OpenSky Ventures

Investing in Category-Disrupting Companies

[Josh Payne @jnpayne]

B2B ecom SaaS is getting absolutely wrecked. The entire Shopify App ecosystem has been commoditized, almost overnight. Competitors offer the "same" features as you for 20% of the cost. You raised VC funding—what do you do?

Let me take a step back -- Some background:

Many DTC founders believe most B2B SaaS providers don't generate enough "net new demand" for brands to justify what they charge for their apps. So the question for you as a software founder is - how can I do that and make it quantifiable to justify a higher ACV?

Answer: Product-Led Growth

1. Don't compete on price.
2. Do customer discovery calls & innovate with more complex feature-sets.
3. Go "upmarket" and sell into larger organizations.
4. Later, over time, also start building across multiple product categories.

Why?

➝ You simply can't scale to "venture size" without a high ACV of $20k - $30k or higher.
➝ The TAM of many categories caps out so you have to address a variety of needs.

The real issue here is the cost to build fairly simplified versions of these apps have come down so much that there are competitors coming out of the woodwork undercutting pricing.

It becomes a "crabs in a bucket" scenario for the SMB market and no single player can pull too far ahead before others drag them back down.

Instead of self-service apps with low costs, to make this type of business work, you need to command a higher average revenue per customer.

In order to target mid-market ($5m - $50m) and enterprise-level ($100m - $250m+) merchants, it requires 3 things:

➝ Innovative and new features alongside enterprise-grade customizations
➝ A strong sales motion with partner-led growth tactics
➝ A quick and iterative team to support larger, more demanding customers

It's not all doom and gloom - you just need to differentiate with advanced functionality, capture a higher willingness to pay by solving higher-level problems, and build a scalable business around those high ACV customers.

The real opportunity in the Shopify ecosystem now is solving for those bigger merchants who are happy to pay for white-glove, service-oriented solutions.

It's wild to say this - but service (i.e. - humans providing hands-on account management, 24/7 technical CX, etc) are some of the biggest differentiators you can provide!

PS - apologies for my crap quality videos - it's my first swing at this - i'll get better and the mustache will be fuller next time!! 😂

[Josh Payne @jnpayne]

It's been 15 months since Josh Resnick and I started @openskyvc. Now, having been on both sides of the table, here are the top 5 attributes I'd look for in an investor if I were raising today:

For those new here, OpenSky is a $10m early-stage VC fund formed by myself and Josh Resnick–the founder of @sugarfina.

We got started in early 2023 and since then we've invested in over 15 pre-seed and seed stage companies focusing on our two areas of expertise:

• 70% - B2B ecommerce software (commerce infrastructure as we call it)
• 30% - B2C consumer brands (DTC / CPG)

Now onto what I'd look for in an investor today. There are 5 traits:

1. Experience - Did they actually operate in your area of focus? If not, they may have good "pattern recognition" but I prefer someone who's been there & done that so they can truly empathize with your position and speak from a place of experience.

2. Connectivity - What is their network like? Are they a "superconnector" that can get you in front of your ideal customer profile? Are they a thought leader on social?

3. Active - How active of an investor are they? If they only do a handful of deals per year, it's hard to say how engaged they will be. I want someone who's "all-in" on me and my biz.

4. Syndicate - Do they have a strong syndicate of other investors that they can not only refer, but "influence" to invest? I bucket this differently than customer connectivity given how valuable it is.

5. Empathy - My best investors became close personal "advisors" through my decade-long journey. I could call them day or night - weekday or weekend. They understood what I was going through and I had their cell on speed dial. You want someone who is available!

The journey as an investor so far has been incredibly rewarding and I want to do more.

If I can be helpful, comment below and I'll do my best to make a connection for you.

PS: Anything else you'd add to the list of 5 here? Let me know.