Dana Oshiro is General Manager at Heavybit, a fund and support programme that specialises in start-ups whose products target developers.
Dana Oshiro directs the accelerator’s curriculum and advisory network. In this talk from DevRelCon San Francisco 2019, Dana runs through the key metrics and startup stages to understand as a developer relations contributor.
So, thank you so much for having me. My name is Dana Oshiro, and I’m a general partner at Heavybit. And really, I’m here today to talk about how startup valuation is calculated. Hot topic, I guess, I don’t know. And then how developer communities contribute to that.
So really, what Heavybit is is an accelerator program that works with developer, and infrastructure, and enterprise companies from Series Seed to Series A through to B, so it’s a very, like, targeted group.
And my job is really to build the curriculum and benchmarking for founders, underlying all that. I’m supposed to be helping them scale their go-to market and increase their company valuation. There’s a lot of, like, investor-type words in here, but I’ll get to them.
These are the companies, if you don’t know Heavybit, you might know some of the companies that we work with today. Since 2013, it’s been 47 companies, all a little bit different, and all of them definitely benefiting from developer community and from dev rel people like you.
So, this is why we really care about your community in particular. For Heavybit, we understand that bottom-up go-to-market strategy is possibly the most effective type of go-to market for a company.
And basically what that is, is there’s a difference between the top-down and the bottom-up. From the top down, you build a product, you build up a sales team, you get people, like, basically cold calling and cold emailing people to try to get access to the, or to try to get people to pay for the product, right?
On the bottom-up side, it’s more about building this early community, getting people to iterate on the product in the early days from alpha and beta. And then when it gets to GA, there’s already these people that have ownership into the product as well as ownership into your success, right?
If you can build a developer community that way, and you can keep them around and keep them really loyal and also contributing to the platform in the end, like, this is gold.
This is how companies do really well in this space. This is how you beat the incumbents. And I don’t know if there’s AWS people here, but some of our companies are gunning for you, right? So, hopefully, right?
So, the first conference that Heavybit ever did was DevGuild: Dev Evangelism in 2015, and there’s three people running this conference. But we went to you and to your community, and we asked for your help knowing that you could do so much for us, right, and do so much for our founders.
We did it for two reasons. One, we wanted you to school founders on how they can build a strong dev rel community from the ground up, and, two, our founders needed to hire people like you. So, we kind of use this as an opportunity to bring you in.
And, like, it has definitely paid off, and it has definitely been amazing for our companies. And you can see the trajectory from three people just building something up and hoping that anybody will look at a product to something much later stage, right?
So, really, here, you’ve helped not just, like, my career and Heavybit so much, and our community and our founders so much, but I am hoping to communicate to you what the other side looks like and the type of pressures that founders are under when they’re building up these companies and they’re working with you, right?
So here’s really the big picture. There is a timer at any given stage when you are trying to scale up a company, and that timer is your runway. So if, you know, maybe it’s kind of boring, you’re sitting in a meeting, and you’re listening to somebody talk about the financials, and the runway, and, you know, what the sales metrics look like, but really, what that actually means is they have 12 to 18 months to keep the company going, scale it, get to particular milestones or your company is effectively done, right?
So, in that time, the milestones allow companies to either become profitable and self-sustaining, keep going as a company, and that’s, like, the ideal, right? If you can become profitable and make revenue directly off of your customers in the early, early stage, you don’t have to deal with all of this fundraising stuff, and you don’t have to deal with really worrying about all that side of it.
But more often than not, in the early stage, I’d say most companies are looking to raise additional funding, and that definitely comes with these milestones in place as well.
So, this is, like, the simple math or the simple summary, and I can send this out after the talk. But as far as SaaS funding is concerned, these are the different metrics that companies are meant to hit. This is the SaaS fundraising napkin that Point Nine Capital puts out every year.
This is pretty accurate, right? So, of the 47 companies that we have worked with, those that are in this, like, healthy metric phase for each of these areas tends to move on to the next stage and tends to be able to scale up their company over time.
So, the big things to note here are really that you have 12 to 18 months, generally, between Seed to Series A, and Series A to Series B, right?
So if you can look at those metrics, and we’ll talk about them a little bit more, and I’ll go more deeper into those. But, you know, at Seed, you might not have a lot of revenue coming in, but you need to have a little bit just to prove out that somebody wants to pay you for something that is useful and a good product, and really you’re kind of in discovery phase.
