One of the most promising approaches to addressing this crisis is value-based care (VBC), which is based on a simple but profound concept: pay for improved outcomes not for volume of services. VBC radically changes the incentives for healthcare providers. Instead of being rewarded for doing more, they’re rewarded for achieving more.

Currently, most healthcare in the U.S. is delivered via “fee-for-service” arrangements. Providers are paid for each service: an office visit, a CAT scan, surgery, etc. Under VBC, providers are compensated based on the outcome of care provided: have patient conditions improved, and is the delivery of care more efficient?

The promise of VBC is driving adoption of the model and the numerous information-sharing standards that support it . Leading the effort has been the Centers for Medicare & Medicaid Services (CMS), which has set a goal to have 100 percent of Medicare beneficiaries and most Medicaid beneficiaries in accountable care relationships by 2030. In addition, many large healthcare entities – including HMOs, insurers, and large practices of primary care providers – have adopted policies in support of VBC goals.

The Challenge of Data Complexity in the VBC Model

The success of VBC depends on the availability, quality, and usability of massive amounts of data. The right information must reach the right people (patients, providers, payers) at the right time. Any delays in storing, normalizing, and analyzing data can threaten the quality of patient care by postponing accurate diagnosis, treatment, and/or follow-up.

Just as important is patient-outcome data specifically for VBC, which practitioners can use to benchmark and identify best practices. One of the key gating factors to increased VBC adoption is access to data about treatment outcomes. The healthcare ecosystem needs integrated data records that adhere to available standards. The holy grail would be a single longitudinal record containing all patient information that can be shared seamlessly among all involved parties in the healthcare ecosystem.

As a report by the Boston Consulting Group (BCG) notes: “Health systems around the world are systematically collecting, sharing, and analyzing health outcome data by disease group and population segment. By making this data standard and transparent, clinicians can benchmark and compare performance across care sites, document variations in health outcomes, identify best practices, and steer resources toward interventions and practices that have the highest value for patients.”

While oceans of this vital data are available, often only a trickle of useful information reaches the people who need it most. In addition, a good portion of the administrative costs in the healthcare system involve the collection, movement, and storage of data.

So why is data management so hard? There are three major factors:

• The number of parties involved – Everyone from the primary-care physician to the insurer to the pharmacy feels they “own the patient.” Yet none of them truly sees the whole picture.
• The multiplicity of data formats – Data is collected and stored in many different formats, such as FHIR, SOAP, HEDIS, and EDI 835/837. In addition, around 30 percent of healthcare information is unstructured data (such as doctors’ notes, X-rays and scanner images, audio/video files, and faxes).
• Silos of information – Each entity keeps its own records, but seldom are they shared efficiently.

Consider an everyday scenario that illustrates all three aspects of data management complexity.

1. George, a 59-year-old male, comes to his doctor complaining of chest pains.
2. The physician makes an initial assessment and is concerned enough that he refers him to a cardiologist.
3. The cardiologist orders tests, diagnoses coronary occlusion, and recommends bypass surgery.
4. The surgery is performed successfully, and George spends a week in a rehabilitation facility.
5. New medications are added to his daily routine, and he is referred to providers for advice on exercise and improvements in his diet.
6. George makes follow-up visits to his cardiologist at six-month intervals.

At every stage, there is an exchange of data among two or more of many stakeholders. Multiply this example of one patient with one condition, and you see the scale of the data-management challenge.

This graphic from Health Catalyst illustrates just how complex data management is in U.S. healthcare.

Here are some of the negative outcomes from information not being shared among all parties in a seamless and timely manner:

• Care for patients can be delayed, potentially leading to complications, incomplete diagnoses, and possible expensive emergency room visits.
• Providers may be unaware of relevant details about a patient’s case that are necessary to inform the correct treatment and care plan.
• Searches for required information can result in duplicate efforts, raising costs and adding delays.
• Current best-practices and innovations are not visible across stakeholders, which slows behavior change and evolution of treatment.

This chart from BCG shows how the VBC model can deliver better outcomes at a given level of cost.

Adoption of VBC principles also needs to go beyond large organizations – specifically, to smaller one- to five-person primary-care practices.

The Enormous Opportunities for Health Tech Innovators in VBC

For health tech entrepreneurs, the scale of challenges in VBC should be exciting rather than daunting. The potential for innovation and growth in VBC-related solutions is immense. For example, McKinsey estimates VBC may add $1 trillion in enterprise value by 2027, while Bain & Co. sees fee-for-value arrangements capturing 15-20 percent share from fee-for-service providers by 2030. In these early innings of the VBC transition, effectively tracking outcomes and reducing cost has become increasingly important with the CMS proposing greater scrutiny around Medicare Advantage risk adjustment.

There is tremendous opportunity for startups that contribute to integrated data records and workflow enablement across primary care, specialty, home care, and health systems. We see many examples of successful young and mature companies addressing this space, such as Lightbeam, Snowflake, Innovaccer, Closed Loop, Curitics Health, and AWS HealthLake just to name a few.

Many specialties have seen only minimal adoption of VBC to date (e.g., women’s health, cardiology, and behavioral health), leaving the field open to innovative providers. We also believe there is tremendous white space for underlying enablers who help these providers improve their data integration, risk-based contracting, patient engagement, and clinical workflows.

Norwest is focused on supporting entrepreneurs with innovative approaches to healthcare, as we have with current and past portfolio companies such as Clever Care, Diana Health, Kyo, Mindful Health Solutions, and Monogram Health. All Norwest investments emphasize our values of doing well by doing good and choosing long-term rewards over short-term gains, which ultimately yields the best results for everyone. Our team seeks to partner with companies that will have a lasting impact, shifting towards a value-based care model or enabling providers with this transition.

Contact Irem Rami, Suraj Shah or Sam Lesser if you have ideas for a business that can help spread the benefits of VBC.

The post The Technological Challenges – and Entrepreneurial Opportunities – of Value-Based Care appeared first on Norwest Venture Partners.

Those aren’t the only problems with healthcare in the U.S., though. Medical errors lead to more than 250,000 deaths a year, and there are huge disparities in the quality of care by ethnicity and socio-economic status. Not to mention, the U.S. is the only high-income country that does not guarantee healthcare for all citizens—a significant factor in our country having one of the lowest rates of physician visits.

As medical science continues to advance, healthcare delivery has become increasingly complex. Add in the aging Baby Boomer generation and shortages of nurses and physicians, and you have significant strains on the system that hamper the delivery of quality care.

In physician offices, ERs, hospital rooms, and long-term care facilities, the system struggles to ensure that the right information reaches the right caregivers at the right time so they can make timely, well-informed decisions. In short: healthcare is plagued by suboptimal workflows.

“Healthcare is plagued by suboptimal workflows.”

Optimizing workflows, therefore, can make a major contribution to solving the two biggest problems in U.S. healthcare by improving patient outcomes and reducing costs.

Norwest Approaches the Challenges Holistically

The problem of poor workflows is a key consideration across all our investments in healthcare, and we approach it holistically:

• Diagnostics – identifying problem areas and how new diagnostic information impacts workflows and helps deliver better care.
• Medical products – moving care to lower-cost settings to prevent or delay more expensive or invasive procedures.
• Health technology – improving patient compliance, increasing access to care, easing administrative burdens on nurses and physicians, and ensuring access to necessary information at the right time.
• Value-based care – providing more holistic, cost-effective, timely care focused on complex, poorly served disease areas or specific patient populations with inequitable access to care.

There are Promising Signs of Improvement

Fortunately, hundreds of startups and early-stage companies are developing innovative solutions that produce multiple benefits. First and foremost are better patient outcomes. Additionally, this widespread innovation is leading the way to lower costs, shorter (or no) hospital stays, greater patient involvement, and more efficient use of caregivers’ time and skills.

“Fortunately, hundreds of startups and early-stage companies are developing innovative solutions.”

Let’s look at three companies tackling the problem of poor healthcare workflows from different perspectives.

Vertos – Minimally invasive treatment for lumbar spinal stenosis

The problem: As people age, many develop lumbar spinal stenosis, a narrowing of the spinal canal in the lower back from degenerative changes in the spine, leading to inflammation or compression of the nerves. This can cause pain or weakness in the legs, limiting mobility. For patients that fail conservative medical therapy, the traditional treatment has been open surgery on the lower back, which is expensive, highly invasive, and subject to complications – all while being relatively ineffective: only about a third of patients actually get better.

The solution: Vertos Medical’s “mild®” procedure is a minimally invasive treatment for lumbar spinal stenosis in which an incision about the size of a baby aspirin is made in the lower back and some of the tissue pressing on the spine is removed without leaving an implant in the spine. The procedure typically takes less than an hour and does not require general anesthesia, implants, stitches, steroids, or opioids.

The impact: A far higher percentage of patients receive lasting relief, while hospitalization costs are drastically reduced.

Monogram Health – More effective treatment of end-stage kidney disease

The problem: For the more than 37 million American adults living with chronic kidney disease, access to specialized care is vitally important. In many cases, however, patients face dismal health outcomes and poor quality of life. This is due to barriers in accessing care and a deeply entrenched, volume-focused system with poor adherence to evidence-based care. Compounding matters is an insensitivity to how socioeconomic conditions can affect health.

The solution: Monogram Health is an at-home care service focused on the diagnosis, treatment, and care of persons with polychronic conditions, including chronic kidney and end-stage renal disease. Monogram’s multifaceted approach includes nephrologists, geriatricians, endocrinologists, internal medicine specialists, nurse practitioners, registered nurses, social workers, and pharmacists. This ecosystem works with patients and their doctors to create an in-home care plan tailored to individual needs.

The impact: Tripled rates of home dialysis; reduced hospital readmission rates that are half the national average; and sharply lower costs through the emphasis on personalized, in-home care.

iRhythm – Capturing elusive data on atrial fibrillation

The problem: Atrial fibrillation (AFib) is an irregular heartbeat (arrhythmia) that can lead to blood clots, stroke, heart failure, and other heart-related complications. At least 2.7 million Americans live with AFib. One of the most vexing aspects of AFib is that the irregular heartbeats occur periodically and often at short, random intervals, making it very difficult to accurately diagnose. For many years, the preferred method of recording arrhythmia has been a Holter monitor, a bulky device that must be worn for up to 48 hours in hopes of catching episodes of AFib. But oftentimes the arrhythmia episodes don’t occur within the 48 hours when the patient is being monitored. In addition, due to the cumbersomeness of Holter monitors, patient compliance is even more irregular than their heartbeats, leaving huge gaps in the diagnostic information available to doctors.

The solution: iRhythm Technologies’ Zio service replaces Holter monitors with a small, band-aid-sized device that patients can wear on their chest all day with no disruption in their normal routine, for up to 14 days. At the end of the recording period, the patient mails the monitor back to iRhythm, which analyzes the data and provides a physician with a detailed, actionable report on the patient.

The impact: Physicians receive more detailed information, leading to a sharply increased rate of accurate diagnoses. Earlier diagnoses reduce the incidence of strokes and other life-threatening events, thereby saving lives and lowering treatment costs. Patients are spared inconvenience, raising compliance levels. Lastly, the Zio system is much more cost-effective compared to Holter monitors.

Innovations Produce Multiple Positive Outcomes

Solutions to the twin problems of high costs and suboptimal outcomes have a common element: improved workflows. Doing a better job of getting the right information to the right caregivers at the right time can go a long way to improving our healthcare system through one or more of the following results:

• Increasing the accuracy of diagnoses
• Shortening the time needed to begin appropriate treatment
• Reducing or eliminating unnecessary tests
• Treating patients for shorter periods and in less-expensive settings
• Reducing the incidence of complications and avoiding additional treatment
• Improving patients’ quality of life

The post Improving Healthcare Workflows Saves Lives and Money: A Look at Real-World Examples appeared first on Norwest Venture Partners.

This year was our latest opportunity to deliver on the Norwest promise to help our portfolio succeed in every stage of their journey. We leaned on our talented network for advice, kept an ear to the ground on happenings in the venture ecosystem, and showed up for each other because providing the right support takes many different forms.

With 2023 in sight, our partners have shared their insights for the new year and what they foresee happening in their industries.

Ed Yip

“As the economy falls deeper into a recession and inflation stays stubbornly high, more consumers will be open to side hustles, gig economy jobs, and monetizing their unused assets in order to make additional income and make expenses meet. Look for a resurgence in collaborative consumption habits driving a renaissance of sharing economy companies akin to 2008-2012.” 

Read more from Ed on his investment in Swimply, a fast-growing peer-to-peer pool-sharing marketplace.

Dave Zilberman

“There will be continued investment in the democratization of software development. A growing number of budding software developers who don’t have the deep expertise to build full-stack applications will need development tools.”

