LIVE Workshop Wednesday: Raising Capital in 2023: What It Takes to Raise in the Current Market Up…

Want to write questions in the chat and I'll definitely make sure we have time to go through of them later. And let's rather make this an interactive session than like a presentation only. So.

Yeah, agreed. We should make it as interactive as your background. I love that you have this video background if everyone hasn't noticed yet. It's the coolest thing ever, Peter. Yes, it's the best. I thought I had the coolest background of all time, but I think you might have me be. Speaking of interactivity and questions, Peter, would you mind if we started with me asking you a few questions?

Not at all.

Okay, cool. That is the right answer. Peter, what is one of your favorite investments you or the firm has made in the past year?

I would, I would probably pick one of our most most recent investments and it is one we actually, we actually announced today. So why, why don't we choose that? It's, it's a company out of London called Lindus Health and it's clinical trials for, for Health basically and it's a, it's a new way of, of doing of next gen CRO and doing end to end clinical trials for, for Health Tech. A very exciting team that is, you know, both active in Europe and the US it was an 80 million a round that was announced today. So as it's a company we're very excited about and as it's the word of the day as it was announced today, I'll name that but they're, they're, you know, in the portfolio is always like that you're especially about recent investments, you're excited about many because you, you just recently as a team, you know, got to conviction, excite and you know, decided to invest and a couple of months later it's, you know, it's so hard to tell like who, who's sort of like gonna really, really deliver and be sort of like super well performing and that it gets easier a few years down the line versus very recent investments.

Yeah.

Well, congratulations. We obviously plan this in conjunction with that. No, just kidding. But thank you so much for that answer and so excited for you. Moving on to our second question. What has most surprised you about venture capital this year?

I, I, I think what one thing that everyone was kind of expecting was that we like everyone talked extremely negative about the market. And what surprised me I think the most is the, the hype in valuations we're currently having around AI. So I think AI is probably an area where most of VCs and also most many operators and founders are extremely excited about it's a big impact on the ecosystem and technology in the future. But as we just came out of 2021, where in SAS, let's say 100x ARR was normal for companies to raise very, very expensive rounds. And now last year, end of last year was like sobering up and getting to new levels and more new reality and you hear like, oh yeah, I mean like 2021 was so inflated and like it was too much. And here we are 2023, you know, companies doing 500k arrasing on like 200 million or doing zero revenue, doing 300 raising on 300 million, like very hyped AI rounds. And I think I wouldn't have expected it to that extent. I mean we're all super bullish on the area, but I wouldn't have expected it to translate in some areas in such a round valuation hype.

Yeah, well that was a great answer. I don't think we've had that answer yet. So thank you for sharing our next question. And last question before I hand it over to you, who everyone is actually here for and I'll stop talking. Who is one of your favorite co investors?

I would pick an angel here or actually two angels which are the Sennder founders. I personally sit on two boards with them and Sennder is a logistics unicorn from Berlin and the founders do some angel investing and I work on two companies with them, Cargo One and Timber Hub and David and Julius, you know, also work with the board there and very helpful, very good, you know, operational input for the founders and just very pleasant to work with and that's something I, you know, I enjoy a lot. And the next change I really value.

Yeah, well thank you so much for all your answers and insights. I know we are going to get a lot more information out of you in the next hour. So with that Peter, feel free to start your presentation.

