Christian Genco


Tim Burgess

Venture backed companies have to scale and grow aggressively. They gamble that they can win enough market share and get to sufficient volume that economies of scale will work in their favour. In my experience this means: They can lose money on acquisition at first (so they might offer really low initial fees or great signup incentives). This is scary for a bootstrapped competitor to watch. But at some point the VC company has to switch to making money off customers. Like they have to demonstrate to their investors that they can attract and retain valuable customers. So they will do things to improve profitability like raise prices by a lot. Or drop features. Or save costs by cutting the quality of support. And when those changes come, plenty of their customers will be looking to switch. Also because they spend on acquisition and they have all that funding they will do things bootstrapped companies won't do. Like advertise at the Superbowl or on billboards, etc. This brings awareness into your market. Sure, much of that awareness will go to them. But there will also be lots of people who search for things like "alternatives to $VCbackedcompany". So just by existing in the same market you will get some extra attention and interest because of how much they spend on marketing. VC don't care if some (or even many) customers are a bit unhappy. They will accept churn, might even encourage it in certain contexts. It's all about getting to an IPO or huge exit. All these bits that the VC don't think are worthwhile can be lucrative for you. VC expect their companies to pivot. They expect them to make hard decisions and run lots of experiments. These companies will change direction a lot as they search for profitable customer segments. So they might target SMB but then realise they can't make the numbers work and then they will drop them and go after enterprise. This creates opportunities for other companies - the VC backed company has created a bunch of SMB customers who have grown used to a product that doesn't want them anymore. They have to ignore lots of market segments. High touch customers for example. Those are hard to scale. Customers who might not grow or customer segments who sit outside the norm. They will try to be all things to all people and their feature set might be too broad. Or too overwhelming. Or too shallow for particular segments. These are all opportunities where you can be more compelling for particular niches But having said all this it's super hard to hold your nerve when they have more money, more prestigious clients, more employees, etc. So maintaining your focus and grinding away and not worrying too much about what they do is probably the single most important thing you can do.

Frans Vanhaelewijck VC firms are not very good at predicting which of the companies they invest in will fail and which will survive. The statistics are clear, 9 out of 10 selections they make end up as failures. So, VC firms aim to diversify their investments and find the company in the portfolio that will be hugely successful. The sooner they find out who is the winner and who are the losers, the better. Because that means they no longer need to invest in the losers and help the winner with extra funding for the next investment round. Therefore, they push all of the companies forward as fast as possible to see what happens: is there any traction or not? This means that if a company accepts VC funding, they are forced to spend the money quickly on hiring, marketing, and sales, even if the product is not ready. So you can spread some FUD (fear, uncertainty, and doubt) when your prospect is comparing you with a VC-backed company. Here is my recent blog post on this very topic.

Minou PLG and freemium. Have a much lower CAC and a much better product.

Alex Thinath +1 to Tim's comments, having been on both sides of the table and being in board meetings with some of the "best" VCs getting their steer. Three actionable pieces of advice in my opinion: Don't try to compete on paid acquisition. Especially if you're direct competitors and they have $20m+ raised. They are spending $2 to acquire $1 in customer revenue Pick one vertical or niche within your customer base and serve that better than they do. Expand to the next once you're winning head-to-head with that VC backed company Growing +40% yearly is a win for you, but a "were fucked" scenario for a VC-backed company. There could be niches with long sales cycles, super high fragmentation (like SMBs), or just more capital intensive that are inherently tougher to break that "sound barrier" of growth required for a VC win. Try to go after those