to keep this in mind when building a list and founding routes for introductions. Learn more about why 50-100 investors in our post here. Step 2: Prepare Your Deck, Docs, and Metrics If you believe you have what it takes to raise venture capital you need to start putting the pieces in place to get started. Going into a fundraise, you should have docs (pitch deck, financials, cap table, etc.) and your core metrics ready to go. Learn more about preparing your pitch deck and other documents here. Step 3: Find Investors Once you have your documents in place it is time to start finding investors for your business. It is important to make sure that you find investors that are right for your business. The average VC + founder relationship is 8-10 years so it is important to make sure you are starting a relationship with the right funds and person. Learn more about the ideal investor persona here. Step 4: Pitch Investors and Take Meetings Once you start reaching out to investors (cold outreach or warm introductions) you’ll start sitting meetings and have the opportunities to pitch investors. Check out our guide for meeting with and pitching investors here. If you find an investor who is ready to fund your business, awesome! You’ll move on to the following steps. For a more in-depth look at the next steps, check out our blog post here. Step 5: Due Diligence After a pitch, if an investor decides they want to move forward with an investment they will begin due diligence. You can expect an investor to audit your financials, survey your employees and customers, and deeper study the market. Great VCs will offer a checklist to help set expectations during the due diligence process. Over the course of due diligence, you will likely need to share a data room. Learn more about how you can build a data room with Visible below: Related Resource: What Should be in a Startup’s Data Room? Step 6: The Term Sheet If you make it past due diligence, you will be presented with a term sheet. If the terms look good, you are set! Learn more about navigating your term sheet here. Origins of Venture Capital In one way or another, forms of venture capital have probably financed innovations since people latched onto the idea of bartering. For instance, a plucky inventor may have come up with a better idea for a grindstone but lacked the resources to create it on his own. Another villager may have liked the idea, so he exchanged stone and labor for part ownership in the new and better-milled grain producer. Still, for much of the history of venture capital, investors favored loans over equity. In the past, investors lacked ways to gain good information about all the details of a business. Also, until fairly recently, the concept of limited liability did not exist as it does now. Investors feared that they may offer money to a company in exchange for part ownership. In exchange, they might get unpleasantly surprised by massive debts that the original founders had already piled up. As part-owners, they would also face partial responsibility for these loans. The concept of limited liability helped relieve some of these concerns and encourage more equity funding. It took until after WWII for the United States to develop a true private equity system. An investment of $70,000 in DEC in 1957 gained credit as one of the early success stories after that initial funding grew to $35 million by the IPO in 1968. The Great Recession changed the nature of venture capitalists to some degree. Most lately, venture capital groups have focused more upon offering other value, besides just funding, to the small businesses or startups they want to help fund. As mentioned above, part of the deal may include business expertise, facilities, and other helpful assets beyond money. Thus, many venture capitalists look for startups or small businesses that they understand how to fix or help, beyond those that just need investments. Working for a Venture-Backed Company How is working for a venture-backed company different from working within an established corporation? As we noted in our guide to Startup Culture, working for a startup can offer employees many of the same benefits that investing in one provides venture capital providers. Of course, employees may not initially enjoy the large salaries and perks that a large and established corporation can provide. A few perks of working at a venture-backed company over a large corporation: Ownership — the ability to own projects and individual metrics that move the company forward. Collaboration — have the opportunity to work cross-functionally with other teams and individuals Growth — quickly advance and grow your skills as the company grows. Because the company is small, employees may need to wear multiple hats, and some employees enjoy the challenge and chance to explore various facets of their company. In lieu of the highest salaries or best retirement plan, some startups also offer flexible schedules and other soft benefits that might also appeal to some very good employees. Working for a venture-backed company offers some challenges over taking a job with an established firm; however, the right startup or small business can also promise great rewards. Find out if VC is right for your company with Visible Understanding how venture capital works is an important step to determining if venture capital is right for your business. If you believe venture capital is right for your business, let us help. Find investors using Visible Connect, our free investor database, to kick off your fundraise.

