Investments I've made that didn't work out:
– Momentum investment
– CEO a bit of bulls**t artist
– CEO good at sales but weak product team / CTO
Investments I've made that had so-so outcomes:
– CEO not better than me
– CEO couldn't control burn rate
– Not really SaaS
— Jason ✨2022 SaaStr Annual Sep 13-15 ✨ Lemkin (@jasonlk) August 6, 2022
So as an investor, I was fortunate to have a strong start. My first investments ended up performing quite well. Investment #1, Pipedrive, ended up acquired by Vista for $1.5 Billion. Investment #2, Algolia, is worth $2.2 Billion today and a strong IPO candidate for 2023 and beyond. Investment #3, Talkdesk, is worth $10 Billion. Investment #4 was part of Greenhouse, acquired for $800m+. And Investment #6 was Salesloft, acquired by Vista for $2.3 Billion.
— Jason ✨2022 SaaStr Annual Sep 13-15 ✨ Lemkin (@jasonlk) August 9, 2022
But as time goes by, you see the patterns. What works, and what doesn’t. And why. And as more time goes by, they haven’t all worked out.
So a few things that didn’t work out for me at least:
- Momentum Investing. This is piggy-backing on someone else’s hot investment, without being 100% sure on your own it’s the right one to make. This has been a total negative strategy for me. I’ve only done one material investment like this, but 3 tiny ones as experiments haven’t done much, either. There are ways to make this strategy work. But for me at least, I’ve learned make your own momentum.
- CEO of bit of a b.s. artist. The above billion+ exits, the CEOs were all quite different. Some caring, some a bit less so. Some very transparent, some guarded. Some sales-y, some very technical. But all were honest. What they did share, was true. By contrast, every CEO I invested in that fudged the numbers … none are really going to go big.
- CEO good at sales, but CTO not that great. This was a bet I made a few times, and I learned. A CEO that is great at sales can often brute force things even to $10m, $15m ARR or more. But if the product isn’t great, it catches up to you. A truly great CTO, though, makes sure it doesn’t really catch up to you. So now I try to only invest in Great CEO + Great CTO combos.
And a few things stand out in the “ok, but not great” exits:
- CEO not better than me. Only other founders will truly get this, but being a CEO is hard. Really hard. If you aren’t a better CEO than me, it rarely leads to a big outcome. But if you had the same traction I did, but are a better CEO … you can build a unicorn. You really can in SaaS.
- CEO who couldn’t control burn rate. Some CEOs just can’t get the burn rate under control. Personally, I haven’t seen a great outcome here. It’s one thing to let a high burn rate slide for a few months, but some CEOs literally don’t think there is anything they can do to make their cash last. The best ones just find a way.
- Not really SaaS. I’ve tried experimenting in investing in startups that have SaaS elements but aren’t really SaaS. So far, no big successes here, either. That’s likely on me. I do understand SaaS. But maybe I don’t really understand other things with recurring revenue nearly as well.
And a few things that happen even at the best of startups, that don’t, in the end, stop you from building a unicorn or better:
- A really, really rough year. Almost every top investment I’ve made has had 1 year of slow or rough growth.
- Bigger, better-funded competitors. The best founders recruit the best teams, which doesn’t always completely overcome better-funded startups. But it does mean they can’t be stopped.
- Slow in the early days. All my top investments (Talkdesk, Algolia, Salesloft, Gorgias, Pipedrive, etc) had no or little revenue in the early days. We don’t all hit $1m+ ARR by month 12. In fact, most of us don’t. It took UiPath 10 years to get to $1m ARR!!
Reasons I've lost money investing, or had mediocre outcome:
– founder wars
– CEO misled on metrics
– CEO ignored zero cash date
What didn't stop unicorn outcomes:
– one terrible year
– bigger competitors
– taking a long time
— Jason ✨2022 SaaStr Annual Sep 13-15 ✨ Lemkin (@jasonlk) October 28, 2021
Now, if you have enough strong outcomes, the smaller ones don’t really matter that much. But I’ve learned to stick to the plan. Invest in SaaS companies with great CEOs + CTOs with a smidge of traction. That maybe the others … overlook.