This is a good and repeatable framework for evaluating SaaS companies. However, the most important part is where Nakul mentions
beyond that first step of feeling excited about backing the founders
I’m not an early stage SaaS VC, but from the other side of the table, I spend a lot more time thinking about why than what. I ask myself these questions once a week ever since I started thinking about Drafted.
- Why does this team exist?
Do they share common beliefs and motivations? Do the founders strongly believe that this is the best possible thing they could be doing? Do they wake up in the morning on the worst days, still excited about their mission?
- Why does this company exist?
Does the company have purpose? What is the mission? Simply “playing house” as Paul Graham puts it, isn’t that exciting.
- Why is the mission fundamentally important?
If it’s not, it might be better to work on a different mission. Working on unimportant things isn’t ultimately exciting, even if they make money. I’m not trying to make Peter Thiel’s 0 to 1 argument. I think it’s totally fine to work on things that add incremental but significant value to the world. A great example of this is incremental research and engineering performance improvements.
- Why is this company the best way to accomplish that mission?
Why is a SaaS startup a better way to accomplish this mission instead of a non-SaaS startup, or a mature SaaS company, a non-profit, a simple mailing list, or a Facebook group? If your mission is to make better web search, it might turn out that you have more impact working at Google than starting a search company. If your mission is to provide free education to the world, you’re better off starting Khan Academy than starting the Princeton Review.