👋Hey Sahil here! Welcome to this bi-weekly venture curator newsletter. Each week, I tackle questions about building products, startups, growth, and venture capital! In today’s newsletter, we dive into -
Deep Dive: How to Handle the Exit Strategy Question in VC Meetings.
Quick Dive:
More startups are exiting at a loss than at any point since 2009.
Why LTV/CAC Isn't Great for New Startups (And What to Use Instead)?
Writing a Cold Email That Gets VC Funding - Advice from Leading VCs.
Major News: Perplexity Looking to Raise $500 Million, Former OpenAI CTO Seeks $100M for New AI Startup, India's Most Valuable Ed-tech Startup Worth "Zero" Now & More.
Best Tweet Of This Week On Startups, VC & AI.
20+ VC Jobs & Internships: From Scout to Partner.
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VENTURE CURATORS’ FINDING
My favourite finds of the week.
Investors look for market opportunity and not size: How to pitch? (Read)
How to Find the Right Customers for Your MVP? (Read)
Peter Thiel on the last mover advantage: PayPal, Twitter, and LinkedIn won by being valuable in the future, not the past. (Read)
Understanding LLMs from scratch using middle school math. (Read)
Why Do Investors Care About Team Slide Position In Your Deck? (Read)
How to set aside space in your Series A for your customers and evangelists (Link)
a16z Framework for Evaluating Startup User Growth Quality. (Read)
How The Best LPs Evaluate Emerging VC Fund Managers. (Read)
TODAY’S DEEP DIVE
How to Handle the Exit Strategy Question in VC Meetings
A lot of pitch decks I review have a slide that really shouldn’t be there: the exit strategy slide.
Your slide deck should only have an exit strategy slide if you’re running a very late-stage company that’s about to IPO, and even then, you probably wouldn’t have it as a slide on a funding deck but as a whole, separate IPO plan. As an early-stage startup, it’s downright nonsensical, and it shouldn’t be part of your pitch deck at all.
To a lot of founders, an exit — or a “liquidity event,” as the legal buffs tend to refer to it — is the big pot of gold at the end of a very long and arduous journey. The same goes for investors; when there’s an acquisition or a public listing, that’s how everyone gets paid.
Moreover, some of the old pitch deck templates that are floating around on the internet have an exit strategy slide on them, so it makes sense that people are still making this mistake.
Two things are true:
One is that the best companies are bought, not sold. It’s unlikely that you know in advance exactly who will be interested in buying your company.
Second, your job as a founder is to build the best company you possibly can.
Making decisions early on to help shape the company into something someone might want to buy simply doesn’t make sense; it makes you blind to some of the other options and opportunities that might present themselves.
Unless you’ve had a ton of exits with previous companies, the truth is that you probably have a very limited view of how this process works and how liquidity events come to pass. Do you know who has been through quite a few of those, though? Experienced investors.
Using your precious pitching time to explain to your investors something in which they have more expertise and better market insight than you do is a waste of your time.
A better place to focus your attention is your competition slide. If you do have thoughts about who a potential acquirer might be, it might make sense to include them here. Is there an incumbent or a large competitor who can’t beat you, so they might have to invite you to join them?
The other thing to keep in mind is that if you try to predict how an exit is going to play out, you’re extremely likely to be wrong. Hilariously, I’ve seen startups try to predict who might buy them, and they ended up being right but for completely wrong reasons, which made the startups make some daft mistakes in the early product decisions they made.
If you do include an exit slide, the best-case scenario is that you’ll have thought of all the same things as your investors have. In that case — pat on the back, well done. Except you haven’t moved the conversation forward. Worst of all, this rarely happens.
Instead, what I see from time to time are startups that introduce exit scenarios that don’t make sense to your would-be investor. They’ll either challenge you on them (which is a waste of precious time) or they’ll make a mental note that you don’t know your market and be less likely to invest as a result.
In a nutshell, the truth is that you just don’t know. At the earliest stages of a company, your exit is likely to be a decade away. In that decade, you’ll learn more about the competitive landscape, your customers and the market dynamics than you’ll ever imagine today.
The final point worth considering is the way that venture capital works in the first place. Especially with inexperienced founders, VCs often lose money when a company exits too early. Selling for $10 million might sound awesome to a founder, but a VC is looking for a startup that might potentially return an entire fund. If they invest $5 million for 20% of the company, they’ll want the option to get a $50 million return. ,
If they still own 20% of the company at that point (unlikely, given dilution and later rounds, but let’s keep it simple), means that the company needs to sell for at least $250 million to turn that $5 million investment into a fund-returning exit.
Put simply, investors don’t want to hear that you’re thinking about exits at the earliest stages of your startup — it suggests that you might be willing to accept a small return or exit early. Put it out of your mind; it’s not part of the conversation at this stage.
Removing the exit slide from your deck means that at least you’re not the person who brings it up. But what do you do when an investor asks?
There’s only one correct answer: “I am building this company to eventually IPO. If reasonable acquisition offers come in, I’ll take them to my board for discussion.”
That does two things:
One, you show that you understand that this isn’t just about your bank balance, but that there are a lot of stakeholders involved with an exit. Two, it shows that you’re open to having a dialogue with your investors about a potential liquidity event, so they can at least speak their piece when the time comes.
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QUICK DIVES
1. More startups are exiting at a loss than at any point since 2009.
Venture investors are struggling to make money from their startup investments, mainly because it's hard to take companies public right now.
Key Statistics:
caption...