Read more from Dave on scenario planning in an economic downturn and the importance of enterprise hygiene when the market turns.

Priti Youssef Choksi

“There will be a greater focus on automation tools to power a lot of the mundane and not-so-mundane tasks that we do like taking meeting notes, scheduling calls, writing emails, etc. As the hybrid workplace evolves, more companies will look to automation tools that support efficiency and effectiveness to help offload employees’ tasks, allowing them to focus on more meaningful work—especially as hiring slows due to the economic downturn and workers have to make do with fewer resources.”

Read more from Priti on getting your company bought (not sold), and her investment in Xembly, an automated chief of staff for knowledge workers.

Sean Jacobsohn

“2023 will be a great year to start a company, especially companies that can replace legacy solutions, automate key business processes in the areas of finance and supply chain or help companies generate revenue—those mission-critical needs don’t slow during an economic downturn. Plus, it’s easier for customers to allocate budget towards those needs when faced with budget cuts.” 

Read more from Sean on how startups can navigate a downturn, his five rules of business partnerships, and his most recent investment in Oro, a next-gen platform for supplier management.

Sonya Brown

“Problem-solution oriented brands will continue to grow through a recession. Whether it is self-care or personal finance, if you have a problem, you will search for an answer and try out a solution. Customer willingness to pay during a recession is something that I predict won’t be impacted if you truly can deliver on your brand promise and solve that problem at hand.”

Read more from Sonya on her tips for women in private equity, and recent partnership with Face Reality, an award-winning professional skincare line.

Rama Sekhar

“Cloud cost management will take off in 2023. Cloud and SaaS costs skyrocketed last year as companies operated in growth-at-all-costs mode. With tougher economic times ahead, startups that help manage these costs will rise to the top.”

Read more from Rama on his investments in Chingona Ventures and its $52M Fund II, as well as Veza, a category-defining data security company built for the multi-cloud era.

Scott Beechuk

“Automation will play one of the largest roles in the customer service landscape in 2023. With rising costs, unpredictable call volumes and labor shortages preventing contact centers from fully staffing, the need for self-serve and human-assisted automation will continue to grow.”

Listen to Scott explain why SaaS product managers should refocus their attention when an economic downturn dries up their sales pipeline.

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Celebrate a memorable 2022 by scrolling through our annual Norwest Year in Review.

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The post What We Foresee in 2023: 7 Norwest Investors Share Their Industry Insights appeared first on Norwest Venture Partners.

Joining me to share their experiences from past economic downturns and provide actionable advice were:

• Laura Perrone, CFO of Celona, a Norwest portfolio company that provides private wireless networks. Laura previously was CFO and/or VP-finance at several companies, including Rendition, Icarian, Omneon, and Picarro.
• Mike Dinsdale, Managing Director of Akkadian Ventures, which is focused on alternative liquidity solutions for entrepreneurs and investors. Mike was previously CFO at Gusto, DoorDash, and DocuSign.
• Robert Park, CFO of Dolby Laboratories. Robert previously held positions as CFO and/or VP, finance at companies including BlueJeans, Practice Fusion, Chegg, PayPal, and McKesson.

You can watch our entire panel discussion at the bottom of this post. Here are some highlights and key takeaways that senior finance executives should focus on:

1. Be alert to changes in your environment

DZ: Changes in the business environment do not happen overnight. That was true in 2000 and in 2008, and it’s true today. Salespeople may look at several indicators about the health of the pipeline, but they tend to be more optimistic about the months ahead. Finance casts a more steely-eyed view to the task of monitoring the market.

RP: Velocity of deals, average size of deals, average length of deals – these are metrics you can’t manipulate as much because finance has more control over that. And you can see when deals are getting smaller and your net dollar retention is going down. That’s when your customers are starting to renew for less or not expand as much as they used to. They may squeeze you for a flat renewal, no renewal, cheaper price, put it up for RFP – those are the kinds of things you need to look for.

MD: Everyone has to have a real-time forecast all the time. It’s not a plan, it’s a forecast. So you can really understand where the variances are.

Sometimes there are signals in the macro environment that you can apply to your business. At Gusto, for example, we focused on small- to medium-sized businesses. For us, the number of new-business starts mattered, because there are some 400,000 of them every year, and most of them need the kind of payroll solutions that Gusto provides.

When we went into COVID, we started to look at new business starts. And while they declined, they didn’t do so as much as we had feared. At the same time, our own data showed that new companies had maybe five or six employees to start instead of six to eight. So, that combination of external and internal data sources helped us understand the business environment much better.

2. Have a five-year plan and monitor it closely

MD: We’re building growth companies, so we have to look at the long term. What does the company look like in five years? What’s the ideal? Then, what are the key metrics along the way for us to achieve that? Maybe that’s ARR per engineer, or ARR per employee. Start with that and then have a strategic discussion with everyone about the key things we need to change over the next five years to achieve our goals.

LP: I really focus on the top line. That’s paramount. And then I try to match that with having enough productive capacity to achieve the objective. Do we have the sellers? Do we have the supply chain? Do we have the engineering man-months required to achieve the product roadmap? What are the working capital requirements? In short, can we afford our appetite for growth?

RP: I also start with the five-year plan, and then measure your current course and speed: you’re either on-track or not on-track. Then look at the drivers that could change that. How many knobs could you turn to increase velocity and improve metrics over time?

And you always have to be agile. I was at PayPal during 2008, when there was nothing but uncertainty – kind of like today. And the more uncertainty, the more you have to plan. Because facts were changing so quickly, our annual plan was stale within three months, both top and bottom-line. Trying to stick to the annual plan was a fool’s errand. So, we had to look at our quarterly results, then create targets for the next quarter. If we missed on top line, expenses for the next quarter were not entitlements. Until we saw the right trajectory, we were going to adjust spending.

The level of agility required depends on the level of uncertainty in your business. If it’s a steady business with long-term contracts, you may not have to plan as often. But in a transactional business with high velocity, you’ve got to plan quite often.

LP: When we saw a changing environment at Celona, one of the things we did was refocus and close our aperture a little bit. We identified and intentionally pursued the market segments that were the most important — where we’re going to find the most receptivity for our products. Others we decided to delay until a later time.

3. Despite the turmoil, continue to focus on growth

DZ: In an environment where cash is cheap, the requirement for efficiency isn’t as high because you could just raise more capital and continue to grow inefficiently. But in capital-constrained environments like we are in today, companies need to be much more focused and be more efficient with the way that they spend.

And the need to maintain growth is essential. Because even if you survive this tumultuous period but you haven’t grown in two to three years, you will not be able to raise capital, because while investors may say ‘extend the runway,’ the reality is that we invest in companies that are exhibiting growth. It’s very difficult to manage expenses while still maintaining growth, and that’s what we spend a lot of time with our portfolio companies on.

4. Make the necessary adjustments

In parallel with increasing or maintaining revenues, controlling expenses is an essential strategy during times of uncertainty. The panelists focused on headcount.

MD: It’s essential that there be discipline around headcount. You must have guidelines for how and when people can initiate hires depending on variance from plan. Because when you get into a downturn, the biggest problem is reducing headcount. Winning is not more people; winning is less people with bigger numbers and getting more from each person.

“Winning is not more people; winning is less people with bigger numbers and getting more from each person.” – Mike Dinsdale

RP: If you’re going to have a RIF, do it once and do it right. Don’t take a little bit now and then a little more later. It’s a tough decision to make, so you don’t want to have to do it again for quite some time. I haven’t found that salary cuts work. You’ll lose your top talent, including executives.

Employees don’t want to just hear cuts across the board; that sounds ham-fisted. They want to hear that we’re going to be more focused. That may mean consolidating product groups or getting out of certain market segments. And you can tie that to expenses, to where you’re focusing your dollars. Be ruthlessly efficient about things like R&D spending, marketing spending, SEs per sales rep, etc. These problems don’t age well, and every quarter matters.

“Employees don’t want to just hear cuts across the board. They want to hear that we’re going to be more focused.” – Robert Park

LP: One of the habits we get into is assuming we will replace someone who’s exited the business. But that may not always be the best decision. What if you need someone with different skills to address a higher priority objective? It’s like a sports team: I need a right-hander, so can I trade a left-hander for one? Taking action on underperformers is difficult. But waiting only costs you more because you have three or four months of salary that you’ve invested, plus the cost of severance.

MD: It is important that any cuts are made through a lens of what has the lowest impact on strategic objectives. Circumstances can change, and sometimes organizations must change in response. Just because people are in someone’s budget currently, they don’t have to stay there forever. When things start to change, we should think how we can be more effective. Someone should raise their hand and say, “I’ve got two reqs, but I think I can get by with one so I am going to give it to someone else.” Or, “I’m going to let go the bottom five people, because I need to hire five other people to do things that I think are more important.”

I think it’s important to create a culture where people say ‘I can make do with less, because whatever you need to do is more important for the business long-term.’ I think it is really important to be on top of who your best performers are. Salary cuts across the board are ridiculous. It’s probably more likely you need to put in place performance bonuses to achieve results and keep your best people.

5. Standardize your planning

LP: I make a baseline of what I really expect to happen. Then there’s an upside and a downside. Nobody wants to invest in a no-growth company, so clearly we have to invest in the top line. I like to have half the plan be geared toward that top-line objective. But the other half of the plan needs to protect the downside, to act as a collar. So, if you don’t hit your revenue and cash-flow numbers, then you have to adjust your headcount and your program spend accordingly. So, I plan from a cash receipt standpoint for a downside scenario, but I invest to achieve the upside.

“I plan from a cash receipt standpoint for a downside scenario, but I invest to achieve the upside.” – Laura Perrone

MD: When you do any type of planning, it’s important to standardize and templatize everything. It’s not just a clean sheet of paper on which a department asks for everything they want. We have financial constraints, and your plan has to fit into that. I have always made it a hard line that your plan has to hit your financial target, no exceptions. On top of that you may have above-plan asks that may or may not get funded. But that will be assessed relative to all other initiatives and tied to the strategies and key metrics we want to achieve going forward.

The post Financial Executive Roundtable: Strategic Planning in Times of Economic Uncertainty appeared first on Norwest Venture Partners.

Take Karat, makers of the Interviewing Cloud, a global solution for delivering live technical interviews 24/7. As CEO Mo Bhende explains in the video below, the Karat team used their platform to power a remarkable DEI (Diversity, Equity, and Inclusion) initiative called Brilliant Black Minds.

“When we look at the industry data, it’s very clear that there are simply not enough Black engineers in tech,” said Bhende. “Only 5 percent of the industry is Black and that has to change.”

With Brilliant Black Minds, Karat is driving DEI in the technology sector by helping Black engineers develop and refine their interview skills through a series of virtual practice interviews.

Commitment to DEI Through Action

Founded by Bhende and Jeffrey Spector (Co-Founder and President), Karat specializes in cloud-based technical interview solutions that are built to help companies source and hire highly-qualified engineers. Through their platform data, Karat identified a gap that contributed to the low representation of Black engineers in the tech space.

“When we looked even further into the information we were getting out of our interviews through the Interviewing Cloud, we realized that Black engineers do not have enough access to practice job interviews.”

With limited access to this valuable feedback, Black engineering graduates struggle to communicate their strengths and goals during actual interviews. Brilliant Black Minds aims to change that.

Karat has always helped companies hire great engineers. Now, with Brilliant Black Minds, Karat is helping great engineers of color get hired. It’s an honor to be part of a company that lives its values.

In fact, the values Karat puts into practice with the Brilliant Black Minds program are strongly aligned with the Norwest worldview. Investing in companies that are committed to DEI expands access to economic opportunities but it also can connect directly to profound growth and financial success.

From the day we invested, Mo and Jeff and I have been aligned on the mission to build a company that’s both financially successful and socially impactful.

In December 2021, Norwest hosted a virtual event for enterprise CEOs within our portfolio who were interested in adding Black independent directors to their boards. Mo participated and shared the work Karat is doing with Brilliant Black Minds. The exclusive gathering, facilitated by Andrea Hoffman from diversity and inclusion consulting firm Culture Shift Labs, bridged networks that don’t typically overlap and helped leaders in our portfolio companies to broaden their advisor and board of director ecosystems.

Visit the Norwest worldview page to find out what other values-driven leaders we’ve invested in are doing to drive positive change.

The post DEI in Action: Karat Preps Black Students for Tech Interviews appeared first on Norwest Venture Partners.

With this heightened pressure – and organizations striving for developer happiness – developers in droves have turned to external development solutions to be more efficient and successful.

Hence the massive adoption of open-source code, microservices, API-based services, headless solutions, containers, serverless, etc. Just one indicator of how decentralized and autonomous software development has become: there are over 200 million projects underway on GitHub, which counts more than 73 million users.

