What is the investor's focus on when evaluating an early SaaS startup? (whether there is a chance to develop into a platform, a long moat)

Editor's note: When it comes to early projects, people often ask investors a question: "What do investors focus on when evaluating early SaaS startups – indicators or other aspects?" "Nakul Mandan as a partner in the Lightspeed venture, and answers people's questions in the text.

This is a very important issue for entrepreneurs, but it is also a difficult question for investors to answer because there is no scientific research that shows the founders are more interested in which startups. Some start-ups can get a lot of money early on, and some start-ups will have to move even if the indicators look good. Why does it have such a strong unpredictability?

In the A-round phase, financing is not predictable primarily because the early investment decisions depend more on the company/market philosophy and qualitative factors than on the indicators. Of course, the indicator will certainly have an impact on decision-making, but at the earliest stage it is not a decisive factor. The decisive factor is the investment philosophy and the planning of the start-up company.

First of all, investors should be excited about supporting entrepreneurs, and I will introduce the qualitative factors of investing in a-round SaaS startups. It is hoped that these views will become the spiritual food of the founders seeking a-round financing.

　　1, why is it now?

For me, this is the most critical issue to be aware of every time you invest. Market Time choice is everything. Why is this idea so successful at this stage? What are the macro trends that can make your ideas successful? For example:

We were fortunate to have access to a SaaS start-up called Gainsight, a company that provides a comprehensive solution for the successful management of our customers. There is no need to provide a successful solution for a customer before SaaS or "X-as-a-service" business models are born. when the "X as a service" business model is respected by major technology companies , Gainsight has a market opportunity.

　　2. Product Category

While some companies have similar profit margins and are similar in size, the valuations of companies vary considerably. Typically, this is due to the different product categories that the company operates. Some product categories can provide more opportunities to create more valuable business faster and better. On this topic, I will consider the following questions:

Does the product you develop play a key role in the user's goal of accomplishing their goals? Someday, does your product have the opportunity to evolve into a platform to connect other applications that users use?

　　3. Market Size

Obviously, the size of the market is very important, many people have written a blog to illustrate this point, I will not repeat this. I personally prefer a bottom-up approach to estimating market size. There is no need to be too complicated. But, more willing to hear people say: "Our goal is to develop into a 500–2000 employees of the company, I hope our earnings can be increased by X times." ”

　　4. Marketing

Finally, startups are valued on the basis of growth. It is really important that the company has a listing plan. In this regard, I will consider the following questions:

Are consumers in the market looking for solutions like yours, and do you need to convince consumers at the outset what kind of problems they have?

Does the consumer have a large budget for your solution, can you generate sales and make up for your marketing budget?

Can you adopt a viral or word-of-mouth marketing strategy?

　　5, the long-term "moat"

In the early days, it's a good thing that you have a revenue advantage, but investors are more focused on the company being more competitive than its rivals. Companies that can collect proprietary information on the platform have several ways to create a network-based "moat". Salesforce 's AppExchange platform has become the center of all cloud-based enterprise software and has built a network-based "moat" around it. In this case, the network is not only a user's network, it is a network of SaaS apps, and is deployed in Salesforce-centric companies. At this point, the key questions I ask are:

　　Is there a winner all-in-one situation where you can expand the market once you occupy an early lead position?

These are the questions and considerations that come to mind when investing in the A-round phase. I won't try to find the perfect answer to every question. There are too many unknowns at this stage in the company's life cycle, and it doesn't matter what the answers are. When I communicate with the founders, the frameworks mentioned above often end up as useful thinking exercises, and hopefully this article will help the founders of this stage.

Http://tech.sina.com.cn/i/2016-07-12/doc-ifxtwihq0080843.shtml

What is the investor's focus on when evaluating an early SaaS startup? (whether there is a chance to develop into a platform, a long moat)