SJ: We focus on companies between $500K - $5M ARR, which we we think will get to $100M ARR within 4-5 years. We partner with our portfolio companies on go-to-market and team building.
NH: How many investments does Emergence Capital make per year?
SJ: We make about 5-6 investments a year, which allows us time to be a value-added partner. Out of our new $250M fund, we expect to make a total of 20 investments.
We have quite a ways to go since we've only done 3 investments in this fund.
NH: What fundraising advice do you have for earlier stage SaaS companies?
SJ: Focus on stage-specific firms. A few exclusively focused on SaaS include Cervin, Illuminate and Rincon. To start, you may also want to draw upon friends and family. If you're just starting out, get a Minimum Viable Product created and get a couple of paying customers. Investors almost expect that, because it's so easy to do.
NH: What mistakes do SaaS companies make in raising VC funds?
SJ: Don't focus too much on the valuation for the first round of funding. If you raise $1M, it's unlikely to be the last capital you put into the business. If you're successful, you'll need more capital, and if you're unsuccessful you'll need more capital. You have to consider the challenges of getting a follow-on round.
NH: What about raising seed capital from a later-stage VC?
SJ: I highly recommend that you don't take money from a later stage VC at a seed round. If they don't follow on, it sends a bad signal. We see it all the time -- where a company with VCs provided seed capital, but choose not to lead the later round. There's more than enough early stage money out there. And the early stage guys will be more focused and give the necessary support. In the rare case the later stage firm wants to lead your next round they likely will want an insider's discount.
NH: How many firms should a company approach?
SJ: My advice is, be focused. People talk. If word gets out that you've been fundraising for awhile, you might appear stale. Also keep in mind that when you have a meeting, you probably only have one shot. Only a small percentage of firms will get a second look.