In preparation for NetSuite’s upcoming two-part webinar series on the venture capital market, we sat down with Sean Fanning, corporate development manager at OpenView Partners, to discuss some of the topics we will cover in the first installment, The New Venture Capital Mantra. Fanning has an extensive background supporting corporate development for OpenView, advising on and executing M&A and capital raise transactions, supporting portfolio exit planning activities, and communicating trends across M&A, PE and public markets. Read our interview with Fanning below, and don’t miss the webinar on July 16th to hear more about the trends and strategies VC-backed companies need to be aware of.
Q: Please tell us about your investment thesis at OpenView.
A: OpenView is differentiated on three key criteria: sector, stage, and pace. OpenView invests exclusively in business (enterprise) software companies that have entered the expansion stage, and we’ll only execute five investments per year on average. We’re thought leaders around the concept of product-led growth (PLG) and invest behind this thesis. PLG businesses are those companies whose product acts as the primary driver of customer acquisition, retention, and expansion. (Think Datadog, Calendly or Expensify.) The virality, delightful user experience, and ease-of-use of these products encourages user adoption and enables these businesses to be very capital efficient at high growth rates. We believe businesses with PLG strategies will feature prominently among the top performers in the software landscape for decades to come and continue to invest behind this thesis.
Q: What do you consider the “Expansion Stage,” and how does OpenView engage to help these companies?
A: A company in the Expansion Stage is experiencing rapid revenue growth (triple digits), is highly capital efficient, and has achieved product-market fit (a repeatable value proposition to approach the market with). At this point of inflection, companies are still scaling teams and internal processes. OpenView’s Expansion Platform is a full-time, in-house team of subject matter experts in everything from talent and recruiting, advisory and customer relationships, go-to-market (top of the funnel optimization, SDR team structure, product engagement analytics, pricing and packaging, customer success and retention, and much more) as well as corporate development. We engage with each of our portfolio companies post-investment to help them put their venture dollars to work with the highest impact and pour “fuel on the fire,” so to speak.
Q: Entrepreneurs often struggle with the pros and cons of taking venture capital versus bootstrapping. When is the right time for an entrepreneur to consider raising outside capital?
A: This is an intensely personal decision, but said simply, whether an entrepreneur is looking to maximize the impact of their company’s mission or to maximize value for their shareholders (themselves, if bootstrapped), they are probably looking to build a large, enduring enterprise. The question any entrepreneur has to answer to decide if it is time to raise outside capital is, “Can I do this alone, or will the capital, expertise, and network of a venture firm help me get there faster and with greater certainty?”
Q: If an entrepreneur has multiple offers on the table from various VC firms, how should they weigh which offer is best for their business?
A: We’re super data-driven folks at OpenView, so it probably comes as no surprise that my colleague Mackey Craven and I recently published a five step framework to help guide entrepreneurs facing this fortunate – albeit difficult – decision!
Only two things matter to an entrepreneur when they receive a term sheet: what it says (their implied, fully diluted, post-money ownership) and who wrote it (the investor). What makes choosing between multiple term sheets challenging is not identifying which deal is better for the company or which partner an entrepreneur prefers, but that they come as a set and often don’t perfectly align. While it’s an easy decision if the preferred partner also has the most attractive offer, this is often not the case and the best deal on paper isn’t from your preferred partner.
The full details are in our blog, but we recommend that entrepreneurs, who tend to be as data-driven as us, determine how much more valuable of a company they could build by working with their preferred partner (the “who wrote it” piece) and the capital they provide if that partner happens to leave them with less ownership (a worse deal). When an entrepreneur finally exits their company after years of partnership with a venture firm, a 10% slice of a $1B pie is better than a 20% slice of a $100M pie.
Does your company plan on acquiring new funding? Only July 16th, NetSuite's head of venture capital, Reynolds Morgan, sits down with Fanning to discuss the philosophy and metrics your business should heed to remain well positioned in this new environment and what it takes to raise your next round of capital at each stage. Key takeaways for audience members include how to: balance efficiency and burn, properly position key value driving metrics, demonstrate success through qualitative skills, and leverage benchmarks to test performance and goals.
If you’re interested in learning more, please click here to register for our webinar, The New Venture Capital Mantra, on July 16th from 11 - 12 p.m. PT.