A parallel phenomenon to PLG is rapid adoption of enterprise applications that haven’t been deployed by IT. Outside of highly regulated industries, enterprises empower employees to use free or premium SaaS applications to do their work.

For context on the growing scale of enterprise software use, Okta’s “Business at Work” survey suggests companies with 2,000 or more employees use an average of 187 apps. And the number and complexity of those apps just keep growing. “Seven out of the top 10 fastest-growing apps are brand new to the ranks,” the survey notes. And when it comes to developers, Okta observes “Out of the top 10 most popular developer tools, a full seven deal with app performance monitoring and incident response.” Only three target productivity.

This wave of developer empowerment has led to an environment of mass fragmentation and decentralization. Instead of top-down selling from vendors and centralized control from IT managers, developers are taking matters into their own hands by acquiring a slew of tools. What was derisively called “shadow IT” is now standard practice – and it’s a good thing, too, because bottoms-up software acquisition and deployment empowers innovation among talented developers and entrepreneurs.

These benefits, however, have unintended consequences – primarily in the form of operational complexity, security risks, threats to the integrity of code, and unmanaged costs, which can be significant.

Take the example of cybersecurity. Everyone agrees it’s a top priority for any enterprise. But Enterprise Strategy Group observes, “70 percent of organizations have more than ten security tools to manage security hygiene and posture management, leading to operational overhead, data inconsistencies, finger-pointing, and human error.” And that’s just in security. Add the tools used in other areas (like product development, customer support, purchasing, manufacturing, and finance) and you have what amounts to software bloat and chaos in many organizations.

Bottoms-up selling and PLG are great strategies for software vendors, but they’re creating a logistical nightmare for enterprises that wind up littered with point solutions.

Here’s the dilemma: empowering developers (a good thing) has led to operational disarray (a bad thing). But how do you remedy the bad without squelching the good?

The answer is that we need more non-intrusive, low-friction solutions for enterprises to track and manage the software supply chain without impeding developers.

A common story we’re hearing from enterprise managers, developers, and software vendors we interact with regularly: is the need for a better balance between the desire to empower software developers and the need to apply best practices for ensuring resiliency, security, accountability, and cost control in the software supply chain. In short, we want developers to move as fast as they can, but enterprises need visibility and accountability.

We’re beginning to see point solutions that address this issue. For example, the FinOps initiative – along with a host of vendors – is targeting cloud cost control. This comes as no surprise, given that as much as $17 billion in cloud spending in 2020 was wasted. But these efforts tend to be targeted at the enterprise level, and we now need much more granular solutions that address usage at the application and/or service level.

Cost control isn’t the only issue of concern. We need multi-disciplinary solutions targeting other elements of the software development process, such as code integrity, conflict resolution, and personal accountability. In essence, these would comprise a set of best practices and tools for ensuring much better hygiene, cost-efficiency, and transparency throughout the software supply chain.

To be clear, this applies equally across enterprise business units beyond the developer community. But for now, I’m focused on software developers who tend to use many more third-party tools, and because conflicts within the software supply chain can have dire consequences throughout (and beyond) an enterprise.

The good news is that there are established starting points for improved hygiene. CMDBs and service catalogs of yesteryear should be dusted off, renamed (to ditch the old networking term), and relaunched for the modern enterprise. Deployed in the background, without manual updating or data entry, they’re guardrails, not gates.

Fortunately, a host of innovative startups are addressing the need for better enterprise hygiene – such as OpsLevel (microservices catalog), Kubecost (Kubernetes cost management), Yotascale (cloud costs), Sedai (autonomous SRE platform), Productiv (SaaS intelligence), Uplevel (engineering insights), and FOSSA (open-source licensing). Some of these are Norwest portfolio companies; others are funded by firms with whom we frequently partner on deals.

But enough about what I think. What about you? What are your thoughts about how enterprise hygiene solutions should operate? I ask because at Norwest we’re always excited to partner with bright, talented, ambitious, and visionary entrepreneurs with impactful ideas. Know any of them? Is one in the mirror?

Watch my Norwest Nowcast below to find out how tightening budgets make enterprise hygiene even more urgent.

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We made 110 new and follow-on investments in a wide range of incredible companies across the consumer, enterprise, and healthcare sectors. Catch the highlights of 2021, including the most popular blogs, on our annual Year in Review site here.

Additionally, several of our portfolio companies announced significant liquidity events including Udemy (NASDAQ: UDMY), Talkspace (NASDAQ: TALK), Agari (acquired by HelpSystems), Devoro Medical (acquired by Boston Scientific), Envisage Technologies (acquired by Vector Solutions), Galvanize (acquired by Diligent), VisitPay (acquired by R1), Five Star Business Finance (announced IPO), Dave (announced SPAC), Grove Collaborative (announced SPAC), Vuori (investment by SoftBank) and YipitData (investment by Carlyle).

As we head into a new year, our investors are looking at the market landscape and considering the drivers that will shape the future of the industries they focus on. They have their eye on the trends that matter, from measuring carbon footprint, to the accessibility of cryptocurrency, to acquiring and retaining talent and more. Read on to get their insights for 2022 and beyond!

Dave Zilberman, General Partner

As companies begin to embrace achieving carbon net-zero targets, the tools and solutions necessary to track and report on carbon utilization will be critical. Marketing to achieve net-zero will require a wide array of tools to track and report. Many companies focus on greenhouse gas (GHG) scope 1 and 2, but achieving scope 3, which is the far greater percentage of carbon emissions, is very hard and nebulous to track.

Lisa Wu, Partner

The pandemic has pulled forward years of digital health adoption for all stakeholders: consumers, employers, providers, payors and regulators. In 2022, there will be a greenfield opportunity in the market for companies that offer “whole body care” in a way that point solutions have failed to adequately address to date. We’ll start to see products, services and platforms that address the multidimensional aspects of a person including their physical, mental, emotional, social and spiritual needs. Companies that nail the consumer brand, enterprise and payor strategies will win big.

Ed Yip, Partner

Crypto moves into the mainstream consumer mass market with increasingly accessible exchanges, ETFs, secure custodial solutions, insurance and infrastructure tools. Volatility continues but skeptical consumers flock to crypto assets driven by speculation, inflation concerns and greater legitimacy with corporations and governments.

Parker Barrile, Partner

We’re transitioning from an era of tools to an era of solutions. Buyers want end-to-end solutions that fundamentally take work off their plate. For example, a rental car is a tool but you still have to navigate, drive, park — whereas Uber is a solution. Same for B2B. There’s a new class of companies that combine software and people to solve problems. Take Karat, which conducts technical interviews for its clients. They solve a big pain point for engineering teams by freeing developer time for feature work and making the hiring process more consistent. In 2022, we’ll see a surge of solution-driven products and platforms.

Rama Sekhar, Partner

The lines between enterprise and consumer are blurring and in 2022 we will see infosec and cybersecurity startups jump on board the product-led growth (PLG) train. To stand out in the crowded market, cyber startups must adopt a PLG mindset, doubling down on design, aesthetics and UX to drive customer acquisition, conversion and expansion. Areas that I believe are ripe for this include developer security, developer-oriented SaaS and cloud security.

Priti Youssef Choksi, Partner

In 2022, consumer brands will need to rethink how they can reach customers with less data and fewer audience matching tools due to the recent privacy and ad targeting changes from Apple and Facebook. We’re going to see customer acquisition costs continue to go through the roof, forcing brands to get creative with guerilla marketing tactics and shift spending to alternative media channels such as traditional OOH advertising, podcast sponsorships, and streaming TV ads.

Ran Ding, Partner

Demand for talent is at an all-time high in all industries, and WFH has provided employees with significantly greater choice in where and how they work. Thus, it will become increasingly important for companies to not just be financially successful but also to have a distinct position on mission and impact. Having clear alignment with employees on social, environmental and other goals will significantly advantage companies in recruiting and retaining top talent.

Scott Beechuk, Partner

The third wave of e-commerce platforms is finally here and “headless commerce” (aka modular commerce) architecture will lead the way for the future of retail. You’re going to see platforms like Fabric help retailers level the playing field and compete with Amazon by enabling capabilities like one- or same-day shipping by decoupling the entire logistics stack, opening up to more modern logistics processes.

The post Our Vision for 2022: 8 Investors Share Forward-Looking Insights appeared first on Norwest Venture Partners.

What trends are you most excited about investing in, generally?
We are a large fund that invests in early-to-late-stage companies across a wide range of sectors with a focus on consumer, enterprise and healthcare. My focus is primarily in Israeli companies and I’m seeing many exciting startups in security, SaaS, enterprise and cloud infrastructure, robotics and semiconductors.

What’s your latest, most exciting investment?
We are naturally excited about all our latest investments. I recently invested in three seed-stage companies that are in stealth mode: an open-source cloud infrastructure company, a people analytics (HR) SaaS company and a next-generation business-intelligence platform.

For the full article, please visit TechCrunch.

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Dr. Robert Mittendorff, partner at Norwest Venture Partners and emergency doctor at Kaiser Permanente, said there’s a real worry the regulatory changes won’t be permanent, especially on the reimbursement side, and if “it’s not permanent, we will see a retreat, and the access for telemedical services will go down.”

“It is absolutely critical that insurance covers at or near parity for the amount of time a physician spends,” Mittendorff said. “You just can’t shirk that if you want to maintain this level of virtual care.”

For the full article, see here.

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While 2020 tested us and our founders, we believe we’ve come out stronger and remain optimistic for what’s ahead in 2021. We look forward to another year of growth, partnership, and community as we together face new opportunities in our new normal.

Staying true to our annual tradition, we asked a few of our investors for their predictions for the coming year. Here’s what they said:

Sonya Brown, General Partner

“2020 was the year of ‘at-home beauty’ as consumers were forced to find alternative solutions to their hair color, skincare, and nail care needs due to salon and spa closures. In 2021, we’ll continue to see consumers continue their at-home beauty routines while also investing in new products such as skincare devices as well as virtual services led by professional hair colorists or aestheticians.”

Lisa Wu, Partner

“Cash will continue to flow to digital health companies as the rise of consumerism in healthcare, COVID-19, technology, and other accelerants transform the industry. We are still in the early innings with few widely recognized consumer health brands creating a window for outsized returns for those that become the market leaders in both the direct-to-consumer and B2B channels.”

Rob Arditi, General Partner

“For high growth SaaS business, 2021 will likely usher in heightened sensitivity to unit economics and operating efficiency. The market will continue to pay a premium for growth but become less sympathetic to cash flow profiles that require investors to peer too far into the future to see a positive ROI.”

Priti Youssef Choksi, Partner

“Live virtual entertainment will become a mainstay in a post-COVID world — whether it’s concerts, sports games, or other live events. Creators will not only reach in-person fans but also engage with worldwide audiences simultaneously through video game-like streaming shows as well as immersive virtual reality experiences. These ‘lean in’ experiences will have built-in social features such as chat and co-watching with friends. Entertainment will seamlessly blend with e-commerce for ‘in-game’ purchases of real and virtual goods and actions, unlocking new revenue streams for producers and creators. While I am excited to get back to in-person events, I am even more bullish about the unlock potential of the virtual entertainment ecosystem.”

Rama Sekhar, Partner

“WFH (Work From Home) and the ‘flexible workweek’ will become a permanent part of our lives and the IT and infosec implications will be huge. Your home network is now the business network. Enterprises will look to innovative companies that can solve the resulting security challenges such as safely securing access and authorization to corporate data. Remote workers yearning to be productive from home will buy a slew of productivity and digital collaboration tools creating a new category of ‘SaaS Ops’ companies to help CIOs and CFOs manage their sprawling SaaS portfolio.”

The post Looking Forward to a Bright 2021 appeared first on Norwest Venture Partners.

At Norwest, the healthcare team is incredibly proud to be partnered with exceptional founders driving innovation across the healthcare ecosystem.  Despite the unexpected challenges of 2020, many of our founders and teams are doing exactly what growth-stage companies do best: leaning into adversity and making rapid and decisive business adjustments to take our collective, invisible enemy head-on.  We want to highlight a few of these stories to recognize the steadfast teams turning 2020’s proverbial lemons into lemonade.

Qventus is a healthcare IT company that uses AI and ML to automate hospital operations. 

COVID-19 has taken a significant financial and operational toll on health systems. With the deferral and disappearance of elective surgery revenue, coupled with the loss of insurance for numerous patients, and the operational challenges created by surges of COVID-19 patients, hospitals are in need of solutions to help them manage the rapidly changing environment of hospital care.

