20VC The Contentful Memo Point Nine's Christoph Janz on The Cold Email That Led to a Unicorn Investment, How To Approach Market Sizing and Timing & The Pros and Cons of PreEmptive Rounds, When To Do Them vs When Not To

Summary Notes


In a candid conversation with Harry Stebbings on the podcast "20 VC," Christoph Janz, co-founder and general partner at Point Nine Capital, delves into the investment journey of Contentful, a unicorn in the web content management space. Christoph recalls the initial cold email from Contentful's CEO, Sasha Konyetzka, which stood out due to its personal touch and clear value proposition. Despite the initial market size being underestimated, Christoph's bet on the growth of mobile and developer tools paid off, highlighting the importance of a great team coupled with market opportunity. He also discusses the challenges of pricing models, the impact of excessive funding on startup operations, and the psychological aspects of investment decision-making. Christoph emphasizes the significance of founders having deep insights and potential market growth over precise market size at the investment stage.

Summary Notes

Introduction to "The Memo" Episode

  • Harry Stebbings hosts a special episode of 20 VC called "The Memo."
  • "The Memo" focuses on unicorn companies and the investment decisions behind them.
  • Christoph Janz, a partner at .9, is the guest discussing his investment in Contentful.
  • .9 is a leading early-stage firm in Europe with a portfolio including Zendesk, Algolia, Revolute, Loom, and Next Health.
  • Christoph Janz is known for his SaaS expertise and writing.

You are listening to 20 VC with me, Harry Stebings, and it's time for a very special episode, our episode of the month called the Memo.

The quote explains the nature of the episode and introduces the series "The Memo" on Harry Stebbings' podcast.

Christoph Janz's Background

  • Christoph Janz is a general partner and co-founder at .9.
  • Prior to .9, he was an angel investor and co-founder of Pageflakes.
  • Janz led Pageflakes from inception to acquisition by Live Universe in 2008.
  • He is recognized for his thoughtful writing on SaaS.

Prior to cofounding, .9, Christophe was a prolific angel investor and also the cofounder at Pageflakes, leading the company from inception through to their acquisition by Live Universe in 2008.

The quote outlines Christoph Janz's experience before founding .9, highlighting his entrepreneurial and investment success.

Christoph Janz's Investment in Contentful

  • Christoph Janz led the investment in Contentful, a unicorn company.
  • Contentful was originally known as Storage Room.
  • Janz received a cold email from Sascha Konietzko, the co-founder and CEO of Contentful, in March 2012.

Today, I'm thrilled to be joined by a friend and fellow european counterpart in the form of Christoph Jan's. .9 and in this show, we'll be focusing on Christoph's investment in the unicorn that is contentful.

The quote sets the stage for the discussion about Christoph Janz's investment in Contentful.

The Significance of the Cold Email

  • Sascha Konietzko's cold email stood out among many received by Janz.
  • The email was personalized, referenced Janz's blog, and showed why there was a mutual fit.
  • It clearly articulated the product's value, showcased early customer logos for social proof, and had a clear call to action.
  • The email was concise, with an attached well-done deck.

It had a couple of interesting elements. If you try to analyze it like one, Sasha made it really clear why he was reaching out to me... He referenced my blog, that he liked some of the work that I've already been doing and that he hasn't found so many investors in Europe at that time who knew something about SaaS.

The quote illustrates the effectiveness of Sascha Konietzko's cold email approach, which successfully captured Christoph Janz's attention.

Initial Impressions and Investment Decision

  • Janz was excited from the first interaction with Sascha Konietzko.
  • The investment decision process was thorough and took about two to three months, which is much longer than the current pace.
  • The slow pace was due to the immature market in Europe at the time and lack of competition.

So I was excited from the first interaction. And I think with every interaction or everything that we learned, we got more and more interested. But in comparison to some of the investments that we've done in more recent times, it actually took a lot of time.