What is a Cohort Analysis? A cohort analysis is a study of activities for a certain segment of customers or users. In this template, we are looking at the customer cohorts for the quarter or month they were acquired, and what % of those customers were retained for subsequent quarters/months. As summarized in Lean Analytics (via Wikipedia), “Cohort analysis is a kind of behavioral analytics that breaks the data in a data set into related groups before analysis. These groups, or cohorts, usually share common characteristics or experiences within a defined time span. Cohort analysis allows a company to “see patterns clearly across the life-cycle of a customer (or user), rather than slicing across all customers blindly without accounting for the natural cycle that a customer undergoes.” Why Cohorts are Effective for Analyzing Data With cohort analysis, you can start to correlate initiatives in your own business to see how they may affect the customer lifecycle. As your company scales, iterates, innovates and creates processes, you would hope to not only acquire customers at a faster pace but also retain them longer, correct? One would assume as product/market fit is found, domain experts are hired and new campaigns are launched that customer retention gets better… but how do you know? New Product Features In order to best understand how new product features are impacting customer retention and other metrics you will want to look at a certain cohort of customers/users. Perhaps cohort retention improved as you started to introduce features in your product to engage customers through a daily digest. By understanding how customers interacted with the new daily digest you’ll be able to use data to determine where development time and resources should be placed in the future. New Marketing Campaigns Startups are constantly testing new marketing channels and go-to-market efforts. Without the proper data behind a new campaign, it can be difficult to determine what cohorts and campaigns are performing best. For example, maybe you introduce paid search as a marketing strategy, then realize retention drops because customers acquired through paid were not the ideal customer type. This should be a clear indicator that you either need to (1) improve different aspects of your paid funnel or (2) focus the time and energy on paid channels on different channels. New Customer Onboarding For SaaS companies and service providers, onboarding new customers is vital to their retention and growth with the product and your organization. Onboarding flows are constantly being tested and tweaked to convert your customers as best as possible. For example, let’s say you add 3 questions during the signup process to better tailor a new user/customers onboarding experience and it is shown in the data that this cohort is 2x as likely to take a key action in your application, you will want to implement and improve this even further. The 2 Types of Cohort Analysis Cohort analysis can be a powerful tool to interpret and understand your user data. While you can slice and dice your cohort data in a wide variety of ways, it ultimately comes down to 2 main types of cohort analysis: Related Resource: Startup Metrics You Need to Monitor Acquisition Cohorts One of the main types of cohort analysis is by acquisition type. As we mentioned in the previous section, cohorts can be valuable when analyzing marketing campaigns and efforts. By breaking down cohorts by acquisition channels, you’ll be able to better understand the specific channels that are performing best or campaigns that need to be tweaked. Behavioral Cohorts The other main type of cohort analysis is by behavior. This can generally be used in regard to steps taken in a product. For example, you can create a cohort of users that have taken a specific action in your product. This can be used to inform and dictate product development and strategy. How to Build a Cohort Analysis in 4 Steps Building a cohort analysis can be time-consuming and tricky. That is why we created a template with just a few steps to help get you started (more on using our template later). At the end of the day, if you are creating a cohort analysis from scratch or plan on using our template there are a few steps you’ll need to take before you can get started 1) Start with a Goal and Questions When building a cohort analysis you first need to figure out what the goal of the analysis is. At the end of the day the goal of a cohort analysis is to better inform your team to make decisions around product, marketing, customer experience, etc. If you’re not setting expectations and questions you want to answer, you can miss the point and impact of a cohort analysis. 2) Define the Metrics & Data Needed Once you’ve determined the goal and questions you’d like to answer you need to understand what data and metrics you will need to measure and compile to execute your analysis. If you are measuring customer retention, you will want to start with clean data around your customer base. For example, you will want to have a grasp on contract size, sign up dates, churn dates, etc. Depending on what you are tracking, it may require a deeper layer of data. For example, if you are looking at a specific marketing channel, you will likely want to include this data as well. Having cleaning and correct data is essential to making sure your analysis is effective as possible. 3) Perform the Analysis There are countless tools and resources available to help performt the actual analysis. For example, Google Analytics has a builtin tool to perform cohort analysis but that requires your Google Analytics data to be 100% clean. To help we’ve created a tool to help automatically perform the analysis in a few quick steps. 4) Study the Data The most important part of a cohort analysis is finding actionable insights to help better inform your business and product decisions. When studying your data, it is important to keep in mind the original goal and questions you set out with. See how different cohorts can help answer these questions and make better business and product decisions in the future. Check out more about specific things you should analyze and look for in the next section: Applications of Customer Cohort Analysis Cohort analysis can be applied to all business models. Depending on your model, acquisition strategy, and product or service will determine how to apply a cohort analysis. Customer Cohort Analysis in Ecommerce In order to best understand your eCommerce efforts, you need to understand how customers are engaging with your brand, website, and product. For example, you can use a cohort analysis to see if customers from certain marketing campaigns are making repeat purchases. Related Resource: Key Metrics to Track and Measure In the eCommerce World Customer Cohort Analysis in Mobile App Development In order to best develop mobile apps, you need to understand what marketing strategy and product are impacting your key usage metrics. For example, you can use a cohort analysis to see how customers going through a certain onboarding flow are engaging with your mobile app. Customer Cohort Analysis in Digital Marketing In order to best build a digital marketing business, you need to understand what campaigns are performing best. For example, you can use a cohort analysis to see how customers are engaging through different marketing channels and campaigns. Customer Cohort Analysis in Online Gaming In order