Cool. So first of all, great to meet you all. I'm Peter, I'm based in London, a partner here at Crandom. As many of you know, we're pan European Early Stage fund since now 20 years. And the topic of raising capital is something we talk a lot with our portfolio and often founders come to VCs to discuss strategies and understand can we raise, how much can we raise? And we of course have a slight, slight advantage of like looking at our portfolio and what is going on there. But also we also of course as we sit on the western side and how would we behave in these things and many of our companies have raised, you know, last round very Big rounds in the past years if we think, you know, like something like Trade Republic raising an 800 million round and these, these kind of things are like very large numbers. But when, when it comes to 2023, we have seen much less of these rounds happening. And so the market is really finding the new normal. And I hope I can help shed some light on what the new normal is and what it takes to raise capital in the current market. And back that up with data we collected in Q1 and Q2 and made a bit of a recent update to some of the things we already talked about at Saster here in London. And let's go through it. So starting with you know, trends in fundraising market in the last 12 months. And I think that's the, the high level point we, we touched upon earlier as founders and vcs, we were both hyped in this, in the peak cycle in 2021. I think the memo here on the left is, isn't even exaggerated. When we saw what was happening in the market, VCs literally like pushing money into the market. Like take my money term sheet within 24 hours, massive amounts and valuations. And today, you know, end of 2022, beginning of 2023 has, has felt a little bit like here on the right of founders sometimes feeling ignored by VCs or like it's much, much harder to get the right attention and for rounds to happen these days. But what does this actually mean? The numbers and we can clearly see here when we're looking into you, this is US fundraising data from Carta that the amount raised doubled from 2020 to 2021 from peak from like 33 billion to 63 billion. And then over 2022 it kind of collapsed and we, we saw sort of like the bottom actually in Q1 so far with only 12, 12 billion raised. And when I say with only 12 billion raised, I have to put it a bit in, in relation because actually it's more, it's a very similar amount to 2020. So it's also fair to say like hey, we just went back to 2020 or 2019 levels and the outlier was 2021. But I think the encouraging thing here is while we had a close to 60% drop year over year from capital raised, Q2 had a slight uptick as you can see here. It went from, to $15 billion and then 25% uptick. So there's some recent positive momentum and it seems like we found, found a new base or a new bottom and it's, it's going to continue a bit more stable and not dropping further. So heavily fell but stabilized recently now in, in, in Q2 and we've also seen this personally in the market where I, I think in particular in June before summer there was, there's quite some activity going on in. Let's look at valuations. On the X axis you have time on the Y axis is the medium pre money valuation. And while series A fell from the 48 million mark and now landed roughly at the 40 million mark, series B dropped steeply from roughly 160 median in beginning of 21 to more like a hundred million today in valuation. So a much, a much steeper, as much steeper drop. You can also see that seed rounds have on the bottom here remained relatively stable at 30 million pre money. And also the fluctuation there has been, has been, has been much less. And also here we see the pattern of like actually we just went back to 2020 levels or beginning of 2020 levels in those valuations and 2021 has been really the outlier and for founders I think the good thing to see here is as well that Q1 Q2 or Q2 in particular it seems like we found a little bit of a new normal with series A valuations are stable, they're not dropping anymore. Series B valuations have gone slightly up recently. So hopefully we, we have seen rock bottom in, in Q4 and Q1 and we see sort of like first positive indications in the market. What is also interesting is the types of rounds and how this has changed. If we look at Q2 in 2022 and compare that with this year, one year later. Every fifth round today is a down round and the share of down rounds was roughly close to 10% in 22 and it now has doubled in Q2 to or Q1 Q2 to roughly 20% and has luckily also here we see sort of like a stabilizing trend that is not, you know, getting worse actually improved roughly by 1% but that we only see roughly 20% down rounds currently in the market. So down rounds are happening. It's something when companies have raised on inflated valuations we see them more and more but at least it has stabilized in the market. Also the number of bridge rounds is increasing significantly. So according to the Carta data here in the US it's around 40% of Q2 rounds in that were in like CTRS A, B that were bridge rounds. This also increased by roughly 30, 30% or so in comparison to the previous years. And here the average is from the last three years. So it also reflects what we hear from the markets, like downloads are happening, extension bridge rounds are happening and the data now reflects that. The data I showed you above was a bit more reflecting on the past six months, trying to keep it as actual as possible. But what we did at Crandom is in Q2 in May surveyed Tier 1 VCs from the US and from Europe in trying to get to understand their appetite better. What are you really looking for at the moment, what are you willing to pay, what are you looking for in efficiency and growth, et cetera. And I'm going to lead you through the data here. And the data was, you know, 27 US VCS, 27 Europe, 47 from from the UK, as many of the Europeans in London. And when one thing we also asked and did there is like what rounds happened in the in the past months and this year is up until May. So up until two months ago where we mapped the pre money valuation and the ARR number on the X axis and the interesting thing here or a few interesting things here. First, almost all the valuation outliers in the past months have been AI companies. There's currently a slightly different pricing happening for for hyped especially generative AI companies and rounds. Second, the A rounds that happened move to more mature ARR. While in the past the standard standard A round has always been 1 million ARR. That's sort of like the rule of thumb current A rounds are more happening at the 2 million plus ARR at least the more sizable arons that we've seen in the market and it's a bit of reflecting a Trend that that VCs have looked for more proof points or companies have waited longer to go out and fundraise. So there has been a bit of a gap in the classic 1 to 2 million or slightly above 1 million ARR range and then that the given sort of like the ARR has increased for the companies to like 2 million plus and you see here like 2, 3, 4 million. There's quite a few bubbles in between this range. The valuations have happened at either around 50 million or around 80 million. So if you were more at the 2, 3 million mark it has been more towards 50 and if you have had more like 3, 4 it has more been towards 80 or 100 post. And thirdly I think the seed surroundings are happening also more clustered and towards a lot of pre seeds we're seeing and more mature seeds like 7,800kr or even close to a million. So I mentioned a few of those things. Here already A rounds are turning to more maturity extensions happening around 3 to 4 million ARR. So we've seen quite a few of extension rounds here. B rounds started 5 million ARR also with a tendency towards more ARR AI deals partly playing a different league. And what is important to mention here is that the bar is actually high. So overall funding rounds have decreased and there's less pressure currently in the market for VCs to do deals to shoot simply because of market sentiment. And the A rounds that OB rounds that we saw happening in the market have actually all been pretty high growth. So while in some boardrooms it has been praised or in some blocks or Twitter it's like 2x is the new 3x. That's partly true. And you know, more companies actually grow now 2x than 3x compared to 2021. But the rounds that have happened in this, in the current environment, in the current market and the good rounds that have happened by good investors here have been mostly like high growing companies. And this, this means 3, 4, 5x year over year growth. Then we see preemption rounds happening more and more. I think this has been a more recent trend also that companies currently don't, don't want to be out racing. But it's kind of like we don't want to show that we need money right now but are open for taking in money opportunistically. I think this has been a strategy where, which has changed a little bit compared to also 2021 where many tried to optimize for a structured process, get as many term sheets as possible, you know, inflate things. And here it has been also path to success even more like more and more that preemption rounds happen from people that are really eager or you just opportunity talk to a few players and took money if you could. I think that's what I mentioned Reese mentioned before like in. I think June has actually been a quite active month where we see more and more stuff happening. So the most recent moment momentum has been at least from a feeling wise better in the market again. And then this is the hot rounds of fast growing companies remain very competitive despite the market environment. I mean well the overall market is down. The most hyped AI deals or like the fastest growing companies they still get. You know, if you're growing 6x and great market, great team, a lot of the things check out hot round multiple term sheets. You, you still get high valuations and it's, it still remains to be very competitive but only for very, very, you know, narrow Selection of companies. So where have multiples been for those rounds? At series A we've seen a median of 21 and an average of 25x ARR multiple. In concrete numbers, if you have 2 million ARR, this would be between 42 and 50 million valuation. At B where there's less data points in a higher fluctuation, the Range here was 15 to 35 while the average happened to be at 24x. And then on the right hand side you're seeing yeah, the AI bubble where it has been, you know, a pretty broad range for some, for some hyped AI rounds happening. But it's also fair to say, I mean also AI rounds are happening at the 25x multiple or 24x multiple that we see here. It's just a few of those hyped rounds that made it to the right here. So most term sheets we've recently seen with companies with 2 million ARR, where I think looking at multiples makes sense, have been in the 20 to 30 x million ARR multiple range. And yeah, let's move over to briefly to the expectation site. So we asked VCs here. The question like what do you expect and what's the ARR, the expected seat? As you see here, the majority is fine with less than 250 kr, but there's quite a bunch that actually wants to see 250 to 500k ARR already at seat. So this has slightly moved up over the past years. Same for series a. While in 2021 we saw many series as happening also in the 500k to 1 million ARR range, the current expectation what VCS look for 67% is between 1 and 2 and a half million and 13% actually want to see even more than 2 and a half million. When you talk to people in the market that are in the majority of like the 67% bucket where it's one to two and a half million, there's a slight tendency to be rather on the higher end of the one to two and a half million. But generally that's the range where we see most serious A rounds happening. But there's a slight tendency to rather have 1 1/2 million plus maybe 2 million. At series B the majority looks for 5 million plus 57%. But also, I mean depending on company, 36% are fine with also less than 5 million in ARR. What's what do VCs consider as a healthy ARR multiple at series A and series B? For series A, the most common answers we got was around 25 to 30x as a as a healthy multiple. If you assume a one and a half million AR, this would be a 37.5 till a 45 million valuation. And then you see the range going from 30% as 20 to 25X. 20 is 30 to 35X. So the range goes from from 20 to 35X or from IN. In absolute valuation from 30 million to 52 million if a company has one and a half million ARR. And then for series B valuations the total range here goes from like 90 up to 180 million if you assume 6 million ARR. While the majority 55% think that 15 to 20x is a healthy multiple with a 19 to 120 million valuation. But so as a summary it's like 20 30x for A rounds and more the 15 to 20x for B round range. Of course this is influenced by how fast you grow. The faster you grow, the higher your multiple K can be. If you're growing 3x, your multiple will be lower than if you're growing 6x, usually year over year. And here we come to the question of growth versus burn. Like should you still grow at all expenses? And what do investors expect currently? And as I mentioned before, growth expectations have gone slightly down. So it's. I think 2021 is a clear answer always like 3x minimum. Now 47% of the investors are also fine with like 2 1/2x to 3x range at series A. But still over 50% look for more than more than 3x growth, 40% for 3 to 4x and 13% for more than 4x. And for series B, when companies are of course larger, that number shifts slightly where half the investors are fine with 2x plus growth and roughly the other half looks for 2 and a half x more of which like 13% looks for minimum 3x also at B stage. But I said there it's now even more balanced between growth and efficiency. So burn multiple is has become a key thing and kind of like one of the other key important metrics that is that is tracked. And what has becomes very clear is like very bad burn multiples have a hard time. Well this has been fine two years ago. It's something investors shy away from today. And for series A, the burn multiple range goes from 1 to 3 roughly that investors are fine with. I think the majority here, 40%, 40% is fine with 1 1/2 to 3x or expects or looks for that as a burn multiple. And at series B this becomes even more strict. And people look for a burn multiple less than 2x. So 40% look for 1 to 1.5, 53% are fine with 1 1/2 to 2x. But basically no one indicated that he would be interested in in a larger than 3x burn multiple at at series B stage. Everything comes at the trade off. And here comes a question we discuss in a lot of boards what to prioritize growth versus you know, efficiency or profitability. And unfortunately it's the answer for this one is both growth and burn needs to be looked at in combination. The times when high burn was fine, if growth is high have shifted and investors want to see both at the same time and hit the bar to hit the bar for an investment. So it is actually unfortunately both. I think the last variable which comes into play is actually how much cash you have in the bank. That also defines a little bit of how much you can play around with it. Here's a fantastic metrics that one of our portfolio companies actually introduced to me and it's the burn multiple year growth metrics. And then you can take some of the benchmarks that are available online and put them in here in lines and see and compare yourself to the percentiles. But I think that one here, that matrix is a great way to how to visualize it in, in your internal discussions or also in your board discussions and prioritize on like hey should I are we fine with just being in the 50th percentile of growth if efficiency is XYZ or or the other way around? So what are the implications for for fundraising for you in the current markets? Got tougher. So my first recommendation here is widen your funnel. Like if you go fundraise, expect to speak to more players and you know, have more warm leads basically more VC warm VC leads plan in and take more time for the fundraise as the rounds are not happening as quickly as in 2021 anymore. Adjust your valuation expectations. I mean if you supersede them it's. It's great. But the market has changed and I just gave you a few indications of where multiples are and adjust your relax relation expectations close to that then it's flat and down rounds are happening. We just saw the data for it and definitely prioritize making around happen over pushing on valuation in the long run this usually pays off. Getting the right amount of money in being able to execute, being able to build whereas optimizing for dilution only is or like or or other things that stopped around from making happen is is a tough one in the, in the current market and then be a bit more open towards opportunistic ground which we, which we discussed before. So the key takeaways right now is the market currently, you know prefers slightly more maturity so rather late seats are or, or A runs with a runs with More ARR average ARR multiples for A's are around 25x for B around 24x. At the same time investors consider 20 to 30x and 15 to 20x as healthy. It's an interesting aspect where for example for series b investors consider 15 to 20x as healthy but actually they, they're willing to pay some you know on average currently up to 24. So it's, it's sometimes still a discrepancy depending on also how, how competitive and then growth expectations have slightly gone down while efficient efficiency expectations have gone up. And so my recommendation is you know, accumulate enough AR before raising, prefer you prepare your fundraising well, plan more time, speak to more funds, adjust valuation expectations, consider rounds and opportunities arises and be tactic sort of like on the timing of when you go out. Avoid Christmas time or like summer seasonality when in August people might be slightly more off on vacation or these things and time it well with, with sort of like growth momentum that you have in your company and hopefully if you, if you need to raise this year you, you can be you know, successful this and some of the insights here are will help you for it. But that was the last slide and where I want to open it for, for any questions you have to go through it.

Yeah feel free to take down your slides so we can see everyone's faces while we are getting these questions answered. But thank you so much Peter. We always say come with stats, come with data and boy did you that was great to go through and I'm sure we're going to have a lot of questions on it. So to start off, what are some ways that early stage companies can stand out in this market outside of these numbers Are there any other things, things you can think of that these companies should be thinking of right now?

Yeah, so one thing I because I also just saw one or two comments here when I, when I when I talk about like where, where can you stand out and, and these things I always come from the perspective from you know one of, one of the larger, larger one of Europe's largest early stage funds in that sense and it's comparable to you know the, the, the large US early stage funds et cetera where all those VC funds that have this kind of profile look for billion dollar outcomes and look for the outliers. And so many of the things I just talked about are geared towards outlier potential and these things and what sort of like top tier VCs and these kind of VCs look for and because I, because I saw the questions like yeah of like multiples being me being different and we see much lower in the market and it's really like that's like the top 20% of the market or like the top 10% of companies. What are the good very strong rounds happening in the market and this is sort of like the data from it and the VC survey was sort of like from tier one data and so that's why multiples are higher there relations are slightly higher there than what you will see as. As sort of like the general average in the. In the market. And this also applies to. To this question here. I mean like what are we looking for? What are top funds looking for Besides what I just mentioned it is one key aspect is unlimited upside. It's like dream. If you really can show a big vision, if you can show how to build a multi billion dollar company and then it's a great. How can you stand out beyond that? It's a great well rehearsed pitch. It's a strong vision, it's a strong team and complementary showing sort of like how complementary you are maybe also on the founding team with different skill sets. And one additional aspect in efficient growth is of high organic share and variety is of course something people always love.

Thank you. I know we did have a lot of questions about those numbers multiples et cetera. If anyone does want to unmute and add to the conversation or has a additional question to that feel free to do so now.

Maybe I could still ask the question. Caitlin. So Peter, what would be the typical average ARR multiple for the non outliers I someone had mentioned to is like 5 to 7x ARR would be like really great. Yeah I mean if you. If you look at I yeah I think that's in line with it. So if you. If you are growing like much much slower. I mean the as you as it was in the question also there the the rounds the data from the rounds that tier one funds has been. That has been the 3 to 5x growers mostly and so if you're growing only 100% your your multiple will be considerably lower. And I think the range you are saying of like the 5-10x or so is the. Is the more realistic one for. For that and I think you you can always take the public comparables and there it's, it's currently, you know, trading more towards like 6x 7x or like between 5 to 7x depending on company growth. You know, some make it to 10x growth and you can take that as a comparable. But it also depends on stage. If you only have 1 million ARR, multiple often isn't the right, you know, comparable. If you are 10 million ARR, then you will be, you know, evaluated by on a multiple basis. But if you're still small, it's based more on other factors than on multiples. Great, thank you, Peter.

Of course we have a question. I'm not sure if Your name is Foley 8733, but Foley possibly if you do want to ask out loud.

Yeah, sorry. That's like the personality type. So one of them's a Colby, one's a Myers Briggs and the other is an Enneagram. So that's what all the weird numbers are for. Anyways, I was asking about like the dilution per round. It seemed that like the check sizes in relation to the post money was around 20%. So it's like if you raise two rounds A and a B or I guess even if you do seed right, then it's over 40% and that seems kind of a lot. I didn't know if you got any insights into that from your survey.