Qventus worked with health system partners to develop new COVID solutions, including:

• Free COVID Scenario Planners: uses AI and epidemiological models to plan for COVID cases and critical resource constraints, elective surgeries, PPE, and post-acute demand — all at a local hospital level (and 2 – 20X more accurate than other leading models).
• Critical Resource Mission Control: gives incident command centers real-time visibility into negative airflow isolation rooms, ventilators, ICU beds, and more — across facilities and broader systems.
• ICU & Med-Surg Capacity Creation: uses ML to identify candidates for early ICU stepdown and Med-Surg discharges, unlocking additional capacity with a hospital’s existing staff.

These Qventus solutions are being used by over 1,100 organizations, from large health systems to local and state health departments, up through the highest levels of the federal government.

Clever Care Health Plan is an ethnic-sensitive Medicare Advantage plan launching in Southern California in 2021.  Clever Care offers much-improved access to the healthcare system for many underserved communities, by providing members with native-language service, access to a broad network of native-language and culturally-aligned providers from the highest-quality institutions, as well as easy access to Eastern natural medicine.  

In 2021, Clever Care will be launching the “COVID Peace of Mind” which will provide members with $0 out-of-pocket costs for any COVID-related illness, including hospitalizations and transportation costs.  This will be in addition to $0 preventative care visits and $0 co-pay access to telemedicine consultations.  In a time where access to high-quality healthcare has never been more important, we are proud of the work Clever Care is doing to reduce healthcare inequalities and provide maximal access for their members.

Monogram Health leverages innovative care models developed by world-renowned nephrologists, a wide array of integrated home-based care managed clinical services, and artificial intelligence to transform care for patients living with chronic kidney (“CKD”) and end-stage renal disease (“ESRD”).  

Given the acuity and co-morbidities associated with CKD and ESRD, Monogram estimated that >95% of their program participants were highly at-risk for COVID-19.  In the midst of the pandemic and “shelter in place” orders, Monogram increased the frequency of member interactions and visits, including providing behavioral health and social support to isolated and lonely members.  

Monogram also rolled out urgent need telehealth capabilities to drive additional high-touch care in the safest possible manner.  Monogram’s interventions have kept numerous patients out of the hospital while ensuring continuity of care and maintaining the cadence of important non-hospital physician procedures (including vascular access surgery).  

The company is proud to have provided this high-touch care through a pandemic while keeping its clinical staff safe – no field clinicians contracted COVID-19 through advanced safety protocols.  Avoiding hospital care within high-risk populations while keeping clinicians safe is a major win amongst a global pandemic.

Gateway Learning Group is a leading provider of autism therapy services. Early in 2020, Gateway was faced with an unprecedented challenge: transforming the company’s practices to make autism therapy safe in the age of COVID. 

At the outset of the COVID crisis, the Gateway team paused most services and began meeting daily to plan a company transformation. Knowing how critical it is to minimize any gaps in services for Gateway’s vulnerable client population, the team began rolling out service adjustments within days and was able to restart services for most clients within two weeks. 

Practice changes included the intensive use of telehealth therapy combined with comprehensive health and safety upgrades for in-person therapy. These changes paid off with client and staff trust reaching an all-time high, allowing Gateway to serve more clients with more impactful services.

Target RWE is a leader in the real world evidence space, providing high-quality real-world data and insights for use across the pharmaceutical industry.  In response to the global pandemic, Target RWE quickly mobilized its clinical site network and turnkey solutions to begin collecting data on COVID-19 patients. 

To date, Target has collected data on more than 100,000 COVID patients from over 350 hospitals across the country. The data generated and analyzed continues to help physicians and pharmaceutical companies understand the real-world challenges of hospitalized patients and how to improve their care.  Target has taken an active role in helping to advance our understanding of this health challenge. 

From helping keep high-risk patients healthy and ensuring the safety of clinicians, to ensuring care continuity by rapidly deploying technological resources, to helping hospitals and biopharmaceutical companies understand, predict, and respond to the COVID-19 pandemic, Norwest’s healthcare portfolio has effectively mobilized during one of the most difficult years in recent history.  

We’re proud of the grit, fortitude, and innovative approaches of the teams behind these companies, and the many sleepless nights they endure to deliver industry-changing results and help those afflicted by COVID-19.  Thanks to our founders and teams!

The post Taking on COVID-19: How 5 Healthcare Companies are Making a Difference appeared first on Norwest Venture Partners.

Long before the COVID-19 pandemic, brands faced numerous disruptions, including the rise of robust e-commerce platforms and tools, omnichannel marketing tactics, the use of analytics for data-driven decision making, automation, social media advertising and influencers, and many other facets of digital transformation. Now, the pressure to improve the digital experience has ratcheted up dramatically as many physical stores are operating at limited capacity to enable safer in-store experiences for employees and customers alike.

Some industry analysts believe that COVID-19 has permanently changed how we shop. Meanwhile, innovative companies are finding ways to adapt to the constraints of the times. No surprise: it involves digital solutions and aggressive new business models.

SHIFTING MORE ONLINE

The accelerated pace of digital transformation is likely to continue as retail markets ebb and flow as we continue to adapt to a pandemic landscape.

For brands, digital disruption means a variety of things. Some companies will need to focus on moving physical channels online for contactless shopping and delivery. Others will need to blend brick and mortar stores with digital channels to create an enhanced customer experience. According to research by McKinsey & Company, more consumers intend to continue to shop online even as the crisis subsides, with a portion of consumers shifting almost entirely to the online channel.

EVOLVING BUSINESS MODELS

Changing a business model can be risky but valuable if done correctly. A good place to start is to take a look at the habits and preferences of customers and prospects. Have they changed? What do customers and prospects want and need?

Customers have demonstrated that they want to access information about products and services while on the go, from their mobile devices. They respond best to personalization and consistent messaging, especially when the seller knows at what stage they are in the buying process as they move between phone calls, email, text, and the web.

How can brands tell where a customer is in the buying process? Data insights can be used to identify micro-moments (I want to know, I want to go, I want to do, I want to buy) and to tweak the marketing and creative to best move customers through the buyer’s journey.

Micro-moments were first identified by Google in 2015 as selling opportunities that have increased as more people use mobile devices throughout the day to communicate, check social media and news, watch and listen to entertainment, and shop. The move online has only increased since the pandemic, but loyalty is still in flux. According to research, 90% of smartphone users are not committed to specific brands before they start shopping online. Half of users have discovered and purchased a new brand when searching online.

Of course, creating an omnichannel marketing strategy must include e-commerce capabilities, which many smaller and mid-sized companies don’t typically focus on. Now is the time to do so.

One global retail chain with over 1,000 brick-and-mortar stores was able to launch an e-commerce site and log significant online sales in only 13 weeks. Enabling multiple channels to take advantage of micro-moments and online shopping platforms to close the deal is vital. But brands must do even more. Now is the time to be bold and experimental. Playing it safe risks losing ground to more savvy competitors or going out of business. Here are some examples of evolving business models and tactics that are proving effective during the pandemic and are likely to remain in place long after.

Direct to Consumer

Direct-to-consumer (DTC) retailing is a popular form of e-commerce that involves a direct transaction between a manufacturer and buyer via mobile and digital channels. The first generation of DTC businesses — like Warby Parker for eyeglasses, Everlane for clothing, and Casper for mattresses — made names for themselves by heavily investing in eye-catching branding and social media ads, selling directly to consumers through online stores and leveraging borrowed supply chains.

The second generation of DTC businesses has discovered the benefits of offering physical stores so customers can interact with merchandise and sales personnel. Bonobos is a case in point. The optimal equation appears to be offering customers a mix of both online and offline, with stores as another part of the omnichannel experience. Yet DTC is fundamentally about direct access through online ordering, so that channel must be marketing’s top priority.

Succeeding with a DTC strategy requires focus and resources. Online retailers adding a DTC plan should prioritize relationship building with individual consumers — perhaps even going so far as to include them in the creation of new products and services to increase revenue and loyalty. This collaborative approach has been called the “direct-with-consumer” model, which emphasizes using customer feedback to make product and service design decisions.

For example, award-winning design agency Gin Lane created Pattern Brands in 2019 as a multi-brand consumer goods company owned and operated under one roof which is committed to product development based on direct-with-consumer collaboration. The company’s first brand, Equal Parts, is a cookware line made from sustainable materials. Each purchase includes eight weeks of access to a cooking coach via text messaging. The current offer is already being fine-tuned with further input from consumers. One of them recently suggested that Pattern expand its add-on services to include easy-to-create grocery lists and pre-populated Instacart orders. This approach brings the conversation with customers about what they want much closer to the implementation of what they get. Pattern also recently launched Open Spaces, which is a home goods brand offering organizing essentials made from durable, responsibly-sourced materials.

Click & Collection

Click & Collect was on the rise even before COVID-19, especially among big-box retailers like Walmart and Target. While convenience was its initial draw — e.g. for busy, working parents juggling onsite client meetings, school pickup and grocery shopping all in one afternoon — Click & Collect took on a pivotal role in keeping customers safe and distanced from other shoppers at the height of the pandemic.

Even car dealerships now offer curbside pick-up and delivery options.  Buyers can drop their old cars at lots and pick up their new, sanitized cars or get them delivered to their homes without any close human interactions.

Virtual Try-Ons and Virtual Stores

As the pandemic has kept consumers at home, L’Oréal, Kendra Scott and Suitsupply are among brands that have introduced virtual “try-on” tools to engage with shoppers. Maybelline’s website allows you to snap a photo of your face, upload it, and then apply makeup virtually.

This year, IKEA began testing a virtual store on the Alibaba e-commerce platform Tmall in China. You can move through a store on a PC or smartphone screen, view the merchandise in virtual room layout, and make online purchases.

Analytics and Automation

Another facet of digital transformation that continues to prove invaluable is advanced analytics. It’s now table stakes to use data to gain insights into customer behavior, which impacts products and pricing, supply chain optimization, and revenue forecasts. Gartner has observed that brands can keep up with consumer shifts by changing the way they measure and track marketing metrics to identify indicators of interest earlier in the customer journey.

Companies invested an estimated $3.4 billion in artificial intelligence in 2018 to enhance the shopper experience. Machine learning algorithms process data from focus groups, interactions, transactions, and polls to understand customer sentiment, guide recommendation engines, perform market basket analysis, and price optimization.

The North Face uses cognitive computing technology to ask customers questions about where they will wear specific clothing and what activities they’ll be engaging in to make personalized recommendations. Neiman Marcus offers customers an AI-driven app that lets them take pictures of clothing items they like and then the app searches the store inventories to find the items or similar ones. Uniqlo stores have AI-powered kiosks that measure customer reactions to products that are displayed on the screens based on matching brain signals to moods. The kiosks then recommend products based on the results.

Showrooming and In-Person Shopping

Wedding dress boutiques, for example, need a physical place to provide optimal experiences for customers. What does a safe, in-store shopping experience look like in a post-COVID world? The answer is evolving.

Some stores are adopting practices like showrooming (see offline, buy online) that have until recently only been offered by luxury brands. This would require consumers to make an appointment and limit the amount of products and people in the store to enforce social distancing and safety.

For products that require in-store visits, apps are being deployed that combine shopping lists with inventory checks, the length of wait times in lines, in-store layout navigation, and cashierless checkout.

STANDOUT BRANDS

Two companies getting it right during challenging and changing times are Vuori and Wine Access.

Vuori

Founded in 2015, Vuori produces men’s and women’s activewear. The company leveraged its five stores in California for local community events and gatherings, such as film screenings and art shows.  Vuori was one of the first retailers to close its stores to protect employees and the community from the pandemic, even before the company was mandated to do so.

“The notion of doing what’s right, acting in a sustainable fashion and still doing great business fosters a sense of community and allegiance from our customers,” said Vuori founder Joe Kudla.

During the pandemic, Vuori has shifted focus to e-commerce and social media channels to stay connected to its customer base. Paying close attention to how consumers are adapting to social distancing, the company put extra sales and marketing resources into web and mobile experiences.

Vuori’s website now features a Journal page full of videos entitled, “The Rise. The Shine. Conversations” which includes interviews with athletes, environmental leaders, and other influencers. Now, every morning at 8:00 AM, Vuori offers free classes on Instagram Live from a different fitness instructor, yoga teacher, or mindfulness coach.

For the launch of its women’s clothing line in 2018, Vuori relied heavily on Facebook for advertising. It gathered a lot of data to understand its female customers and their interplay between shopping in-store and researching products online. This data has informed recent decisions to advertise in new channels like podcast advertising and paid search.

The company had planned for e-commerce sales to increase 100% year over year, but sales were up a reported 200%.

Wine Access

Wine Access has been at the forefront of the growing DTC wine sector and has differentiated itself through access to small-production, under-the-radar wines and by offering a multimedia customer experience online. Customers subscribe to the Wine Access email and then get daily access to multiple curated offers and the online store. The company claims its success is due to rich content plus great wine and that its value proposition has only grown during the pandemic, with restaurants and wine shops closed. No surprise, post lockdown the company has seen triple-digit growth and its Wine Club is fast growing.

