Tips From A Founder Who Acquired 10M Users in 9 Months, To Raise Funding You Need To Find A Way To At Least 10x - Tactician #0055

"10 million users in 9 months? That's either a really good app or a really good marketing campaign. Or maybe it's just cats. People love cats."

12/02/2024

Tips From A Founder Who Acquired 10M Users in 9 Months

Michael Houck, Founder at Houck's Newsletter, shares insights and lessons from the Grant Lee, co-founder of Gamma on achieving massive growth in “How Gamma Acquired 10 Million Users in 9 Months”

• Compete by Exploiting the Limitations of Your Competition’s Nature:

  • "For example, Microsoft PowerPoint has been adding features for 30 years. If you’re just trying to create a better version of a slide deck, you’re going to lose. Even if you are 10x better on one dimension, chances are you’re lacking in ten others than PowerPoint has covered. You just won’t get to true parity fast enough to capture their market. Instead, look for what limitations existing solutions have by nature of their design. What can they simply not do, due to how they're structured?"

• A Cashflow-Positive Mindset Leads to Critical Thinking:

  • "By running your startup with the stated goal of being cashflow positive, you force your team to take ownership of every dollar just a bit more and consider outside-the-box solutions earlier. It also can influence team members to be willing to go beyond their stated areas of ownership to get things done."

• Having Cash Allows for Experimentation:

  • "In a world with an emerging new class of startups, the Silicon Valley Small Business, thinking of investment capital specifically as a means to learn more about your users faster through experimentation is worth considering. The more you learn, the more you’ll be able to iterate to a better product that people will spontaneously share with friends."

• Communities Keep You Accountable:

  • "Having founders 1-2 steps ahead of you who’ve recently solved the same problems you’re solving now helps you move faster, and being around founders who are at the same stage you’re currently at creates an environment where you can ask any and all 'dumb' questions. Everyone’s going through the same set of challenges but with slight variations or in a different order. Additionally, Grant mentioned that communities help founders stay accountable to their goals."

• Hire and Fundraise by Building Relationships, Not Speed Dating:

  • "Grant’s strategy has always been to 'build relationships early and often' regardless of whether he’s looking to bring on more capital or not. This helps him build trust with investors and also gives him clarity on who to go talk to when he actually is looking to raise. He also uses this approach for hiring — specifically by always spending 5-10% of his time talking to potential candidates or experts in areas he may need to hire for in the future."

• Keep Issues Blameless, Never Make the Same Mistake Twice:

  • "A post-mortem is a process you run once an issue has been fixed to understand the root cause of it. Typically you’ll have a doc template the person leading the post-mort will fill out, identifying the cause. The port-mort gets shared with the team, often in a meeting where it is discussed. You want to go beyond fixing the issue, you want to understand it — this helps ensure you never have the same type of issue happen more than once. Most importantly, though, having this process be inherently blameless keeps trust high on your team. At a startup things are going to break no matter what and assigning blame to a specific member(s) of your team will only lead to others trusting them less and/or them second-guessing themselves."

• Team Continuity Matters:

  • "Grant started Gamma 3 years ago before the recent AI boom, and has iterated on the product multiple times up until Gamma took off in 2023 but he’s been able to retain key members of his team over time. Having that continuity is a competitive advantage. Every startup has a historical decision tree that has led them to where they are today. The more people who know that decision history, both on the technical side and business side, the less time you’ll waste chasing the wrong rabbit holes."

To Raise Funding You Need To Find A Way To At Least 10x

Jason M. Lemkin, SaaStr Founder, clarifies the expectations venture capitalists have regarding the return on investment from startups at different funding stages in “Dear SaaStr: How Big of a Return Are VCs Looking For in a Startup?”

• ROI Expectations for Angel and Pre-Seed Investments:

  • "For Angel, Pre-Seed: At least 50x, with a possible chance of more. The loss rate in general is so high here, the winners have to do 50x. And this is after dilution, so 100x from the valuation at initial investment."

• ROI Expectations from Seed to Series C:

  • "For Seed to Series C or so: At least 10x, with a possible chance of that same 50x-100x."

• Growth Stage Investment Returns:

  • “For Growth Stage: At least 3x, with a real chance at 10x if everything goes well."

  • At this stage, the expectation for ROI lowers further but still emphasizes the potential for substantial returns, reflecting the reduced risk compared to earlier stages.

• The Need for High-Performing Investments:

  • "To make up for the losers, the failures, and the half-successes …. the winners need to do 10x-15x, minimum. Often really more than that, 30x-100x to return the fund."

  • This point explains the necessity for having a few high-performing investments that can deliver outsized returns to compensate for the inevitable underperformers or total losses within a VC's portfolio.

• Investors Need to Believe You Can 10x:

  • "So if the VCs don’t 'see' the chance of 10x and more, they’ll pass on investing. No matter the other positive attributes."

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