Yeah, not particularly in the survey we do, but I think the ballpark you can say is rounds have roughly 20% dilution and that, that applies to us normal sizable seat round that applies to a, A round. At B round it slightly goes down. So I think the range or for B runs more like 15 to 20%. And then, and then for C rounds it goes down even further. If we also see B rounds with, with you know, 10 to 20% dilution. But I think for, for seed and A, it's still fairly standard to be more closer towards the 20% dilution. So yes, after you know, a series B company it's, it's you usually have seen around, you know, 50% dilution as, as you mentioned, or 56% partly.

Any follow up on that?

It just seems like a lot when you really, even when you're A or CD and A and you give away 40% and you're just barely finding product market fit.

Right.

That just seems excessive.

Almost.

So would you recommend almost kind of cratering the profitability line in those early stages just so you don't have to dilute until you prove whether your, you know, company is, you know actually can gain the 3 to 5x that you're looking for. It just to me it's just a lot. I mean the, I don't know the.

Thing is here, can you. That's, that's the, that's the thing. I mean like if you manage to dilute only 15% in your seed round, fantastic. You know, that's great. I think the minimum I've seen for seed rounds is always 10%. But like also from fund economics, if you raise from you know, the large billion dollar funds from the Valley etc, like they require double digit percent ownership as well and, and that you know, automatically you end up with more than 10% dilution. But if you also think about it, what is the company worth? What do you need to build, to build it out? So let's say you're raising a 2 million seed round and, or yeah and you don't have a lot so you need 2,2 million for the next 18 months. And if you, if you're diluting 20, your company will be valued at 10 million euro at seed stage where you don't have a lot. Like you, let's say you're very early. If you would say I only wanted to loot and your rational like 10 or 5%, your valuation would need to be 20 or 40 million basically on almost nothing and that investors are not really willing to pay for. So it's like what is your company actually worth? And at seat it's actually not worth a lot and it's fictional in that sense. And that's why it's a mix of what is a company worth and how much money do you need. If you can afford to build without money, that's great. But you have to think about are there if you are starting out and if another company is starting out, if you're bootstrapping and your competitor is raising 3 million and can, you know, maybe execute at double the speed, Will you be the winner or will they be the winner? They're great companies both ways. We see more of the billion dollar companies that have gone the fundraising route than the bootstrapped brands. But for example Celonis, which is a $10 billion SaaS company out of Europe, they raised their first significant round at 10 million ARR. And hardly raised anything before. If you can do that, that's of course the dream.

Thank you Peter. Our next question comes from Anand.

Hey Peter, thanks a lot for all the statistics. I do want to actually ask you a couple of different things on whether you're still looking at rule of 40 the number of customers, CAC paybacks, especially when it comes to series B. And how are you actually like really evaluating, you know, whether it's really scaling up or not across these. Yeah, so all the, all these standard SaaS metrics like payback time, CAC, LTV, CAC, churn retention, net dollar retention, these things like every, every investor looks at them at least from series A onwards. I mean seed is different but like series A onwards, they're, they're there. And for stuff like rule of 40, I think that's a metric which more comes into play like series B series C rounds. Like the later stage you are, the more important is that metric actually. And then investors are looking very closely at it. So the answer to this, like yes, we look at all of this, I mean Crandom particular, where we know we focus on seed and series A, but for late stage rounds in our portfolio, this is clearly happening.

Okay, thank you. You guys are really throwing me for a loop today with these zoom names. Our next question comes from Tor200bloor. I don't know but.

Oh, hey, sorry about that. It's just because it's like the office name. Hey Peter, so thanks for all your analysis is really helpful. I was just wondering of the deals that were being shown like within the data, what was the split between AI versus non AI deals? Because some of the growth metrics you were showing were pretty high. So naturally I assume they were maybe being pulled up by a lot of AI deals.

I, I don't have the data split in my mind of like AI, non AI, but anecdotally from the rounds that we've seen in the market here and happening here also of the non AI rounds. And for example we did, we did in the past 12 months, several SaaS companies that were non AI and they were all growing in that range, some were even growing beyond that range at series A or series A extension stage. And so this is really focused on what are sort of like divisible hot rounds that it takes to bring top tier investors sort of like on board. While we've also seen you know, rounds happening at like with 2, 2 and a half x growth. But then multiples look completely different and then it's also a different type of investor set that, that does and, and, and looks at these rounds. But if you, if you look at the rounds that, I don't know, Sequoia and Excel, Crandom, Bessemer or Index, whoever it is, have, have done these, you can expect that these have been most of the times more than 3x growth at Series A stage and at Series 8 stage at Series BC. You know, like the larger company is, the less you need to grow. We saw the data before.

