Ideas we'd like to invest in: Mobile-first SaaS

Following my posts about electronic signing and vertical SaaS, here's another area that we're very interested in:

SaaS solutions with a mobile-first approach

While my first two posts of this series were fairly specific, this one is pretty fuzzy as I don't have a good sense for what I'm looking for. I just have a feeling that there are huge opportunities ahead for startups which rethink how people will use business applications in the future. This feeling is based on a couple of factors:

• The incredible rise of smartphones and tablet computers, combined with ubiquitous Internet connectivity. Global mobile traffic as a percentage of total Internet traffic has grown from 1% less than three years ago to more than 13% today. In India and other countries, mobile traffic has surpassed desktop Internet usage already, and very very soon there will be more smartphones and tablets than desktop PCs and notebooks. (Taken from Mary Meeker's Internet Trends report – always a good read.)
• In sectors or jobs in which people are on the road almost all the time, people spend much more time with their mobile device than with their desktop computer already. But since the leading SaaS companies have been started before the mobile revolution took off, even if they have developed mobile apps in the meantime their products have not been built with a mobile use case in mind from the ground up. Makes me wonder if there's an opportunity to become to Salesforce.com what Instagram is to Flickr. And field sales people are just one example of course – think about places like hospitals, construction sites or factories where using tablets makes a lot of sense as well.
• The unique capabilities of mobile devices – location-awareness, built-in cameras, touchscreens to name just a few examples – allow the creation of entirely new features, products and user experiences. There are lots of examples for amazingly innovative mobile apps which take advantage of these capabilities in the consumer world, but business apps seem to be lagging behind in this respect.

So...if you're working on a mobile-first SaaS startup, let me know!

Ideas we'd like to invest in: Industry-specific SaaS solutions

Following my post about electronic signing I'd like to describe another area that we'd like to invest in. It's not a specific idea this time, rather a category of startups that we're very interested in:

Industry-specific SaaS solutions

I talked about the topic before when I wrote about "The land of a thousand niches" and touched on it in my "1st DO for SaaS startups". There are several reasons why we're so excited about vertical SaaS solutions. *

• Focusing on a specific vertical simply allows you to build a better product for the industry that you're after. Whereas a generic product needs to be the lowest common denominator for different types of customers, a vertical solution can be tailored exclusively to the needs of your specific target audience.
• By the same token, a vertical focus also allows you to tailor your messaging to one target group. Take our portfolio company Clio as an example. Look at their website and think about how much weaker their proposition would be if they had to keep it generic to address a broader target audience.
• Knowing exactly who your target group is also makes sales and marketing much more straightforward. It means you'll know which publications your target customers read, which conferences they attend, which other products they use, and so on. You can even get their names and addresses from the yellow pages or other directories. And because people in an industry usually talk to each other a lot, it's easier to get a critical mass of mindshare which is so important for organic growth.
• Competition tends to be less intense in verticals. Maybe because building a SaaS solution for field-service businesses like landscapers and snow removers doesn't appear like the sexiest thing on Earth, maybe because opportunities in verticals don't seem large enough for big enterprises. This gives you a chance to dominate a category and achieve extraordinarily high market share.

Boris Wertz, a good friend and co-investor in two vertical SaaS solutions, Clio and Jobber, recently wrote about the topic as well and has some additional points.

I have one caveat regarding vertical SaaS solutions: Make sure that the vertical that you're going after is big enough, i.e. aligned with your ambition with respect to the size of the company that you want to build. Expanding from one vertical into another one isn't easy. Maybe you won't have to start from zero, but the very reasons which make a vertical strategy attractive in the first place can also mean that most of the value that you've built in one category (domain expertise, product/market fit, mindshare,...) can't be easily transferred into another category.

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* This doesn't mean that we're not excited about SaaS startups which don't have a vertical approach. If you focus on a specific part of the value chain (e.g. accounting, marketing, sales) it makes perfect sense to go horizontal. It's the "practice management" type product, which encompasses a large part of the value chain, for which I recommend the vertical approach.

A KPI dashboard for early-stage SaaS startups

Over the last few years I've helped quite a lot of SaaS startups to create or fine-tune their KPI dashboards. While every situation is a bit different there's also a lot of overlap, which made me think that it would make sense to publish my template (not without polishing it a bit). I hope other SaaS startups will find it useful, and it will also make it easier for us to communicate what KPIs we're looking for when we talk to SaaS entrepreneurs.

Not surprisingly the dashboard looks quite similar to the financial planning sheet that I've posted some time ago. Below are two Excel screenshots, and 

here is the Google Docs version.

If you'd like to get the original Excel version, which looks a bit nicer, just drop me an email. A Geckoboard version will be coming soon.

The sheet contains some notes on the right side. I was going to note a few additional things here but it's gotten really late here in Europe so I'll leave that for another day. If you find any bugs, let me know and I'll fix them tomorrow morning. :)

One comment, though. Although I've developed this sheet on my own, I've learned a lot about SaaS metrics from David Skok, who I am very thankful for. David created a SaaS dashboard as well, it's a bit more sophisticated and has a slightly different focus, but it's quite similar. Check it out, and if you have not read his brilliant articles about SaaS yet I highly recommend that you do so. They are an absolute must-read for every SaaS entrepreneur.

