Truffle pig reloaded – Point Nine is looking for an Associate

About three years ago, we were looking for an Associate to join Point Nine and put up this landing page:

We called the position "truffle pig", because just like a truffle pig is digging up the best truffles from the ground, we as an early-stage VC try to find the best startups among a large number of potential investments. I have to give full credit for the truffle pig analogy to Mathias Schilling and Thomas Gieselmann of e.ventures, by the way. "Truffle pigs" is what they (young VC Associates at that time) called themselves when they approached my co-founder and me back in 1997 after having stumbled on this website. Fast-forward almost 20 years and we still haven't found a better way to describe the role. :)

Anyway, our search three years ago led to two fantastic truffle pigs, Rodrigo and Mathias, both of whom got promoted to Principals at Point Nine in the meantime. And today we're excited to kick-off the search for a new Associate. Here are all the details.

This is an incredible opportunity for a young, super-smart, super-driven person with outstanding analytical skills and a solid user interface. I'm pretty sure that it took me more than 10 years to get the expertise and network which you'll get during three years in this job. 

If you're interested, please take a look at our job ad. If you know somebody who could be great fit, please pass on the link. Thanks!

Introducing Jenny Buch, Talent Manager at Point Nine

Once a startup has released the first version of its product, raised some funding, started to get the word out and is getting some traction, the biggest challenge almost always becomes hiring. No matter how great the founders are and how much good advice they get from investors and advisors: You need people to get shit things done. And before long, you need more people (AKA managers) to help other people get shit things done, too. Recruiting great people can be extremely time-consuming and difficult, but if you don’t manage to build a great team, you are guaranteed to fail.

Or, as Michael Wolfe put it in his awesome talk at our 4th annual SaaS Founder Meetup last week:

All companies start differently but end up the same:

Success depends on hiring and managing a great leadership team.

Given that hiring is the #1 challenge for almost all of our portfolio companies, it has always bugged me that we’re not better at helping our founders find great people. It’s not like we haven’t been trying it and sometimes we’ve been able to find someone in our network for an open position at a portfolio company. But I’ve always wished that we’d be able to provide much more help.

Jenny sent me two pics ... and
forgot to tell me that I should pick one. ;-)

That’s why we’re thrilled that we’ve hired an experienced recruiter with a strong network, Jenny Buch, to focus on this challenge full-time. In her role at Point Nine, Jenny will (besides taking care of internal HR issues) advise our portfolio companies on anything related to recruiting, culture, employee engagement and HR strategy and will help them hire awesome people. In her previous roles, Jenny has recruited dozens if not hundreds of people for fast-growing tech startups and we can’t wait to see her magic unfold in the Point Nine family.

Welcome, Jenny!

PS: Hiring a talent manager isn’t a new idea in the VC world, and large firms like A16Z have built big teams to support their portfolio companies in a variety of areas. We can't compete with that, but we’re a little proud that we’re one of the first (the first?) micro VC funds to invest heavily into this role. :)

Why we politely ask for a deck first

When founders reach out to us to pitch us for an investment, they usually have a fundraising deck which they’re happy to send over. But every so often it also happens that a founder wants to set up a call or a meeting before sending over any material. In these cases I usually ask the founder if he or she could send us a deck first, with a view to have a call or meeting as a potential second step. But every time I do this, it makes me feel uncomfortable because I don’t want to come across as impolite, arrogant or unapproachable. In this post I’d like to give some background on how we work, which will hopefully make it easier to understand our behavior in the scenario I described above.

I have understanding for founders who want to walk us through their story and vision rather than sending over some slides. A startup is a founder’s baby which they often have a deeply emotional relationship with, and it’s understandable that when they pitch it, they want to leave the best possible first impression. It’s also understandable that founders want to get to know us first and learn more about us before sending us confidential information. What’s more, most founders are very smart people who are great to talk to. For all these reasons, I wish we could talk to all founders who reach out to us.

But it’s impossible. In the last 90 days we’ve logged 987 potential investments in our Zendesk (which we use for deal-flow management). Even with three Associates and one Intern, we can’t talk to all of these startups. If we did, we wouldn’t have enough time to dive in deeply into sectors, do due diligences, spend time with our portfolio companies and do many other things which are important for our business.

This is why using the pitch deck as the first filter is so important for us. When we go through a deck, a couple of minutes are usually enough to determine if we want to learn more. There are plenty of reasons why a company may not be the right fit for us (and Point Nine not the right partner for the company): It may be too early-stage or too late-stage. It may be a sector we’ve looked at before and aren’t excited about or it may be an area which we don’t have any expertise in. Or it may be in a field that’s too close to one of our existing portfolio companies. Most of the time when we pass quickly after having seen a deck, it doesn’t say anything about the quality of the startup and only means that the company is outside of our investment focus.

Obviously our process isn’t perfect. Not taking a closer look at each incoming request means we will miss great companies (and grow our anti-portfolio). But the same is true for any other approach.

