SaaS Investor Series: Crosslink Capital’s Phil Boyer Chats Enabling Early-Stage Startup Success

Phil Boyer, Crosslink Capital

Venture Capital (VC) investment in software as a service (SaaS) has seen a 5X increase over the last decade. AWS SaaS Factory invited Phil Boyer, Partner at Crosslink Capital, a leading early-stage venture capital firm that focuses on seed and series A investing, to discuss what he looks for when investing in early-stage SaaS companies. Boyer is a career technology investor, starting out covering public technology companies for RBC Capital Markets and Credit Suisse, before moving to early-stage investing over eight years ago where, as he says, “much of the fun, exciting innovation really happens.”

Driving Breakout Startup Success

Start with the founding team and the leadership at the top. “In the very early days, all you have is a team and a vision of the future,” observes Boyer, saying that strong leadership has consistently been a differentiator for breakout companies, especially having a strong visionary CEO who can attract a great team and get the entire company, investors, customers, and partners to rally around the vision and mission. As a CEO, this requires a certain self-awareness and foresight to identify the complimentary skills needed on the team to successfully execute on a strategy.

Bring a unique perspective to a viable market opportunity. “The most interesting companies, looking backwards, are always obvious, but in the very early days, they’re super hard to see,” he reflects. It’s important to have context into the market to really know what is viable yet groundbreaking and counter to the status quo to either create a new category or disrupt an existing category. Focusing on the idea generation story helps identify the special experiences that give the founding team a unique perspective into the future that will be difficult for others to replicate.

Develop a strategy to build business defensibility in the long-term. “Early-investors assess the team’s strategy to build a standalone multibillion-dollar franchise in the future, and defensibility is a big part of it.” There are many different ways to build defensibility over time. It may be adopting a product-led or open-source strategy that nurtures a community that is hard to replicate, building a network effect that makes the product or ecosystem more valuable over time, a distribution advantage with a unique channel strategy, or building a data moat around the business. Intellectual property (IP) is a more traditional mechanism of defensibility, but others usually catch up in the fullness of time.

Balance relentless focus and resiliency with adaptability. “While it may look seamless and easy from the outside, it’s never a straight line, even with the most successful companies.” It takes incredible resiliency and undeniable conviction into why this company needs to exist and can be a category-defining product to make it through those challenging times and continue the journey. But he’s quick to add that while keeping a relentless focus on the mission of the company is important, realizing when the company must change course and being able to pivot quickly are factors that distinguish companies and indicate that they’ll be able to sustain high growth through the lifecycle of the company.

Evolving as a SaaS Company

“As the company graduates each stage – the company, the team, the product, the go-to-market (GTM) strategy – must all continue to evolve. That’s where experience becomes important – being able to recruit for those specialists to place around the CEO in the core founding team to take the company to the next level.” At the seed stage, it’s mostly just a collection of hypotheses. As the startup inches towards raising series A funding, it’s about bringing the hypotheses to life: building a compelling product, figuring out the customer personas, and establishing a value proposition for those personas to the point where the customer becomes a champion and a reference for the company. As you transition from the series A stage to raising a series B, you are talking to a different type of investor who cares a lot more about the mechanics and the metrics of the business. This category of investor is more focused on a refined product-market fit, a scalable GTM strategy and a repeatable sales process that yields compounding growth for every ‘X’ million dollars invested. The cachet of the management team matters too – recruiting that killer VP of Sales or VP of Marketing who can see around the corners, know what the next stage looks like, and can help sustain the company’s growth.

Boyer points to Utah-based Crosslink Capital portfolio startup Weave, which started out with selling into the dental market with a SaaS solution aimed at improving communication between patients and their dental practices. Today, Weave is viewed as a category-defining product, but selling into dental as their first vertical wasn’t viewed as a big enough business opportunity by many early-stage investors. Nonetheless, Weave maintained their relentless focus on serving customers extremely well, bending over backwards to ensure strong product-market fit and very happy customers. This focus has enabled the company to grow tremendously fast within their first vertical and prove out the use-case, before bringing the solution to other verticals in the small and medium business (SMB) segment that have similar problems, effectively expanding their total addressable market (TAM).

How do early-stage investors measure SaaS success?

“Very early on, there aren’t a lot of metrics. It’s more about assessing the team, idea, and market opportunity. As the company evolves to reach subsequent growth milestones, metrics become increasingly important.” In the early stages, establishing a strong value proposition and demonstrating return on investment (ROI) with early customers matters most. Particularly for an enterprise software company, talking to customers about the ROI and understanding their prior pain points and reasons for buying the product is of paramount importance. At series B and beyond, there is more focus on the efficiency of selling the product and growing the business. While metrics such as annual recurring revenue (ARR) and ARR growth are important, it’s equally important to track sales efficiency at this growth stage. It’s not merely about keeping the customers, but being able to successfully land and expand. The ratio of customer lifetime value (LTV) to customer acquisition cost (CAC), and revenue retention are key health indicators of the efficiency of business growth. In terms of financial metrics, there are different efficiency indices such as capital efficiency, and gross margin that investors carefully consider as the startup grows – developing efficient delivery models that reduce overhead and drive higher margins. As Boyer puts it, “all revenue isn’t good revenue. As the business grows and product-market fit matures, these metrics serve as a health-check to continually assess and refine the business strategy.”

The role of AWS as a Strategic Partner

“Truly successful startups focus their investment in their own proprietary advantages as a company – the core product, go-to-market approach and distribution strategy.” Not having to think about building or managing underlying infrastructure components makes this a lot easier. But beyond just the infrastructure, the ability to tap into the best technical resources, as well as AWS customers, partners and programs, helps create bends in the growth curve for early-stage startups. As a channel partner, AWS affords a small early-stage startup that doesn’t have the same level of access to customers or salesforce a huge advantage and leg-up. He advises startups to consider the incredible set of resources and incentives that AWS has setup for startups through AWS Activate and many other startup-focused programs.

A great example is Armory, a series C-stage startup that Crosslink funded in the early days that offers a continuous delivery software platform built on top of an open-source project that was spun out of Netflix, called Spinnaker. Armory has invested in developing a deeper relationship with AWS: AWS SaaS Factory has advised Armory on bringing their latest SaaS offering to market and being well-positioned for scale, and numerous new customers have been on-boarded through the AWS Marketplace. Working in tandem with the AWS field and the AWS Partner Network on events and webinars and such has helped bring Armory more leads and more business, and having a partner like AWS has reinforced the startup’s thought leadership credibility.

Boyer is excited that it’s gotten much easier to get a startup off the ground today than it was before the cloud and all the associated tooling now available to early-stage companies. “As an early-stage investor, I love that because it allows some of the smartest people who perhaps otherwise wouldn’t have been founders, to have early access to resources that really shorten time to build and iterate on the product. This is hugely meaningful because reducing the development cycle enables startups to efficiently out-innovate competition and bring more great products to market, faster,” he signs off.

About AWS SaaS Factory

AWS SaaS Factory provides business and technical advisory to organizations at any stage of the software-as-a-service (SaaS) journey. Whether looking to build new products, migrate existing applications, or optimize SaaS solutions on AWS, the AWS SaaS Factory Program can help. Please reach out to your AWS account representative to inquire about engaging AWS SaaS Factory.

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