Ideas we'd like to invest in

Inspired by Paul Graham’s “Startup Ideas We’d Like to Fund” post of a few years ago I’d like to start a series of posts about ideas that I find exciting and that we at Point Nine would be very interested in investing in. Here's the first one.

Electronic signing

I’m a huge, huge fan of electronic signing. Whenever I have to sign a document and I’m getting a “Please eSign...” email I rejoice because it saves me the hassle of printing, completing, signing, scanning and emailing the signature pages (don’t get me started on snail-mailing paper copies with original signatures!). This is of course especially true if you’re traveling and don’t have access to printers constantly. Apps like SignEasy and SignNow, which target the “signer” and let you e-sign PDF documents from your iPhone, are a pretty good solution and can be a live-safer if you’re sitting in a cab and have to sign an important document. Products like EchoSign, DocuSign, RightSignature and HelloSign, which are geared towards the signature-collecting parties, are even better in that they take care of the entire e-signing process from creating documents to collecting signatures and archiving signed contracts.

There are a couple of reasons why I think e-signing is not just a great product but also a great business:

• The product is inherently viral. Very rare for SaaS solutions. That means low customer acquisition costs which, combined with a good revenue model, are a killer.
• The product is valuable for individual users but becomes even more valuable if it’s used by an entire department or an entire company, which means you can use a Yammer-like land-and-expand strategy to get into bigger accounts. 
• It seems easy to find a good pricing structure which lets you combine an affordable entry-level plan for small customers (or even a free plan) with expensive plans for large customers, since the value delivered to customers (and hence willingness to pay) should correlate strongly with the number of contracts and number of users.

Now – there are a couple of well-funded players already, and EchoSign, following its acquisition by Adobe, has been integrated into Acrobat Reader, giving the product massive distribution as well as an entry product that is geared to the “signer side”. So the big question is if there’s still room for a new entrant.

I don’t have a clear answer, but given that the vast majority of signatures are still done on paper and that the US players seem to have very low penetration in Europe I’m wondering if there could still be an opportunity – maybe for a European champion, maybe with a vertical approach, maybe with a mobile-first strategy or another special twist?

The 6th DO for SaaS startups – Fill the funnel

Here's another post in my series on DOs and DON'Ts for early-stage SaaS startups:

6th DO for SaaS startups

Fill the funnel
Or: Focus on inbound marketing, but
 try lots of things and double-down on what works

In this post I'm going to write about lead generation for SaaS startups. When I edit the series later on I might merge it into my 4th DO (Make your website your best marketing person) to have one post on marketing. Let's see.

To make it clear right away, unfortunately I can't tell you what's going to work for you in terms of getting a large number of potential customers to your site. In fact, my key message is that there is no magic bullet when it comes to lead generation and that you'll have to try lots of things, put in lots of time and effort, double down on what works and execute extremely well. I haven't seen a SaaS company yet which gets more than 50% of its leads from one particular distribution partnership or marketing channel (except maybe word of mouth if you want to count that as a lead source).

Compared to that, marketing for consumer Web startups can be relatively straightforward. If you are a travel startup or an online shop, for example, millions of people search for your products or services online so you can use SEM, affiliate marketing, banner ads and other proven tactics to acquire large numbers of customers. In addition you can do TV advertising as your products are interesting for a relatively large percentage of the population. Getting the economics right and making it work at scale is of course a huge task and a science of its own, don't get me wrong on that.

But the particular challenge in SaaS marketing is that in many cases there isn't a huge amount of demand (a.k.a. search volume on Google), so the number of customers that you can acquire via AdWords is often quite limited. And things like TV advertising obviously don't work because of the huge waste circulation ("waste circulation" was the best translation I could find for the German word "Streuverlust" – does anyone know a better one?).

Just because you have a great solution doesn't mean that people are actively looking for it. That's not to say that you have a solution in search for a problem, but people may not be aware that there is a better way of doing things. What that means is that you need to find – and be found by – the people who your product is geared towards, often at a stage when they are loosely interested but are not yet ready to try (let alone buy) your product. Give them something that is useful to them. Write about the topics that your target group is interested in and provide lots of useful high-quality content and tips and tricks in a variety of formats, e.g. blog posts, white papers, case studies, videos, webinars, infographics or podcasts. Make sure that you don't talk too much about your product and that what you're publishing is really interesting to your target group. Sooner or later, some of these people will try and eventually buy. That's the whole idea of inbound marketing and lead nurturing. If you're not yet familiar with those concepts you should start learning more about them. A good starting point is Hubspot.

Zendesk is of course a great example for excellent inbound marketing. On its site the company provides a wealth of resources that are valuable for anyone who's interested in customer service, everything from tips for hiring customer service reps, to a guide to multi-channel customer support to numerous case studies and much more (including funny videos like this one). All of this helps to establish Zendesk as the go-to site for the help desk industry.

