Nailing cold investor outreach

Venture firms live for deal flow. The more founders we meet, the more opportunities we have to find the few founders we invest in each year. Last week, I commented on a post by Elizabeth Yin from Hustle Fund about what funds are still funding founders at pre-seed and seed stages and I decided to submit my information. The flood gates opened and I was immediately underwater. 

Email in this industry is almost as insane as when I worked at a Fortune 500 – I receive hundreds of emails each week with cold outreach from founders. I spend time reading and responding to each email and this can take hours and a toll on my aging eyes. 

How do you cut through the noise to get to your *dream* investor?

Research

When looking at hundreds of companies a year, investors develop a personal WHY for each company they bring to the investment committee. Do your due diligence on the fund and the person you are targeting. Find out where you fit in their wheelhouse – do you come from similar backgrounds? What is their past experience – do they specialize in specific areas of a startup like finance, marketing, or sales? What boards do they sit on and what companies have they invested in? Does your company fit their *personal* investment thesis? 

Take all of this information and use it to personalize your outreach to the team member. When you are reading a ton of email, something short recognizing that they are a human goes a long way. For example, one cold email recognized that I’ve written about community and channel partnerships and played off that information. I responded immediately because I could see that they knew their why for contacting me.

Crafting your opening statement

How you position your problem and solution statement have a large impact on how the investor receiving your email will evaluate your company and you as a founder. Many of the problem-solution statements I receive are full of jargon or are from the perspective of someone deep within the problem. Eliminate jargon and assume that the reader knows nothing about the industry, business model, or competitors in your space. A strong problem-solution statement should be understood by anyone walking down the street, even a child.

To achieve this, I suggest that you test your problem-solution statement with your friends or family who know nothing about the industry or business that you are building. Ask them to describe what you are doing back to you. If they can’t do it, you need to refine your statement. I love to tell founders to practice with their kids, ages 8+, because they will give you hard feedback on what makes sense and what doesn’t. 

Teasing with key facts

Give us the pot of gold to get the reader excited about speaking with you. Check out Troy’s video on the pot of gold. To summarize, you should show the investor that there is a huge opportunity in the area you are addressing – start with the market size but then make sure that YOUR BUSINESS will be large enough, and make sure you do a bottoms up analysis (none of the “if I just get 10% of the market…” analysis!!). Tell us about your traction today and a low risk path to achieving future results. Where will your sales be next year based on your pipeline? What partnerships do you have that help you accelerate your growth? Sell us on how where you are today will result in the pot of gold down the line. If you have some friendly investors you know, get feedback. Make it easy for us to say, YES I’d love to be a part of this opportunity.

How successful are you with cold emails to investors? What tactics have worked for you?

Let us know in the comments and make sure to follow MATH and me on twitter.

Good, Bad, and The Ugly: How to build trust with venture firms during fundraising

My hand hovered on my cell phone. I nervously pulled up my address book to make a very scary phone call.

My palms were sweating with anxiety.

We had simultaneously received the term sheet we have been fighting for many months at SwipeSense for our Series A (an $8M raise!), and received a cancellation notice from our largest hospital customer within a 24 hour period. 

I didn’t know what to do. Make the call to our investor and let him know that our sales numbers going in the model were off and risk the investment. Don’t make the call and have a VERY awkward first board meeting afterwards. The choice was simple. The call was hard.

I nervously dialed his number and broke the news. How it happened. What we are doing about it. It was direct and embarrassing. I ended with a very simple message. “If this news changes your view on the viability of this investment, we understand and will respect your decision to not invest in this round, no questions asked.” 

His answer shocked me. “Mert - we are investing in YOU and your team as a founder, customers will come and go. It’s how you deal with them that is what we are buying into. We’re in.” I’ll never forget that answer. Over the years, we had our ups and downs, but we always valued our ability to be straight with our shareholders, before or after they invested in SwipeSense. It was at that moment we started to truly trust each other. It was at that moment, we went from investor/founder to partners in the journey ahead. 