The quote reflects Janz's initial enthusiasm and the detailed due diligence process that followed before making the investment in Contentful.## Market Analysis and Evolution

  • Christoph Janz discusses the challenges of obtaining solid data on the web content management market size.
  • The market for content management as a whole was significant, but the subset for web content management was harder to quantify.
  • Mobile web content management was an even smaller and more difficult market to estimate.
  • Contentful initially focused on mobile web content management, which was estimated to be a $12 million addressable market.
  • The market was expected to grow five to ten times within five years, a prediction that greatly underestimated the actual growth.
  • The concept of "software eating the world" was believed in, but the rapid growth and market size were unexpected.
  • There were early indicators of the growth of mobile consumption, but the size of the market for developer tools was not clear.

"Yeah, so it was quite hard to get solid data on this. Like, we had numbers from a couple of different market research agencies or institutes, and they varied greatly."

This quote highlights the difficulty in obtaining reliable market size data, which varied significantly between sources.

"I think we and probably everyone just totally underestimated how big these markets would get, how fast they would grow."

Christoph Janz acknowledges the underestimation of market growth and size by investors and the industry.

Investment Risks and Developer Purchasing Power

  • In 2012, developers did not have the same purchasing power as they do today.
  • Investing in companies like Contentful and Algolia was seen as a risk due to the uncertain purchasing power of developers.
  • Early players like Parse and Heroku had some success selling software to developers, but their exits were not as large as expected.
  • The evolution of developer purchasing power and the growth of software has since benefited companies targeting developers.

"Yeah, I guess we were probably quite naive in that and got lucky that we invest in the company and in some other companies of that generation, like Algolia, for example."

Christoph Janz admits that the investment in companies focusing on developers was somewhat naive but ultimately fortunate due to the growth in the sector.

The Importance of Market in Investment Decisions

  • Christoph Janz believes that mediocre founders cannot build very large companies, as resilience and dedication are required.
  • A great team is considered more important than the market, but a great market opportunity can enhance the chances of success.
  • Market size is difficult to predict, and investors have learned to focus on founders with strong insights and solutions for specific audiences.
  • The potential for a startup to grow into a larger market is considered, but having a precise market size at the time of investment is not expected.

"I think to build a very, very large company, you probably have to be in that lucky or fortunate position as an investor to be in a company that combines a great team and a great market opportunity."

This quote emphasizes the need for both a great team and a market opportunity to build a successful company.

"What we're really focused on is finding founders that have a really strong insight, that have identified a pain, that have developed a great solution to that for a specific audience."

Christoph Janz details the focus on founders with a strong understanding of the problem and a compelling solution for their target audience.

Maintaining Objectivity in Evaluating Markets

  • It is crucial to avoid drawing conclusions from a small number of experiences, as the number of data points is limited and feedback cycles are long.
  • Failure of a company does not always clearly indicate whether it was due to market conditions, timing, execution, or a combination of factors.
  • Humility and openness to new opportunities are necessary, as some of the best investments may come from unfamiliar markets.

"It's a very, very good point, and I guess mostly a psychological one, right, where we have to keep telling ourselves we should not draw conclusions from a very small number of data points, which might be completely wrong, right?"

Christoph Janz discusses the psychological challenge of maintaining objectivity and not drawing premature conclusions from limited experiences.

"Some of the best investments that we've made at zero nine, or that I personally made as an angel investor, were probably in spaces where I didn't know too much about it."

He shares that some of the most successful investments were made in markets where he had little prior knowledge, suggesting that a fresh perspective can be beneficial.## Early Misconceptions

  • Initially, the speaker had a misunderstanding about a concept, which was not aligned with sophisticated perspectives.
  • Learning more can sometimes lead to misleading conclusions.

"I thought I would use it, but this was not the way more sophisticated people thought about it. So maybe that is a good reminder that now that we know a bit more, this can also be misleading."

The quote highlights the idea that increased knowledge can sometimes complicate or confuse one's understanding of a concept, especially when it differs from the understanding of more experienced individuals.