A few closing comments:

• I know that most other VCs feel the same about this, so if you want to raise money, spending time on producing a great pitch deck is time well spent. I also think that creating a deck is a great exercise because it helps you think through each area of your business systematically.
• Michael wrote a great post about “What should be in my fundraising slides”.
• Don’t ask for NDAs.
• Don't send your pitch deck to dozens of VCs. Do your research to find out which 5-10 firms look like the best fit for you and start with those.
• You don’t have to include everything in your “teaser” deck. I would recommend to include KPIs in the deck, since these are crucial for the investor to determine if you’re at the right stage, but it’s perfectly fine to leave out sensitive information like details on your product roadmap.

Announcing Point Nine Capital III

Today we’ve announced Point Nine Capital III, our new €55M fund. Investors in PNC III include institutional investors like Horsley Bridge Partners, Sapphire Ventures, Flossbach von Storch and Vintage Investment Partners as well as a number of highly successful Internet entrepreneurs. To our existing LPs: Thank you for your continued trust! To the new ones: Welcome on board!

When we raised PNC II, our goal was to build a leading independent European early-stage venture capital firm. While it’s still very early days for us, we think we’ve made good progress towards that goal in the last years.

PNC II was based on a couple of ideas and principles:

Live Berlin, think world
We saw a strong need for a Berlin-based seed VC because Berlin was starting to become a great startup destination, yet there was not a single VC that was headquartered in the city. At the same time, we didn’t want to limit ourselves to investing only in Berlin (or only in Germany for that matter) because we saw great startups being founded all over Europe (and elsewhere). Before PNC II we had already invested in Berlin-based companies like DaWanda, Delivery Hero and Mister Spex as well as in companies from Denmark (Zendesk), the UK (FreeAgent, Geckoboard, Server Density), Canada (Clio, Unbounce), the US (StyleSeat, Couchsurfing,...) and even New Zealand (Vend) and Japan (Gengo), so we were already used to this approach.

Focus on early-stage investments in SaaS, marketplaces and eCommerce
While we wanted to be pretty agnostic with respect to geography, we were going to be pretty focused when it comes to stage and industry. We’d only do early-stage investments (seed and early Series A) and would focus on three categories: SaaS, marketplaces and eCommerce.

Be “The Angel VC”
Both Pawel and I had a background as angel investors, and just because we raised a fund we didn’t want to give up our angel investor mentality. We wanted to combine a founder-friendly, no-nonsense, value-add approach with the ability to make bigger investments and do more follow-on financing.

Think long-term and give before you take
VC investing is an incredibly relationship-driven business. To be successful, you constantly need other people’s help and goodwill. What that means is that if you’re a newcomer, you should try to “give” as much as you can to as many people as you can in order to build long-lasting relationships.

Small is beautiful
Our original goal for PNC II was to raise €30M. We ended up raising a little more (~ €40M), but it was still a typical micro VC size. One reason for becoming a micro VC was, of course, that we wouldn’t have been able to raise a €100-200M fund, so it was an easy decision. :-) But we also felt that a €30-40M fund was the right size for a European seed fund: Big enough to invest needle-moving amounts in startups and have capacity for follow-ons, but not a size at which you need multiple unicorns just to survive, as my friend Jason M. Lemkin put it. (Not that we have anything against unicorns, but you know what I mean.)

Three years later

Three years later we feel encouraged by the early results of our strategy. Many PNC II portfolio companies have raised large follow-on financings from great investors like Accel, Acton, Balderton, Bessemer, Emergence, General Catalyst, Matrix, MHS, Storm, Valar and others. In many cases, valuation has gone up significantly since our initial investment, in a few cases as much as 10-20x and more. Again, it’s still very early and it will take another five years or so to see if we’ve done a good job with PNC II, but we’re super excited that so many of our portfolio companies are on a great track. We’re also extremely grateful for the appreciation that we’re getting for our work – from portfolio founders, other investors, our LPs and the bigger startup community.

Finally, we’re also extremely happy with the team that we’ve been able to build. Assessing an ever-increasing number of investment opportunities and managing a portfolio of around 50 companies wouldn’t be possible without the fantastic work of our Associates or our Operations Team. Thanks guys, you’re awesome. :)

So, we’re happy with our strategy, and we’re going to continue it with PNC III. We’ll continue to invest heavily in Berlin but will also continue to invest all over Europe and beyond. We’ll keep our “Angel VC” tagline, and we’ll continue to do our best to be a “good VC”. We’ll stick to early-stage, and while PNC III is a little bigger than PNC II, we’re not leaving micro VC territory.

In terms of sectors, we’ll stay focused on SaaS and marketplaces, although we’ll also keep exploring new areas like bitcoin, IoT or drones (interestingly, the investments which we’ve made in these new areas so far all fall under SaaS or marketplaces from a business model perspective). The one area which we got somewhat less excited about in the last years is eCommerce, mainly because it requires so much capital and because the margins are usually small. There are (very) notable exceptions, of course – Westwing is one of the best-performing companies of PNC I, and if Stefan Smalla ever starts another eCommerce company we’ll invest in it again in a heartbeat.