As for other ways to fill the funnel, here are some thoughts on things that you can do (in no particular order and of course by no means exhaustive):

• PR: Very important, and can get you off the ground in the beginning. Build relationships with the important bloggers, journalists and opinion leaders in your space and supply them with news. In the long term try to become an opinion leader yourself. Use Facebook, Twitter, Quora, conferences and events to reach out to the important people in your space.
• Most products are not inherently viral, but think about whether there are (sensible) ways to build virality into the product. If you can't find any you can still launch a referral program and reward users for recommendations to increase referral rates at least a little bit.
• Marketplaces, app stores, API partnerships, integrations, partnerships with hosters and the like: Don't expect huge volumes of leads from them, but they can be a meaningful lead source (and add value to your product).
• SEM & SEO: While you shouldn't bet on it alone, this is a very significant lead source for almost all SaaS startups that I know, so it's worth spending time and money on it.
• Ads on Facebook and LinkedIn: Personally I haven't seen great results with Facebook or LinkedIn ads for SaaS companies, but given the vast targeting options that you have there I think it's worth trying. If you've made it work I'd love to learn more.
• Display ads: Similar story, most of the time it doesn't work very well, but if there are suitable industry sites or blogs you may want to try it. 
• Retargeting: Can work very well. Obviously rather a nice supplement than a real needle-mover since the amount of visitors that you can target is limited by the amount of visitors who you've attracted in the first place.
• Promoted tweets: I don't have a lot of experience with advertising on Twitter, but I think it's worth a try, too.
• Distributors, VARs and similar channels: Tends to work better for traditional software with high license fees, setup and training requirements etc., but I've seen some good success in SaaS as well. Usually better for satisfying existing demand than for generating the demand in the first place, i.e. don't expect your channel partners to create the awareness for you.
• Local meetups: Once you have a number of customers in a region, organize local meetups. Nothing beats putting a bunch of happy customers and prospective customers into one room!
• Telesales/telemarketing: Hard to make it work, but if you can pull it off it can scale extremely well.

Finally...if you have trouble reaching your target group, try to put yourself in the shoes of the persons that you're trying to reach. Imagine how a typical day looks like for them. What websites do they visit, what might they be looking for on the Web? What magazines do they read, which industry associations might they be part of, what other products do they use, which people do they spend time with? Thinking about it this way will hopefully spark your creativity and let you come up with some fresh ideas.

Why I'm happy to be a micro VC

Last week we announced the closing of our new fund, Point Nine Capital II. The most important information about the new fund is included in our official press release, but I wanted to write a brief blog post to give you some additional background and share some personal thoughts.

When we set out to create the new fund last year, the goal was to raise €30 million. Since we're quite new to the VC game and didn't have any relationships with institutional investors, raising the fund took us quite a while. We're all the more happy with the result – not only did we end up raising €40 million, we also managed to get leading private equity fund-of-funds like Horsley Bridge Partners on board. Ironically, while it took us quite some time to raise the first €15 million, in the end we could have raised more than what we did if we had wanted to. I'm sure this will sound very familiar to many startups.

While the fund size means we are a "micro VC", at least by US standards, we feel it's a pretty sizable fund for early-stage Internet investments in Europe. The fund size will allow us to invest in around 40 companies over the course of the next few years, while keeping significant reserves for follow-on investments into our portfolio companies. It will also allow us to hire some people to help us with administrative and other tasks so that Pawel, Nicolas and I (plus the new truffle pig that we're looking for at the moment) can focus most of our time on what we like best – finding new investments and helping our portfolio companies.

The importance of follow-on capacity is one of the things that I've learned as an angel investor. As an angel investor who invests his own money it's hard to keep a lot of reserves. That can be problematic not only for the angel investor (who sees himself getting diluted starting with the A round) but also for the portfolio company if it needs to go back to the market to raise more money from new investors too quickly. I wouldn't say that I've learned this the hard way, but having a fund is definitely a big plus in this respect.

While we have more firepower than private investors, we're still small enough to not have to deal with the challenges faced by large VC funds. If you have a €300-500 million fund it's really hard to find investments which can move the needle or "return the fund", in VC lingo. There just aren't many companies that can put something like €20 million to work and turn it into €200 million. And if you look as the market as a whole, there just aren't enough €1B+ exits to allow a bigger number of large funds to deliver great returns to their LPs. The micro VC fund size also works well with our "angel VC" approach (which means fast decisions, no big committees, founder-friendly terms, simple term sheets, hands-on support and generally a no-bullshit attitude). 

Don't get me wrong, I loved being an angel investor and if I didn't do Point Nine I'd still be one (and needless to say, angel investors fulfill an incredibly important role in the startup ecosystem). As for the other end of the spectrum, I genuinely admire VCs who manage to deliver great returns on large funds. But it's a different game, and not the one I want to play.

That is why I'm happy to be a micro VC.

Do you have what it takes to become a truffle pig?

A few weeks ago, Fabian, who worked as Point Nine's associate from the very beginning, has left to create his own startup, Wunsch Brautkleid. Hence we're now looking for a new Investment Associate to complement our investment team.

Here are all the details.

Please check it out and help us spread the word!