to best build an online gaming business, you need to understand what strategies are getting gamers to engage with your product the most. For example, you can use a cohort analysis to see how customers who play in specific tournaments engage with your game at later dates. Related Resource: 10 Gaming and Esports Investors You Should Know Customer Cohort Analysis in Cybersecurity In order to best build a cybersecurity business, you need to understand what strategies are working best to retain customers. For example, you can use a cohort analysis to see how likely it is for customers to renew and expand their contracts that come from certain campaigns. Related Resource: 10 Cybersecurity VCs You Should Know About How to Build a Cohort Analysis for Customer Success As we mentioned above a cohort analysis can be extremely useful for making better business and product decisions. One of the key aspects of this is how it can impact customer success and your retention efforts. Our template has a deep focus on customer retention and allows you to look back at different cohorts to see how you can improve retention efforts. Revenue Retention In our SaaS Metrics Guide we discuss the importance of retention. As we put it, “Poor customer retention isn’t just bad for finances; it’s an indicator that there could be a core issue with the solution itself. Customer retention rates are always a major feature of revenue development.” At its core, a cohort analysis is best for measuring customer and revenue retention. While it could be an array of factors, understanding what cohorts are most likely to stay customers and have the highest lifetime value is essential. This may start with a top of funnel problem or may it is a product problem. By taking aim at improving your net and gross revenue retention, a cohort analysis can be a valuable tool. Customer Lifetime Value As defined in our Customer Acquisition Costs Guide, “Customer lifetime value quantifies the value of what the customer acquisition actually brought into the business. Without customer lifetime value, you know how much every customer cost to bring in, but you don’t know how much those customers were worth.” This idea goes hand-in-hand with gross and net revenue retention. If a cohort of customers has a higher customer lifetime value, why is that? Was there a particular onboarding process or channel that was prevalent that led to a higher LTV? If a cohort of customers has a lower lifetime value, why is that? Was a certain channel performing poorly? Did you remove a step from onboarding that may have reduced activation and in turn forced customers to churn sooner? Measuring customer lifetime value is an incredibly valuable aspect of a cohort analysis. By finding the customers that are more likely to stick around, you can focus on what is working and apply it across your customer base and product moving forward. Onboarding and Engagement When analyzing different cohorts of customers you can look at things like onboarding and engagement campaigns during their lifecycle. Whether a software company or service provider, customer onboarding is constantly always changing. It could be a new questionnaire during onboarding or more touch points from a customer success representative. Oftentimes onboarding can be an integral part of how quickly a customer finds value and sets the tone moving forward. If there is a radical change to onboarding and customer engagement, it has the opportunity to impact their lifetime value and likelihood of churn. New Products and Services Startups are constantly testing different product and service offerings. Use a customer cohort analysis to determine how they impacted your revenue retention months later. If customers that activated a new feature or product are more likely to stay onboard, see how you can fit this into your customer success messaging and onboarding. Discounts and Promotions What good is offering a discount if you cannot see how it ultimately affects your revenue. If you offer customers a discount at the end of a quarter or month, see how likely they are to stay onboard once the promotion or discount expires. If you find customers that activated a promotion or discount ultimately churn sooner, it may be worth putting that time and energy into cohorts of customers who you know have a higher lifetime value. What are the Benefits of Customer Cohort Analysis? As we’ve alluded to throughout this post, there are countless benefits to building and analyzing different customer cohorts. Learn more about a few key benefits below: Inform Product Development Cohort analysis can be used to break down segments of customers based on their product usage. Because of this, you can understand what product features lead to your best customers. This can be used to inform product development and strategy down the road. Related Resource: How SaaS Companies Can Best Leverage a Product-led Growth Strategy Focus on Acquisition Channels Another major benefit of analyzing different customer cohorts is by breaking down different acquisition channels and strategies. By evaluating cohorts based on their source channel, you’ll be able to better understand what strategies and channels you should be investing in further. Improve Customer Success & Onboarding Looking at the bottom of your funnel, you can analyze your customers by the customer success and onboarding strategies used. For example, if you are testing a dedicated customer success representative for a certain set of customers you’ll be able to determine if it is worth rolling out this strategy across all of your customers. Our Customer Retention Cohort Analysis Google Sheet Template Building a customer retention cohort analysis can be a time suck which is why we are open sourcing our template with you today. Our template provides entry of customer data in two different ways, in addition to supporting tracking over quarters and months. Everything you need can be found in the instructions tab of the template. This template will allow you to get data from the previous eight quarters and is completely automated. A quick explainer: Decide if you want to enter row level data of your customers, simply head to the “Customer Data” tab, remove all of the fake data we’ve entered, and enter in your own data. This will automatically fuel the other tabs and be the start of your cohort analysis. If you’d prefer to enter simple counts of your customers at the start and end of different time periods, head to the “Customers Retained Count” tab. From here, you can enter the total customers acquired and churned during a period. Get The Ultimate Customer Retention Cohort Analysis Template for SaaS Use our template to correlate key business decisions to your customer acquisition and retention efforts. As your company scales, iterates, innovates and creates processes, you would hope to not only acquire customers at a faster pace, but also retain them longer, correct? One would assume as product/market fit is found, domain experts are hired and new campaigns are launched that customer retention gets better… but how do you know? With our free template you’ll be able to: Easily enter customer lifetime information in a pre-formatted section. Generate a monthly and quarterly cohort analysis of your customer retention efforts. Compare your cohort analysis against company milestones to understand what is generating the highest-quality customers for your business. Download our template below: