The 7 Tips to Setting Yourself Apart During the Venture and Growth Stages with Atomico

Hello everyone and thank you for joining us. We are the only thing between you and the happy hour, so it's always a tricky time, but we'll try and make it engaging and interesting. Uh, my name is Irina. I'm a partner at Atomico. I focus primarily on our early-stage investing.

And I'm Hillary. I'm a principal in the investment team at Atomico, and I focus on our growth-stage investing, so from Series B and onwards.

Atomico, as you may know, is a multi-stage fund, which means we are lucky to invest across stages from early to growth, and we get to see a lot of scaling journeys in the process. Today, what we want to do is bring you a little bit of insight into how we look at investments, at potential investments, and how that evolves from the early stage all the way through to growth. We want to bring you a little bit of this investor mindset to the table so that you can take this into account when you plan your milestones or when you pitch to various types of investors.

As well. And so, Irina, and I know there have been a lot of great sessions over the past two days deep diving into some of these areas in particular, like product market fit, or go-to-market, or metrics. And so what we wanted to use this session for today is to zoom out a bit and look at the overall picture of some of these different components that investors will be thinking about when they're analyzing an investment in your company. And so what you see here is a bit of a simplified framework of seven of these core areas that we think about as investors when we're looking at a potential investment opportunity. And what you see in each of the columns is the different levels, a rough idea of the different levels of proof point or validation that investors might expect to see in each of these areas as you progress from the early stages, which we'll be calling venture throughout the course of this session, so seed and Series A, all the way towards growth, so Series B and onwards. And so what you'll see see, of course, and as you'd expect, is that at the early stages, the level of proof points or validation that is needed in each of these areas is, of course, much lower. There's more risk being taken on the investor side. But this burden of proof will increase in each of these areas as you go towards the growth stages. But what you also might notice is there is one row on this table where that need for validation is there even from the earliest stages, from the seed. which is this, this idea around the narrative. And this becomes really important because, because of this dynamic at the early stages where a lot of these areas won't be proven yet and there won't be full validation yet, how you craft that narrative and tell that story to investors is really key in terms of telling them about the vision. Um, but even at the growth stage, a lot of these areas won't be perfectly in place yet, whether it's the exact go-to-market or the competitive advantage being fully proven out yet. So that narrative remains really important throughout the entire course of this scaling journey. And so what Irina and I do— we'll do now is we'll chat through each of these 7 areas in a bit more detail. And given our respective focus areas as investors, Irina will focus on chatting about the venture early-stage investor mindset in each of these areas, and I'll share my perspective around how this evolves a bit as you reach the, the growth in the Series B and onwards stages.

So to start with the scale of the opportunity, I'm sure you guys know that investors will look at market size as a potential, as a key proxy for the potential outcome size. And the way we think about market size is several kind of like dimensions, from your addressable total theoretical addressable market all the way to the actually realistic market share you can gain. You can calculate market size in different ways. You can calculate it as bottom-up, applying your pricing to a wide set of customers. You can calculate it as a top-down where you cut the segment of the market to reflect the, the realistic share that you're gonna— a segment of customers that you're going to, to go after. And in terms of like how we look at it, what is important for us at the venture, at the early stages, is that you have a clear definition of what your true market is. A lot of founders go and say, oh, we're playing these like huge market of 10 billion of X and Y, but actually it is not necessarily this sort of sum, the serviceable addressable market of that product. So it's really important to understand what your true market is and what is your realistic share that you can achieve from that market. There isn't a minimum market size. We often get asked like, you know, what, what do you want to see? And the reality is different funds will expect different market sizes based on their own fund size, their own strategies. But I— one exercise that's always good to do is think about how do I get to $100 million ARR? What does that market look like that gets me there?