Pricing Mechanics in Business Models

  • Pricing is a critical aspect that can significantly impact a company's success.
  • The right pricing strategy can open up new customer acquisition channels and increase customer lifetime values.
  • A balance is needed to align pricing with value delivered without disincentivizing usage.
  • Timing, onboarding, implementation, and customer support are crucial in showing value before increasing costs due to higher usage.

"You have to make sure that you show the customer the value first, and then when they see the value, and then they might want to add more seats or maybe use the product more often so they generate more API calls and that will lead to higher costs."

This quote emphasizes the importance of demonstrating the value of a product or service to customers before implementing pricing mechanisms that could potentially increase their costs, ensuring they perceive a positive return on investment.

Role of Professional Services in Revenue

  • Professional services play varying roles in SMB SaaS versus enterprise sales.
  • Enterprise customers often expect professional services, which inexperienced founders may hesitate to charge for.
  • Charging for professional services can be justified if it contributes to customer success.
  • Revenue from professional services should be clearly presented to investors, differentiating between recurring and non-recurring revenue and their respective margins.

"Obviously it means that when you present this data to investors in your next round, you need to show it clearly have probably two different line items and it's clear that those different types of revenue have different margins."

The quote stresses the importance of transparently presenting different revenue streams to investors, highlighting the distinction between recurring and non-recurring revenue and their margins.

Founder Presentation of Revenue Numbers

  • There is often confusion and frustration with how founders present revenue numbers.
  • Founders sometimes misrepresent metrics such as ARR or MRR, which can lead to misunderstandings.
  • The SaaS industry has matured, and founders are generally more educated about revenue definitions.
  • Online resources have improved founder knowledge of SaaS metrics.

"It's like having a chart without access description or presenting numbers. Not really being clear about the definition?"

The quote illustrates the frustration with unclear or misleading presentations of financial metrics, emphasizing the need for precise definitions and clarity when discussing revenue numbers.

Evolution of Fundraising Rounds

  • There has been a shift in the labels and expectations of different fundraising rounds.
  • Seed rounds today involve larger sums than in the past.
  • Series A rounds traditionally require revenue, but some companies raise funds on the basis of a concept alone.
  • Founders' understanding of fundraising rounds has evolved.

"And today, as you know, like five hundred k is less than the average precede round, right? And seed rounds are often in the million, so the labels and the terminology really has shifted."

This quote reflects on the changing landscape of fundraising, where the amount of capital raised and the terminology for different rounds have evolved over time.

Preemptive Term Sheets and Founder Advice

  • The speaker generally does not favor preemptive investments but acknowledges exceptions.
  • Founders should be wary of getting dragged into premature investment conversations.
  • Running a controlled process and talking to multiple investors is usually more advantageous for founders.
  • The advice given to the 0.9 family founders is to control the timeline and maintain options.

"So I think the issue is that when a founder hears from an investor, we want to preempt your round. Well, what does that mean?"

This quote captures the confusion founders may experience when approached with preemptive investment offers, highlighting the importance of understanding the implications and managing the investment process effectively.

Concerns with Excessive Early Funding

  • There is concern about companies receiving large amounts of funding too early.
  • Excessive funding can lead to disproportionate scaling in areas like sales, marketing, and customer success.
  • The speaker mentions a specific example of a company with a high valuation and substantial funding relative to its monthly recurring revenue.

"Do you worry that actually founders are getting stuffed with so much cash so early?"

The quote expresses concern about the potential negative impact of startups receiving too much funding too early, which could lead to unsustainable growth and misallocation of resources.## Impact of Funding on Company Execution

  • Funding can positively or negatively impact a company based on several factors.
  • Premature hiring of salespeople without a proven sales motion is a common mistake.
  • Founders should raise money at high valuations but spend cautiously.
  • The goal is to remove cash as a constraint, focusing instead on hiring and onboarding effectively.
  • Mismanagement of funds can lead to premature scaling and unsustainable burn rates.
  • Avoiding a scenario where a company fails to hit milestones and faces high burn rates despite significant funding is crucial.

