pre-seed & seed vc

Milestone Unlocked: 60% of Bee I Founders achieve Series A

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It’s pretty great around Bee HQ these days. … We’ve got a fully engaged, enthusiastic team.  The pipeline of opportunities is full of new innovation and disruption. And every single day, we do the work we love with Founders we deeply respect and learn from. And, as of last week, 60 percent of companies Bee Partners invested in with our Bee I vehicle had raised a Series A.

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This is a big deal and here’s why: It means those companies are more likely to achieve their Big Hairy Audacious Goal and to realize those crazy dreams we decided to support so many months prior. And, it means the Founders get to accelerate growth, attract top talent, and ultimately, generate phenomenal returns.  

Okay, great, that’s our first vehicle, Bee Partners I. How about Bee II? Well … it’s early, but we are encouraged that those companies are on the same trajectory, with 40 percent having already raised a Series A, another few in the midst of raising, and two handfuls of others that are simply too early for an institutional raise.

It’s been a great market, and as investors, we use the Series A metric as a leading indicator of our portfolio’s potential. It’s not a perfect proxy for success, but we’ve seen industry metrics that suggest as few as 30 percent of Seed companies get funded at the A, and many of our friends in Series A Land tell us the figure is less than 15 percent. Does it mean that Bee portfolio companies are four times more likely to get funded vs. typical companies? No. It means that the Founders we’re selecting have the big vision and demonstrate remarkable tenacity to execute towards their goals. It’s their milestone, not ours.

Nevertheless, as people who love working every day to help young companies grow, we can use the collective experience of those that have reached the A to help more Founders and their teams. Think about it—Even just at base, we now have a pool of reliable data on what operating milestones a company needs to hit to put it on track for funding success. And through that data, we can point Founders towards that which is most important, and roll up our sleeves to deliver talent and customers along the way.

Next year, we’ll share an update. In the meantime, we are daily engaged with our hardworking Founders. Putting our experience to work for them, watching them put points on the board, finding them customers and advisors, helping them recruit. If you want to engage with our portfolio, come talk with us at Bee. There’s a really good chance you’ll connect with a team with a strong balance sheet and on the cusp of greatness.

Seed Investment Strategy

 Seed Investment Strategy

Since mid-2015, investments into Seed-stage companies have been decreasing with the reduction in transactions (40 percent drop) outpacing the reduction in dollars (24 percent drop). Early funding is critical for founders to quit their day jobs to go full-time,

Proxy ROI

When assessing an investment opportunity for the enterprise, Bee Partners will always consider the product or service ROI for prospective or existing customers. This value generally comes in three forms: 1) increasing top-line revenue, 2) decreasing costs, or 3) eliminating FUD (fear, uncertainty, and doubt).

Companies that increase profit for their customers are rare and indispensable (and easy to measure). If you provide something that allows customers to charge more or sell more, you’re in good shape. FUD is very hard to measure (think about the ROI of security or insurance) but often comes in the form of a regulatory compliance or employee benefit. Often this will be avoiding a lawsuit or fine and is a (possibly unpleasant) necessity.

At Bee Partners, we connect with many companies seeking to decrease costs for their customers, often in the form of software workflow tools, market networks, or business performance insights. Sometimes the selling companies are clearly reducing a specific and concrete cost, such as saving money on shipping or reducing the need to hire a new employee. But sometimes they’re solving a pain such as making it easier to do marketing analytics, or supporting aspects of the business such as employee time efficiency, worker or customer safety, or customer service. Although these are incredibly valuable services, justifying the cost is far more challenging.

In these cases, it is important to prove to the customer that there is a tangible financial benefit – rather than just an abstract one –  provided by the product or service. This allows the entire customer company (especially the financial decision makers) to understand the value of the product or service and provides a measurable benchmark metric for deciding if it is worth the cost to re-sign when an initial contract is winding down.

Enter the concept of a proxy metric:

Products/services without a direct impact on revenue or costs must find a Proxy Metric to convert into dollars to measure ROI.

CASE STUDY: VOLTAIQ

For a real-life example, let’s look at Voltaiq, which provides a comprehensive analytics platform to accelerate battery product development and ensure performance, predictability, and reliability. The Voltaiq team knew that engineers acutely felt this pain point and would see the value of their product, so they initially focused on explaining the features and the work-flow to the employees who would be using it. As predicted, engineers were all for the company purchasing Voltaiq, but the higher-ups with purchasing power were skeptical. The Voltaiq team realized that they needed to speak directly to the core requirements of the financial decision makers by highlighting the product’s ability to decrease costs, increase battery life, and get to market quicker. They could then prove that the Voltaiq platform allowed engineers to increase their efficiency by a significant enough amount to make purchasing Voltaiq a no-brainer. The metrics they chose are:

  1. The reduction in analysis time: This is a direct measurement of hours saved per team member per week based on hourly wages.

  2. Decision-making time: With Voltaiq, companies are more quickly able to know the needs and functionality of a battery, which allows them to roll out their products faster. By getting to market faster, companies can measure the value by comparing the original net present value (NPV) of the project to the NPV with an accelerated timeline. All companies measure this for all projects and this is an easy comparison.