And from the growth stage perspective, what we'll look at is not only have you started to prove out these validation points around capturing this core market that Irina just articulated, but what we'll also start to look for is some initial proof points that are demonstrating the market expansion potential of your business. And so this can come in a variety of different forms. It can come from potentially product expansion, where you might be adding on new features or product adjacencies. It can come from business model expansion, where perhaps you're monetizing pieces of your product that you weren't previously, or even geographical expansion, where perhaps your product is one that needs a bit of a different product formulation in different markets, in different geographies, or a different sales or go-to-market motion in different geographies. And so seeing those initial proof points around that ability to expand your market is something that gets us very excited at the growth stage in terms of seeing this ability to continue to capture even further market size opportunities. One thing to note is, is I think what we see, it's often very tempting to start to try to capture these market expansion opportunities as soon as you start to identify them. But one thing to keep in mind is to really make sure you nail that core market offering that Irina just spoke about before starting to prove out these market expansion abilities, because it will start to take resources and potentially dilute your focus. And so making sure you've proven the core before starting to do some of this expansion is, is a key thing that we would keep in mind as well.

So moving on, on the product side, at the earlier stages, you often don't have a fully fledged product or a fully executed product. So we don't necessarily expect to see that. What we do expect to see is a clear product vision and a clear product roadmap. And ideally, especially as you go towards Series A, some version of an MVP. The one— the other thing we look for that may not be obvious is we're always going to ask ourselves, what is the secret sauce here? Like, what is the secret sauce of your product? What is— what are like unique assets and insights that you have that will differentiate the product in the, in the, in the long term and will create this sort of engagement and value over, over a longer period of time as the market also grows and gets more crowded? And these sort of secret sauce can be things like insights from your users or early insights from your customers. It can be— they can come from design partners. They can come from your experience as a founder. But bringing those together is important and communicating that as well.

And at the growth stage, what we'll start to look for is that this secret sauce that Irina just mentioned, we're now starting to see proof points that that is validated in the market. And how we look to see that is that it's translating into this usage and engagement of your product. And what that starts to prove out to us at the growth stage is that not only is the pain point that you identified a real one, but that this secret sauce or the edge that your product is tackling with that pain point within the market really is resonating. And we see that in the usage and engagement of your product.

So on the product-market fit, we will start by thinking about what are the metrics that determine product-market fit for the specific business you're building? Because product-market fit metrics will differ depending on, on the product. In some cases, the most relevant metrics would be number of customers or revenue-based metrics. In other cases, it's users or community-based traction. Um, and so we'll always tailor our view, but what we really want to see is that you have thought about it. That you have a view on what are the core KPIs and that you monitor and track them and use them to inform your product. We also want to see that you understand somewhat the bar or the bar you're setting to when do you achieve product market fit. How do you know you'll have product market fit? And lastly, I would encourage you to also go beyond the obvious metrics. There's obviously the standard things that investors look at, to look at, but then there will be other metrics that are important for your product, which can be qualitative insights, customer reviews. It can be retention numbers. It can be certain segmentation of your customers. And just use those as well. Don't only kind of stick to, well, this is what I'm expected to, but actually stick to what you think is helpful for you and for proving product market fit to yourself as well, not just to investors.

Sectors. From a growth perspective on product-market fit, it's relatively straightforward, straightforward versus the venture early-stage lens on it, which is simply that the bar becomes higher. We'll be looking for these metrics to be at a greater scale than they were at the earlier stage, um, and how that in particular is translating into value. So the one sort of piece of product-market fit that I'd call out here from a growth-stage perspective is We will definitely be paying attention to these items like usage and community traction. But what we'll particularly start to need to see validated at the growth stage is also this element around value, and that this usage and engagement is really translating into revenue, and there's a willingness to pay for the product that you're providing.

So after product-market fit, you want to think about go-to-market fit. Um, and obviously at the very early stages, you won't have have this sort of like repeatable sales playbooks in place, and we don't expect you to have that. However, what we would expect is a view on a go-to-market plan and the strategy and a solid rationale and thinking behind why that is the go-to-market plan. So we will look into the choices you have made for that about how you— who are your key customers, which segments, how— what's precise who are your users, who are the budget holders, and how did you derive those conclusions based on behaviors and incentives of these key stakeholders. As an example, you can have, for instance, if you're building a, a dev tool company, your go-to-market is likely going to be different than if you're building an enterprise automation company, which means you're likely to have to think about how to create those user attraction and community love before you even think about the top-down enterprise motion. And that needs to be reflected in your thinking early on and in how you're planning. What we see more commonly these days is that a lot of the products have to play a little bit with both, with the bottom-up and top-down. And as a founder, you may not have a full go-to-market team in place, a senior layer to kind of help you do that. So you, at the beginning, it's very important that you also test the various routes and decide how you're going to sequence them, what you're going to do if, if you do have to combine them.

