615: Validating Your Proof Points for Investors | Jeff Epstein, Bessemer Venture Partners

Listen to the Episode Below (00:44:24)

In the mid-1990s, when Jeff Epstein was busy satisfying the M&A appetites of media clients for First Boston, one of his smaller, but more boisterous clients asked him to join the firm as its CFO.  

“It was the type of situation where if they had gone to a recruiter, I would never have made the resume cut because I had never been a CFO and I had never even worked for a CFO,” explains Epstein, who was 32 when he entered the lively entrepreneurial realm known as King World Productions. A one-time family-owned company, King World had seen its stature grow inside New York’s competitive media landscape as the firm began producing  giant hit TV shows such as Wheel of Fortune, Jeopardy and The Oprah Winfrey Show.

 “It was actually a small company with only about 300 employees, but they had three of the highest-rated, most profitable shows on television, with about $300 million of revenue and $60 million of operating income,” recalls Epstein, who would go on to add consecutive CFO career chapters at DoubleClick, Nielsen (Media Measurement), and Oracle Corp., a mix that fortified his footing in both the tech and media worlds—but also revealed little preference when it came to company size.

“King World had been a family business that had only recently become a New York Stock Exchange company when I joined them, so I had to put in place some basic procedures, but Oracle had been around for many years and already had very sophisticated processes,” notes Epstein, who today exudes as much enthusiasm for Oracle’s approach to simplifying and standardizing its internal processes as he does for the entrepreneurial instincts of King World chairman Roger King.

“Three minutes from when an idea came out of my mouth, Roger King would have picked up the phone and be pitching our largest customer, ” says Epstein, whose CFO tenure there lasted 6 years—a span of time during which King World would triple its value and ultimately end up being sold to CBS Corp.

It was following the sale of King World, that Epstein would open the career chapter that permitted his CFO career  to grow beyond a single industry.     

“DoubleClick was an early Internet advertising technology company and wanted a CFO from either media or technology, so I had the media experience part,” comments Epstein.

Today, as operating partner for Bessemer Venture Partners of Menlo Park, Calif., Epstein marvels at the continued evolution of the two industries that shaped his CFO career:

“Two years ago, global Internet advertising surpassed global television advertising revenues to become the biggest media opportunity in the world—so if you’re around long enough, you see some incredible things.”

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Your COVID Response.

Priority #1: Preserve the company

Guest: Jeff Epstein

Company: Bessemer Venture Partners

Connect: www.bvp.com

Headquarters: Menlo Park, CA

CFOTL: What are the metrics you believe should be top of mind for those finance leaders looking to raise capital?

Epstein: If I’m the investor, I like to have metrics that offer proof that (management) has already figured out the playbook. So what are those proof points? Well, the first proof point is, do we have product market fit? Do I have a high net promoter score? Are a high percentage of my current customers referenceable, where the company can just randomly call a customer and they get an endorsement that the product’s great. If I have salespeople, are 75% of my salespeople making quota? Metrics like that and which (validate) we have product market fit and we have a repeatable sales process. The other sales metric I like to see is CAC payback. If you take all the customer acquisition costs (CACs), marketing and sales, and you say how much gross profit per year I bring in from my new customer marketing and sales, does that payback in a year?

Does that payback in two years, that payback in three years? At Bessemer, we want to see that payback in under two years. What’s my win rate? What percentage of deals do I win? When I lose, who do I lose to? Why don’t I win? Is it all direct sales or do I sell through partners? What’s my partner strategy? How much, if I’m doing marketing, how much marketing do I get from Google, from Facebook, from other marketing channels? So all those metrics are really important. And then finally, once I have a reasonable business, can I keep my customers? What’s my gross renewal rate? If I start with a hundred customers a year later, do I have 95 or 75? And then the customers who are left, do they buy the same amount or they buy less or they buy more? And that tells me what my net renewal rate is.

Does that payback in two years? Does that payback in three years? At Bessemer, we want to see that payback in under two years. What’s my win rate? What percentage of deals do I win? When I lose, who do I lose to? Why don’t I win? Is it all direct sales or do I sell through partners? What’s my partner strategy? How much, if I’m doing marketing, how much marketing do I get from Google, from Facebook, from other marketing channels? So all those metrics are really important. And then finally, once I have a reasonable business, can I keep my customers? What’s my gross renewal rate? If I start with a hundred customers a year later, do I have 95 or 75? And then the customers who are left, do they buy the same amount or they buy less or they buy more? And that tells me what my net renewal rate is.

So, maybe I started with a hundred customers. I end up with 90, but the 90 who are left all buy more, so I end up with $110 of revenue. From the hundred dollars revenue before, I’m growing 10% with no new customers. So you want to see a net renewal rate above a hundred percent. So this is sort of my guide to all the metrics that we look at.

And if you’re the CFO pitching investors with any luck, many of those metrics are very attractive. And you share with the investor, the attractive ones, and then the ones that aren’t attractive, let’s say only 40% of my sales team’s making quota instead of 75%. Then don’t hide it. I say, “Look, we have 40% of my sales team in quota. Here’s what we’re doing about it. We’ve just hired a new head of sales training and sales enablement, where our sales to the $10,000 customers are great, but our sales to the $100,000 customers are poor. We’ve just hired these two new salespeople. And we have a playbook for how to fix that.”

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