Growth doesn’t just happen by chance. Rashmi Gopinath, General Partner at B Capital Group, explains how to prepare for Series B, C and beyond — and what investors need to see at each of those stages.
You’re a founder with a team, a product, a market and a bit of sales traction. You’re looking to grow — and there are several important steps founders must take to prepare for this stage of the journey.
That’s according to Rashmi Gopinath, General Partner at B Capital Group. At B Capital Group, Gopinath manages equity investments in venture and growth-stage startups that have achieved customer traction, and shares her insights with Founders Network.
“At the growth stage, most of the core product and market risks have been de-risked,” she said. “Product-market fit has been identified, sales motion starts to get figured out, the pricing of the product gets defined, and you’re differentiated from other vendors in the landscape.”
- Key Growth Milestones
- Hitting Your Metrics
- Staffing for Growth
- Planning Your Expansion
- Identifying Profit Goals
The growth phase
The growth phase comes with differing demands, milestones and expectations. At this stage, investors will scrutinize metrics that paint a picture of efficient and scalable top-line growth: Customer acquisition costs, sales efficiency numbers, burn rate and others come into focus. Prospective investors want to see that you can grow sustainably, and ultimately drive profits. “A typical, healthy SaaS business should be showing gross margins in the mid-70s to high 80s at this point, LTV:CAC ratios of 3 or better, net retention percentages at 120% or better, <12 months to recover CAC,” Gopinath explains. Startup management teams must be able to show a pathway to profitability.“One thing that the current pandemic and market downturns have taught us is that ‘growth at all costs’ is not going to be looked at as favorably anymore.” - @GopinathRashmi Click To Tweet
“One thing that the current pandemic and market downturns have taught us is that ‘growth at all costs’ is not going to be looked at as favorably anymore,” Gopinath says. “Investors want to make sure that companies can show a path to profitability and focus on strong underlying business metrics.”“Investors want to make sure that companies can show a path to profitability and focus on strong underlying business metrics.” - @GopinathRashmi Click To Tweet
As your startup evolves, so does your team. And it is very important to have the right leadership in place to steer your business through its next stage of growth. Ideally, your management team includes star performers with specific and relevant experience in high-growth environments.
“This is the time when founders should think about upgrading their management teams to ensure they are well-staffed with people who have the right experience of scaling and growing companies,” she says. “For example, a head of sales is most likely someone who has had experience in the same or adjacent sector, and has grown sales from $20 million to $200 million+.” Likewise, in other key roles like marketing or product management, having C-level leaders with specific expertise in helping to scale companies will instill more confidence in your ability to execute, and drive smart strategic decisions.“Within the core team DNA, it’s a very different skill set that’s needed for growth, so this is a time when the management team starts to evolve.” - @GopinathRashmi Click To Tweet
“Within the core team DNA, it’s a very different skill set that’s needed for growth, so this is a time when the management team starts to evolve as well,” she adds.
Startup founders must be prepared to make a lot of critical strategic choices at the growth stage as well, and having the right team in place helps to facilitate and guide decision-making on when, where and how to expand.
During this stage, startup founders and their core team should be planning where the next phase of growth is going to come from, whether through strategic and channel partnerships or otherwise. Important build/buy/partner decisions are made during this stage. Growth strategies can include expansion beyond your core geographies and into new markets like Europe and Asia. It could also mean partnering up with larger enterprises for strategic growth investment, access to different markets, or other valuable business connections.
“How do you grow and expand from your current customer base? Do you want to expand your business to a new geography, develop a distribution or channel network, launch new products in adjacent spaces, or acquire other companies to drive inorganic growth?” Gopinath says.“A lot of important decisions come up during this period. A lot of it starts with having best-in-class people on your team, and the right set of investors and advisors.” - @GopinathRashmi Click To Tweet
“There are a lot of important decisions that come up during this period. A lot of it starts with having best-in-class people on your team and the right set of investors and advisors to help navigate through scaling challenges to drive exponential growth.”
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