4 Key Weights for Startup Investing

One of my hobbies is learning how other entrepreneurs and investors think about ideas, markets, opportunities, etc. I proposed a simple theory in Team, Stream, and Not a Meme for entrepreneurs at the earliest stages to find a trend accelerating (stream) with a must-have product (not a meme). I recently heard an excellent interview that offered up four key weights for investing.

Ted Seides interviewed Chamath Palihapitiya about The Social Capital Flywheel on his podcast Capital Allocators. Chamath’s thoughtfulness and conviction really resonated with me, especially as he described what he looks for as an investor. Here are his four key weights for investing, starting at the 45 minute mark:

  1. Product/market fit
    How strong or weak is the product/market fit? It doesn’t matter how old or young the business is, it matters how much the offering matches up to the market demands.
  2. Integrity of management
    What’s the integrity of the management team? High, medium, or low? Again, doesn’t matter how old the business is, but rather how much integrity there is on the management team.
  3. Headwinds or tailwinds
    What are the future prospects for this industry and this business? How strong or weak are they? How poorly described were they in the past?
  4. Internal corporate politics
    How much do internal politics play a role in the business? What are the Glassdoor reviews like? The lower the internal corporate politics, the better.

The first three are pretty common but I hadn’t seen the fourth — internal corporate politics — as a factor in investing. Now, I’m going to pay more attention to it, especially in later stage startups where it’s relevant.

Keep the weights of these four characteristics in mind when considering an investment opportunity.

Pipedrive and Gainsight Exiting to Private Equity

Recently Vista Equity Partners announced separate acquisitions of Pipedrive for $1.5 billion and Gainsight for $1.1 billion. Both startups are highly regarded as category leaders in SMB CRM and enterprise customer success, respectively. Let’s take a look at some quick data points from each.

Pipedrive – Sales CRM and Pipeline Management

Gainsight – The Customer Success Company

In today’s white-hot SaaS market with public multiples near all-time highs, why sell to a premium private equity firm instead of staying the course and raising more money? Here are a few ideas:

  • Vista Track Record
    Vista Equity Partners has one of the best track records in the world for B2B SaaS. With their secret playbook and massive buying power, they have proven best practices and scale benefits. While they are known for running a tight ship, there are opportunities to improve the existing fundamentals.
  • Early Employees and Investors Liquidity
    With the companies being at least a decade old, early employees are often looking for liquidity and early investors are often looking to close out their funds, return capital, lock in a big win, etc. While there is a huge amount of secondary available today, it won’t be at the premium that comes with a control position.
  • Growth Investor Terms
    While some B2B SaaS startups are raising money at 100x multiples, and the BVP Cloud Index is at 20.3x, the reality is that modest growth (10-20%) startups are raising money at dramatically lower multiples. Put another way, there’s a huge premium for growth companies. Modest growth can imply a number of different things but the most common are that the total addressable market isn’t as big as desired, competition is strong, and/or churn is high. Instead of taking a lower valuation with potentially more onerous terms, selling a majority position gets primary and secondary capital at a more favorable valuation.

As SaaS startups continue to be in favor, and the economics highly desirable, look for more private equity activity in the space, especially next year. It’s a great time to be in SaaS.

Congratulations to the teams at Pipedrive and Gainsight for building incredible businesses.

Atlanta Startups on the Deloitte Technology Fast 500

Every year I enjoy reading through the Deloitte Technology Fast 500 and seeing how tech startups in Atlanta are doing. This year’s report is excellent and highlights a number of Atlanta’s high growth firms.

Here are the Atlanta startups on the list:

  • #4 – OneTrust – Privacy, Security and Data Governance Software
  • #8 – CharterUP – Charter Bus Rentals, Comparisons and Tracking
  • #11 – FIXD – The Car Scanner That’s Saving People $1000s
  • #26 – LeaseQuery – Rated #1 for ASC 842, IFRS, & GASB Compliance
  • #97 – Calendly – Free Online Appointment Scheduling Software
  • #102 – GROUNDFLOOR – What are you building?
  • #106 – FullStory – Build a More Perfect Digital Experience
  • #149 – LendingPoint – Personal Loans for Fair Credit Customers
  • #228 – GreenPrint – Corporate Sustainability Solutions
  • #229 – Terminus – The Leading Account Based Marketing Platform
  • #274 – SalesLoft – Sales Acceleration & Customer Engagement Platform
  • #286 – MacStadium – Mac Servers and Cloud Solutions on Apple Hardware
  • #319 – Intelligent Systems – Prepaid and Credit Card Processing Services
  • #330 – SaaSOptics – Top Subscription Management Software
  • #341 – BitPay – Welcome to the Future of Payments
  • #386 – AODocs – Cloud Document Services Platform
  • #370 – CallRail – Call Tracking & Marketing Analytics Software
  • #371 – SpringBot – Data-Driven eCommerce Marketing Simplified
  • #373 – QGenda – The #1 Automated Provider Scheduling Solution
  • #405 – Wahoo Fitness – Indoor Bike Trainers, GPS Bike Computers, Cycling Sensors & Heart Rate Monitors
  • #408 – Azalea Health – Leading Cloud-based Health IT Platform
  • #415 – Kahua – Construction Program Management Software
  • #497 – Mobilewalla – Consumer Intelligence Platform – Mobile Marketing
  • #498 – ShootProof – Online Proofing Galleries for Photographers