Copy & paste?

So a lot of things are going to stay the same, which explains why, when we told our partners at Horsley Bridge about our plans for the new fund, Kathryn said, with her inimitable wit: “Sounds like copy & paste”. That’s true, but I should point out that other things have changed and will continue to change rapidly. Some of the “pattern matching” that we’ve used to pick great companies 3-7 years ago doesn’t work any more because what used to be innovative a couple of years ago is table stakes today. Many of tomorrow’s unicorns might and probably will be based on technologies which barely exist today. Add all the changes that are happening in the funding ecosystem, and it’s clear that while we’ll stick to our core values, we’ll have to keep re-inventing ourselves to stay relevant. So don’t worry about us getting slow and saturated. We’ll stay hungry and foolish.

Four (more) things we look for in SaaS startups

More than two years ago I wrote about what we look for in early-stage SaaS startups. Since then we've looked at hundreds of SaaS startups and have gained additional insights through the work that we've been doing with the SaaS startups that we have invested in. Therefore I thought it would be time for a follow-on post with some additional thoughts.

In the original post I focused primarily on early metrics as an indicator of product/market fit and of a favorable CAC/CLTV ratio in the future. Today I want to put more focus on factors that kick in a little later in the lifecycle of a SaaS company – aspects that have an impact on a company's ability to scale customer acquisition, increase ARPA and create lock-in. In other words, factors that can make the difference between a "good" and a "great" business.

Note that none of these factors is a must-have for building a successful SaaS company. For each one of them you'll probably find some great counterexamples. The point is that all other things being equal, these characteristics increase the odds of creating a big SaaS success:

1. High search volume combined with limited SEM/SEO competition

Search volume on Google is a good indicator of the awareness for the problem that you're solving. You may have a fantastic solution for a big problem, but if no one is looking for it, marketing it will be much harder. It means you'll have to spend more effort on educating the market and that you may not have a lot of low-hanging fruits on the customer acquisition front.

Related to search volume is of course competition for the relevant keywords, both with respect to SEM/PPC and SEO. If there's lots of competition for your keywords, PPC advertising might be prohibitively expensive and SEO will be much harder.

If, in contrast, there's high search volume and limited competition this not only indicates demand for your product, a gap in the market and potential to acquire customers via SEO/SEM. It also means that you have an opportunity to establish yourself as the thought leader in your space by doing great content marketing.

2. "Land and expand" and "bottom up" customer acquisition

Selling to big enterprises is tempting because one big enterprise deal can be worth tens or hundreds of thousands of dollars. But it's also tough: Sales cycles are long, you need to convince various different stakeholders, there are special requirements for the product and you have to do multiple meetings to get the deal. Anyone who's done or tried it knows what I mean. Conversely, selling to SMBs is much easier, but the value of each customer is obviously a lot lower as well.

A "land and expand" or "bottom up" customer acquisition strategy has the potential to give you the best of both worlds. There are different variations of this strategy, but the idea is always that a single user or a small team of people inside a company starts using your product, making the initial sale easy (if any "selling" is involved at all). Over time, more and more people inside the company use it, and eventually you can sell an enterprise account to the entire company.

Perhaps the most famous example of a successful bottom up adoption is enterprise social network Yammer. Within the first two years after launch, the company's freemium distribution model attracted users from 80% of the Fortune 500 companies and got Yammer into more than 90,000 customers. According to this Mashable article, 15% of these companies subsequently upgraded to a paid plan.

If you want to follow in Yammer's footsteps (or just copy some pages from their playbook) here are some of the things you should keep in mind:

• Since you want to sign up users with little to no sales efforts you need a great marketing website and frictionless onboarding.
• Your product needs to provide value for a small number of users inside a company but even larger value if more people use it.
• Your pricing needs to be highly differentiated – make your product cheap or even free for a small number of users to maximize distribution and make money out of bigger accounts.
• Once you want to sell bigger team accounts or enterprise accounts you need to provide the functionalities required by bigger companies (a sophisticated role/permission system, SLAs, audit logs, etc.) while still keeping the product easy to onboard and use.

3. Virality

It's very rare for B2B SaaS applications to get really viral, i.e. have a viral coefficient of over 1. However, even though your SaaS product will never get Hotmail/Skype/Instagram/Snapchat-like growth, any level of virality is valuable because it means you're augmenting your paid user acquisitions with free users.

There are two primary ways in which a SaaS application can be viral:

a) "Sharing"
A use case which involves communication, collaboration, file sharing or the like with external parties. Examples include project management software like Basecamp (where e.g. an agency invites a client to a Basecamp project), e-signing solutions like EchoSign (where the person who is asked to sign learns about EchoSign during the process) or file sharing providers like Dropbox (you got the idea). The more affinity there is between your target group and their "collaborators", the better it is for you, since it means a higher "invite to signup" conversion rate.

b) "Publishing"
A use case where your customers use your software to create something which gets published on the Web. Examples: Shopify, SquareSpace, MailChimp or our portfolio company Typeform. Another example is Zendesk's feedback tab. The signup conversion rate is much lower in this case, but it can be offset if your product gets exposed to large numbers of people.

