Capital Efficiency is the New VC Filter for Startups

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Here’s what I have for you this week 👇

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• 🏆 Capital-efficient SaaS startups are becoming a winning bet for venture capitalists, offering reduced risk, greater resilience, and higher potential returns, with the ability to generate revenue with minimal capital investment.

• 💬 Five reasons why eliminating live chat support can improve customer service, reduce costs, and increase productivity.

• 🍟 Extra Fries: why you should be skeptical of press releases about AI and Chegg's shares drop over 40% after announcing that ChatGPT is hurting its growth

• 💸 +3 Funding Rounds

Capital-Efficient SaaS Startups: A Winning Bet for Venture Capitalists

• The SaaS industry has been experiencing immense growth, but the market has become increasingly crowded and the economic situation has become challenging.

• Investors are adopting strategic shifts and focusing on capital-efficient startups, particularly in the SaaS industry.

• Non-surprisingly, LPs benefit from reduced risk, greater resilience, and higher potential returns by making investments in funds that give capital-efficient companies priority.

• What are capital-efficient startups? these are companies that can generate revenue with minimal capital investment. They have lean business models, scalable products or services, and prudent cash management.

• The preference for capital-efficient SaaS startups can be explained by the fact that they are well-positioned to weather funding droughts and offer attractive returns to investors. They are built on strong fundamentals and are less reliant on external funding.

Visually — here are the differences 👇

• The standard pattern: companies raise capital to fuel growth and bank on hitting it big in the long run. (Examples: Datadog, Elastic, Medallia)

• Capital-Hungry: companies raise a lot of cash and burn through most of it while trying to achieve long-term growth. However, the ratio of capital raised to annual recurring revenue (ARR) is significantly higher than that of the standard pattern. (Examples: Slack, Crowdstrike, Anaplan)

• Capital-efficient: these companies have strong fundamentals and grow significantly faster in comparison to the capital they raise. (Example: Sendgrid)

A big thank you to Shin Kim for these beautiful graphs.

• If you are intrigued by this, earlier this year, I wrote about how Indian SaaS companies are 2x more capital efficient than their global peers — read the post here.

Five Reasons Why Companies Should Eliminate Live Chat Support

• Senja, a SaaS company that provides a testimonials service, has decided to switch from live customer support to a ticket-based system.

• As many companies seek to improve productivity and reduce expenses, reconsidering how you serve customers can unlock numerous opportunities for your company.

Reasons to turn off live chat support:

1. You want to create a culture of self-sufficiency: Are you tired of dealing with unnecessary customer tickets? Improve the user experience by creating better help center guides. This will allow customers to solve their own problems without intervention. The ultimate objective is to create a product that is so user-friendly that any customer can achieve success independently, while still feeling supported and confident.

2. You are experiencing issues with support quality: As your user base grows, it is likely that your support team will struggle to keep up with the volume of inquiries. This can lead to inconsistent support experiences, where some customers receive fast support while others are left hanging.

3. It sets the wrong expectation: a live chat widget can create false expectations of instant answers, leading to rude or demanding behavior from users.

4. There is too much noise: While most users have a clear question, some (~15%) want to chat or fail to articulate their issue concisely. These types of requests can slow down your team. To improve support quality, companies should help customers ask specific and clear questions.

5. It can harm your product: Answering support questions can take time away from improving your business and product. Opting to focus your energy on developing a better product can ultimately help you customers generate high-quality testimonials and grow the business. Choose wisely.

• 🤨 Why you should be skeptical of press releases about artificial intelligence. While there is real technological progress in the field, many are exploiting the hype and making claims that are often meaningless. (Read More)

• 📉 Online education company Chegg's shares dropped more than 40% after the company announced that ChatGPT was hurting its growth. The AI, developed by OpenAI, is Chegg's biggest competitor in the homework assistance and online tutoring market. (Read More)

• 🏠 A new report from Tech Equity Collaborative warns that landlord software is making life worse for renters and prospective homeowners. The report found that the influence of venture capital in the property technology industry is leading to exploitative and predatory forms of inclusion. (Read More)

• Pando | $30m: open-market freight management platform that digitises logistics operations (link)

• THB | $20m: data technology platform to enable data and evidence driven healthcare and deliver game changing customer experience and care (link)

• Kazam | $3.6m Series A: electric vehicle charging software (link)

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A big thank you to Stan for the support and feedback 💪