  3. The reduction in battery failures: In this case, the metric is the cost of the batteries, and the cost of downtime and replacement time. For the batteries, that’s a direct financial cost. For downtime, they use company revenue and cost-per-hour of operation using machine time, hourly wages, etc. From there, they can use the duration of a failure to assign a dollar amount and add that to the cost of the battery. However, the direct cost of failures during product development, pales in comparison to catastrophic battery failures for deployed battery-powered products. This can cause irreparable damage to brand equity, and create enormous expenditures in terms of both recall and injury/liability payouts.

This information allows the engineers, analysts, and Voltaiq to approach the decision makers with financial arguments instead of an emotional plea. By determining accurate metrics about how to measure the financial impact of their product, Voltaiq is able to prove its value to key decision makers in addition to decreasing frustration for its users. By going through the Proxy Metric ROI exercise, Voltaiq has improved their traction and decreased the length of their sales cycle. Plus, the more customers they have, the more data they have about their financial return, and the easier it is to prove value to new customers. This is how companies can reach lofty growth metrics while decreasing their customer acquisition cost, the hallmarks of a successful startup.

CONCLUSION

Financial metrics are rarely the most fun element of evaluating a startup’s business proposition, but are crucial considerations even at our early stage. In B2B, customers make rational financial decisions and are going to have a number of questions about cost, benefits, and ROI. That is why startups selling on decreasing costs must understand a way to calculate a proxy metric to then sell on real value.

Some questions we always ask Founders at Bee Partners:

  • How do you think about your customer ROI? Can you prove it?

  • What current solution(s) do your customers use? How much better is your product, and how do you prove that?

  • What are the intangible benefits and how do you try to quantify those?

Here at Bee, we ask about ROI because customers will ask about ROI. This is about having thoughtful answers and knowing what customers will want to know when companies start selling into enterprises. It’s important as an entrepreneur to have empathy from the point of view of the customer, and explaining the ROI is a key part of that.

What Founders Should Expect from Pre-Seed Investors

In May, we posted about the various characteristics and actions we expect from Founders at the pre-Seed stage. We described the size of the raise needed ($250-750K) to attract talent, explore a market insight, approach product/market fit and gain conviction regarding the company’s direction. We encourage anyone wishing to meet up with us to read that post in advance of scheduling a meeting.  

Now it’s time to tell you about what Founders should expect from a pre-Seed investor. The Founder life can be a lonely one, and fraught with uncertainty. Your earliest investors should have the experience and network to support you through this most critical phase of development.

At Bee Partners, we are always looking for ways to support our portfolio companies in their efforts to develop and scale. That support comes in four forms: content, connections, capital, and collaboration.

 

First, we provide content, and regularly supply exclusive insights to our Founders on myriad topics. One way we do this is by providing “payloads” or startup best practices that offer step-by-step how-to’s around a variety of topics specific to the pre-Seed stage.  

 

 

Second, we provide connections. We connected Iris Automation (recently covered in a TechCrunch article) with nine drone companies as they built out their early adopter program. In another instance, LeadGenius has a product offering called “account-based marketing,” which essentially helps companies grow faster through improved sales efficiency. (If you are the CEO or executive at a software company with a desire to grow and with a repeatable sales process, then why aren’t you already a LeadGenius customer?  :-)) We have recently enrolled and subsidized three of our portfolio companies that fit the LeadGenius ideal customer profile in a three-month program with LeadGenius.

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From our three teams using the LeadGenius product, we are pleased to share that overall results have been fantastic, and, in effect, we are supporting four of our 34 active portfolio companies in one stride. The global average response rate for automated marketing emails is 1.39%, and our companies working with LeadGenius have enjoyed rates more than double that average. We plan to roll this program out to the remainder of our portfolio as the need for this kind of service naturally develops in their lifecycle. To ensure success, we support teams in fine-tuning their messaging, thinking through who the right lead actually is, and articulating goals beyond a high response rate (perhaps a team’s real goal is to get a meeting scheduled, or to make a sale).

 

Third, we provide capital. Many of our ongoing relationships are with VCs who invest at later stages than we do, and we aim to deliver our Founders great leads into those firms best suited to their company. Recently, LeadGenius announced their Series B raise which was covered by TechCrunchWall Street Journal and more. Our own Garrett Goldberg helped to bridge the relationship with this round’s lead investor. By the way, Bee Partners also invested, as we have deep pockets of reserve capital to invest in our portfolio companies which consistently execute.  

 

Beyond content, connections and capital, we offer collaboration. Above all, we leverage a partnership model and embrace this chosen path with our Founders to create a venture capital environment more akin to a community.  We frequently connect directly and in real-time with our Founders, and collide them with one another to harness the strengths of their communal experience set.  

 

We are honored to serve our portfolio companies and pledge that they can expect our four-tiered support structure of content, connections, capital, and collaboration day in and day out, day and night, for the entirety of our partnership. We hope that this post offers some insight into what Founders should expect from their pre-Seed investors beyond the traditional one-dimensional emphasis on capital.  

If you want to learn more about the LeadGenius product offering or about Bee Partners, please contact me at michael@beepartners.vc.