You can't force it if there's no sensible "sharing" or "publishing" use case for your product, but you should think about it carefully. If sharing or publishing doesn't make sense for you, you can still get some virality in other ways:

• Employee fluctuation: If you have a product that is used by lots of employees inside a company, try to make everyone an ambassador of your software who will suggest using your product in future jobs.
• Referral programs: FreeAgent's user-to-user referral scheme is a good example.
• Incentives along the lines of "get XYZ for a tweet", where users can e.g. unlock features or remove limitations by inviting people to your product.

4. Economic moat

In the first couple of years you shouldn't worry too much about your long-term competitive advantages. Oftentimes execution is everything. Working harder than your competition, innovating faster and just doing everything a little bit better goes a long way.

Having said that, the best and most profitable companies in the world are those which manage to create wide moats around them – sustainable competitive advantages that allow them to keep market share and profit margins in spite of aggressive competitors. The best examples for wide economic moat are patents (think pharma) and natural monopolies (think eBay).

These two examples aren't very relevant for SaaS companies and there is no simple silver bullet for creating sustainable competitive advantage, but there are a couple of factors which can create moat around a SaaS business:

• A platform. The best example is the Force.com platform. The large number of applications that integrate with Salesforce.com make Salesforce.com the most comprehensive CRM solution on the market and give the company a huge competitive edge. This is a classic example of a virtuous circle: More customers attract more developers which in turn attract more customers. When a platform has reached a certain size, it's very hard for competitors to attack you. 
• Distribution channels: If you have thousands of partners who have been trained to sell your software and make a lot of money doing it, this can be another very valuable asset. Admittedly the role of VARs and other distribution partners is typically lower in SaaS than it is in traditional enterprise software, and the best example of an extremely valuable VAR channel is probably SAP.
• Lock-in: A great product with a fantastic user experience alone can create significant lock-in. But different types of SaaS products have different levels of lock-in. The more people inside a company use your product, the more business partners interact with the software and the deeper the product is integrated into a company's core businesses processes, the higher are the switching costs.
• Network effects: Great examples include Freshbook's billing network and MailChimp's eMail Genome Project. What these two examples have in common is that (at least in theory) every users makes the product more valuable for all other users.
• Big data: If you have tens of thousands of customers, the massive amounts of data created by your customer base might allow you to draw insights which you can then give back to your customers. Zendesk's benchmarking reports come to mind as an example.

We ♥ vanity metrics ;-)

Who ever said only startups love vanity metrics? Here's our revenge for all those misleading stats that we have to muddle through almost on a daily basis when startups pitch us!

Yesterday I saw this post on the blog of Karlin Ventures. In response to a tweet by Paul Graham which was highlighted in Danielle Morrill's excellent Mattermark Daily newsletter,  the guys at Karlin Ventures revealed the "days since last contact" numbers for their portfolio.

Here are the numbers for the 26 active companies in our current fund, Point Nine Capital II:

As written in Karlin Ventures' blog post, frequent communication is by no means a guarantee for helpfulness. Sometimes companies are in a phase in which the best thing an investor can do is to shut up and let the founders do their jobs. More often than not, though, I feel that a very close relationship and between founders and investors is a good sign. So – take a look at the stats above but don't read too much into them. :)

Why I'm happy to be a micro VC

Last week we announced the closing of our new fund, Point Nine Capital II. The most important information about the new fund is included in our official press release, but I wanted to write a brief blog post to give you some additional background and share some personal thoughts.

When we set out to create the new fund last year, the goal was to raise €30 million. Since we're quite new to the VC game and didn't have any relationships with institutional investors, raising the fund took us quite a while. We're all the more happy with the result – not only did we end up raising €40 million, we also managed to get leading private equity fund-of-funds like Horsley Bridge Partners on board. Ironically, while it took us quite some time to raise the first €15 million, in the end we could have raised more than what we did if we had wanted to. I'm sure this will sound very familiar to many startups.

While the fund size means we are a "micro VC", at least by US standards, we feel it's a pretty sizable fund for early-stage Internet investments in Europe. The fund size will allow us to invest in around 40 companies over the course of the next few years, while keeping significant reserves for follow-on investments into our portfolio companies. It will also allow us to hire some people to help us with administrative and other tasks so that Pawel, Nicolas and I (plus the new truffle pig that we're looking for at the moment) can focus most of our time on what we like best – finding new investments and helping our portfolio companies.

The importance of follow-on capacity is one of the things that I've learned as an angel investor. As an angel investor who invests his own money it's hard to keep a lot of reserves. That can be problematic not only for the angel investor (who sees himself getting diluted starting with the A round) but also for the portfolio company if it needs to go back to the market to raise more money from new investors too quickly. I wouldn't say that I've learned this the hard way, but having a fund is definitely a big plus in this respect.