And then as you move up the ladder, and the more you decide to raise, like, the higher the metrics become, right? One thing to note is that if you raise a larger round in the early stage, all other milestones get tougher. So let’s say you raise, like, a $5 million Series Seed, actually your metrics should look a lot closer to this Series A column.
And then these are the milestone categories. Probably a lot of these are pretty familiar to you, but they’re literally categories that investors are looking at when they’re looking to invest in a particular company or get into a round.
So, the first one is ARR and growth, annual recurring revenue and growth. It’s basically just how much money you’re making and how fast you can make that money.
Team, in the early stage with founders, it’s usually, like, they’re looking at, you’re looking at the domain expertise of those particular founders and whether or not they’ve built a similar type of company for a similar type of audience.
But at the later stage, when you start to scale, you need to be able to prove out that you can hire really good people and also that you can put a management layer in.
So, let’s say it’s Series F. If somebody hasn’t, like, I mean, if you can make it to Series F without hiring, like, managers in between to train up different teams, like, that founder is probably very lonely and very, very tired, right? That is not very often that happens. So, you’re really looking to build these layers and build these, like, more specialized teams.
Product/market fit is another one. So, this is really just, like, user traction, like, how many users are we working with, and what is the size of the market opportunity in the future?
And then sales and marketing efficiency, that’s a user acquisition piece. And moat, which is investor lingo for basically defensibility. So it’s, like, you take a dev tool and you turn it into an ecosystem. So it’s like building something up that is more third-party contributions and much larger, right?
So why does all this stuff matter? I don’t know if you should pay attention to the slides at all honestly. Why this matters is because this is, like, good for your career. If you understand all of these things about the company, then you will understand how your strategy fits into it.
So, the milestones that are crossed up there are, like, they will help you increase valuation. I think, at the end of the day, though, in the early, early, early stage of a company, the milestones that you cross allow you to survive as a company. And, that is, like, the name of the game in the early, early days, right?
Revenue is one of the things that goes into valuation. Your valuation increases as you make more money. I think that makes sense. Like, you made more money, you’re worth more money as a company, right?
And then money raised is a weird, nuanced thing. So this is about investors have confidence in your ability to turn a future profit and that there’s a large market opportunity there.
And that everything, all your valuation resets when that happens, like, when you raise your round. An example might be, for that, is really, like, one of your major competitors IPO-ed or got acquired. That tells investors that you’re a lower risk as a startup, and therefore, they will put more money in at a higher valuation.
On the other end of it, that’s also true. If one of your major competitors fails, that’s kind of bad for you, which is, like, I don’t know that that’s like obvious, but it’s bad for you on the fundraising side because investors now think, “I don’t know if that’s a real market opportunity. I don’t know if that’s a possible business that people can keep going.”
I think for dev rel, especially in the early days, your sweet spot and the thing that you contribute to, and the thing that you, you save founders’ asses in these three areas, right?
So, product/market fit. You are generally pretty good at figuring out who the user is, figuring out how many users there are, getting to them, and just trying to get product feedback, right?
Sales and marketing efficiency. I know it’s weird to say that you’re in this category, but this is honestly what most investors put you in. This is, like, just about user acquisition and efficient user acquisition. So, are you able to get to users, and are you able to do it on the cheap?
And, I mean, saying it that way is weird, but, honestly, you’re good at the word of mouth thing, right? You’re good at building a community, getting people excited about a thing, and then scaling from there.
And then the last is this, like, defensibility piece. This is honestly where I think it gets really, really fun, is you have this dev tool, you worked your ass off to get to the stage where you’re building out an ecosystem and people are contributing.
And I think it’s you, the people in this room that are listening well enough to understand where the contribution is going to come from, when does this is really get fun? Who can we bring in to help us collaborate on new cool things that we can offer to the world?
So, that’s the sweet spot for you, I think, and then I’m going to just talk about some of the different stages and how that plays out. I think milestones… First of all, milestones apply during tough times.
So if you thought that stuff was a little bit, like, daunting, this is where it gets scary. It’s not always easy. And you may be doing everything right, But sometimes there are bigger factors at play that are going to make it harder for you, right?
Time and valuation is affected by things like market volatility, economic crisis, political uncertainty.