Our partner at MATH, Dana, wrote about this in her post titled Extreme Transparency. As your future partners, we want the following in our communication with you:

• The Truth: No outright lies

• The Whole Truth: No facts/circumstances conveniently left out

• Nothing but the Truth: No B.S. thrown in to make it look better or worse than it is

As a founder, if all you talk about is the good stuff during fundraising, you’re missing out on an opportunity to build trust with your future investors. We are impressed and excited with your progress and growth, but we ultimately build conviction with how you deal with problems in your startup. 

We get it: Fundraising is a song and dance to create FOMO amongst investors so you can maximize your valuation and time to close. I have given and received this feedback as an operator myself for many years, you want to ensure the energy is high in your fundraising meetings and the momentum keeps building towards a close. It is a sales meeting at its core, you are selling shares in your startup and the fund is selling why you should take their investment over others. 

However, at some point in getting to know a fund, you should talk about the bad and the ugly along with the good. Practically speaking, no later than the second or third meeting with a fund, you should discuss the ugly things about your business. The soft underbelly. The costs that are higher than expected. The customer that canceled their contract. Anything that’s not going according to plan, and most importantly, what you are doing about it. 

Here’s the deal: we know every startup has challenges. The goal of these discussions isn’t to go into the confession booth - it is to complete the picture of you as an operator. The best founders aren’t the ones without challenges, the best founders are the ones that know how to deal with their problems. 

For instance, if your financial model assumes a $20 customer acquisition cost, and your average today is $35, this is a problem. However, this is an entirely different conversation if you highlight that discrepancy and your plan to get to $20 before we point it out in your financial model. If we are uncovering problems that you haven’t discussed with us first, we immediately worry about other problems that you are keeping. This is a bad impression. 

On the contrary, talking about these issues and your plans increases our conviction in you - it allows us to build trust with you. And there is no greater way to build trust than to show vulnerability. It lets us build a mental model of someone who is going to keep a steady hand as challenges arise, and will be transparent with us as shareholders in the process. Your behavior today is the predictor of how you will behave tomorrow. 

Finally, this goes both ways. Before you take an investors’ money, ask about difficult times with their portfolio. Ask to connect with founders who had to shut their doors or exited with small multiples. When things are going great, it’s easy to be an investor. The real work is when things aren’t going according to plan. You should diligence your investors with just as much scrutiny, you are picking a long-term partner who hopefully will share this adventure with you for many years to come. 

Founders - do you find yourself only talking about the positives during fundraising? What are other ways to build trust with funds?

Please share your thoughts with us on Twitter, and give us a follow if you enjoyed this. 

Five Insights from our 2021 DEIB Survey

This post is Part 3 in a series of the ongoing DEIB journey that we are undertaking as a venture capital firm. Make sure to read Part 1 that outlines the uncomfortable conversations we had as a firm that propelled us to take further action and Part 2 about the elements of a strong DEIB survey.

When MATH decided to conduct a DEIB survey for our portfolio companies it was to set a baseline for measurement and to provide our portfolio companies with actionable insights for improving DEIB. As it turned out, we learned as much from the process, group training and individual discussions with portfolio companies as we did from the survey data itself. In an effort to share what I hope is useful to others, here are five key insights from this work:

1. 50% of Portfolio Companies Indicated DEIB Was Not a Priority

In 2021, only 31% of our portfolio companies participated in our first DEIB survey. 19% have graduated to their own survey or program. That leaves 50% that either did not respond or responded to say that DEIB was not a priority for the company at this time. We were disappointed with this participation level and as we followed up with the companies that did not participate, many indicated they care deeply about the issue but were simply underwater and could not make time to participate.

We get it. A company has to stay alive. 

With a lot of pressure to grow quickly, build product, acquire customers and never run out of cash, focusing on diversity seems like a higher level problem. A counter perspective is getting the team right is the difference maker. Finding the right humans to solve difficult problems and aligning them to a shared vision with high performance culture is the edge needed to win.

I suspect that many of the companies that truly care but did not want to participate, were feeling much the same way the MATH team felt in 2020 (see Part 1 of this series). They were wondering where to start. That is exactly why we were trying to show them a first step, this work is meant to be an introduction to DEIB with measurement and survey tools combined with expert consulting from Peoplism to get them get started. 