The website features a blog series, articles, profiles of people in the viticulture industry, and an online store. In 2020, Wine Access launched a Facebook group, “The Wine Access Experience,” with live-streamed tastings and interviews with winemakers to discuss the challenges, art, and pleasures of their craft. The company is adding a podcast, hosted by a noted sommelier.

Wine Access was named “Top Online Wine Retailer” of 2020 by Wine Enthusiast. In a recent Newsweek article, the company was recognized in the list: “Best Wine Clubs to Subscribe to While Coronavirus is Keeping your Trapped Indoors.”

TAKEAWAYS

Digital transformation is accelerating and for brands it’s the key to a post-COVID recovery. Digital channels create the enhanced experience customers want and expect. Omnichannel strategies are proving highly effective. DTC models may well influence changes in how many brands market and sell. The time is ripe for creativity and innovation as market and demographic changes impact consumers in various ways. From virtual try-ons and micro-moments to analytics-driven insights and showrooming, successful brands are, as always, thinking out of the box and using the best tools available to them.

The post A Digital-Led Recovery for Emerging Brands appeared first on Norwest Venture Partners.

As a venture investor at Norwest, we focus on a wide range of areas including DTC, e-commerce, social, and marketplaces. I’m fortunate to work with investors and board members of companies such as Udemy, Grove Collaborative, Talkspace, and Imperfect Foods, some of which built their marketing strategies around the millennial generation. We even have two partners who helped build social platforms at Facebook and LinkedIn.

Being on the cusp of two generations affords me an interesting perspective of seeing how the two generations intersect and diverge. And while the characteristics, interests, and trends of millennials are well-documented, I wanted to learn more about this emerging generation poised to outstrip millennials in terms of economic power ($34Bn a year and growing). A couple of months’ worth of work later, these efforts culminated in a presentation that features some of the key social trends that can lead to large opportunities for new startups catering to the Gen Z market.

Disclaimer: this trend analysis was created prior to the events of COVID-19, which is why it’s mostly devoid of any mention of the pandemic and its impact. The trends remain prevalent, and several have been accelerated as a result of the new environment.

Who is Gen Z?

Gen Zs were generally born between 1997 – 2010, ranging from 10 – 23 years old. There are slightly more of them in the world compared to millennials (2.5Bn vs 2.4Bn), and they are the first truly digitally native generation. The oldest subset was in middle to high school when Instagram, Snapchat, and TikTok launched. The same group was in elementary school when Facebook, Myspace, and the first iPhone were released. The youngest wasn’t even born yet. As a whole, Gen Zs have considerable spending power at $34Bn per year (mostly from their parents), and this number will only continue to increase as the oldest Gen Zs graduate college and enter the workforce.

In terms of characteristics, Gen Zs share many traits with millennials but exhibit them to a greater degree – hence the nickname “millennials on steroids.”

They are multinational with online friends in different countries. Gen Z are hyper inclusive with a greater percentage of them having friends of different sexual orientations (59% in one survey) and races (81% in the same survey) than any other generation.

They are diverse. In the US, they consist of the most racially and ethnically diverse generation with 48% of Gen Zs being non-Caucasian.

However, Gen Zs differ from millennials in several ways.

They care a lot about individuality and standing out – they care less about branded clothing compared to millennials who generally used brands such as Hollister and Abercrombie & Fitch to blend in, and many of them consider Billie Eilish, with her no makeup, baggy and often eccentric clothes, to be a role model.

Gen Zs are significantly more entrepreneurial too; they are 55% more likely than millennials to want to start businesses and side hustles.

In addition, compared to other generations, they’re the most pessimistic about the world, they feel the loneliest, and they consider themselves to be in the worst health as a generation. However, Gen Zs are also more open with sharing those feelings with their peers too – in what I’ve termed “negative openness.”

What does Gen Z like?

For this Gen Z trend analysis, I decided to focus on social trends because social has increasingly become the connecting thread for other markets such as gaming, entertainment, e-commerce, and wellness. Learning about different trends in the social space and related markets will provide a broader perspective as the next new platform emerges.

The four social-focused trends I’ll be diving into are: digital persona, bite-sized UGC & entertainment, (un)social, and circular consumption.

Trend 1: Digital persona

Observations

As Gen Zs socialize more via social platforms – shifting through different social contexts with their finstas (fake Instagrams) and online aliases – the lines blur between their online and offline personas. The popularity of Fortnite has normalized socialization within gaming and tightened Gen Z’s identification with their avatars, which has increased their willingness to spend time and money on them.

In addition, CGI influencers are entering the “real” world through both the online and offline worlds. Lil Miquela, a popular virtual influencer with 2M followers on Instagram, has appeared in numerous ad campaigns including one with Bella Hadid for Calvin Klein. Hatsune Miku, a virtual idol with a computer-generated voice, has toured worldwide singing fan-created songs in sold-out venues that real fans attend in-person. The opposite trend is occurring too – Gen Zs are dipping their toes into non-gaming avatars via creation tools such as Facemoji that they share to existing social media platforms.

Opportunities

Gen Z is increasingly spending on virtual goods for their gaming avatars (in-game global spend in 2018 was $93Bn) so there’s opportunity for both brands and gaming platforms to capitalize on this new marketing and distribution channel. Large brands, who are typically slow movers, are already testing out this new channel. LVMH has partnered with League of Legends to introduce custom skins for purchase and KFC released a free dating simulation game through Steam. Marshmello, a popular DJ, held a virtual concert in Fortnite last year that over 10 million players attended.

As a result, gaming is no longer just a content play – it’s becoming a social network, and as Gen Z becomes more comfortable with avatars, the next social/gaming platform may be in the virtual world. AR/VR could be the catalyst here, but there’s a chicken and egg problem as this new hardware platform may also simultaneously need multi-platform support for a breakout game to drive adoption, similar to what Fortnite has enabled.

Despite positive feedback on the tools themselves, avatar creation companies will likely have a hard time given the strong monetization pushback they have seen from their user bases.

One update from COVID-19 is the staggering success of Animal Crossing: New Horizons with many social media accounts popping up to catalog the clothes and items users are creating for themselves and others in the social game. Its popularity highlights this digital persona phenomenon.

Trend 2: Bite-sized UGC & Entertainment

Observations

As digital natives who went through the polished phase of YouTube and Instagram content and are now “over it”, Gen Zs now crave realness and relatability with their social media. While the standard millennial aesthetic consists of beautiful locations and highly styled appearances on Instagram, Gen Z aesthetic consists of a less edited appearance framed in a random corner of his or her home.

At the same time, social media and entertainment have increasingly intertwined as this video-first generation both consumes and creates free, bite-sized video content, first through passively consuming YouTube videos and then consuming and creating shorter video stories via Instagram and Snapchat.

As a result, TikTok became popular because it is the amalgamation of all these trends: realness, bite-sized video, and two-way creation and consumption. However, its dominant position isn’t guaranteed.

Opportunities

It’ll be very difficult for a startup to succeed at bite-sized content with high production value since it’ll need to outspend incumbents on content and marketing. In addition, it’ll be challenging to convince Gen Z to pay for content since most of it’s been “free” for them since it’s hosted on platforms that monetize through ads rather than subscriptions. YouTube and TikTok serve as the main entertainment source for Gen Z versus Netflix for millennials.

In contrast, on the UGC side there’s an opportunity for a competitor to rise against TikTok – either via a US-based company that takes advantage of the US concerns around censorship given TikTok’s ownership by China-based ByteDance, or via a company that targets a different demographic, similar to how Kuaishou is gaining market share by focusing on rural (or Tier 3) cities in China.

The driving factors for a company to succeed here are monetization and inclusivity. Convincing popular influencers to migrate to a new platform with better monetization will be key, something that Byte is attempting to accomplish with a rev-share program. However, the content has to be replicable for normal users whether that consists of dance covers or recycled memes so that they feel encouraged to join in. It will be interesting to watch what Byte does given its background with Vine, the defunct short-form video app.

As an adjacent opportunity, short-form social video represents a marketing channel for brands and musicians. Because of the content-driven nature of short-form video versus the identity-driven nature of Instagram and YouTube, there is the ability to appeal to a broader audience. Whereas Instagram and YouTube influencers generally only did sponsorships that closely aligned with their content (or else risk being branded disingenuous), TikTokers have more flexibility.

For example, Charli D’Amelio, a popular TikTok dancer with 40M+ followers, collaborated with Sabra hummus in its first Super Bowl commercial. Similarly, brands are finding success on TikTok through challenges. Chipotle did an ad campaign during the Super Bowl in partnership with Justin Bieber to promote his song “Yummy” and their food delivery services.

Updates: TikTok has hired a Disney+ executive to run TikTok as a means of further distancing itself from its Chinese parent company. Unfortunately, this strategy hasn’t seemed to appease US lawmakers as TikTok is now in talks with Microsoft. Time will tell whether the acquisition succeeds. Kuaishou has also launched its US app called Zynn to compete with TikTok that has seen significant user traction but has been shut down due to allegations of plagiarism.

TikTok became popular because it is the amalgamation of all these trends: realness, bite-sized video, and two-way creation and consumption. However, its dominant position isn’t guaranteed.

Trend 3: (un)social

Observations

Despite being constantly online, Gen Zs feel increasingly lonely. In a recent survey, Gen Zs scored the highest on the UCLA Loneliness Scale across all generations. In another study, 71% of Gen Zs believed their lives would get more challenging in the future – the highest percentage across generations, once again. As a result, many Gen Zs have turned to consuming longer-form content such as live streaming as one means of ward off loneliness. And in a tumultuous world where religion is on the decline, Gen Zs seek community and guidance through alternative practices including astrology, tarot cards, healing crystals, and meditation. Craving deeper connections with a mindset of inclusivity, Gen Zs are also more open with sharing and talking about their feelings even across traditionally more taboo topics such as mental health.

Opportunities

In terms of content, bite-sized and long-form content will co-exist. Bite-sized content will continue to play a large role in entertaining and highlighting Gen Zs’ best selves whereas long-form, specifically live streaming, will offer more organic, closer-to-IRL conversations.

In terms of companies, many social startups have started to tackle loneliness through different means including live streaming, focusing on community-oriented social relationships, and facilitating offline interactions.

However, it’s unclear whether these companies can become standalone platforms with enough diverse content to drive long-term engagement. Some may become features that are mimicked and absorbed into an existing social platform. The most promising opportunity is in the higher guidance category, such as an astrology-based app with a social angle that connects Gen Zs via shared feelings and deeper intimacy.

Trend 4: Circular consumption

Observations

Commerce and social have intertwined as Gen Zs trust and purchase from influencers via social media. At the same time, they’re constantly online, and with a desire to stand out, they feel pressured to showcase different identities through fashion on social media. Combined with concerns about climate change and an entrepreneurial spirit, Gen Zs turn to and actively participate in secondhand and vintage as the answer.

Opportunities

Given the observations, one might think that individuality and secondhand are mutually exclusive, but they aren’t. Gen Zs want to stand out and will look to different types of influencers for creative inspiration while shopping secondhand, prioritizing cost savings and environmental conservation, and allowing them to experiment with new styles. Therefore, there’s opportunity for both aesthetical niche brands such as Dolls Kill and fast fashion brands such as Fashion Nova to fit into a unique online identity that is then commodified to resell clothing.

For example, a unique dress purchased on Dolls Kill can be used with unusual makeup and a wig to create memorable content and spur creativity on Instagram. This identity and aesthetic are then used to re-sell the dress on Depop. Niche brands help build and elevate the online persona, and these influencers can mitigate inventory and monetary investment by reselling.

Gen Zs are already used to trusting influencers and peers with recommendations and given their willingness to start side hustles, they’re turning to each other for clothing inspiration. Therefore, a Gen Z-focused, peer-to-peer apparel marketplace that focuses on creativity and self-identity will succeed. We’ve seen curation by companies, but this will be curation by peers. (Curation of secondhand fashion by companies is hard to scale, after all.)

What does the future of social look like?

There are many markets in which Gen Z-focused companies can offer a fresh approach. I believe there will be a true Gen Z-targeted social platform that emerges with the components and trends outlined above. A Gen Z professional network may also emerge alongside innovations in the social space. Given how entrepreneurial Gen Zs are, new peer-to-peer marketplaces will arise. Based on how unhappy they are, there may even be a new wellness practice or “religion.” Brands that can leverage these new marketing and distribution channels will succeed.

The space is still nascent, but this is meant to serve as a framework for evaluating new opportunities that arise when these companies do start to solidify. For founders creating companies serving Gen Zs, I’d love to chat – feel free to drop me an email at mnie@nvp.com (maybe a Gen Z company will revamp email).

