Often when I meet new SaaS startups they tell me proudly that they have grown their user base without “spending a dime on marketing”. While that is a great accomplishment and a testament to the quality of the product (product = marketing for great web services), it does lead me to ask why! Did the entrepreneurs not want to grow faster? Do they not want to own the market?
Fast growth and market leadership are key criteria for any potential investor, especially a VC. And from my perspective as an investor you cannot optimize for growth and scale without investing in customer acquisition. As soon as you have a reliable churn number (so you know how long a subscriber will stay), you should start investing heavily in customer acquisition.
With known lifetime revenue, why would you not invest in growth? Say, a user generates $200 in lifetime revenue and costs you $ 90 to acquire. Would you not want as many of these profitable users as possible? Even if that meant increasing your burn and raising sooner?
This brings up a related thought: often entrepreneurs talk about one round of financing getting them to cashflow break even. Again, I ask why you would want that? If your business is profitable then it is not growing as fast as it could be. It is far more important to me anyway that per user economics are profitable than that the business as a whole be profitable.
Also, bear in mind that valuation is heavily influenced by the pace and scale of your revenue growth. So, if you want to raise $ or sell your company, your value will be higher if you are spending on acquisition in order to generate more revenue growth.
So, if you want to approach VCs, by definition you should be going after a big opportunity and market leadership. If that is indeed your ambition, then please invest as much as you can in growth *before* approaching said VCs. It will give you valuable data on customer acquisition cost (a key part of the investors’ decision) and will give you more of that ever elusive traction that all VCs seek!