While we have more firepower than private investors, we're still small enough to not have to deal with the challenges faced by large VC funds. If you have a €300-500 million fund it's really hard to find investments which can move the needle or "return the fund", in VC lingo. There just aren't many companies that can put something like €20 million to work and turn it into €200 million. And if you look as the market as a whole, there just aren't enough €1B+ exits to allow a bigger number of large funds to deliver great returns to their LPs. The micro VC fund size also works well with our "angel VC" approach (which means fast decisions, no big committees, founder-friendly terms, simple term sheets, hands-on support and generally a no-bullshit attitude). 

Don't get me wrong, I loved being an angel investor and if I didn't do Point Nine I'd still be one (and needless to say, angel investors fulfill an incredibly important role in the startup ecosystem). As for the other end of the spectrum, I genuinely admire VCs who manage to deliver great returns on large funds. But it's a different game, and not the one I want to play.

That is why I'm happy to be a micro VC.

Do you have what it takes to become a truffle pig?

A few weeks ago, Fabian, who worked as Point Nine's associate from the very beginning, has left to create his own startup, Wunsch Brautkleid. Hence we're now looking for a new Investment Associate to complement our investment team.

Here are all the details.

Please check it out and help us spread the word!

Yummy, dog food! Or: Running a VC fund in the Cloud

Point Nine not only loves animals, we also love dog food. After all, some months ago we invested in ePetWorld, which runs hundeland.de, a fast-growing online shop for dog food and supplies. Today I'm going to talk about a different type of dog food though.

If you know us a bit you'll know that we talk a lot about the Cloud. In our opinion, the move of software from the desktop or local servers to the Cloud, along with the consumerization of enterprise software and other developments that go hand in hand with it, truly is a revolution. Like in any revolution there will be casualties, in this case incumbents that aren't fast enough to adapt to the new realities, but fortunately it'a a peaceful revolution which only puts bad UIs, overpriced software maintenance contracts and "call us for a demo" websites under the guillotine. And like in any revolution there will be new rulers – startups that drive the Cloud revolution and attract tens of thousands of customers within few years. Our goal at Point Nine is to find some of these revolutionaries at an early stage and back them on their way from the bottom to the top.

Back to the dog food. We run Point Nine mostly using Cloud apps, and it tastes pretty darn good. I wrote about the idea of going "Office free" about seven years ago. Today we're using Google Drive (plus Basecamp) for 90% of our documents and spreadsheets, and ironically that's not because Google Documents and Google Spreadsheets are particularly good products. In fact I think they are pretty bad, and I'm amazed how slowly Google has been developing them if you consider that they were launched many years ago already. But the fact that Google makes it dead simple to collaborate on documents and spreadsheets, this one USP over desktop software, is such a compelling argument that we happily accept all of the products' shortcomings (makes me wonder, by the way, if there could be an interesting opportunity in building a better online version of Word and Excel).

While we're heavy users of Google Docs, Google Spreadsheets and Basecamp, by far the most important application for us is Zendesk ¹, which we use for deal-tracking ². It's our life blood, and I don't know how we'd survive without it. While Zendesk has of course been built for a different use case – customer service –, and Mikkel might kill me if he sees how we're using Zendesk, it turned out that because of its adaptability it works perfectly well for our needs. For us, every new potential investment becomes a "ticket", and we use Zendesk from our first encounter with a new company through the entire assessment of the deal up until we either decide to pass (about 99% of the time) or to invest (about 1% of the time, in which case Basecamp takes over, since we set up a Basecamp project for every investment to collect updates, notes, etc).

Here are some of the great things that Zendesk allows us to do:

• Every email that we receive at submit@pointninecap.com is automatically turned into a Zendesk ticket and gets assigned to Fabian, with the stage automatically being set to "evaluating". Fabian and Nicolas then do some initial research and add things like slides, spreadsheets (ouch, you got me) or call notes to the ticket. Once Fabian and Nicolas have made up their minds they assign the ticket to Pawel or me and set the stage to "Recommendation: Evaluate further" or "Recommendation: Pass". This makes the ticket appear in the respective view/filter for Pawel and me.
• It happens very often that we talk to a startup which looks interesting but isn't ready for an investment yet. Zendesk makes it easy to keep track of these opportunities. We simply set the stage to "Follow-up in 3 months" or "Follow-up in 6 months". After three or six months, Zendesk automatically sets the stage to "Take another look" and sends us an email notification.
• Zendesk makes it easy to stay up-to-date on everything since you'll get an email notification whenever a ticket is updated. You can reply directly to those emails to add comments to the ticket (as well as create new tickets by emailing them in), plus there are great apps for the iPad and the iPhone, so it's convenient to work on tickets on the go.
• Finally, you can use tags or custom fields to collect additional information about tickets. We are, for example, tracking deal sources and company locations, which is helpful for analyses that we're going to do in the future.

