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In this edition: Lightspeed Venture's Amy Wu shares her investing criteria & views on direct listings/SPACs.

PRODUCT WORKSHOP W/ AFFIRM:
TOMORROW

 
Thursday, 5:30 PM EST: Affirm Head of Consumer Product Nupur Kantamneni will workshop:

• Growth (acquisition and retention)
• Launching new products
• Managing a team of PMs
• Trends in payments and e-commerce

Affirm had a successful IPO! They offer installment loans to consumers at the point of sale. 

Expectations: Intimate and interactive. You'll ask questions directly & solve a Product Case.
GROWTH INSIGHTS:

FT. Amy Wu is a Partner at Lightspeed Venture. She invests in growth-stage businesses. Lightspeed has $4B+ in AUM and notable exits / portfolio companies like Snapchat, Epic Games, and Nest.
1. Evaluate growth-stage companies with these key metrics: 

SaaS

• ARR growth
• Gross & net retention
• Gross margin
• General burn rate

Consumer/marketplace

• LTV:CAC
• Long-term unit economics

Venture-style growth investors like Lightspeed target 75-100% ARR growth — and have considerable tolerance on the burn and gross margin side.

Late-stage PE-style investors target up to 30% ARR growth, with considerably less tolerance around burn.  

2. Evaluate growth-stage startups against benchmarks for comparable public companies. Dispersions vary widely, but here's a frame of reference:


• SaaS: Multiples feel uncapped, as high as 50X revenue (hi, Snowflake)
• Marketplace: 5X revenue*
• Ecommerce: 3X revenue* 

* With the stock market ripping, there’s been a run-up in some consumer valuations, well beyond 3-5X revenue. Time will tell if public company valuations will revert back to their 10-year means. 

It’s fine to pay up for an early-stage startup if you believe in the company’s: 

• TAM
• Fast growth trajectory 
• Position as the industry leader

3. Is a startup IPO ready? A top criteria:

How well can the company predict performance? Are they actually able to project and manage quarterly earnings?

Next, look at the startup's internal operations:

• Is a CFO in place? 
• How about controls? 
• Is the board public-facing? 

These questions are typically raised three years before an IPO.

4. Direct listings are promising, if somewhat controversial. Since IPOs are generally mis-priced, they pass value onto new shareholders who may flip their position at the expense of long-term shareholders. Direct listings are more accurately priced and may preserve value for current shareholders. 

Direct listings are better suited for companies that don’t need the IPO as the top source of fundraising. 

In order for direct listings to yield maximum benefits, there must be a lot of brand recognition around the company. Spotify is a great example. 

5. As SPACs balloon, the key consideration is the quality of the sponsor. High-quality sponsors are correlated with high-quality SPACs.

The diversity of SPACs is similar to the diversity of VC firms. Some will provide a lot of value to companies, and some will not. 
THIS WEEK'S RECS:

• Breaking into product management? Here’s our guide.

• Map your business goals and deliverables with downloadable 30-60-90 templates.
THIS WEEK I WILL:

Become a more confident presenter with improv!

Try this free Friday class for beginners. Spots are limited.
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Written by Kim Forsythe and John Lukasko.


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