Sequoia Capital put out this deck to, like, 100 portfolio people. And really, they asked all their portfolio companies to cut budgets, cut headcount, and get to cash flow positive as quickly as possible. And that was a scary time. And the reason why they did this is because they knew that this larger, like, market was going to affect how things worked on the fundraising side.
So, well, first of all, valuation is calculated by this revenue idea and this investor idea, right? So revenue, dev products retain customers better than consumer products in hard times because dev products increase productivity of employees that are left, right?
They are incredibly efficient. They are like force multipliers for companies. But the problem is that most of these companies cannot, they don’t have the budget to upsell, or they don’t have the budget for upsell, so they’re not going to buy more product. They’re just going to stay where they are, and then acquisition also gets hard because new budgets have not been unlocked.
And then on the investors’ side, they just get, their confidence gets really low. And I guess when investors get depressed about things, fundraising gets harder and harder. They are scared about the risk that they’re going to take on a new company that they don’t necessarily know where the outcome is going to be.
So, everything gets real hard, you know, everybody needs to justify their ROI. And I think, like, really, when it comes down to it, think about, if you were in dev rel, think about 2008, think about 2016, and there will be fluctuation. So, things will get hard, again, at some time, right?
But did your strategy change, right? At those particular times when the market got really hard, if your strategy as a company didn’t change, and you didn’t see your founders changing things up a little bit, they probably should have, right? If any of you have been at a company that had to shudder at one of these times, it could have been that you were doing all the right things, but it was just a really horrible time for everybody.
As far as things like swag, and sponsorships, and travel budgets, you know, that dries up often at these times, and then new headcount and community perks also dry up.
Basically, when investors and banks are scared to land or to invest, founders also get scared because they are trying to ensure that they are able to keep the company going, and they are trying to ensure that they don’t have to cut in ways where you as the employees and them as the founders lose basically control of the company, right?
So, the fastest way to extend runway is, again, like I said, profit, and sales, and marketing efficiency, and that is really hard, and then cut budget and cut headcount.
I am offering you all this doom and gloom to, like, sort of, let you know that I do not want you to be the people that get laid off in these types of companies, and I want you to understand, like, all of this stuff that is going through a founder’s mind when they’re acting bizarre when they work with you, right?
So there’s pressure at every stage, doesn’t matter if it’s a good time or bad. And it’s honestly, like, someone like me in the background or someone on the board that is, like, “Well, shit. You don’t look like you’re going to do well. You don’t look like you’re going to get to the next stage. Like, you need to be moving faster in some of these different milestone areas.”
So pre-Seed may seem chill on the outside, and maybe founders are protecting you from that, and maybe you get to work in a distributed manner, like, realistically, under the hood, there is some pressure already.
There’s about 100,000 in annual recurring revenue that they should be doing, and then you should be looking at product/market validation, right? So, this is all about building that product loved by developers, and then defining the market size.
And that is hard to do when you have, like, three people, and the reality is, like, you don’t have an office, you don’t have a budget, and it is, like, all net new and you’re building the product while the product feedback is starting to shape that.
I think most people at this stage, if they’re in an early stage startup, are not necessarily official dev rel. They are probably the product person or the engineering person that is the best at talking and listening. So, you know, you’re asking the question, “Are we solving a problem, and are there enough people with the problem?”
And you need to build metrics against that. And common metrics, I think these are pretty, like, you probably know these. Like, this is pretty rudimentary, but, like, number of demos and signups, number of downloads, stars, API calls, events, active monthly users, site traffic, mentions, and that sort of thing, right?
Let’s say you get past that stage, you get to the Seed stage. This is kind of when you start to see, like, institutional investors come in.
So, it’s not just friends and family round or, like, pals, it’s like when professional investors get involved. And when that starts happening, the metrics get tougher, right? So, maybe you got a budget for some swag and maybe you got a budget for, like, some design.
Under the hood, though, the timer just got reset. You’ve got 12 to 18 months now to get to a million in revenue minimum, and that was based off of the round that you did. And the rule for revenue is you need to triple your revenue for the first two years and double it the next three, right, so it’s triple, triple, double, double, double.
Product/market fit, you should see that the market is becoming more well defined. You should get who your community is and who your users are, and you might have your first strong customer references. And this is an area that you help in a lot.
The first successful channels might be in place. You might actually know a couple of channels that are bringing in new users, and there might be a hint of repeatable sales.