Bye now. I still have a bunch of open tickets in my queue. :)


¹ In case you don't know yet: Disclosure, I'm an investor in Zendesk.
² Dear founders, sorry to call your startup a "deal". That's VC speak and I hope it doesn't sound too disrespectful.

1st DO for SaaS startups, continued

Further to my post about my "1st DO for SaaS startups" (and again, in the spirit of releasing early and iterating fast) I'd like to touch on a few additional points with respect to the right market.

Market size

• If you want to go big and build a large, successful company it's obviously important that your market is big enough. How big is big enough? Most large VCs would answer that the TAM of a SaaS company should be at least $1B. The thinking is, if it's a $1B market and you grab 5-10% of it and get a revenue multiple of 5-8x, the company will be worth $250-800M at exit. This is where large VCs start to get excited. 
• We as a small early-stage fund are a little more modest but we also want to see a clear potential for a $100M+ exit, which means there needs to be a clear potential to get to at least $10-20M in revenues. If you assume 5-10% market share, that means the TAM should be $100-400M at the minimum.
• Note that by TAM I mean your primary market. If there's potential to expand into new products or geographies that's great and can be a big plus, but given the uncertainty of these expansions it's important that your primary TAM alone is big enough.
• Can't you target a smaller market but aim for much bigger market share? The general thinking is that it's much easier to get to, say, $50M in revenues in a $1B market than in a $200M market. My gut tells me that's right, but it would be interesting to see some real data on this question.
• Note that I'm answering the question from my biased VC perspective. There are plenty of opportunities to build very respectable companies in smaller markets or niches. They just may not be VC-fundable – which can be completely fine if you don't need that much capital and if your competitors don't get VC funding either.

Fortune 500 vs. Fortune 5,000,000
Should you go after the Fortune 500 or the Fortune 5,000,000? At Point Nine we're big fans of the latter. To some degree that's just a personal preference. We don't have expertise in enterprise sales and we just love consumerized, low-touch sales SaaS businesses. Some of the most valuable software companies have been built based on the enterprise sales model (including SAP, probably the most successful high-tech company coming out of Germany in the last 40 years) and maybe that's still possible. It's just not our thing.

Here are a few of the reasons why we like targeting SMBs:

• You need less time and money to get a first version to the market. The lean startup approach doesn't work well for enterprise software as you need to invest much more money into product development and sales.
• When you develop for enterprise clients there's a risk that you become a victim of the law of small numbers: You develop your product based on the requirements of a handful of pilot customers but you don't know if the rest of the market has the same needs. When you target SMBs you'll develop and iterate your product based on the needs of a much bigger sample size.
• The same goes for the sales side: Because you're dealing with small numbers it's easy to draw wrong conclusions. For example, you may think that you have a great CAC/CLTV ratio and all you have to do is hire more salespeople whereas in reality you just had luck with a few good customer wins.
• Customer acquisition is much less sales-driven, which means that you need less capital and that you can grow faster.
• And finally, starting with SMBs doesn't prevent you from going upstream over time. As your product becomes more and more robust and you understand the needs of bigger clients better and better you can target increasingly bigger customers. Much better than doing it the other way round since it's very hard to take an enterprise product and strip down features to make it usable for SMBs.

Horizontal vs. vertical

• The advantage of a vertical product, i.e. a product made for a particular industry, is that you know exactly who your target customers are. That makes it much easier to find out the precise needs of your target customers and also makes your marketing efforts easier. The downside of a vertical product is that your niche might not be very large and you might struggle to expand into other verticals.
• For horizontal products it's usually the other way round: Bigger TAMs, but it may not be obvious who the first adopters of your product are and it's harder to reach potential customers in a targeted way.

A very brief history of Point Nine

I just created a slide about the development of Point Nine Capital for a little company presentation and thought it might be useful if I posted it here as well to give everyone some information on where we're at and how we got there:

In 2008, Lukasz Gadowski – who almost everyone in the German Web startup scene knows because he built or helped build some of Europe's biggest Internet success stories, e.g. Spreadshirt, studiVZ and brands4friends – and Kolja Hebenstreit teamed up with Pawel Chudzinski and Steffen Hoellinger to create Team Europe Ventures (TEV). TEV had two purposes: Building companies and investing in other Internet startups. Since then, TEV has founded a number of highly successful Internet companies – DeliveryHero, DigitaleSeiten, ChicChickClub, madvertise and SponsorPay, to name just a few.

In 2009 TEV raised a ~ €6M fund, which was managed by Pawel and invested in 24 companies. 16 out of these 24 companies were co-investments with myself, some led by Pawel, some by me, some by both of us together. So as you can see, although we didn't formally set up a partnership until recently, we've worked together very closely in the last few years.