Congrats to all the companies on the Deloitte Technology Fast 500 and especially the Atlanta startups.

Startup Learnings Take Time, So Just Start

One of the more popular questions I receive is something to the effect of “what entrepreneurial advice would you tell your younger self?” After reflecting on this question for years, my favorite answer is to just get going and start something. Being an entrepreneur, just like anything meaningful in life, is best done by doing. Sure, reading and learning best practices like the Lean Startup and a Simple Strategic Plan are important, but there’s no substitute for getting in the arena and working through the onslaught of challenges.

Don’t have a great idea? Just start anything, even if you have to do it on the side.

Don’t know if the timing is right? The timing is never right, all you have is now.

Don’t have a co-founder? Go solo and know you can always add one later (many co-founders weren’t there on day one!).

Don’t know where to begin? Plug into a local or virtual community — someone is willing to help.

Don’t have the personal belief? You’ll never know if you don’t try.

Everything about startups is 10x harder than it seems. Only, everything about startups is also doable, and working through the ups and downs is the real reward.

There’s no better time than now. Just start.

Think RAGS for Startup Team Members

10+ years ago I read Joel Spolsky’s seminal blog post The Guerrilla Guide to Interviewing. His theories on what to look for when hiring developers have been imprinted on my mind ever since: hire people who are smart and get things done. This applies to all hiring for all startup team members, not just developers, but misses two important ingredients — attitude and grit.

Attitude permeates everything about a person. At Pardot, our values were positive, self-starting, and supportive. Each one of these values were embodied in the type of attitude we looked for in every person on our team. Of course, while values and attitude are different, attitude as a way to capture the desired personality traits works well.

Continuing with attitude, the other missing characteristic that smart and gets things done doesn’t account for is grit. Grit is the idea of resilience and not giving up in the face of adversity. Angela Duckworth popularized it as passionate persistence, which captures it well. Startups are inherently challenging, so while this might be less important in a company not focused on high growth, in the startup world grit is invaluable.

Combining these all together produces the RAGS acronym:

  • Results – Gets things done and continually makes progress
  • Attitude – Personality traits and view of the world that aligns with the core values
  • Grit – Passionate persistence, especially in challenging situations
  • Smarts – Ability to synthesize information and make quality decisions

Defining results, attitude, grit, and smarts is up to each entrepreneur and their view of the world. Overall, the big idea is that this needs to be done intentionally, not haphazardly, and everyone must be held to the RAGS standards defined by the leaders.

Startup Lessons from The Perfect Store

In 1997/1998 I loved eBay and was on it daily. At the time, I’d buy sports cards from across the country to resell them in my local region. On eBay, I’d focus on Atlanta Braves players — my favorite team — and buy stars like Chipper Jones at half the Beckett pricing guide value from dealers in places like Seattle. Then, as a high school senior, I’d drive to baseball card shows and setup a dealer table selling to people in the local market. I did shows all across North Florida from Pensacola to Tallahassee to Jacksonville. The arbitrage opportunity was buying cards over the Internet outside the region at half price and selling them face-to-face at shows for full price — eBay made this possible.

I’ve been reliving these memories recently while reading the stories from twenty-year-old The Perfect Store: Inside eBay. The author, Adam Cohen, captures the founding and scaling of eBay through a number of stories in chronological order. The life of Pierre Omidyar and eBay is an incredible story for anyone who loves the entrepreneurial journey.