Got it. So essentially it's a lot of the data is like you're also taking a look at some lead investors or investors around the table and kind of getting you directionally know these are the typical top quartile or top tier funds and you're seeing just like a lot of general patterns of those are deals that happen to be growing faster and happen to be doing things at higher multiples.

Yeah. And of course the AI deals that you mentioned, AI has currently tailwinds and there's a lot of AI companies with high growth and those also because of the vision, but also some partly because of the fast growth they have. There have been more of those hyped AI rounds also happening.

If you want to learn more about AI reminder, we have an AI day at Saster annual. All right, for additional questions, you mentioned the pitch deck and that that's another important factor. What are, would you say one to three things that differentiate a good pitch deck to a great pitch deck?

I think first is really having a storyline throughout the pitch deck. Investors are also people that like to hear stories and they don't just want to see, I don't know, one screenshot of the product and then just a few metrics, but they want to hear the story behind it, they want to see the vision. And so a pitch deck that we can really outline the storyline is usually a very good one. So not make it just facts but make it a mix between the founder story, the company story and the vision behind it combined sort of like with the standard facts that you have. What is another thing, not too short, not too long I would say for let's take seed round 15 like 10 to 20 pages max or usually more like 10 to 15 pages a round 20 to max, 30 pages like 20 to 25 is typically good for an A round. Series B it can be longer and then for the growth rounds you have a lot of appendix and these things but you know, don't over exhaust it in, in length. And the third one is, is maybe not about the pitch deck but about the pitch itself. It's usually good if you, when you, if, if you use your slides for pitching. I, I think when we analyze it, it's better to pitch with your slides than when you send the deck. Assume yeah, the investor has read the deck and I just pitch voiceover and like he will remember it. Use the slides and pitch along the slides. It just, it just helps.

Yeah, that's some great insight. Thank you. And a good reminder. Yeah, everyone wants a story. Everyone wants to not just read some slides but to have some background and some skin in the story as well. Along the lines of those pitch decks. Cold emails. What are maybe some of the best cold emails you've gotten or ways for your cold emails to stand out?

Yeah, the most important rule for cold emails is make them short because if someone gets a very long cold email there's the trade off. Like should that investor gets let's say 100 cold emails. Like should he read all the long emails? I mean like will he go through it in detail if he. If you keep it crisp and to the most relevant things, that's the best thing. And don't just be very direct. Start with the right name. You can't believe how many mails I get with the wrong name. Even the wrong fund or so that is. That's partly addressed but of course the name hi Peter. And then relate to something. I've noticed you've been interested in that or hey I saw Crandom is you know invested in, in Spotify and thus we are you know eager. We are music startup and want to you know, chat with you and then the next point is then you are two, three highlights about your companies, like about your team, about what you're building and about where you stand of like we already have I don't know, 50 customers within one year or like your AR number, your amazing growth. Keep it short and just say look here's a link to our deck if you would love to chat, let us know.

Yeah, okay, thank you. Yeah, agreed that like too long didn't read definitely comes into some of these long emails or long pitch decks. When companies are or these early stage companies are pitching to you. What number do you want a clear path to in arrival? What do you want to be shown from these early stage companies?

Sorry, can you repeat that?

So in these early stage companies what num. Like do you want a clear path to a hundred million ARR. What is. Is there a number there that you are looking for?