2. Early Action is Needed to Prevent Diversity Debt

We have some portfolio companies that are early-stage with very small teams. For many of these teams, focusing on DEIB is something they want to do later after they have grown and are adding more people. The trouble with this approach is that as a company hits their inflection point, there is even more pressure to grow fast and hire talent quickly. This results in companies sourcing candidates from their network and soon the company is 50+ people that all look, act and think similarly. The problem with waiting until you are bigger is that it creates diversity debt. Soon, you start trying to recruit diverse candidates for open positions, but those candidates don’t perceive the team and culture as inclusive and as a result it is almost impossible to convince the best candidates to join.

Focusing on DEIB early engrains open, inclusive behavior in the company culture and ensures as the company hits the inflection point; the building blocks are in place to get the best candidates. 

3. Source and Recruit for Capability over Experience

Passionate debates ensued in our team and in the portcos about whether we should be sourcing for experience or capability. Historical hiring practices have always put an emphasis on those with the most experience. As one of our portco founders said “I don’t want someone that is learning how to do it, I want someone who is tested and has been on a rocket ship before and succeeded.” 

This in particular is an area where I would like to challenge myself and others to think differently. We need new and better approaches to assessing the capability of individuals. It is analogous to how MATH assesses a company’s unfair advantage in customer acquisition - if it is already showing up in revenue, it is too late, we need to be experts at seeing the early signals that others miss. Similarly, we need to get better at seeing the early signals in talent in order to recruit and retain the best talent - giving those with untapped capability the opportunity to soar. Uncovering and building the next amazing CMO, instead of hiring the CMO that was amazing in a prior role.

4. Underrepresented Groups Are Least Likely to Receive Developmental Feedback

Our survey revealed that underrepresented groups are the least likely to receive developmental feedback from their manager that will help improve them in their role. For me this was startling, not because managers in startups are not good at giving feedback (many are first time managers without formal training), but that  a difference exists in the way under-represented groups feel about the feedback they receive as compared to the benchmark. This is a type of bias and nuance that can only be revealed in a well-crafted survey tool (see Part 2 of this series). It is also something that must be addressed. 

Since uncovering this insight, I have been on a quest to source the most effective approaches on providing developmental feedback. Our companies each need to find what works for them but feedback needs to be delivered and received with a growth mindset. If our companies are 3xing every year, so should our key talent and the only way we can achieve this objective is by providing feedback that will help them grow and be successful in current and future roles.

5. Communicate a Clear, Articulate Vision to Drive Belonging

Hands down the most important aspect of what I have learned is how important a clear, articulate vision is to making diverse teams effective. Vision has always been important, but with diverse teams defining success so clearly that individuals from diverse experiences, backgrounds and perspectives all know they are solving the right problems is essential. Articulating each individual's ability to contribute to the achievement of key metrics and recognizing shared success is non-negotiable.

If you have insights or resources to share about DEIB, please share them in the comments or DM me directly, I would love to learn more.

Follow @DanaWright_VC and @MATH_V_P to learn more about our work and process.

Elements of a Strong DEIB Survey

This post is Part 2 in a series of the ongoing DEIB journey that we are undertaking as a venture capital firm. Make sure to read Part 1 that outlines the uncomfortable conversations we had as a firm that propelled us to take further action and Part 3 in the coming weeks to learn more about the lessons learned from our 2021 DEIB Survey.

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As MATH started down the DEIB journey, the one thing EVERYONE on the team agreed on is that we needed to measure our progress over time. We decided we needed a survey tool, which led to a series of questions. What type of survey would be most appropriate? More importantly, would our portfolio companies see the value in participating? What level in the organization should we measure? How do we craft a survey that actually gives actionable insights? 

To begin, I researched as much as possible on best practices in the DEIB survey space and talked to many under-represented founders, organizations working on these issues (including All Raise, BLCK VC, LatinxVC, PEWIN, and Chicago Blend) as well as numerous potential service providers. Our intention was to uncover what other firms were doing well and build on their lessons learned.

