The investment focus at Silicon Valley venture firm Scale VP is what one partner at the firm, Ariel Tseitlin, describes as “mixed stage” investing.
“I cringe when people call the type of investing we do ‘late stage investing,'” he said. “We call it ‘mid-stage,’ or ‘early in revenue.'”
A company that’s early on in the process of generating revenue doesn’t necessarily imply that it’s a late stage company, either. Tseitlin says it’s ideal that a startup begins making money early on, and this can happen as soon as the first few rounds of investing, as early as a series A.
On its sixth raise, Scale VP has closed a $400 million fund to focus on enterprise tech and turn a number of ‘early in revenue’ companies into profitable ventures.
Tseitlin says that Scale VP’s form of investing puts his firm at a unique advantage: “Because we invest in enterprise software, and, most typically, A, B, and C phase companies, we see what successful companies do right,” he said.
Much of SVP’s funding model relies on data captured from earlier investments and tried and true benchmarks, said Tseitlin. When it comes to making money, Tseitlin said that it’s important to scrutinize the efficiency of each and every function of the business. To successfully turn a profit, there’s one particular area of focus to laser in on: Sales.
“There are so many areas to inspect in a new business,” said Tseitlin. “How efficient is your ability to generate a new lead? What are your conversion rates?”
Tseitlin offered up the example of Scale VP portfolio company DocuSign, which went public earlier this year, as a company that was laser-focused on operating efficiently from its very beginnings.
“They were focused on growing their business the right way, very early on,” said Tseitlin. “They were phenomenal at it.”
Tseitlin says the key to DocuSign’s success lies in the company’s ability to effectively manage the money invested in it, and the components to this are simple: “It’s all about sales efficiency,” said Tseitlin. “For every dollar you spend, how many dollars does that bring in in new revenue?”
To bring in revenue, Tseitlin suggests that a business should focus on its customer acquisition costs, and the ability to maintain those same customers at every stage of the company. “This is a very important metric of a company’s health,” said Tseitlin.