A few startups lessons from The Perfect Store:

  • Most great entrepreneur stories start with a tinkerer scratching an itch
  • Passionate communities — especially raving fans — are the secret ingredient to word of mouth growth, which is the best indicator of product/market fit
  • Leveling up management teams is always a challenge, no matter the startup
  • Startup cultures are defined by the first few people and often live on indefinitely
  • Key mentors and coaches early in the experience can add incredible value
  • Defining a memorable origin story, no matter how liberally created, makes continued lore that much more viral (no, eBay wasn’t start for Pez dispensers)
  • Today’s tech stacks and cloud infrastructure are easily taken for granted (eBay was regularly down for 10+ hours at a time during hyper growth)

Entrepreneurs interested in the early years of Internet startups and the power of marketplaces should read the The Perfect Store: Inside eBay and soak up the many lessons.

Critical Startup Metrics By Department

Dave Bailey has an excellent post up titled The Anatomy of a Startup Organisation where he covers a number of topics related to organizing the departments in a startup. My favorite part is how he shares the most important metrics.

Here’s a quick recap of the critical startup metrics by department:


  • Company’s North Star Metric
  • Overall dashboard of metrics to run the business
  • Runway – how many months of cash burn in the bank


  • Happiness – Net Promoter Score
  • Engagement – Active users per week
  • Adoption – Percentage of users that use a module or feature
  • Retention – Percent of users that sign in 30 days after signup
  • Task success – Time it takes to complete a task


  • Quality – Number of important open bugs
  • Velocity – Average points completed per sprint
  • Performance – Uptime or average page load time


  • Channel Leads – By channel and cost
  • Marketing Qualified Leads – Leads that meet quality characteristics


  • Revenue – New revenue per month
  • Sales Qualified Leads – Leads that meet quality characteristics
  • Win Rate – Sales qualified leads to customers
  • Deal Size – Average contract value for the month
  • Velocity – Average sales cycle

Customer Success

  • Customer Engagement – Survey results
  • Efficiency – Average response time
  • Churn – Percent of customers that leave
  • Expansion Revenue – Value of upsells


  • Working Capital – Capital available to use
  • Operating Cash Flow – How the cash position is changing over time
  • Financial Ratios – Ratios like cost of customer acquisition to lifetime value as well as the Rule of 40 score


  • Hiring – Time and cost of hiring
  • Engagement – Engagement score or employee Net Promoter Score
  • Process – Percentage of check-ins and performance reviews completed

For many more metrics to track, head on over to The Definitive List of Weekly Operational Metrics for SaaS Startups. The Anatomy of a Startup Organisation is excellent and all entrepreneurs should start with these critical metrics.

Startup Financing in the Age of Capital Abundance

Last week I was reminded of just how different the world is for startup financing when the business has proven metrics. Exactly 11 years ago, Adam and I went out to raise money for Pardot. At the time, we had a little over $1 million in recurring revenue, 300% year-over-year growth, and a repeatable customer acquisition process in a big market (team, stream, and not a meme).

We talked to 29 different venture firms from Atlanta to Durham to D.C. to Boston to Silicon Valley sharing the story as to why marketing automation was the next big thing. Only, to our disappointment, there was almost no interest. Marketing software was viewed as a poor category. Where were the big winners historically? Marketing spends money on advertisements and trade shows, not on technology.

From the VC conversations, two were interested in giving us a term sheet. The first one presented us a verbal offer and said they’d like to lead the round at a $2 million pre-money offer. $2 million! Less than 2x run rate! Now, mind you, this was late 2009 in the heart of the Great Recession. The second, and final, firm that was interested, said they could do a $7 million pre-money, but only if we sold 40% of the business to them. 40%! Thankfully, Bill Gurley shared with us that we shouldn’t raise money because we already had a business that was working, no investors, and maximum optionality should a good offer come along (it did!).

Today, the world is very different for a startup with proven metrics and traction. Now, there’s an abundance of capital and 0% interest rates pushing up asset prices. Looking at the BVP Nasdaq Emerging Cloud Index, the enterprise value to revenue multiple is 17.8x. Put another way, the valuation of a fast-growing public SaaS company is 18x revenue. 18x revenue! Of course, these are market-leading public companies with tremendous scale, so the private markets would take some haircut on valuation depending on a number of factors (see valuations as a Rule of 40).

For entrepreneurs with proven metrics, the calculus on raising money is different now. Before, frankly, the spreadsheet math didn’t make sense to raise money. We were growing fast enough to be relevant and were on a path to build a business large enough to matter. Now, with valuations so much higher, markets so much bigger, and investors happy to provide secondary to founders, entrepreneurs can get cash for their business, grow at even faster rates, and put money aside personally to diversify.