Instead, we found that while almost everyone agrees measurement is important - there are really no standards for Venture Capital firms trying to administer a survey like this to portfolio companies. Most best-in-class DEIB surveys were not designed to be used this way. The two surveys that we found that were specifically designed for use by investors did not get at the richness of the data and insights we hoped to uncover. Ultimately, we partnered with Peoplism, a DEIB consulting firm, and with their help, we uncovered a few themes that we refined and made our own. 

In an effort to pay it forward, below are the top five elements we feel are most important when developing a DEIB survey.

1. Use Self-Identified, Unattributable Data 

The most shocking thing I found when I was researching what other Venture Capital firms and organizations were doing in the space was that they were creating reports based on an assumption of how individuals identified and then tracked that data by name. This was especially true for some funds that propose to invest only in a particular demographic profile.

To be fair, early in the MATH journey we had implemented this for founders. Diversity has always been important to us and we wanted a way to track how we were doing. We no longer do this because countless conversations with founders taught us about how they felt assigned labels contributed to a biased experience. It was also under the advice of every expert we talked to - there is simply no way to know which group or groups someone feels like they identify with and choosing for them can be worse than doing nothing. When you know better, you do better and so we agreed at MATH we would only utilize self-reported data going forward.

Getting unattributable or anonymized data presented other challenges. First, we debated whether MATH should know results by portfolio company. We did not want any of our companies to feel called out - this is about moving forward together. We decided for the data to be useful and actionable to our participating portfolio companies, we needed a report for each company in addition to a portfolio wide report. Second, at the individual level, we wanted each participant to feel safe in being completely honest. Our companies are different sizes and cultures and we felt it was important to ensure no one could be personally identified in the results. Thus, at smaller companies some demographic data had to be combined, trading anonymization for insights by group. We felt these choices created the best balance between providing useful insights and a safe place for participants to be 100% honest. In order to accomplish this, no one at MATH had access to the individual data. Instead, Peoplism administered the survey and analyzed the results for us.

2. Get the D Right

Early in this journey, I had the sinking feeling that looking at diversity data in the wrong way could actually hurt our DEIB efforts. I don’t like the way most surveys report on this type of data, continually separating and dividing humans into groups sensationalizing our differences. I also learned the importance of intersectionality. Many templates make you check one box. Liz Kofman-Burns, Co-Founder from Peoplism put it like this, “Great DEIB surveys take an informed approach to collecting demographic data. Diversity is complex and intersectional, and no one wants to make individuals feel reduced to a statistic.

Diversity can come in all shapes and sizes far beyond race and gender. For example, do you want to collect information about religious or political party affiliations? How about socio-economic status which is incredibly important and difficult to measure - usually collected by asking about the education level of the person’s parent/legal guardian or whether they are a first generation college graduate? Maybe you want to capture information between remote and in-office workers. What about caregivers and non-caregivers? 
There must be a balance and it’s important to take into consideration your company size, objectives for collecting the data, DEIB strategy maturity, relevant benchmarks and resources for analysis. 

3. Go Beyond the D

I see many investors and companies collecting only diversity/demographic data and not focusing on EIB (Equity, Inclusion and Belonging). We get it. The D feels solid, its factual and numbers based. But for MATH, it's the equivalent of receiving a financial model from a founder that shows revenue only but none of the drivers of the business – it doesn’t really tell us much. 

The magic happens when you take a look at survey results about inclusion and see noticeable differences in the way different demographic groups answer the questions. For example, if you have a culture problem and all employees experience that problem similarly, you have a clear set of issues. If you have a culture problem that only one demographic group experiences, that is an insight that points to a different set of solutions. It tells you that something is not only off, but off in a way that could be caused by or contributing to bias and divisiveness in your company.

4. Craft Actionable Questions

The most important thing we learned from working with the team at Peoplism was the importance of creating survey questions that are actionable. Unfortunately, many common DEIB surveys don’t have the most actionable questions. Actionable questions inform what action you need to take if you see disparities in the results. 