In 2011 we concluded that it's time to take our collaboration to the next level and Lukasz, Kolja, Pawel and I decided to create an independent investment firm called Point Nine Capital. In connection with this, the existing TEV fund has been renamed into Point Nine Capital Fund I. The new fund, called Point Nine Capital II, is now managed by Pawel and me, and we're also the biggest stakeholders. Lukasz and Kolja continue to run Team Europe, which is now exclusively focused on creating fast-growing Internet companies, and they also support us as Venture Partners.

Point Nine Capital II has made four investments already – one is a great Canadian SaaS startup called Jobber, the rest hasn't been announced yet – and we're looking forward to making many more investments in the coming months and years. Our focus continues to be on SaaS, marketplaces, lead generation, eCommerce and mobile. Additional information is available on our website, and if you have any questions, feel free to ask!

Join Point Nine for a summer internship!

We're looking for an intern – a great opportunity for a young, super-smart over-performer to get an inside view of an early-stage VC in Berlin. :-)

I'm reposting our job ad here:

* * * * *

We offer a three month paid internship, starting middle of April or beginning of May at our office in Berlin.


What you do:

• Support evaluating the dealflow; give us your opinion on >100 business ideas and plans per month; find the one we should invest in.
• Do networking; meet people and founders.
• Screen new markets; find hidden champions; be faster than the rest.
• Dig deep into topics; help with research; find answers for questions we have not asked yet. 
• Help us run operations more efficiently.

What we offer:

• Insights how a venture capital firm works.
• Steep learning curve; small team; much responsibility if you can earn it.
• Access to our network: our portfolio companies as well as Team Europe (Company Building), iPotentials (HR), Gruenderszene & Venture Village (media).
• Berlin, the upcoming heart of the European StartUp industry. That is where you meet all the founders, evangelists, angels and influencers.
• Enough time to enjoy life.

What we expect from you:

• You are a digital native; you used facebook, before people heard about studiVZ; you check in with foursquare and take photos with instagram; maybe you even blog and twitter.
• You are familiar with basics of the Internet infrastructure and have some understanding of key Internet based business models, like e-commerce, large networks, SaaS, etc.
• You are curious; you have your own ideas; you want to see results.
• We do not need to tell you what you have to do. You see the tasks, you do them, you surprise us.
• You don’t need 9 to 5 working hours.
• And the usual stuff: you have at least 4 semesters at your business school, preferable already a first degree. You have gained international experience, have done at least one internship before. You speak fluent English and hopefully German.

* * * * *

We came, saw and... invested

Our last investment in the old year is a novelty for us – our first investment in a startup from Italy. Founded by 23 year old entrepreneur Guk Kim, Cibando operates a popular iPhone app that makes it easy to find the best restaurants in Rome, Milan, Florence and other Italian cities.

What makes this significant (beyond its obvious significance for Cibando and for us) is that this is one of only a very small number of VC investments in Italy. So significant, at least, that the news got covered by TechCrunch and also made it to the online frontpage of Corriere della Sera, one of Italy's oldest and most reputable daily newspapers!

To say that Italy's early-stage funding ecosystem is underdeveloped is probably an understatement, at least that's what I've heard in the last few months. Not that it's that great in Germany, although with the rise of Berlin as Europe's new tech hub it's hopefully getting better. But in Italy it seems to be much worse – so bad that many of the serious Internet entrepreneurs from Italy leave their country to raise money elsewhere.

It might seem odd that we as a Berlin-based VC invest in Italy, but part of our strategy is to be somewhat location-agnostic. While the majority of our portfolio companies are based in Germany or Poland (homeland of Pawel and Lukasz) we're open to investing in other European countries and even outside of Europe. In fact, some of the best investments that Point Nine Capital (and/or I as an angel investor) made were in pretty unusual locations: myGengo (founded in Tokyo), Vend (founded in New Zealand), Zendesk (founded in Copenhagen) or Clio (founded in Western Canada) are great examples. Some of these companies later moved part or their operations to the US or even relocated completely, but that's another story.

Back to Cibando. You simply draw a circle on a map to select how far you’re willing to drive and select your preferred restaurant category. Cibando then lists the best restaurants that match your requests, along with reviews, mouth-watering photos and other helpful information. Think of it as a mobile version of Yelp or Qype but with several special twists. Buon appetito!

What we look for in early-stage SaaS startups

I recently wrote that investors (myself included) should do a better job of making their investment criteria transparent to founders. Today I'd like to tell you a bit more about what we at Point Nine Capital are looking for in SaaS startups (other sectors are something for another blog post).

To put it as simple as possible, the health of a SaaS business is mainly determined by two factors: Customer lifetime value (CLTV) and customer acquisition costs (CAC). One could almost say that CAC and CLTV are for a SaaS company what wholesale price and sales price are for a retailer. Just like a merchant needs to buy products and sell them at a higher price, a SaaS business needs to acquire customers at costs that are lower than the customers' lifetime value. Costs of goods sold are minimal for a company selling software over the Web, and costs like product development decrease as a percentage of revenue when you get to bigger scale. So for a bigger SaaS player, sales and marketing costs are the driver of profitability.