The post The Future of Social for “Millennials on Steroids” appeared first on Norwest Venture Partners.

We sat down with Kathryn Weinmann and Scott Mitchell to take a closer look at accelerating change in our food system and draw out some lessons that all founders can chew on. Scott is a growth equity investor focused primarily on consumer retail and packaged goods. He recently rejoined Norwest after leading the finance and corporate development teams at Belcampo, an innovative producer and distributor of pasture-raised meat using regenerative agriculture. Kathryn is a venture investor with a focus on consumer companies. She has spent the last 18 months evaluating the future of food, ultimately sourcing Norwest’s investment in UPSIDE Foods, a leader in cellular agriculture.

Let’s start with some basics. Scott, you’re on the growth equity side at Norwest. Kathryn, you’re on the venture side. How do these two differ?

Scott: On the growth equity team at Norwest, we partner primarily with founder-owned, bootstrapped businesses that have historically eschewed venture capital to get started. We are typically providing liquidity or growth capital in the “teenage years” of a business; after it’s found success in the market, but before maturity. Our goal is to help these entrepreneurs successfully navigate the new challenges ahead – such as launching new distribution channels or product categories, taking on new competitors, and hiring an experienced team.

Kathryn: Right – whereas our venture teams have a wider focus. We work with founders in high growth industries at all stages of development; everything from a company’s first seed round, to a late-stage, growth financing. Historically, venture capital often supported an extended period of R&D. Now, it more commonly funds accelerated commercialization and speed-to-scale, which create defensible moats: network effects, cost advantages, IP, and so on. I spend most of my time with founders of Series A and B companies who have found early stages of product-market fit and are looking for a partner to help them scale.

What got you excited about investing in food, and meat in particular?

Kathryn: Well, I’m from Texas, so meat is a big part of my heritage. But as I learned about how meat was brought to the table, I grew concerned about the limitations of conventional meat production. The environmental, animal welfare, and food safety realities are staggering. And global demand continues to grow, particularly in developing countries. The need for alternative sources of meat production creates significant opportunities, both for highly scalable innovation as well as more artisan production. Both of these, together, can protect our food supply.

The need for alternative sources of meat production creates significant opportunities, both for highly scalable innovation as well as more artisan production. Both of these, together, can protect our food supply.

Scott: Definitely. From a consumer standpoint, I’ve always been interested in the health aspect of high-quality meat. I also spent some time at an M&A firm focused exclusively on the food system, and pursued several food companies when I first joined Norwest. 

However, I didn’t understand the complexity of the overall system until taking an operating role at Belcampo – a fascinating, vertically-integrated food production business based on regenerative agriculture. I came on board to help the team scale a truly unique company. We operated 50,000 acres of organic ranch land, where we raised cattle, pigs, lamb and poultry, and a 20,000 square foot USDA certified processing facility. We sold that meat through nine company-owned restaurants, as well as a growing e-commerce and grocery business. For context, no other protein company that I know of operates as an integrated producer, processor, distributor and marketer. Most focus on just one aspect. That experience really helped shed some light on just how complicated (and dysfunctional) our food system is. 

What’s changed within the food system and food entrepreneurship in 2020?

Scott: Coming into 2020, there were already a number of long-term trends impacting the food system. Because it’s such a large industry, these were playing out over fairly long timelines. So much of what’s occurred in 2020 – from the COVID-19 pandemic, to shelter-in-place, to the necessity for equal opportunity – has taken that slow-turning cargo ship and pushed it 90 degrees in a new direction. We think this presents significant opportunities, and not just in the food space.

So much of what’s occurred in 2020 – from the COVID-19 pandemic, to shelter-in-place, to the necessity for equal opportunity – has taken that slow-turning cargo ship and pushed it 90 degrees in a new direction.

For example, at Belcampo, we served a demand for high-integrity, traceable meat. This demand was already rapidly growing. Many of our customers were knowledgeable about problems in our food system, from the lack of transparency about the source of the product to the inhumane treatment of animals, to concentration in the supply chain. Everything that’s unfolded in 2020 has really just further highlighted those issues. 

Kathryn: Without question, 2020 is highlighting the vulnerability of our food system and very much fueling the edible space race. Meat processing is a people-intensive business concentrated in massive facilities. When those groups are infected, the risk expands beyond contagion and into food security, as the price of meat rises and outages (intensified by panic buying) become more common. 

2020 is highlighting the vulnerability of our food system and very much fueling the edible space race. 

This is particularly true for communities that already struggle to maintain consistent and affordable access to food staples, which is heartbreaking given 30-40% of food in the U.S. is wasted. COVID-19 compounds these issues by disrupting supply chains and prompting large-scale dumping of food staples like egg, milk, and produce. For the past few years, we have had the pleasure of working with Imperfect Foods, which addresses food waste head-on by providing direct to consumer access to produce that might otherwise be thrown out due to cosmetic damage or surplus inventory. To date, they have saved 139M pounds of food!

Let’s talk about transparency. What’s changed in 2020, and what opportunities do these changes present?

Kathryn: More than ever, consumers care about what they eat and where it comes from. We see this happening in other markets too, including fintech, real estate, and consumer products. But the beauty of innovating in an opaque industry is that there is often a huge opportunity to build a trusted relationship with consumers in the blank space left by incumbents. Historically, animal protein hasn’t had to rely as heavily on brand as other categories – shopping lists might include Cheerios (branded), Coca-Cola (branded), a carton of eggs (unbranded), and two chicken breasts (unbranded). For this reason, price has been the most important purchasing criteria for conventional, commodity meat. 

The beauty of innovating in an opaque industry is that there is often a huge opportunity to build a trusted relationship with consumers. 

But this is changing. We’re seeing that many consumers are willing to pay up for novel meat alternatives (initially plant-based, most notably from Impossible Foods and Beyond Meat). And they want to know what they’re buying. By extension, labelling is a hot topic in food innovation transparency. Many labels displaying bucolic scenes of animal life are deeply misleading. In the case of meat alternatives, there is ongoing discussion about whether the term “meat” can be used at all. But limiting the use of “meat” only to conventional meat risks misleading consumers as well, particularly for cell-based alternatives. For example, if cell-based shellfish were labeled something other than shellfish, that could pose a significant risk to allergic consumers.

Scott: As Kathryn says, people are demanding more transparency from the many companies and institutions they interact with. That transparency is displayed in a number of different and creative ways. For example, multi-vitamin brand Ritual started with the mission to increase visibility in the supplements supply chain and now has an interactive map that displays the original source for each of their ingredients. We’ve also been able to partner with some incredible founders like Kendra Scott and Joe Kudla (of Vuori) who have been aggressively transparent about their values and how those are reflected in their products and brands. That creates a truly authentic experience for the consumer. Increasingly, food consumers are craving this, too. 

What about the supply chain? What changes are we seeing there, and what will the effects be?

Scott: I actually moved up to the Belcampo ranch when I first started and spent an entire year just trying to figure out how to scale a grass-fed meat operation. That experience really shed light on an industry that is just waiting to be upended. The most obvious indicator is just how concentrated the protein sector is: four companies produce 73% of the beef consumed in the US! The food supply chain is highly regulated, capital intensive, low margin, and is impacted by everything from weather to animal biology. Even though it’s challenging, I do think that companies that either own or are “further up” the supply chain will realize more value for that going forward. In the public markets, we’ve already seen a sharp increase in the relative valuation of protein & private label food companies relative to branded food companies:

1) Index of the following companies, weighted by Enterprise Value: Pilgrims Pride, Sanderson Farms, Tyson, Lamb Weston, Hormel, TreeHouse, JBS, Cal-Maine, Flowers, Smithfield
2) Index of the following companies, weighted by Enterprise Value: B&G, Campbells, Conagra, Simply Good Foods, General Mills, Hershey, JM Smucker, Kellogg, Nestle, Hain, J&J, Modelez, Pepsi

Kathryn: Fundamentally, manufacturers’ efforts to produce more conventional meat in the same amount of space puts pressure on already confined animal conditions, and encourages the widespread use of antibiotics to combat disease. Despite these efforts, meat spoils after only a few days in the refrigerator, due to the amount of bacteria already present before it ever hits store shelves. Further, the majority of known infectious diseases in people can be spread from animals, and three out of four new or emerging infectious diseases in people come from animals. Given this connection, supply chain integrity is critical. Earlier this year, China lost almost half its pig population due to African Swine Flu. China is home to half of all pigs on the planet, so that means that this one outbreak eliminated one out of every four pigs on Earth.

How do these realities impact how companies are financed and built?

Kathryn: For many venture-backed companies in this space, the scientific breakthroughs and innovations required to bring down the cost of production are capital intensive. However, for those able to break through and build that trusted consumer relationship, there can be meaningful defensibility which allows founders to capture the value they create. That’s a big reason why we were particularly excited by cell-based meat: Plant-based meat enjoys an easier path to scale, but brand and distribution are often the central moats. That leads to an expensive and tenuous position for some of the initial disruptors, now facing stiff competition as incumbents produce similar plant-based or blended alternatives (e.g. Tyson’s Raised and Rooted products). Cell-based meat relies more heavily on IP defensibility that it can supplement with distribution and brand advantages. From a product standpoint, we also believe that many consumers don’t want to compromise – they want affordable, real meat that is good for them, animals, and the planet.

Scott: I get excited about supporting entrepreneurs in this space because when there’s an opportunity this large, there’s clearly not a “one size fits all” approach to building or scaling a company. Kathryn’s team is supporting amazing businesses like Memphis Meats that have these incredibly powerful, audacious goals that will clearly take a certain amount of capital to scale. Then you have companies like Vital Farms that are attacking the same problems but offering a different solution. Vital is a pioneer in the pasture-raised proteins space, raised modest amounts of private capital over the years despite having a relatively capital-intensive business, and recently filed an S1 to IPO. These entrepreneurs are offering a product or service to a specific customer and may be better served with a capital partner that can support that more measured approach to growth. Or in the case of Butcher Box, raising no outside capital at all!

In your relationships with founders, what have you learned about how best to approach investment? What features are shared by the success stories?

Kathryn: Good question. Here’s one thing: Start early. Start getting to know investors early, and don’t feel pressure to rush the relationship. I first reached out to Uma, the CEO of Memphis Meats, on March 10, 2019. Almost exactly 10 months later, we wired our investment into Memphis Meats’ Series B. While the actual deal process was only a fraction of that time, the importance of building that trusted relationship cannot be overestimated.

Scott: Couldn’t agree more! Our most successful investments on the growth equity team tend to be in the companies and situations where we felt most aligned going into the investment. From the partnership itself to the growth strategies, to the exit planning. That’s why we really encourage entrepreneurs to start conversations with potential investors before they are thinking about a partner. Not to one-up Kathryn here, but we closed an investment towards the end of last year that was the culmination of a six-year conversation!

Also – find your fit. Do research on the firm’s approach and history to screen out the right fit ahead of time. Then ask those firms to add value in the conversation: get their thoughts on the industry, KPI benchmarks, acquisition opportunities, et cetera. You’ll get a quick sense of whether that firm understands either the industry or specific growth stage your company is in. 

Kathryn: Absolutely. Find a mission-aligned investment partner who has the relevant channel expertise to power your go-to-market, and ideally the fund capacity to continue to invest in the company over time. Before investing in Memphis Meats, we met with more than 40 companies in food innovation, as well as incumbents, regulators, investors, and industry groups. That allowed us to understand the opportunities and challenges associated with changing the face of food. We shared with Uma our results from a large consumer survey on consumption habits, shopping preferences, and pathways for exposure to new foods. We discussed brand strategy and go-to-market partners based on our experience working with large brands where consumer education was key, including Imperfect Produce, Talkspace, Ritual, and Wyze. 

Also, as a founder, you should have more than just the individual partner on your side – you deserve the weight of the firm you work with thrown behind your efforts. As important as it was for the Memphis Meats team to get to know our deal team, it was equally important that they felt supported by the broader firm.

And what attributes do you look for in foodtech investments specifically?

Kathryn:  Foodtech is hard. Consumers rightly have a high threshold for what new foods they are willing to put in their body. Further, this sector is massive and often highly commoditized. So an intense focus on cost structure and ability to defend against both incumbents and other new entrants are key. So I look for founders who have a clear sense of how to build consumer trust, manage their cost structure now and at scale, and intentionally structure defensibility whether through IP or through distribution. 

In closing, what is your 10-year prediction for the future of food?