And from the growth stage perspective, what we'll look to see is that these early iterations on the go-to-market side are now really starting to crystallize into identified sales channels and repeatable sales playbooks. So taking, for example, um, what Irina mentioned of perhaps you're taking a top-down sorry, a bottom-up go-to-market approach in order to really fill the top of the funnel and start to get this community adoption. What we might pay attention to in growth, if this is applicable to your product, is have you identified these trigger points at which you perhaps upsell to a team account? And maybe even have you identified that there's a tipping point at which you need to complement your bottom-up go-to-market approach with a bit of a top-down enterprise motion in order to land some of these bigger customers? So really starting to see that you've started to crystallize that thinking and have some initial proof points and validation around that go-to-market maturing and being repeatable is something that we'll pay a lot of attention to at the growth stage. Another element or lens of our thinking on the go-to-market side at growth is also overall looking for increasing efficiency in your go-to-market. And so the accumulation of insights and data that you've gathered from these early iterations that you've been doing, we'll want to start to see that this has led to you being able to more precisely target your customers, figure out how to find them and how to convert them. And so we'll wanna start to see that be reflected in metrics around your go-to-market, like your payback periods or your sales cycles becoming more efficient, or at least identify levers that are gonna provide a path to them becoming more efficient in the future.

On the competitive advantage, what we'll spend time on is trying to understand kind of a little bit like the secret sauce for the product, is trying to understand what is the competitive advantage of the company that will compound over time to represent this long-term moat. And this depends again on the business you're building. Sometimes it's a tech and IP because you're building something more technical. It can be proprietary data. You you have access to or you've built. It can be category creation or a certain brand. And sometimes it's as simple as first mover advantage or strong execution because there are still a lot of businesses where, you know, land grab is, is, is important at the beginning. The other thing we'll do is we'll zoom out and look at the overall landscape. This means looking at competitive offerings, but also at companies that are in adjacent areas that could expand or that you could expand into. And we'll take a view on what's the best entry point and who— what do we think wins over the long term.

And from a growth stage perspective, what we'll start to really want to see is that this competitive advantage that you articulated at the early stage is really now getting validated and that we can see proof What are the data points that show to us that this competitive advantage really is real and is resonating in the market? And so often by the growth stage in Series B and onwards, your product will be in the hands of your customers who have been using it. If you have potentially direct or indirect competitors, their products will be in the hands of other customers as well. And so we then at the growth stage spend a lot of time validating and understanding the competitive advantage from the customer point of view. So we'll speak to customers, understand what their key decision criteria were, how they evaluated perhaps your solution against different solutions, and really get some of that anecdotal and qualitative understanding that this competitive advantage really is real and is resonating. Many growth investors will also have a, a quantitative approach as well to validating this competitive advantage, which will be running wide market surveys of these customer groups. To also understand how your product ranks relative to potentially competing solutions in the market as well. And so generally, what they'll be looking for with all of this insights and data is really trying to validate by the growth stage that they can see that you are the emerging category leader in the space that you're playing in.

Moving on to founders, perhaps the most important thing. Um, the, the first question we ask ourselves is, around this kind of founder market or founder problem fit. Why are you the best position to build this product? What is it about the insights that you have about the experience that you have that gives you an edge, that gives you a unique advantage? And what is your story? Why do you want to build what you're building? The other thing we look at is what we call talent magnet. So what are the early signs that you can retain excellent talent top performers that have chosen to join you versus joining another startup or another large company or starting their own. And then lastly, a very important element is the culture. We take a view that you can— you need to start thinking about this very early on, that culture needs to be a very deliberate strategy and a consistent effort over time, and that you cannot course-correct it or that it's much harder to course-correct later on. In particular, key elements of culture such as diversity and inclusion, they become much harder to course-correct when you're 10 people, when you're 100 people and you've not solved it versus when you're 10 people at the beginning. So I think there are those— it's kind of easy to ignore because it may not be the most pressing thing to solve, but they become bottlenecks going forward. Also for, for talent retention and for the kind of the, the team you want to build.

