1Mby1M Virtual Accelerator Investor Forum: With Steve Beck of Serra Ventures (Part 3)

Sramana Mitra: What do you need in terms of metrics? Let’s talk about B2B SaaS. Are you looking for a million dollar ARR? Are you looking for paying customers but not yet velocity? What is the comfort zone?

Steve Beck: We hear these types of things all the time. What we’re looking for are some of the obvious things. One is a big total addressable market that’s waiting for disruption. We’re looking for an executive team and a founding group that we really believe in. We know that many of the companies that we invest in are going to end up doing something a little different than what their initial thesis is.

Besides the team, good IP and technology, we’re looking for people that have the same worldview as us. If someone is wanting to be a gigantic company, that’s probably not a deal for us to take. In terms of revenue, we want product-market fit for sure. We like to see some monthly recurring revenue so there’s proof that the dogs are eating the dog food. If there’s a million dollars in ARR, that company is further along than what we’re looking for. We want to take a little more risk. We’ve done pre-revenue deals.

Sramana Mitra: Great. That’s very good to hear. There is this $1 milliom ARR being a requirement for a lot of firms right now. That’s not easy to get to. It takes a lot of time to get to a million dollars in ARR.

Steve Beck: A company that has a million dollars in ARR in a SaaS model, that’s clearly working and scaling. You’re going to get pre-money a little bit higher in a company like that. We don’t want to get in at a $10 million pre. We want to get in at $4 million or maybe $6 million. That’s how our model works. You could bake the risk out, but you’re going to pay more money for it and you’re going to make less on your multiple.

Sramana Mitra: I just want to clarify one thing on the TAM question. You did say you want a large TAM, but I would put that in perspective. The scenario that you’re talking about, you can still make money with a TAM in the $300 million to $500 million range. It doesn’t have to be a billion plus TAM.

Steve Beck: I would certainly agree with you there. There’re a lot of people starting SaaS businesses that are really doing lifestyle businesses where they’ve got a very narrow niche. They understand that business because maybe that was a business they were in at some level. It’s going to crank out maybe a few million dollars in revenue for them. They’re not really going to grow a venture-sized business. I’m not coming at this from the Silicon Valley mindset. If we can get a company five years out having $10 million in revenue, that’s a tremendous success.

Sramana Mitra: From the One Million by One Million perspective, we support all of those entrepreneurs. You can be a good business and not a great investment. You build it as a lifestyle business. We’re happy to support all of those permutations and combinations. In the context of Serra Ventures, we are talking about how your firm works.

Steve Beck: I’m a huge fan of lifestyle businesses. I don’t say that in a condescending way. If you can build a business that you understand and love and that has great margins, you don’t have to become beholden to guys like me who are going to tell you what to do. You can control your own destiny and build a beautiful and sustaining lifestyle business based on technology. That is a fantastic accomplishment. As soon as you take venture, there’s pressure for an exit.

Sramana Mitra: And pressure for building to a much larger scale and much faster. Those pressures are only worth taking on if your business has the structure to be able to deliver to those kinds of demands.

Steve Beck: We’re kindred spirits, Sramana. All the things you feel, that’s what I believe.

Sramana Mitra: Tell us about some of the companies that you’ve invested in. Tell us the story of when they came to you, what did you see? What caught your attention that made you invest?

Steve Beck: I’ll give you a story or two. One is my investment with Baidu. I assume that many of your listeners have heard of Baidu. People in China talk about Baidu, Alibaba, and Tencent.

This segment is part 3 in the series : 1Mby1M Virtual Accelerator Investor Forum: With Steve Beck of Serra Ventures
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