Kathryn: The most successful venture-backed businesses often ride a wave of change as much as they create their own momentum. The way that food is brought to the table ten years from today will be unfathomable to the generations before us. Cell-based meat, alternative dairy, indoor farming, even how we discover and source our food will all change dramatically. Amid all these changes, consumer trust is paramount. Many founders have tried before but were too early; the founders who have the expertise and ambition to wrestle help us cross the (regulatory, quality, consumer acceptance) chasm will be the big winners in the new food economy.

Scott: I hope to see a world where people are closer (physically and emotionally) to how their food is produced. But regardless of whatever specific advancements are made, I do know that this industry will continue to present opportunities for passionate entrepreneurs to create products that improve the wellbeing of our people and planet. If you’re pursuing this mission, I’d love to figure out how we can help!

The post Food Industry Changes – a Long Time Coming appeared first on Norwest Venture Partners.

1. Misunderstanding the Cash Conversion Cycle

The Cash Conversion Cycle formula is easy to understand as a concept (Days Inventory Outstanding plus Days Sales Outstanding less Days Payable Outstanding) but can be incredibly difficult to manage. Many SMBs, which operate with limited accounting and finance support, have a hard time juggling cash collections, inventory turns, and vendor payments all at once. Most often, a company is managing customer terms promised by a sales team to drive revenue, supply plans determined by operations to ensure nothing is out of stock, and shorter payment terms negotiated by buyers to secure the best product.

The disconnect between these teams and their goals can put a strain on cash and potentially cause major problems to the underlying business plan. In order to be successful, management needs to have a deep understanding of each cog in this wheel to service the cash requirements of the business and to help mitigate any potential conflicts.

2. Failing to Identify Financial Bottlenecks

Identifying the financial bottleneck in your company can be a tricky one. You may find yourself saying, “Why is new customer growth just not there?” The easy assumption might be that all of your competitors are pumping money into customer acquisition, thus making it harder to find new veins of gold. However, if you dig a little deeper, you may find that the customer experience is underwhelming which compels you to spend harder on customer acquisition to bring new customers into the fold. Many times a dated storefront, sub-optimal product assortment, or a lack of customer service is the biggest inhibitor to growth and is the true bottleneck making your capital work harder. Identifying those internal pain points can drastically reduce cash outlays by guiding where your capital should be spent in order to achieve your company’s desired growth.

3. Lacking Cash Levers and Lines of Credit

Financial forecasts are notoriously wrong. There are revenue misses, margin contraction, and unexpected expenses which often leave SMBs facing unforeseen circumstances and/or new challenges on a monthly, weekly, and even daily basis.

As a result, it is crucial to identify levers to slow or stop inefficient cash burn when it begins to balloon. Identifying the right levers can slow down or stop the burn while you wait for the business to course-correct. However, if your levers are marketing spend or product delays then you may be compromising the trajectory of the business. A modest line of credit can help you navigate a rough patch and can allow the company to continue to execute its strategy without restricting marketing or product spend.

4. Focusing on Too Many Metrics

Measuring performance is paramount to tracking the progress and the pulse of a business. However, having too many Key Performance Indicators (KPIs) usually creates unnecessary complexity. Employees with too many metric goals end up spending more time updating their scorecards each week, rather than focusing on executing strategy—the crucial performance driver for any company. To solve for this issue, limit tracking to the five most important metrics that drive the performance of your business. This will keep the team focused on achieving results, rather than checking a box.

5. Waiting Too Long to Bring in a Financial Professional

Many issues can be solved by having the right people in optimal roles, which is why hiring the right finance professional is critical. Regardless of title, financial leadership tends to be the final addition to management teams, which is often the reason many SMBs struggle. Having a robust understanding of working capital, return on invested capital, and how to partner with key departments to drive value is especially critical for SMBs. That skill set may not reside with an accounting manager or controller, and spending the extra money to get the right finance professional pays itself back far faster than most people think.

At Norwest, we have 150 active portfolio companies across all stages and sectors, including startups and bootstrapped, founder-owned SMBs, so we know the challenges and triumphs that come with building a business. While the advice here is not necessarily “one size fits all,” we think most SMBs will find value in at least a few of these lessons learned.

Don’t forget to regularly have the “money conversation” with management and stay mindful of these five pitfalls. By following these guidelines, SMBs can get ahead of potential problems and improve overall business performance at each step of the journey.

About the authors: Jon Kossow is a Managing Partner at Norwest where he leads the growth equity practice and focuses on investment opportunities across a wide range of sectors, including information services, software, internet, and consumer.

Joe Fisch is the CEO of Wine Access (a Norwest portfolio company) and has over 10 years of experience in leading and advising retail and consumer companies to improve their financial growth strategy and planning process. Prior to Wine Access, Joe held leadership positions in finance at Ghirardelli Chocolate Company and PwC.

The post 5 Common Finance Mistakes SMBs Make appeared first on Norwest Venture Partners.

To help future founders get a birds-eye-view of just what those twists and turns can look like, we asked seven founders to share some of the biggest surprises they’ve had on the job as they’ve built their company. Here’s what they shared.

Every Day is An Adventure

“The most surprising thing is that every day is an adventure,” says Amy Errett, CEO and Founder, Madison Reed. “The things that you thought a month ago were the hardest things that you’re ever going to tackle…three days later there’s something harder. Even in the midst of that hard stuff, I get totally energized every day by my job in spite of the hard curveballs that get thrown at you. Many of them aren’t fair but it doesn’t matter, that’s just the way it goes.”

The Importance of Determination 

“The advice I would give to an entrepreneur who is just starting out is that determination is vital,” says Philip Krim, CEO and Co-Founder, Casper. “With any startup, the odds are what you want to create doesn’t exist yet.”

“By definition, that means you’re charting a new course and creating your own path. Often times, there are difficulties along that journey. To get through those challenges, you need to have determination and conviction that what you want to create needs to and must exist. It’s a crucial ingredient to long term success.”

The Power of Community

“The thing that’s most surprising to me is just how amazing our community is,” says Stu Landesberg, Founder and CEO, Grove Collaborative. “Grove speaks to people from every state in the country, from rural to urban, from young to old, who really want to make better decisions about the products that they’re buying for their families, their pets, their friends, their roommates, and also for the planet.”

“I think the depth of connection that we’re able to make with our community because of our mission and because of the incredible people that are out there, continues to surprise, amaze me, and delight me every day.”

It Takes a Village

“I think everything has been somewhat surprising,—you’re creating something out of nothing every day,” says Bianca Gates, CEO and Co-Founder, Birdies.”Every day there are surprises, but I would say the biggest surprise on this journey for me has been raising money. As female founders, we’ve heard stories of women trying to raise money from venture capitalists. And in my mind, I had this impression of venture capitalists not understanding what we’re trying to do.”

“We really extended the life of our initial investment of $100,000 as long as humanly possible so that we could avoid raising money,” says Gates. “But it turns out, once we really felt ready to raise money, it has just been the biggest surprise and delight of this journey. The family at Norwest has been an incredible team of people who have not only invested capital in us but a tremendous amount of resources. They are lifting us up as we build this company, and almost creating a road map for us that has been incredibly helpful as we have grown in the last few months of this partnership, and in the last couple of years since raising money.”

“I would even expand that more broadly,” says Marisa Sharkey, President and Co-Founder, Birdies. “I absolutely agree with Bianca, but even beyond that, just the number of people that I’ve met and had interactions with over the course of my life who have been helpful in building Birdies has really surprised me. Of course, I find that it’s useful to ask very specifically for the help you’re looking for, but people have come out of the woodwork to really support us both and really support the building of our brand.”

“People that I worked with ten years ago, or that I went to school with—people are really inspired that we’re doing something new, and they want to help,” says Sharkey. “I’ve just been surprised and really delighted to see that. And it’s been so fun to collaborate with other people, and see their unique ideas.”

It’s as Satisfying as it is Hard

“The biggest surprise for me, one, just how hard it’s been,” says Jennifer Fitzgerald, CEO and Founder, Policygenius. “The advice I give to other founders is, ‘However hard you think it is, it’s probably a hundred times harder.’ Everything is harder when you don’t have a brand, when every day counts, because you are not yet profitable or a big household name.”

“Everything from recruiting talent to attracting customers—it’s just that much harder,” says Fitzgerald. “You’ve got, basically, one hand tied behind your back when you are a new, emerging company that not a lot of people have yet heard of. Just how hard it has been a very humbling experience. On the surprisingly positive side is just how great it feels when things actually work and you’re able to get really great people working for you, and you’re able to deliver on a promise to customers. It’s easy to get lost in the weeds and not think about that, but it is deeply satisfying.”

Finding Mission-Driven Partners in Surprising Places

“A lot of the developers we partner with are really just looking to build more housing,” says Brad Hargreaves, CEO and Founder, Common. “They’re looking to create more and better places where people live. Common works with them to help make sure that they are building the right way: that they’re using smart design, that they’re utilizing technology to make their products more affordable, and that it’s accessible to a wide number of Americans.”

“Really understanding the needs of the real estate owners and developers we work with on a day-to-day basis, understanding the challenges they’re facing, has been one of our biggest surprises,” says Hargreaves. “They are almost always aligned with Common in creating a high quality, affordable housing product.”

What’s been your biggest surprise as a founder and CEO? Let us know on Twitter @NorwestVP

The post 7 Startup CEOs and Founders Share Their Biggest Surprises appeared first on Norwest Venture Partners.

Shannon Gordon, CEO of theBoardlist, kicked off the event with an overview of the landscape of women on boards and how the process works. She also shared some valuable tips on how to start looking for a board opportunity. Here are the 5 key pieces of advice she offered to attendees:

Attendees also got to learn from a panel of incredible executives who discussed their experiences joining boards and what to expect once you’re on a board. The panelists included:

Here are some of the highlights from the panel discussion:

How did you know you were ready for a board seat?

Allison: “I had already been exposed to the concept of a board. I hope to be CEO someday.”

Anndria: “I didn’t know. I was speaking at an event and someone came up to me and asked if I would consider a board position. That person said, ‘if we had to write (a description of) what we wanted that’s exactly what you have.’”

Glo: “I’ve been ‘board-curious’ for a while.”

How did you get started?

Allison: “Finding a board seat is different than finding a job. It’s more like dating – you need to create a halo effect about yourself. Kind of like inbound marketing instead of outbound. Let your community know you’re interested. I was lucky to have a great sponsor in our CEO. He referred me to my first board seat. ‘Doing great at your job’ and generating results and making sure people around you are supportive and developing strong expertise in a certain area is important.”

Anndria: “I expected these interviews to feel more like a job interview. So much of it was about board dynamics. It was loosely structured about getting to know the other board members and sharing my ideology.”

What has surprised you about being in the boardroom?

Glo: “My strength is building and scaling a global sales team. Now I’m on the other side of the table asking the team to back-up their pipeline. I thought I was going to be quiet on the first meeting. I was the only operator on the board so I brought a different perspective and street cred.”

Anndria: “Once you’re on a board all of these other opportunities will come. I am now referring other people to boards. I like to think I’m bringing more diverse candidates into the market.”

Allison: “In the board context, you need to think through which forums do you use to get your point across. Is it a 1:1 conversation with the CEO? Should you bring it up during open session? Closed session?”

We closed the panel with some good advice for the attendees in the room:

Allison: “It’s not always clear what success looks like. It’s not always clear if you’re doing well. It’s important to check in with the chairman or the CEO. Have your own scorecard for yourself.”

Anndria: “Know your value and bring it strongly.”

Glo: “It’s valuable to get some training. Check out Directors Academy, theBoardlist, and University Director College programs.”

The post Demystifying the Boardroom – What to Expect Once You’re On a Board appeared first on Norwest Venture Partners.

“We shall escape the absurdity of growing a whole chicken in order to eat the breast or wing, by growing these parts separately under a suitable medium.”

– Winston Churchill, 1931

We are thrilled to announce our Series B investment in Memphis Meats, a pioneer in the cell-based meat industry. The company’s vision is to provide a sustainable, humane and healthy alternative to conventional meat and, in doing so, help secure global food supply. We are excited to partner with Memphis Meats’ extraordinary team on their journey to feed the world.

Meat [Still] Matters

Of all calories consumed globally by humans, 30 percent comes from meat, and the $1.4 trillion global market for meat is expected to double by 2050. No matter your diet or politics, the reality is that conventional meat production methods can’t keep up with global demand. Animal agriculture already uses a third of fresh water available on Earth; grazing land and cropland for production of feed represents almost 80 percent of all agricultural land. Manufacturers’ efforts to produce more meat in the same amount of space puts pressure on already confined livestock conditions and encourages aggressive use of antibiotics to combat disease. At current consumption rates and using conventional production methods, meat will become not just unsustainable, but also unattainable – in only one generation from now.

