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Comment by berkay | Hacker News Reader

Agreed. I was more commenting on the more recent trend of "risk averse VC investment". As the OP states at $1.5 ARR, they would be profitable. It feels like VC investment in B2B space has become highly risk averse, only funding expansions of proven business models (we'll give you money if you can prove that you don't need it). This is a fine investment model but not sure it qualifies as "venture" investment. Can you really expect 10x returns if you're also looking for essentially proven, almost profitable businesses?

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To a degree I think in B2B you have every right to be quite a bit more risk averse as an investor, and demand to see a solid revenue stream coming in. In B2C you can bet on the idea of "explosive" growth, but that's much less likely in B2B. The flip side of that of course is that you should be seeing a lot more revenue per customer in B2B, but the quantity of customers isn't ever going to hockey stick in the same way you might hope for in the number of users in a B2C product.

I think SaaS companies are massively under-valued because most investors still do not understand how powerful a low churn recurring revenue stream is for a) predictable sales process/outcomes b) self-funding growth c) ability to take risk on new products because you can test and sell to existing customers.

I think there is a very good chance that VCs will miss HUNDREDS of $100M+ SaaS opportunities due to this risk aversion over the next 1-7 years. If I were to start a fund I would focus 100% on this asymmetry.

"because most investors still do not understand how powerful a low churn recurring revenue stream is"

Isn't this a problem then with educated them and selling them? If it fits with the rest of your strategy maybe you could do something in this area. [1]

"If I were to start a fund I would focus 100% on this asymmetry."

Are you sure that it is a lack of knowledge and understanding or there is some other reason that makes what they do the low hanging fruit?

Along the lines of [1] why don't you package and present the data and charge for it to make this case then?

I've seen this happen in other businesses (real estate investment) but that was some time ago and only with certain types of properties when it was done.

[1] Sorry to be so quick to give you something else to do. But maybe there is opportunity here that would justify the effort.

Too much focus on revenue and not customers can lead to missing out on great companies. For example, NetSuite was charging barely $20/mo when it launched. Today they don't take customers for less than five figures. A similar story exists for salesforce. In b2b it's common to start out downstream where you pick up smaller customers(and more of them) and over time to go upstream(so you are doing million dollar deals).

The heart of any b2b business is repeatable business. The problem is that the higher your pricing point, the fewer customers you will have. This makes it harder to know if you have a repeatable sales process. So given an option, in the early days I'd rather sign up 100 customers paying $1000/yr than 1 customer paying $100,0000/yr.

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