Maybe you learn, for example, that Black employees at your company are less likely to say they have a voice. How does this finding drive toward a solution? You first have to really understand what is going wrong. In this case, is it that there are no Black executives at your company, so Black employees don’t feel heard at the highest levels? Is it that managers are systematically excluding Black employees on their teams from key projects or decisions? Are peers interrupting Black colleagues in meetings? You don’t really know from a question like that.

In contrast, actionable questions inform steps to take to improve. An example of an actionable DEIB question in Peoplism’s DEIB survey is: “My manager actively seeks out my opinion on important matters.” Suppose your found that employees from underrepresented groups are less likely to agree with this question than employees from majority groups. Your actions would be to train managers on the importance of involving the whole team in decision making, education on the biases that may prevent them from doing that, and elicit the behaviors managers can use to solicit more input from everyone who reports to them. Actionable questions drive results.

5. Complete After-Survey Actions

This is an obvious step but worth noting - if you are going to survey, you must take action. We decided that we were going to offer our portfolio companies two different training workshops in 2022 based on our 2021 survey results. The first is focused on sourcing for diverse talent and the second is focused on ensuring bias is taken out of the interview process. In addition, each company that participated in our survey had the opportunity to debrief with Danielle Callendar, Senior Consultant with Peoplism to help set individual company level actions based on their survey results. 

The final word here is that we were very open with our portfolio companies that doing this work is a journey we are on with them - and these resources are meant to be like everything else we do at MATH - help them succeed with greater certainty.   

We would love to learn more about effective DEIB initiatives that you have been a part of as a founder or a VC. Sound off in the comments.

Follow @DanaWright_VC and @MATH_V_P to learn more about our work and process.

Post to Come:

Five Key Lessons Learned from our 2021 DEIB Survey (Part 3 of 3)

MATH's Approach to Diversity, Equity, Inclusion and Belonging: Part 1 of 3

This post is Part 1 in a series on the ongoing DEIB journey we are undertaking as a venture capital firm. Make sure to read Parts 2 and 3 in the coming weeks to learn more about how we are tackling DEIB at MATH

MATH’s Approach to DEIB (Part 1 of 3)

At MATH, we believe in collective strength - the power of many voices with diverse backgrounds, experiences, skills and perspectives aligned to a shared vision. Like many in our industry, we have been talking for years about the need for more diversity in venture capital and in the startup/tech community. In 2020, we saw the entire ecosystem turn their focus to the Black Lives Matter movement specifically and Diversity, Equity, Inclusion and Belonging (DEIB) efforts generally. We saw a number of new funds focused on under-represented groups get launched and pledges from many established funds to do better. 

As we saw these initiatives get underway, MATH was publicly silent. I was by far the loudest voice on our team against any sort of pledge as I have seen too many people pledge to do better - swapping good intentions for meaningful action. I wanted us to be in a position to report what we have done, not what we were going to do. Multiple people in the industry questioned why we weren’t being more public at the time - even a few of our closest friends that fundamentally could not understand our position. 

What people could not see from the outside is that internally, we were having uncomfortable discussions about the lack of diversity on our own team and in our own portfolio. We asked tough questions about how our sourcing practices and deep networks were contributing to this challenge. We confronted each other directly about our conscious and unconscious biases. At the end of the day, we did not think it was appropriate to be talking the talk, without walking the walk. And, even through all these discussions, we were still unsure as to what to do. Every action we thought about taking seemed like it could create more damage than good or seemed too small and insignificant in the broader context. We were paralyzed. 

So, we started problem solving.

The purpose of sharing our journey now is to show one path for getting started - it is MATH’s path. It doesn’t mean it will be right for every fund. And, the one thing I know for sure is that we are making mistakes while also making some progress. We are learning and adapting, following our own advice to our portfolio companies. Here are the steps we took to get started:

Step One:  Getting Clear on the Why

First, we challenged ourselves on the why. The discussions ranged from “it’s the right thing to do” to “teams with diverse backgrounds outperform”.  We fundamentally believe both of those statements to be true. But, neither statement captures the true reason we believe any company focused on success should be thinking about DEIB. For us, the collective strength of the team around the table is the single biggest competitive advantage for a company. It is the collective team that designs and builds the product, talks to customers, and delivers an experience. That collective team needs to be diverse to push each other further, to reflect the world of the future. Getting this right is a competitive advantage for MATH and for our portfolio companies.

