Scott Stouffer on Fundraising in a Down Market
In this episode, our host Joe Michalowski welcomes Scott Stouffer, CEO and founder of scaleMatters. They discuss fundraising during a recession and why people are hesitant to invest in new companies. Scott and our host Joe Michalowski discuss what makes a company investible and what companies can do to become more efficient with their go-to-market motions.
Investors provide vital funds so that companies can achieve their next level of growth, whether it’s making the next important version of a product or a key hire that will unlock the company’s potential even further.
But in a time of economic uncertainty, where we see layoffs, budget freezes, and falling tech industry stock prices, venture capital investors are putting the brakes on aggressive funding for early-stage growth companies. According to a Crunchbase report, in the last quarter of 2022, investments in startup companies in North America fell by 63% compared to the same period a year earlier.
In this episode of The Role Forward, Scott Stouffer, the CEO and founder of scaleMatters, gets into fundraising during a recession and why people are hesitant to invest in new companies. Scott and our host Joe Michalowski discuss what makes a company investible and what companies can do to become more efficient with their go-to-market motions.
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Scott Stouffer is a serial tech entrepreneur, 5x CEO, and 3x founder. He took his first company (Visual Networks) public in 2001 and grew it to a peak market cap of $3 billion. Since 2011, Scott has focused on early and growth-stage tech companies, building quantitative data and process models that uncover waste, inefficiency, and friction in the customer acquisition function.
- Due to the economic crisis and the prevailing uncertainty, investors are less inclined to invest in companies. Investors are more invested in post-Series A companies, as well as the industry space and what impact companies hope to make with the funding.
- There's heightened concern around capital efficiency. Investors want to see evidence that they’re investing in companies that are operationally efficient versus terribly cash-consumptive or just beginning to invest in tools and software for the business.
- Companies need to be more data-driven to become more efficient at go-to-market motions. What differentiates companies that are effective from those that aren’t is the drive to model everything, and embrace scenario planning as a way to test hypotheses and lean into more strategic insights.
Episode Highlights from Scott Stouffer
01:05 — scaleMatters’s Mission and How It Works
“scaleMatters is my fifth company that I either started but definitely ran as the CEO. Electrical engineering background, MBA — most of my career initially was in product management and product-oriented strategy. And since I started my first company quite a while ago, my energy has predominantly been around go-to-market stuff, really focusing on customer acquisition. What scaleMatters does is we help early- and growth-stage B2B companies get more efficient at customer acquisition. We are a data analytics company; we are a combination of software and services, and we work very closely with our customers. And our customers range from two million in annual revenue to 300 or 400 million. And invariably, they’re all tech companies; most of them are SaaS companies, and they have a need to be more efficient, more effective with their sales and marketing spend, and we effectively instrument their environment, build a bunch of models with them. Then, our platform surfaces data that identifies where there’s friction, where there are inefficiencies, and the outcome that we deliver is they reduce their CAC — however you want to measure efficiency. Most of our customers tend to use CAC or CAC payback; we’re able to help them reduce it by 20% on the low end. We’ve had some outliers where we’ve reduced it by 70% or more. So that’s what we’re trying to do — help companies grow a little faster on the scarce and precious capital they have.”
13:43 — What Makes a Company Investible?
“The most investable companies in markets are those that have some immunity from the downturn. So, for example, one thing that the market doesn’t affect is regulatory compliance. If you’re in a business that you have to comply with regulations, then you need tools to help you do that. Contrast that with where scaleMatters is — selling software to sales and marketing teams. Well, all tech sales and marketing teams are being squeezed right now, so you wouldn’t normally think that scaleMatters is in a great position from investability just because of the market that we go after. Thank God what we’re helping them with is to be more efficient. So, I think the market matters now potentially more than it has in a while because nobody really wants to invest in companies that the market is seized up because even if they’ve got a great product, if you’re going to have to sit there and get 50% of the sales they otherwise could get; it’s just going to be a cash-burner.”
25:45 —Early-Stage Companies Can Attract Investors
“If you think about what’s the very first thing that companies have to do, they have to achieve some product/market fit before they ever think about scaling and all that stuff. I would say you could put rigor around achieving product/market fit by leveraging some of the conversation tools. If you’re a PLG motion, maybe not — because you’re not actually interacting with people. But, let’s say, you have a sales motion where you’re actually talking to people, and still —everybody, for the most part, does stuff via Zoom today — you can set up these tools in a way that gives you some pretty statistically significant indicators of how to position, et cetera. So, it basically speeds the time to achieve product/market fit as opposed to what has happened so often — what I call ‘Last-Call Syndrome.’ You got off the last call, the person said no, and you go back to product management and said, ‘Oh, we’ll never be able to sell any of this unless this product does this.’ Well, that’s not representative of the market; that’s just the loss you just incurred.”
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