In light of how friendly the times are for entrepreneurs, it’s still important to think through, in advance, what the end game might be for the business and to not sign up for something that is overly burdensome. For example, in order to raise money at loftier valuations, some investors require blocking rights on a potential exit if they don’t get 3-5x their money. This is likely fair to the investors for the premium they’re paying now. Only, by setting the minimum outcome to a much higher bar, other, potentially more attainable outcomes, are eliminated.

Entrepreneurs would do well to get the best valuations, with the fewest strings attached, and the most optionality for the future. While that trifecta seems lofty, with today’s capital abundance, it’s more possible than ever.

Rigor Acquisition by Splunk

Nearly 11 years ago I was sitting in the Pardot office and one of our top sales reps, Jordan Rackie, stopped by asking if he could introduce his friend Craig Hyde to me. We sat down and started talking about Craig’s idea for a new business. The original idea didn’t go anywhere but Craig and I hit it off and eventually decided to start a company together called Rigor.

Craig’s background was helping large companies make their mission critical software run faster. Taking that general idea of helping software run better, the original goal was for Rigor to be software that helped make websites better. The product would run checks on web pages to make sure they worked, record if there were any broken links or problems, and log how fast it took for the page to load — web performance monitoring. Pingdom was a popular service at the time and the idea was to be a more advanced, comprehensive version of that product.

Craig’s first hire was Hubert Liu, an excellent Pardot intern, and they were off to the races. After talking to a variety of potential customers, and working on different modules over several years, including a temporary focus on load testing and scalability performance, the team arrived at digital experience monitoring and optimization. Web sites, web apps, and APIs were growing dramatically, and the more mission critical a service, the more it needs other systems continuously checking that everything works.

From an early listing on Archive.org, the old homepage of Rigor described the business as follows:

Rigor enables organizations to improve service quality and customer retention by monitoring the user experience of business applications and proactively diagnosing problems as soon as they start occurring.

Today, the homepage of Rigor describes the solution as follows:

Our Digital Experience Monitoring platform combines the power of synthetic monitoring with an intelligent optimization engine to help you find, fix and prevent the web performance issues impacting your user experience.

Over the years, Rigor signed up hundreds of customers from NBC News to Michael Kors to Dollar Tree. Ecommerce sites, web apps, and mobile apps (via API requests) are mission critical and need monitoring and optimization. Then, COVID hit and ecommerce exploded:

Demand accelerated. Digital transformation accelerated. Now, application observability from the inside out, and outside in, is even more important.

Enter Splunk.

Splunk is one of the world’s most successful software companies with tens of thousands of customers around the world using their software to make software better.

Over half of Rigor’s customers are already Splunk customers, so when they came calling as a potential acquirer, it was a perfect fit. Rigor’s monitoring and optimization solutions complement the other Splunk offerings.

Last week, Rigor’s acquisition by Splunk was announced and it’s a testament to Craig and his team for building an incredible business.

Congratulations to Craig and his team for an amazing outcome and I’m excited to see Rigor continue to grow and flourish.

Why is a strong startup community important for the local region?

Last week Dan Berger interviewed me for Boise Startup Week and asked a great question: why is a strong startup community important for the local region? I’ve been thinking about this question ever since. Startups, and startup community building, has been a passion of mine for decades. Of course startup communities are important, but I take it for granted.

Here are a few ideas as to why it’s important to have a strong startup community:

  • Job creation. The majority of new jobs are created by companies less than five years old. Large companies are in the business of outsourcing and off-shoring jobs. Local regions need good jobs to be healthy, and most new jobs come from startups.
  • Wage growth through exports. The only way to increase wages in a region is to increase the exports out of the region. Having more flower shops on the corner, and restaurants down the road, is great for quality of life, but doesn’t help grow the wages in an area. Startups, by their very nature as inventors of new technologies, serve national and global markets, thus exporting their solution outside the region.
  • Wealth creation. Similar to wage growth through exports, another benefit is wealth creation, which benefits non-profits, the arts, and many other quality of life functions in a community.
  • Desirability for young people. Startup founders are 42 years old, on average, but the average age of startup employees is much younger. Startups are cool and desirable for young people, and without them it makes it much harder to attract talent to the region. Vibrant cities need startups.
  • Second order benefits. Startups support the local economy by renting office space, engaging service providers like lawyers and accountants, and spending money. More startups results in more business for the rest of the community.
  • Civic pride from local startup successes. Just like we cheer on our local sports teams competing on the national stage (go Braves!), and have resulting civic pride from success, we also have civic pride from local startup success. I enjoy telling people that startups like Calendly and Mailchimp are local.

Strong startup communities are important for the local region and entrepreneurs should lead them.