Since 2022, 70% of VC-backed companies sold for less than what investors put in
For comparison, this number was only 58% during 2009-2014 (after the financial crisis)
This is the worst performance since the 2007-09 financial crisis
How Different Investment Stages Perform:
Early-Stage Investments (Normal Pattern):
Most VCs expect many early failures
Andreessen Horowitz's typical results:
25% of investments go to zero
Another 25% lose money
Only 10% make 10x or more return
Fred Wilson's (Union Square Ventures) rule:
1/3 are good investments
1/3 are disappointing but not total losses
1/3 are complete losses
Later-Stage Problem:
Even mature companies (Series D and beyond) are struggling
Most exits since 2022 have resulted in losses
This is unusual because later-stage companies are supposed to be safer bets
Possible Good News:
Federal Reserve has cut interest rates
These events might help more companies go public again
VCs are dealing with one of the toughest markets in 15 years, affecting both early and late-stage investments. However, recent developments suggest the situation might improve soon.
2. Why LTV/CAC Isn't Great for New Startups (And What to Use Instead)?
Jeff Chang shared an interesting article where he talks about why LTV/CAC is not a good metric for startups. I found it very interesting, so I'm sharing a summary and my thoughts on this.
LTV/CAC (Lifetime Value divided by Customer Acquisition Cost) is a popular way to measure if your advertising money is well spent.
“LTV/CAC, or Customer Lifetime Value to Customer Acquisition Cost, is a metric that measures how effective a business's marketing efforts are and how profitable it will be in the long term.
It's calculated by dividing the customer lifetime value (LTV) by the customer acquisition cost (CAC).”
While big companies use it successfully, it's not very helpful for startups. Here's why:
Main Problems with LTV/CAC for Startups:
Problem 1
Startup Survival Reality Most companies assume customers will stick around for 3-10 years when calculating LTV. But here's the truth: many startups don't even last that long. When your startup might not survive for several years, those long-term customer value calculations become meaningless.
Problem 2:
Customer Acquisition Changes Over Time
Early success can be misleading
Example: You might spend $1 to make $3 with your first ads
But when you try to scale up (like spending $1 million), the profits don't scale the same way
Why? Because:
Early customers are usually easier to get
Ad platforms find cheaper customers first
Target audiences get saturated
Problem 3:
The Data Problem New startups face a critical issue: they simply don't have enough data. Without years of customer history, it's impossible to make accurate predictions about:
How long customers will stay
How much they'll spend over time
Whether current customers behave like future ones
How product changes affect customer behaviour
Problem 4:
Resource Drain Getting accurate LTV/CAC numbers isn't simple. It requires:
Hiring data analysts or scientists
Breaking down different customer types
Creating complex prediction models
Constant updates and monitoring
A Better Solution: Focus on the Payback Period
What is the Payback Period? - It's simply how quickly you get back the money you spent on ads through revenue. This works better for startups because it's more immediate and practical.
How to Use Payback Period:
Good Target: Get your money back in less than 6 months
Best Case: Make back your ad money immediately or very quickly
Simple Way to Judge Success:
Good Example: Spend $1,000 on ads → Make $1,000 in the first month
Bad Example: Spend $1,000 on ads → Make $500 first month, $300 second month, etc.
Rule of Thumb: If it's not clearly profitable right away, it might not be worth your time
Don't get caught up in complex metrics just because big companies use them. For startups, the rule is simple: if your ads aren't clearly making money quickly (ideally within 6 months or less), focus your energy elsewhere. You want advertising that pays for itself fast, not promises of long-term returns that might never materialize.
3. Writing a Cold Email That Gets VC Funding - Advice from Leading VCs.
Recently, Brett Adcock, the founder of Figure Robot, shared a tweet in which he listed several reasons why he believes cold emails work better than referrals.
Outbound cold email scales several orders of magnitude better than referrals - you can find 99.9% of anybody’s email. Raising capital is a shots-on-goal game; you want to maximize top-of-funnel pitches. Optimizing your fundraising for referrals will put you at a local maximum.
It’s a challenge finding somebody who will stick their neck out to refer you. People rarely want to use their political capital referring you to a “highly important person” in their network, therefore at best, you’re left with a lousy double opt-in email.
Although I completely agree with these points, many founders struggle with writing cold emails to investors. Some founders even question whether investors open cold emails. Here's what investors said:
Keith Rabois prefers a deck, and he reads most of them.
Aileen Lee or her partners read every email pitch that comes into Cowboy Ventures.
David Sacks of Craft prefers a short email pitch that summarizes the opportunity.
Satya Patel of Homebrew reads everything sent to him
Jason (Founder of SaaStrfund) said - “I do get behind on email, but I love an amazing cold email and have funded maybe ~50% of my investments from them. I like an email pitch that is so amazing that I’d fund it just based on the email alone. “
So yes, is a perfect warm intro better? Yes. But even the top, most famous Seed VCs are hunting. Hunting unicorns and decacorns. And they can’t wait for them all to come from their networks.
Here’s the email from two startups to which Jason gave million-dollar funding…
So put together the very, very best cold email you can. Make it awesome in every way. And send it to your top VCs. At least seed and probably Series A VCs, too.\
They may not respond. But if it’s awesome, including the title, I bet they open it. And if it’s super awesome, you have a better chance than you might think of getting a meeting.
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THIS WEEK’S NEWS RECAP
Major News In VC, Startup Funding & Tech
Perplexity Looking to Raise $500 Million at an $8B valuation. (Read Here)
Former OpenAI CTO Raising Over $100 Million For New AI Startup. (Read Here)
Byju’s, once India’s most valuable startup, is now effectively worth "zero," after raising $5 Billion. (Read Here)
Microsoft and OpenAI renegotiate multi-billion dollar partnership. (Read Here)
Amazon AWS CEO: Quit if you don't want to return to office. (Read Here)
Acrew Capital, a San Francisco-based VC firm, has raised $700M to invest in data, security, healthcare, and fintech companies. (Read Here)
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