The majority of American omnivores have considered reducing their consumption of meat for health, environmental, and/or animal welfare concerns. Novel plant-based meats, most notably Beyond Meat and Impossible Foods, have made significant inroads in convincing consumers to explore conventional meat alternatives. However, almost 90 percent of consumers eating plant-based meats are omnivores – even as they cut back, many people still crave the real deal.

Serving Up Cell-based Meat

What if consumers didn’t have to compromise? Cell-based meat, or whatever label regulators ultimately select, allows consumers to enjoy the meat they know and love while offering potentially huge environmental, health and safety, and animal welfare benefits. It is real meat, but without the animal.

Here’s how it works: The team collects a small sample of cells from high-quality animals and selects the ones with the greatest potential to grow into high quality meat. These cells are then fed essential nutrients to develop into muscle, fat, and connective tissue. The end result is a product that is compositionally the same as conventionally-produced meat, but entirely pure – simple ingredients, clean conditions, minimal impact.

So why isn’t cell-based meat on our plates today? The capability exists at small scale, but production costs are high – the world’s first cell-based burger cost nearly $300,000 to produce. The regulatory pathways to bring this product to market are still unfolding. Finally, there is little venture funding into this space, especially beyond the seed stage. That is all about to change, and you have to hear the Memphis Meats story to believe it.

The Unexpected Cowboy

Memphis Meat’s co-founder and CEO, Dr. Uma Valeti, grew up eating meat, but he grew uncomfortable with how meat was brought to the table. As a cardiologist trained at the Mayo Clinic, Uma repaired patients’ hearts, at times using heart tissue grown from individual cells. He realized that a similar process could grow real meat directly from animal cells, eliminating the need for livestock and animal slaughter. From our first meeting, we were struck by Uma’s unshakable commitment to realizing this dream.

We see in Uma the values that we admire in America’s cowboys – an authentic love for the land and sense of duty to protect it, the courage to ride into uncharted territory, and the heart to finish what he started. Uma appreciates the role that meat plays in nourishing communities and bringing loved ones together, and he doesn’t want any of us to have to compromise.

Uma has built a world-class technical team with powerhouses from companies such as Genentech and Merck and the world’s best food and agriculture scientists who share his passion and vision. This team is uniquely positioned to build a platform that can produce meat from any animal species, a huge accelerant for development. Initially, it was hard not to wonder if Uma was all hat and no cattle (translation for non-Texans: all talk and no action). But after tasting their chicken and duck, it became clear that this is the future – and Memphis Meats is the team to get us there.

The company understands the importance of trust and education in this budding market. Memphis Meats has been working closely with regulators and leading an industry consortium to ensure a safe, pure, and tasty consumer product. This funding will allow Memphis Meats to build a pilot production facility, bring products to market, and expand their incredible team (yes, they’re hiring!). The opportunity to work with visionaries like these is why we got into venture in the first place. For us, their story is one we want to tell our grandchildren about one day. Memphis Meats’ ambition creates a legacy that we all get to enjoy – in a safer, healthier, more sustainable world.

Bite-Sized Backgrounds

Priti: I am a lifelong vegetarian who believes in non-violence at my core. I realize I’m not going to turn the world into vegetarians, but cell-based meat is the closest and next best thing. In Memphis Meats, I see a massive opportunity to feed our planet in a sustainable and humane fashion. 

Kathryn: I grew up in Texas, where vegetarian options are in short supply. I lived in Nashville, the home of hot chicken and the Meat and Three. My family is from New Orleans, so we also eat just about everything under the sea. Meat is a big part of my heritage, so Memphis Meat’s mission immediately resonated.

The post A Rare Opportunity – Memphis Meats Serves up Real Meat without the Compromise appeared first on Norwest Venture Partners.

We are optimistic that 2020 will usher in a new wave of startups and emerging technologies that will shake up the playing field and solve problems that consumers and enterprises face every day. We surveyed a few Norwest partners on what they expect to see in 2020. Here’s what they said:

Jeff Crowe, Managing Partner
Direct-to-consumer (DTC) companies are pulling out all the stops in a world where Facebook and Google are getting more expensive every year. Not only are the DTC companies looking for other acquisition channels, they are racing to offset CAC with higher gross margin products, higher average order values, and improved customer retention. At the same time, DTC companies are aggressively moving toward omnichannel distribution strategies beyond pure online.

Sonya Brown, General Partner
Amazon killed the Big Box, but can Amazon keep the Big Brands? With the departure of Nike, more consumer brands may feel emboldened to consider a similar departure, but I question how many brands have the consumer engagement and power the way a Nike, Disney or Apple do. 2020 may see the separation of the haves and the have nots.

Robert Mittendorff, Partner
2020 will be the year when new models of care, technology, and artificial intelligence will merge with the existing healthcare ecosystem.  We will see the transformation before our eyes as Walgreens and CVS engage telemedicine, as AI becomes part of the front and back office of healthcare delivery, and as technology allows patients to self manage their conditions.  Look for more IPOs, more big mergers, and more acquisitions by leading consumer and enterprise companies.

Priti Choksi, Partner
The success of alternative protein companies such as Beyond Meat and Impossible in 2019 will lead to greater, more mainstream investments in alternative food companies in 2020. Our future food supply is at risk, and novel forms of protein – in plant, cell, or microbial alternatives – will be imperative to feeding our planet in a sustainable and humane fashion. There is, of course, a great deal of consumer education and adoption curve ahead, but the rising tide of investments into this category will lift all boats.

Rama Sekhar, Partner
2020 will usher in the year of ‘AI in the Enterprise.’ AI will get an upgrade from being an ingredient to a first-class citizen as CIOs will introduce AI-first initiatives, just as they adopted cloud-first initiatives five years ago. Companies will have to justify why they’re not using AI in their own software, processes, and workflows in 2020. To accomplish this, opportunities will emerge for startups to help enterprises scale, manage, secure, monitor and deploy machine learning models. The skills gap in the area of ‘DevOps for machine learning’ will be a headwind as enterprises take on this exciting challenge.

Lisa Wu, Partner
2019 was a dynamic year for unicorns and IPOs. In 2020, we’ll see more public market action, including Airbnb’s highly-anticipated IPO. There will be a couple more surprises from companies that are high-growth and cash efficient and that are able to attract a market premium as we saw with Zoom and Datadog in 2019 – and investor sentiment will continue to sour on high-growth, high-burn, low margin consumer companies with upside-down unit economics as the market pendulum swings from growth-at-all-costs towards cash efficiency and profitability in both public and private markets.

The post Our Tech, Consumer & Healthcare Industry Predictions appeared first on Norwest Venture Partners.

One of the core values for the NVP growth equity team is to not take themselves too seriously. With that in mind, here are Managing Partner Jon Kossow’s top “predictions” for 2020!

1. The true benefit of self-driving cars becomes apparent when one completes a late-night run to In-N-Out and successfully orders a burger “Animal Style.”

2. Membership at Singing-As-A-Service reaches an all-time high when the website is changed to SAAS.song. Unfortunately, no new members know anything about singing.

3. Data will become so voluminous, scientists will begin to store it in actual physical mines.

4. Stealth email security company “Swiss Cheese” will officially launch, with the stated business goal of allowing all spam email to penetrate networks… since it does already. Monetization will be figured out later.

5. Surgeons will rejoice at the next meeting of the American Academy of Otolaryngology as new methods of treating “text neck” go viral.

6. Feeling left out of the Direct-to-Consumer (DTC) party, moving companies develop subscription businesses for selling just the box.

7. Rather than comply with the California Consumer Privacy Act, ALL technology companies leave the state en masse. Followed shortly by all consumers, who are no longer targeted online for things they actually want to buy.

The post Jon Kossow’s Top 7 Predictions appeared first on Norwest Venture Partners.

“Rule of 40” may have correlated to valuation historically, but not anymore. Today, the public markets seem to favor “growth at all costs,” with revenue growth (regardless of profitability) having the best correlation to valuation. In some cases, UNPROFITABLE SaaS companies are even valued more highly than similar PROFITABLE SaaS companies growing at the same rate!

While we think recent investor sentiment is abnormal and will revert towards being mindful of profitability again, we also believe revenue growth SHOULD be valued more highly than profitability in assessing SaaS performance. At Norwest we developed a new internal metric, “3GP” (3 * revenue growth + profitability), which we believe better captures the value tradeoff between growth and profitability. As opposed to exceeding “Rule of 40,” the top quartile of public SaaS companies (ranked by 3GP) has consistently scored 100 or above under this rubric.

“Rule of 40” No Longer Correlates to Valuation

We analyzed the universe of SaaS companies that have gone public over the past 10 years (2010-2019). To minimize bias, we excluded companies that were undergoing transformative change (e.g., doubling in size due to a one-off acquisition) or that had less than 50% recurring revenue. With this company set, we charted valuation against various metrics including growth and profitability. A higher R² on a linear regression implies the metric is more correlated to valuation.

Data from 2016 and 2017 actually DID show a fairly strong correlation between growth + profitability (“1GP,” or 1 * Growth + Profit, for short) and valuation (Forward Revenue multiple). Companies with similar 1GP’s were valued similarly in the public markets, regardless of if those companies were high growth and low profit, or low growth and high profit.

However, the same analysis for 2018 and 2019 showed a significantly lower correlation.

Recent Markets Value Growth Over All Else – To Troubling Extents

In recent years SaaS company valuations have shown an increasing correlation to just revenue growth (with no regard for profitability)…For 2019 data, linear regression for revenue growth vs. valuation had an R² of 46%, as opposed to an R² of just 18% for a linear regression of 1GP vs. valuation.

This perhaps coincides with Silicon Valley’s more recent obsession with “growth at all costs.” Alarmingly, the data seemed to suggest that in many cases SaaS investors valued an UNPROFITABLE SaaS company HIGHER than a comparable PROFITABLE SaaS company growing at the same rate!

A number of metrics contribute to a company’s valuation, but on an aggregate basis, this trend is tough to reconcile. It is possible that the select unprofitable companies that seem to be trading at abnormally high levels are actually worthy of lofty multiples due to being in markets that are more attractive, having higher quality products or management teams, or possessing other advantages that allow for more sustainable growth. That being said, we think in general this trend is unlikely to sustain and that investors will once again revert to valuing both growth AND profitability, especially as highly unprofitable businesses encounter greater challenges raising new capital.

Introducing “3GP:” Growth is more valuable than profit

A SaaS business’s valuation should be levered to both growth and profitability. However, revenue growth compounds and EBITDA profitability does not. As long as revenue growth is being attained sustainably, 1% of revenue growth today should contribute more value to a company over the long term than 1% of EBITDA profitability today. Thus, a simple “Rule Of” calculation that places equal weighting on growth and profitability doesn’t properly assess SaaS performance.

To account for the compounding value of revenue growth, we created an internal metric at Norwest that places triple the weighting on revenue growth as profitability (“3GP,” or 3 * Growth + Profit). While not perfect, we found 3GP to correlate much more consistently to SaaS valuations across the past four years.

When ranking our SaaS data set by 3GP score, we found businesses in the top quartile consistently scored 100 or better and were both growing AND profitable. Interestingly, these companies did not always meet “Rule of 40” when adding growth and profitability.

3GP is Key

We believe 3GP (3 * revenue growth + EBITDA profitability) is a more accurate measure of SaaS performance, as compared to 1GP (or the traditional “Rule of 40” metric). While profitability should not be ignored, we believe revenue growth should be valued more highly due to its compounding nature. We measure all of our SaaS businesses internally to 3GP, striving to score 100 or above as a rule of thumb.

Since our inception, our team has always believed the best way to drive value is to maximize revenue growth while maintaining a level of discipline on profitability. We have developed detailed internal benchmarks and best practices to help drive companies to 3GP 100+, with most of our companies improving on this metric over our investment period. This approach has proven to drive significant value for our shareholders, with recent successful exits/recapitalizations with Avetta, Cority, and Rainmaker (all profitable SaaS businesses). If you are looking to scale and maximize the value of your SaaS business, we’d love to speak with you as well to provide deeper insights on how to drive 3GP and value.

* Represents all SaaS companies that went public between 1/1/2010 and the “As of” date. To minimize bias, we excluded companies that were undergoing transformative change (e.g., doubling in size due to a one-off acquisition) or that had less than 50% recurring revenue.

Additional Footnotes:

• We chose to analyze data as of April 1 of each year, presuming each Company would have reported prior calendar year financials by then
• For purposes of this analysis, “Forward” Revenue Growth refers to Forecasted Revenue Growth for the current calendar year. For example, Forward Revenue Growth as of 4/1/19 refers to forecasted CY2019 Revenue Growth.
• Analysis only includes SaaS IPO’s on NYSE, Nasdaq and TSX
• All financial data from Capital IQ

The post Keeping it 100: A Better Way of Assessing SaaS Performance than “Rule of 40” appeared first on Norwest Venture Partners.