There are of course lots of other metrics and factors that you can look at in a SaaS company: How good is the product, how big is the market, how strong is the competition, what's the churn rate, is the company growing organically, how good is the team, to name just a few. But the interesting thing is that most of these other aspects are factored into CLTV and CAC already: If CAC are low, the product has to be good, otherwise it wouldn't be that easy to sell (exceptions apply). If CTLV is high, churn can't be that big. Similarly, if there are stronger competitors in the market, aggressively marketing a better product, it's unlikely that the company's CAC will be low. And if a company has a great CAC/CLTV ratio, the team almost has to be great because you have to execute well in all areas in order to achieve that.

Of course I'm not saying that everything is captured in those two metrics, and because they are based on present and historic data they won't reveal future developments of the industry that you're looking at. But at the minimum, looking at these two metrics is a great start when you as an investor evaluate a SaaS company.

Provided that there is some data on these two metrics, that is.

But early-stage SaaS companies which are still in public beta or just went live don't have this data yet. Getting meaningful data on your CLTV takes time, since calculating it based on the monthly churn rate of your first few customer cohorts isn't reliable. And it takes even more time until you get an idea of your CAC because you have to set up marketing programs, try various things, recruit and train sales people and so on, and of course improve the product, the on-boarding experience etc. along the way. I'd say it'll take you at least 6-12 months following your product's launch until you may have reasonably reliable data on CAC and CLTV if everything goes well – and much longer if you've got hiccups along the way.

As early-stage investors, we aim to invest in a company earlier than that so we have to look for other things – leading indicators for great CAC/CLTV ratios in the future, so to speak:

• Visitor-to-trial conversion rate. If it's high, it indicates that your target audience is interested in your product. It also says a lot about your ability to communicate the value of your product clearly and with few words, which is essential for products that are sold online. And obviously, the higher your visitor-to-trial conversion rate is, the lower is your CAC, all other things being equal.

• Trial-to-paying-account conversion rate. An extremely important metric, for obvious reasons. If people pay for your product, that's the best sign that you're delivering real value to them. And again, higher conversion means lower CAC.

• Engagement and retention of your early users. It's hard to get meaningful churn data within just a few months because companies often don't terminate their accounts right away when they stop using a SaaS product, especially if your product has a low price point. Therefore we have to look at usage metrics such as daily or weekly logins and various application-specific metrics to find out if a product is really used by its customers, which of course is the basis for a viable business and high CLTV in the future.

• Enthusiasm of your early users. Having a number of early users who are absolutely in love with your product is extremely valuable, even if it's a small number in the beginning. Those users will recommend your product to everyone they know, give you great testimonials, help you get your first case studies, get the word out on Facebook and Twitter and maybe even help other customers in your support forums. And for us, these VIP users are a strong signal that you're solving a real pain and hence a strong indicator of product/market fit (which is the basis for low CAC and high CLTV).

• Your team. Last but not least and at the risk of stating the obvious, we only invest when we're extremely confident in the founder team. That doesn't mean that you have to be a serial entrepreneur or that we expect decades of experience (as much as we appreciate that!). As early-stage investors we're happy to work with young entrepreneurs who are smart, dedicated, talented and results-driven. We're happy to help you complete your team and coach you in areas like sales & marketing, SaaS metrics or fundraising which you may have limited expertise in. The one area where we think you do have to excel is your product. You have to be able to create an awesome product and a beautiful website that sells your product. You also have to "get" modern SaaS – that whole idea around consumerized business applications that are powerful yet easy-to-use and can be sold online using a low-touch sales model. We strongly believe that this need to be in the DNA of the founder team.

There are other factors that we look at, such as market size and competition, but the ones described above are among the most important ones. I hope this helps a bit – if you have any questions please leave a comment or email me.

Greetings from the dark side

It's not really news any more because we've already announced it a few weeks ago, and TechCrunch and Gruenderszene wrote about it already. But I haven't written about it on this blog up until now, so in case you haven't heard about it yet here you go: I've teamed up with Team Europe to create Point Nine Capital, an early-stage VC which will follow in the footsteps of the highly successful Team Europe Ventures fund, which I've been working together with informally in the last two years.

So in other words, after more than a decade in entrepreneur-land and three years in angel-heaven I'm now going to the dark side of VC-underworld. That's bullshit, of course, but I needed an excuse to make that "went to the dark side" joke (which is starting to get trite, sorry) and post that picture which I found googling for "the dark side". And in fact, I'm not leaving angel-land completely, since our goal at Point Nine Capital is to be "The Angel VC", as the tagline below our logo says.

What that means is that although we are a (small) VC fund, we're acting more like your friendly angel investor – no large committees, faster decision-making and importantly, simple and founder-friendly terms. At the same time, entrepreneurs partnering with Point Nine Capital will benefit not only from my personal expertise and network but also from the vast experience of my partners and colleagues.

More information about Point Nine Capital is available on our website, and feel free to email me if you have any questions!