"I think having a lot of money can make a company better, but it can also make a company worse. Right?"

This quote emphasizes that while funding can provide opportunities for growth, it can also lead to detrimental decisions if not managed properly.

"It doesn't make sense to hire lots of salespeople if you haven't figured out the sales motion yet."

This quote highlights the folly of scaling up sales teams before having a successful and repeatable sales strategy in place.

"Raise a lot of money at a very high valuation, but don't use it, or at least don't spend it faster than you would if the money had been much harder to raise."

This quote advises founders to be conservative with their spending, even if they have raised a significant amount of capital.

"The goal of every investment, should be that the founders can operate the company without having to worry about cash being the constraint."

This quote suggests that ideally, investments should free founders from financial constraints, allowing them to focus on other aspects of business growth.

"What's obviously the bad scenario is it leads to premature scaling and building up of a huge burn rate."

This quote warns about the dangers of scaling too quickly and incurring high operating costs that can jeopardize the company's future.

Expectations and Ambitions in Venture Capital

  • Initial expectations for an investment's success may be modest and grow over time.
  • The term "unicorn" was not in common use, and billion-dollar valuations were not anticipated.
  • Venture funds may have different models and expectations based on their size and perspective.

"I think we didn't dream beyond an outcome of a couple of hundred million in exit valuation."

This quote reflects the modest expectations for investment returns at the time of the initial funding.

"We were not really expecting billion dollar outcomes."

This quote indicates that billion-dollar valuations were not a common goal or expectation in the early stages of venture capital investments.

"Our ambition started to get bigger over time, but we had a tiny fund."

This quote shows how ambitions can evolve as a venture capital firm grows and gains more experience.

Risks and Challenges in Startups

  • Competition and the ability to execute quickly are significant risks for startups.
  • The need for a market solution and the adoption of technology are uncertain factors.
  • Startups must consider the possibility of simpler solutions or reluctance from developers to adopt new platforms.

"I think one is that we could have been outrun by competitors."

This quote identifies competition as a potential risk that could lead to a startup's failure.

"There was also the possibility that maybe a plugin to WordPress is all that it takes, or that developers would rather want to build it themselves."

This quote discusses the risk that the market might prefer simpler or self-built solutions over a new startup's offering.

Unsung Heroes in Startup Success

  • Early team members in commercial roles can significantly impact marketing and sales.
  • Investors from larger funds may bring greater ambition and vision to a startup.
  • Strategic discussions and setting high targets are important for startup growth.

"Chris Shaken, who joined the company as really the first commercial person and I think he kind of, in the early days build up marketing to a certain extent also sales."

This quote highlights the crucial role of early team members in establishing vital business functions like marketing and sales.

"Roberto Bonanzinga, who at the time was with Baldaton leading the investment... his ambition was already bigger than mine."

This quote acknowledges the influence of investors with larger funds and more experience in driving greater ambitions for the startup.

"If we end up selling storage room for 100 million, I will consider it a big failure."

This quote exemplifies the high expectations set by some investors, which can challenge and inspire founders to aim for greater success.

Acknowledgments and Resources

  • Gratitude is expressed for the contributions to the European ecosystem.
  • Mention of resources such as blogs, data platforms, and banking services for startups.
  • Audience monetization tools like Linktree are highlighted for their utility in connecting with followers.

"Huge thanks to Christoph again today. He's done so much to the European ecosystem."

This quote is an expression of gratitude for the guest's contributions to the startup community.

"With Pitchbook you can track the activity of markets, firms and individual investors."

This quote introduces Pitchbook as a valuable resource for venture capital data and decision-making.

"Mercury is building full stack banking for startups."

This quote presents Mercury as a comprehensive banking solution tailored for startups' needs.

"Linktree is the tool for connecting followers to your entire online world, not just one feed."

This quote describes Linktree as a versatile tool for online audience engagement and monetization.

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