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He said it was ironic that at the very moment he decided to grow. Because he had been in covenant default for 90 days. And he said that the commercial bank which had lent him that 2 million dollars was threatening to foreclose. Fast forward again to present day and Marco and I connected via video conference about two weeks ago. But he had lost his second largest customer who felt neglected because of the focus on growth. He was posting 80 percent customer retention but he had a million and a half dollars of incremental cash burn from all of the sales and marketing investments. So at that time he had three point five million in annual recurring revenue. His conversion rates were lower and customer churn was higher. But those customers had different use cases and they had poorer financial profiles which meant that his sales cycles were longer. So he had expanded into three adjacent markets tire change shops, oil chain shops and paint and body shops. firm said it’s time to take it to the next level or kick the growth. So fast forward six months I reconnected with Marco and he said things weren’t going well. It had just raised three million dollars at a 12 million dollar valuation from a venture capital firm and it had just secured a two million dollar secured credit facility from a commercial bank that the venture capital firm had introduced Power Drive to. The company was 3 million a year in recurring revenue US had 90 percent customer retention. The founder Marko is actually become a friend of mine. About a year ago I met a company called PowerDrive which sells a CRM solution to the auto mechanic space. Grab your tickets! ?Īlex Western – Managing Director at Think3 Alex suggests different approaches on handling overgrowth and how smaller-valued exits might be the best strategy long-term for both founders and VCs.Īlso, if you didn’t attend SaaStr Europa, we’re doing it bigger and better in June 2019. Because VCs want to make 15x on their investments, founders aren’t realizing that overgrowth is actually dangerous for their companies. Overgrowth normally happens because of misalignment in VC initiatives and founder initiatives.
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Alex Western, Managing Director at Think3, talks about the problem he has seen consistently across SaaS startups that have VC funding – overgrowth.