Step Two: Finding a Way To Organize Our Thoughts

To get us unstuck, I realized our team needed to build a framework for how to think about actions related to DEIB and we also needed a way to hold each other accountable. Personally, I was using the concepts of Circle of Control, Circle of Influence and Circle of Concern to keep my head clear in 2020 (something I picked up early in my career). We began to adapt these concepts for our DEIB Framework and came up with the following three categories:

MATH’s DEIB Framework

Step Three: Brainstorming All Possible Actions

With this simple framework in place, we created a matrix for each category (see Direct Control Example Below). We had three matrices - one for each category and with different areas of focus on the left side of the matrix. Brainstorming every action we could think of in each category was freeing. It didn’t mean we were going to take every action, instead it was an exercise that allowed us to see all the possibilities. We were thinking about the “what” not the “how”. We were thinking freely, not committing. This experience created a safe place to get all the thoughts down.

Matrix for Brainstorming DEIB Actions (in our Direct Control)

A note about the “B” of Belonging. MATH added Belonging to our definition and framework later - after much discussion and research. MATH’s take on Belonging is a bit different than the experts. We believe it is the part where different perspectives actually come together with a shared vision. Without it, you may have individuals all rowing in opposite directions. With it, everyone brings their whole self to the table, is safe doing so, but with the understanding that the team is working toward a higher, common goal and objective.

Step Four: Setting 2021 Priorities

Now came the hard part, what actions were we going to take in 2021. This step by far was where most of the discussion and debate happened on the team. Our team has a high degree of trust and we came to this discussion truly believing in one another’s positive intent. We listened and respected each other’s opinions. We were realistic about what we could accomplish in one year while also challenging each other to go further. This allowed productive conflict - something that is common in diverse teams with strong trust.

Handling the process this way allowed us to recognize both where we are currently and where we want to go.  It became a “Now, Next, Future” exercise that helped us immensely and allowed us to get unstuck.

Step Five: Take Action

Setting our intention was the spark that we needed to begin our journey. We made significant progress in each of the three categories in 2021.  Overall, I would give us a B+ for meeting our objectives last year. We increased diversity on our team, completed anti-bias training as a firm, established relationships with other diverse VCs and established more diverse sourcing practices. During diligence before funding a founding team, we started more formal conversations about DEIB and continued those conversations with portfolio company founders/CEOs following funding. We also established and funded a budget for sponsorship of organizations in our industry doing important work on these issues.

With all of our progress in 2021, by far the heaviest lift for our team was determining how to measure our progress in DEIB. Those that know the MATH brand know that we like to see quantitative metrics and trends over time. It was critical that we find a way to measure DEIB in a way that would not only give us data but would provide meaningful insight into how to impact change. We decided to work with Peoplism to build and administer a DEIB survey for our portfolio companies. We learned a lot. One quote from a founder who participated in the survey summed up his feedback like this:

“This was one of the most actionable and informative processes we have ever been part of! Thank you so much for this very important benchmarking. It will be great to see trends over time.” 

For 2022, we are continuing our journey. As part of that journey, I am going to be sharing two more posts about what we learned about designing and conducting the survey last year. Sharing our journey now is part of our 2022 priorities in the area of Indirect Influence. Our hope is that by sharing our journey, we can have a broader impact in the venture and tech ecosystem.

While progress is there, we have much more room for growth.

We would love to learn more about effective DEIB initiatives that you have been a part of as a founder or a VC. Sound off in the comments.

Follow @DanaWright_VC and @MATH_V_P to learn more about our work and process.

Posts to Come:

Elements of a Strong DEIB Survey (Part 2 of 3)

Five Key Lessons Learned from our 2021 DEIB Survey (Part 3 of 3)

What’s an Unfair Advantage in Customer Acquisition?

Our investment thesis at MATH is centered around having an unfair advantage in customer acquisition. We believe that a repeatable method of attracting and retaining customers positions companies to beat their competition and scale. This is one of the key elements that we look for when we are evaluating the people and businesses in which we invest. 

