Each quarter we pull the Arthur Ventures team together for an all-day offsite where we go through every company we’ve funded in detail and rank them across a handful of categories to help inform where we want to deploy additional capital and better understand where we expect future returns to come from for our limited partners.
Its always been a highlight of the quarter for me, but now its really getting fun because we are deep enough into the fund where we can clearly see companies breaking away from the pack and hopefully headed for special outcomes.
Coming out of this last meeting I analyzed the traits of our top performers and noticed some similarities that were present in each of the companies. Not some of them, but every single one.
I could write a separate post on each one of these, but I thought it’d be fun to cover the highlights.
Disclaimer before we hit the list – our investment focus at Arthur Ventures is 100% B2B Software + 100% outside Silicon Valley…
More specifically, a MANIACAL focus on product. In the first investment I led at AV, I was incredibly fortunate to co-invest with a very successful partner at a world-class firm and when I asked him about his best investments he said that his best performing companies were led by founder/CEO’s that had a maniacal focus on product. At the time I didn’t really get it, but now I totally do. Over the last few years I’ve observed product-obsessed founders attract the highest levels of talent, have the ability to see where the market is going and possess deep long-term beliefs that better position them to withstand short term struggles. Its has been a true x-factor for the companies.
Turning customers into a community
Turning your customers into brand evangelists is one thing, but creating a system by which customers directly benefit from interaction with each other to the point of near dependence on one-another is a whole new level of competitive advantage. Some ways we’ve seen this happen is through rich user forums, contribution of data back to the core product for continuous improvement, job boards for help with projects, user-led meet ups and company-led user conferences. This is the most powerful force in our top performers.
Tripling down on the go-to-market that works
From a revenue standpoint, our top performers generally go from $1M – $10M in ARR within 8’ish quarters post our initial investment. On that march, those companies tripled down on what got them to $1M ARR in the first place. If they were an inbound model, they didn’t go heavy on outbound. If they were high price point, they didn’t introduce freemium. You get the idea. The rebuttal of this is that what gets you to $10M ARR won’t get you to $100M ARR. I totally agree and each of these businesses are now into new go-to-market channels, but they are doing so at a time where they have really good data on their own economics, an established brand and a lot of cash in the bank.
Investing in recruiting early
We have observed a strong positive correlation between hiring internal recruiters early (first one around 15-20 employees) and revenue growth. One of our best companies has 4+ recruiters on staff. It is a very high leverage point for the executive team early on. Having somebody do initial screens, be constantly present at community tech events and instill a strong recruiting/onboarding process early on is incredibly valuable.
Emotionally mature and present board members
Boards are always interesting. Multiply dozens of companies in a portfolio by 5’ish board members and you get a lot of people. You get a lot of people together and you see fascinating things. Good and bad. The founders of our top performers have done a really good job pulling together quality boards over the course of multiple rounds of financings. The key characteristics of these boards is that they have a very high level of active participation (i.e., in person whenever possible with multiple interaction points between meetings) and emotional maturity. They don’t try to run the founders’ business for them or try to show everyone how smart they are. They provide a supportive environment that enables the founders to do their best work.
Our top performers each burned materially less than $5M to get to $10M+ in arr. They weren’t hoarding cash at the expense of growth. They weren’t being reserved people outside of Silicon Valley. They simply never lost the scrappiness that got them their first million in revenue.
There is no silver bullet to building a great company and different approaches are needed for different products and markets. Self-awareness of ones own unique situation is important, but hopefully you can pull a few nuggets from this to help on your journey.
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