And from the growth stage perspective, a lot of what Irina just mentioned carries over from venture over to growth in terms of how we think about founders and team. Um, one thing where the, the burden of proof potentially becomes quite a bit higher is taking this founder-market fit that Irina spoke about at the early stage, and we'll want to see how this is now bridging into a validated execution ability that you have. And so how this founder market fit has translated into you identifying the right milestones, starting to hit them, and perform to a plan. Um, we definitely still spend a lot of time thinking about this concept that Irina mentioned of being a talent magnet. At the growth stage, what we'll also be looking for is that your very strong early performers and people that you wanted to keep in the team are carrying over. You're able to retain them, and they're staying on for this next phase of, of the journey, in addition to seeing talent join from other companies into some of the key roles as well. And then finally, from an organizational perspective, at the growth stage, given a lot of the elements that I mentioned today around where we'll start to look for potentially market expansion or these repeatable playbooks around the sales team, we'll want to see kind of the thoughtfulness and talk through with you around how you're thinking about creating an organizational structure that supports that continuous market expansion that you'll be going after.

And lastly, the power of the narrative. Um, as, as you saw, there's differences in, in terms of like venture and growth stages, but one kind of like combined element that unifies them all, um, is the narrative. And nailing that is important at all stages.

Why?

Because the narrative brings together all the elements of what you're building in a compelling story that's not just for your investors, but it's a, it's a story that you, you kind of tell to your employees, to your customers, to everyone that you interface with. And you need that to be consistent and well thought through so that you align everyone behind the same mission and the same, the same goals. So one thing to we'd encourage you always is to invest early in building that narrative that is clear, crisp, and unique to you, and practice it so much that it becomes second nature. And finally, always have an elevator pitch at hand because you never know who you run into. I think that wraps it up. Thank you very much, and we have— A few minutes left. I'm sure we haven't covered really everything. So who has any questions?

And if you have a question, just raise your hand. I have a mic and can run over.

Thank you. Great presentation. I was wondering about the market sizing, whether decks should say bottoms up, top down, give some kind of additional information besides just the circles.

I think the first, the most important thing is that you show the definition of what is the market and what is the TAM and what is the SAM and then show the numbers. And I don't necessarily think that the decks should show the calculations. You can always talk about those. But what first thing we ask ourselves is, is this the right way to define the true market for this product? That's probably where I would start and focus on. And then on the bottom-up, top-down, you can also do both because it sometimes helps to triangulate. If they're really far apart, then you probably want to ask yourself why.

Thank you.

What is the expected error in each stage?

Do you want to take that?

Sure. Um, each investor will think about it a bit differently. For us, um, we don't have a set expected ARR at each of these stages, and I think we see that it varies. Sometimes we see Series A or Series B companies that might be still pre-launch, um, and so that's why we'll look at some of these other ways to validate things like product-market fit. It might not yet be provable in terms of ARR, and so digging into some of these other metrics around it are something we spend a lot a lot of time on. I think in terms of setting out a set number of ARR at each of those stages, I think we're seeing that it fluctuates quite a bit. So it would be, it would be difficult to give a specific number.

Yeah. And maybe just to give you an example, I mean, it differs a lot. Again, going back to the business you're building and what are the metrics that matter. I've certainly invested in companies where at Series A there was no revenue and there was no plan to have a revenue for the next year to 18 months because the focus was on community and usage. So what I looked at there is how does that scale of usage trends, how in terms of like not just the reach but also engagement, monthly, weekly, daily active users, what do those users say on, on Twitter, on Facebook, or whatever. And the, the revenue was not relevant at that stage. It becomes relevant later. Of course, it always— you always have to get to revenue. But, um, and it's the same. And in the example I mentioned on, on some of the dev or data toolings, the initial— if the initial, like, effort on go-to-market is on bottom-up community building, it's just harder to generate revenue from that. And that's also not where your end game for revenue is because your endgame is to get these few users, but then get to the head of the team or one level up to sell it for the whole company. So even if there is revenue at that stage, it's probably less indicative of the future revenue. So I think it's about— a lot of founders ask, like, what's the minimum ARR? And it's just so— the reason it's so hard to answer that question is because it is very dependent on on the business. And you can have good ARR, but if it comes from, you know, just 2 customers and it's just pilots and you cannot renew, you know, renewable contracts of 1 year, that's very different than like repeatable ARR. So I think there's 1 question here and there was 1 more there.