What do you mean when you say an unfair advantage in customer acquisition?

An unfair advantage in customer acquisition is an ability to attract and retain lots and lots of customers through systems, processes, or benefits of your product or service. We want to see your customers chomping at the bit to purchase your solution. In short, this is way more than early signals of customer traction. 

Here are a few examples of unfair advantages in customer acquisition that we have seen with our portfolio companies that we love. This is by no means an exhaustive list.

Land and expand

This is a classic strategy that starts with a very narrow and focused sale into a customer base with low friction before expanding. After initial adoption, expansion can be achieved through growing the number of users, product line expansion, launching new markets or geographies, and/or acquiring adjacent businesses. This is an unfair advantage that we saw early with Acorns ETF portfolio. They created a simple way for people to sign up for an ETF and deposit money to grow their oak. Acorns expanded its product lines to include retirement investing, banking solutions, credit cards, and even investing for kids. This helped them gain more wallet share with their existing customers.

Leveraged distribution

This unfair advantage to customer acquisition utilizes channels, reseller, or distribution partnerships to reach  many more customers than your own sales force could ever reach. The best channels are the ones that get a strategic advantage from your relationship that is far more valuable to them than the cash value of the transaction.  In our experience, a channel partnership can work if it is just about the revenue share, but it is much more likely to succeed if there is other value than just revenue for the partner.  

CardFlight is a company in our portfolio that uses leveraged distribution to sell payment processing solutions to retailers through channel partners. When we first met them, they had 450 retail locations using their product. Today that number is over 90,000. Instead of trying to sell directly to the highly fragmented space of retailers, they chose to work with partners who were already selling credit card processing services to retailers but needed a more differentiated solution to compete with newcomers like Square and Clover.  

CardFlight developed a hardware / software solution that helped the legacy seller of merchant services compete.  Their partners (companies like WorldPay, Cayan, PaySafe, TSYS, etc.) have competitive offerings and win more deals.  These companies cared much more about leveraging CardFlight to get new accounts than what some small revenue share would produce.  

Network effects

This customer acquisition strategy is most often seen in a two-sided marketplace where capturing one side of the market acts as an acquisition strategy for the other side of the market. The best examples of this are businesses that have a viral loop where supply from one side brings more demand from the other side and demand brings more supply from the first side. We saw this at SpotHero, a portfolio company that aggregates the supply of parking from urban parking lots,  allowing consumers to reserve and book parking spots for a discount in seconds.  The drivers love the experience as it takes the stress out of finding parking and ensures that they get the best price, while the parking lots love it because it is free revenue for them. .  As they got more consumers on the platform, more parking lots wanted to participate and having more supply of parking led to capturing more consumers.

Product-led growth

This approach is bottoms-up where user driven adoption leads to an eventual enterprise level sale. This is an alternative to direct enterprise sales that can reduce the sales cycle time and avoid initial enterprise procurement processes. This was an unfair advantage for NoRedInk, a portfolio company that is focused on helping students improve their writing skills. They created an amazingly engaging freemium product that they marketed directly to parents, teachers, and students. Once their product took hold and there was enough density of use in a school district, the sales folks could come in and sell powerful reporting to make the teachers better and more accountable.  

Community-led growth

This is an area of particular interest to me given my background in community development. This approach aggregates a community of your target audience and allows them to share insights about your product and the problem you are solving with one another. This, like content, is a longtail play, where you need to invest the time in curating the right people in the community and galvanizing the brand promoters. Peloton is an excellent example of this, where the company was able to build a community around health and fitness. They leveraged brand promoters for Peloton in these spaces to widen their reach and the rest is history. 

While this list is not exhaustive, it’s a great example of how we evaluate whether companies would be a good fit for our investment thesis and if they will benefit from our collective strength as a team. Each and every investment we make has a clear unfair advantage in customer acquisition, so make sure that we understand what yours is when we meet you.

If you think you’re a company with an unfair advantage in customer acquisition, especially in community-led growth, I’d love to hear from you - my DM’s are open!