Capital Chronicles #7

Hello there! Welcome to Capital Chronicles, saving you hours every week with ~2-3 minute summarised insights from the best venture builders, investors and capital allocators out there. This week: 5 CFO learnings from scaling $10 to 100m+ in ARR with OpenView, the Rule of X with Bessemer Venture Partners and OnlyCFO, a liquidation survival guide from Scale Venture Partners and Greylock’s Castles in the Cloud.

As subscriber #TBD, each web link below takes you to:

• A link to the original article (read time: varies)

• Summary / insights / implications per article (read time: 2-3 minutes)

Now, read on for the latest…

🛠️ On venture building…

Five CFO learnings from scaling $10m to $100m in Annual Recurring Revenue (ARR). Mark Khavkin, former CFO of Pantheon, shares five key learnings with OpenView from his experience scaling the company from $10M to over $100M in ARR.

• Why you should read it: there is plenty of content out there on scaling product and go-to-market, but materially less so for finance despite its criticality as a business function. Mark provides a combination of best practice design principles and tactical advice for ensuring the finance function methodically scales and works in harmony with your product and go-to-market teams as a company experiences hypergrowth.

🧭 On venture investing…

The Rule of X, a complication by Bessemer Venture Partners and OnlyCFO. Based on the traditional Rule of 40, the Rule of X gives more weight to revenue growth than free cash flow margin, because growth has a compounding effect on value, while margin has a linear one.

• Why you should read it: arguably the Rule of X is a smarter way to measure the performance of VC-backed companies in the growth phase (i.e. $10-20m+ ARR). BVP defines the rule and demonstrates a 1.5x stronger correlation with the forward revenue multiples of the BVP Cloud Index, than the Rule of 40. OnlyCFO takes this analysis one step further and identifies three additional factors to consider alongside the Rule of X: (1) growth endurance; (2) quality of growth; (3) dilution from stock-based compensation.

📖 Learning resource…

A "Liquidation Survival Guide and Model" series by Noah Gross of Scale Venture Partners, providing a comprehensive framework for navigating the complexities of liquidation.

• Why you should read it: one critical skill that has come back into vogue recently (for obvious reasons) is performing a liquidation preference analysis. Noah provides a comprehensive guide for entrepreneurs, venture capitalists, and anyone entangled in the nitty gritty details of modeling these scenarios in complex situations. You get a downloadable Excel template alongside a walkthrough multiple different liquidation preference scenarios, the logic behind them, and the actual calculations that need to be done.

📊 Market insight…

The "Castles in the Cloud" project by Greylock. An interactive initiative designed to map the cloud computing ecosystem, highlighting opportunities for startups to compete against major cloud providers like AWS, Google Cloud, and Microsoft Azure.

• Why you should read it: The project categorizes 611 cloud services, identifies 213 emerging startups, and tracked $177b of VC funding (2019-22) to provide a comprehensive view of the cloud landscape. A super handy interactive resource mapping the Big 3 cloud company services and startups across markets and submarkets to identify the white space opportunities. Bonus: check out Greylock’s Power Dynamics in the AI Cloud Era for a contemporary (and complimentary) point of view on the AI-enabled cloud market.

🎲Lucky dip essential reads…

• 16 Different Network Effects (and counting)

• Ten lessons from a decade of vertical software investing

• Why Did Your Sales Team Miss Plan? The devil is in the QoS details.

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Have a great week!

Josh