A small part of SaaStr has been learnings from and tracking some of my investments.  Enough time has gone by that we can step back and learn from some of them.

The first 3 went from seed -> unicorn/decacorn (and the 4th exited for $800m, and the 6th also has become a unicorn).  The first 3 have been case studies on SaaStr (Pipedrive, Algolia, and Talkdesk were VC investments #1, #2 and #3), so we can learn from them together.

A few meta-learnings from my first seed-to-unicorns:

  • VC partnerships’ perspectives varied widely.  In one of these unicorns, all the partners quickly voted Yes.  In another, they were reluctantly supportive.  And in a third, they all voted a No (but I did it anyway).  Net net, VCs talk about the best investments often being the ones the partners were most divided on.  My learning is it’s just all over the place, especially when you invest early.
  • Every unicorn I’ve invested in had a tough year when they weren’t fundable.  All 5 of the unicorns I’ve invested in had at least 1 year where they weren’t fundable, or close to it.   A reminder it looks all up and to the left, but almost everyone has a challenging year.
  • It’s much easier to fundraise at a high valuation when you don’t need the money.  We all know this, but boy it’s true.  The top valuations in these all came when the companies literally did not need the money — at all.  It just changes your mindset, body language, and perspective.
  • If you can afford it, always invest in the next round.  At Algolia, I was the first investor to raise their hand for the Series A, B and C rounds after leading the U.S. Seed. At some point, you won’t have enough money to move the needle on a later investment.  But if it can move the needle — just do it.

Ok, now some Algolia-specific learnings.  I invested in 2014 at $12k in MRR at a $12m pre.  Today, the company is at nine figures in ARR and worth $2.1B:

  • You need an explosive year early.  But it doesn’t have to be Year 1.  While I invested in Algolia early ($12k MRR), it was the start of a very fast growth rate.  But the thing is, they’d actually started the company as a mobile SDK 2 years earlier.  That product didn’t take off, although it formed the core of the search API that later would.  So many SaaS leaders started slow, and then accelerated.  It would be nice if that was your first month, quarter, or even year.  But often, it isn’t.
  • Your long tail is your secret weapon.  Algolia did many things right in the early years, but it also certainly could have done a lot of things better.  But the long tail was always there.  The 1000s of developers happily using your product.  Give it away, make it cheap, but most all — support them.  Empower your long tail.  They are your content marketers, your word-of-mouth engine, and sometimes, your little acorns that can grow into a big customer.
  • Your best managers often work for you.  One of the very best hires the team ever made was their Chief Strategy Officer, who started off as their first “business person” and “sales person”.  Gaetan grew and grew into an even better leader.  A bit more on that here:

  • Being truly respectful and honest about your competition is a winning strategy.  Algolia’s #1 competitor is Elastic Search — an open-source product — and related free open source products.  Algolia from Day 1 was clear where they win vs. Elastic — and where they don’t.  They didn’t try to win customers that wouldn’t really benefit from their product.  Put differently, they didn’t do churn-and-burn deals intentionally.  It only helped.
  • Pricing models really do matter.  Especially, making them more-customer centric.  More of a tactical learning, but Algolia for a long time had more SaaS-y pricing models with tiers vs. utility-based models.  Switching to a utility-based model led to a significant acceleration of growth.  Why?  It was more aligned with what most customers wanted.  See the discussion with CEO Bernadette Nixon on the point above.

A huge round of kudos to Team Algolia.  Raising a round is just one small milestone.  But it’s so fun and rewarding to watch a great one scale from the early days to a market leader.

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