Thank you, Irina, Hillary. I'm Jordi, founder at Factorial. Question for both of you: what are the most common reasons for you to pass on investment opportunities in both the early and the growth stages?

Good question. I think, I mean, to be honest, it can be all of these things that we've mentioned. It can be size of the opportunity. A lot of the time is size of the outcome. We are a pretty large fund, and so So we will look for really outsized outcomes, multibillion-dollar type of outcomes. And sometimes we can see— probably that's the most common one. Like for me, sometimes I see this is going to be a great business, but I think it's going to get to, in the best-case scenario, $700-800 million. And I find it hard to see a path to $10 billion or even a couple of billion. That I think is common. The founder question is also sometimes— I mean, it's one of the things that people never like to tell you because it's like, it can be taken very personal. But there are situations where it's not clear why that founder is really differentiated in building that business, or, or the, the founders that spike very much on one thing but haven't complemented themselves with someone to help them on all the other things that they may not you know, have, because that's what happens when you spike on one thing. And so I think that's another quite common, common reason, if I had to pick up two. But it can be any of those, or a combination of them, most often.

Yes.

The answer wouldn't be that different for us at the growth stage. I agree. I think one of the ones that often comes to mind is that market size and scale. Size of the opportunity question, which again comes back to why crafting that narrative around what is the scale of the opportunity that you're going after is, is so important. Um, one other one for us that's, that's really important to us as a fund as well is this idea around alignment of vision. And so that's why we spend a lot of time also understanding how you think about this market evolving, what is the roadmap that you've set out to achieve it, and making sure that we're aligned. We definitely see that founders are, are are the ones who have the best insights into how to go after this opportunity. But that alignment in terms of how you're planning to tackle it is, is another thing that we spend a lot of time on and want to make sure that we get right together as well.

Hi, Patrick with Unlisted. Thanks for the presentation. Question around the ownership: is there any particular things you look at at a cap table? And what's your views and expectations around distributed ownership between the team?

You mean, um, if the founder basically has less ownership because it's—

or yeah, and in general, particular things you look for, like dilution? How much does the owner own, or the founder own, the versus the team, co-founders, investors, and such?

I mean, in the early stages, weeks expect the founders to still— I think in general we want the founders to own enough to be incentivized to, to keep going with the business. At the early stages, um, we expect the founders to still own the majority, at least when we come in. What we have had challenges with in the past is, for instance, university spinouts where you have like a 30% owned by university because you have taken the IP from there. I think those are very difficult cap tables for us to get into. But otherwise, I think if the founder is, you know, very— like an ownership of 10-20% on the founders is way too low for the beginning because it's going to keep getting diluted. I don't know if that's helpful, but we don't have like a certain like number. What we want to see is the founders own still a big chunk of the business. There is obviously an option pool for future employees, and then generally there's like maybe a seed investor, and then there's like— we come in at the A, for instance. That would be an example. But I think we would worry if the founder had 10%.

Hi, Espen from Kindly. So obviously you, you have an investment committee and you make a business case And how, how do you align that next exit with the founders? Like in the case of Spacemaker that you did, then just after a couple, a couple of years, there was this exit already to, to Autodesk with a really good return on, on your investment as well. So do you, do you look on potential industrial exits together with the, with the founders when you enter investments like that?

I mean, it really depends. Ideally, we want to see the company grow for many years and become a multi-billion dollar company and exit from IPO or a large M&A. But there are some companies that have opportunities to exit earlier where the exit is instinct of the founders, and we generally align with them, and we, we generally go where the founders— I think as a fund, we're more founder-friendly, so to say. So we, we will have a discussion. If we disagree, we will be open about it, but we've not had necessarily massive, massive conflicts around those, those things. But the objective is to build really large companies, but obviously Unfortunately, not all companies get to be very large companies, so we adjust on the way.