Yeah so the math is following you. Typically VC funds look for our like our size look for billion dollar plus outcomes ideally of course the potential to do multi billion dollar plus and what. What's let's say, let's say SaaS public multiples are you know, 7, 8. Let's say it's a higher growing company and for simplicity let's do 10 as a, as a, as a more favorable case 10x multiple. So for a billion dollar company you would need to get 200 million ARR and then you can play around, you need slightly more. If you make the, you know multiples more conservative then it needs to be 120 or 130 and slightly less. I don't know if your growth is even higher and you need less. So 100 million ARR is typically the thing. But I would say we look. You typically funds look for companies that cross the 100 million ARR but have the potential to go for 2, 3, 400 million ARR. So they can go to the, to the multi billion dollar range. Because in the end you look for fund returners. Example fund has $500 million fund. A fund returner with a 10x multiple. I mean let's say you own 10% or 10% of a company. It would need to be a 5 billion dollar outcome where the fund owns 10% to be a fund returner. And that's sort of like what the ideal cases like the, the best upside that. That funds look for and like of course as high as possible. But that's the math behind it.

Yeah, no, thank you for diving into that. We have a great question in the chat from Hubert. If you do want to unmute yourself. Okay. I can ask on your behalf. If not appreciate seed B2B SaaS investor once asked me what is your biggest wor. What is the most insightful answer a founder can give to get investment? Should the answer be big competitors or product market fit or scalability or unit economics etc.

This actually really depends on your business. And I think that's more, that's more an honest answer typically that people look for. It's. It's like hey, we potentially partner up with this company. What are the challenges where we as an investor going to you know, we'll try to help you. What is the challenge if it's a seed round, what's the challenge we need to work on between seat and series A and getting you from. To the next sort of like stage. And so I, I would say you know, given, given thoughtful but, but honest answer on what is actually a challenge in your, in your market. For some models if you have a, you know a model with a high service component gross margin might be a challenge. If you are going into a competitive market, it might be competition. So it's, it's really about the current situation and what is your. There's no right or wrong here as long as, as you don't say you know, like oh competition is way better than us and we have no way how to solve it. But like hey there's competition but here's how we differentiate and this operate approach and this is why we win. But it's still a large challenge.

Yeah, you said there's no wrong answer but is there something that would worry you if they said it was their worry?

If yes, if entrepreneurs haven't thought about it it's like let's take competition as an example. Like oh yeah, my biggest worry is competition. I say okay, yeah, tell us more. And then it's like oh yeah. I mean they're just have an amazing product and like you know, winning customers against us or like if you don't have an answer or like a thought of like hey we are currently working on product differentiation here or go to market differentiation here on like how to tackle that. And this is you know like what I'm, what is a big challenge for me and a worry for me of like how I do it right. But these are the potential solutions and, and how I, how I'm thinking around it. This is more what I look for. I think what it's a no go is just stating a problem with this is unsolvable.

Yeah, no, I think that is great advice across the board regardless of industry or situation. I think we have time for one more question.

Peter, one no go. I have for that people overvalue team quite a lot and if you're an early stage company and you will say like oh yeah, my team sucks or something like this, this is, I just wouldn't say okay, yeah, you can't get yourself out of that.

Definitely a bad thing to say. Last question. I know we've been drilling you for the past 20 minutes or so so we appreciate you answering all of these but our last question will come from Andres.

Peter, thanks for your time today.

It was really great.

What are your thoughts on how pre.

Revenue SaaS companies could best position themselves for that pre seed round in the current market environment there seems to be a bit of a chicken and egg situation with regards to growth on the.

Revenue side prior to getting that investment.

Yeah, I mean pre seed activity in the market actually has been pretty solid because sort of like it's, it's, it's still the cheap, the cheap rounds or the early rounds, lower valuation bands like you know all the multiple compression that we see in the later stages is not really happening at precede stage at the moment. So activity is actually quite solid. So the market is not too bad. For pre seed I would say.

How.

To position position yourself best without revenue. It's show sort of like customer interviews show potential customer interviews. Try to show other proof you have be that a great product build. Hey We've spoken to 50 customers. Show quotes from that, show notes from that. Have a fantastic product demo. Maybe have a loom of your product demo that you can send out easily so people actually see how good that is. And try to find other indicators be that on market on your product on customer validations or references that can give you proof points already before revenue.

Great. Okay, I think that is all we have time for today. Peter, we so appreciate you taking the time leading us through your deck answering a ton of questions. It has been such a pleasure and I know we all learned a lot from from this session. If you like this session talking about the data train, we will be back next week with data doesn't have to Be Hard. Three Data Myths and How to Bust Them. This is with former head of data platform product at mailchimp. Looking forward to seeing you all next week. All right.