And, at this point, your role might be official dev rel person. The name of the game here is, you know, acquisition, and then the customer stories piece. And the customer stories piece is important because it lends credibility to you as a brand.
You started as this product that everybody tried out. Honestly, a lot of your friends might have tried just because they were, like, being nice and they wanted to check out something new. Now, they’re checking it out in a way that they are, they’re looking at it as potential customers, right?
And the success stories piece of it is when cool brands or cool companies are using your product, and they are more famous than you, right? But that reduces, like, friction with the sale.
Common metrics at this stage for a dev rel are often, like, everything including pre-Seed, but then there’s also this, like, idea of number of leads generated, number of effective channels, number of self-serve inbound conversions, number of reference customers, and then there’s NPS score because now you actually have enough users to do an NPS score, and it’s not like six people telling you exactly the things they could have told you on the phone, right? Like, NPS score tells you not just, are we solving a problem, but it tells you if you’re solving a problem well.
PagerDuty is a Heavybit company, and they came in really early, and they recently IPO-ed. And some of the things did really well in the early stage are build a product that devs love and then acquire new users, right?
They knew their problem set so well that they named the company PagerDuty and IPO-ed named PagerDuty. No one uses pagers anymore, right? So, this has been, like, an incredible company and an incredible journey for them, and they are technical founders who had to build up a team that built dev rel around it, right?
At Series A, let’s say you get to these, like, awesome metrics towards Series A, and let’s say you get your next investment. Now, you have, like, some real money and some real budget, right? And there’s maybe a travel, and maybe you get to do some, like, trade shows and stuff like that.
This is the point, for sure, where technical founders are just really, really scared, right? They are shitting themselves. So, they went from, like, booking $1 million in sales just by themselves or maybe with 1 salesperson, and now they have to hit $5 million in 12 to 18 months, right? That does not happen by picking up the phone more times or doing more demos.
Now they have to build a sales team, and they don’t know any salespeople, and they don’t know how to manage those types of people, right? So this is like airplane being built in flight, and we have to get to $5 million in ARR minimum.
At this point, you should have tons of customers. They are doing, like, there is a self-serve bottom-up motion, the market is well defined, and then really, I think, on the acquisition side, there’s this idea of net negative churn.
And for dev companies and infrastructure, this is, like, a big deal. Most people, like, rattle off this idea of net negative churn. It’s basically just that there are more users being acquired and more revenue coming in than that is leaving, right?
And that’s probably you. Like, you built up this product, you built up this community, and all these people are loyal. And if you’re doing it right, you’ve metered it so that the end user’s success means revenue for you as well.
So, you might be a senior community lead here, you are still doing all the acquisition pieces, but defensibility comes into play. And this is where the ecosystem gets really crazy.
So, you do all this stuff for pre-Seed, Seed, but now it’s about, like, people actually looking at you as the destination of choice, the platform of choice, and not just a dev tool, right?
So, now it’s about deeper engagement, it’s about forks, integrations, third-party applications. You might be starting to look at what a marketplace would look like, more discovery around all these things.
There are people building businesses on top of your business, and there are success stories that you did not have to write yourself, like, somebody is submitting success stories, they’re submitting content, they’re submitting event ideas. This is where it gets really awesome. I think that this is where dev rel really shines, and I think this is where they save founders, to be honest.
You look at things like month-over-month growth per channel, like, that’s an obvious one, low cost per acquisition, things like that. And then this idea of greater retention and low churn, you did all this.
Fastly did a good job of this, monetized really well. Really, there’s 227 enterprise customers that basically account for 84% of their revenue. And all the rest of it, all of the funnel towards the larger ecosystem, it came from, like, dev rel strategy, and it came from a lot of community and bottom-up as well as some of the marketing pieces that got grafted on.
So all this to say, basically, there’s just an evolution to community. And what remains true is there’s always going to be, like, immediacy around startup milestones, and there’s always going to be a need for dev community’s help.
So, founders will get weird with you. They’ll tell you to drop everything, and you won’t necessarily know why. And it’s because someone like me is behind the scenes telling them that I am scared for them and that they should be scared too.
It’s like a hard conversation huh, right, but they’re then asking you to do weird stuff. Like, they’re like, “Oh, work on this specific tactic immediately,” “Report on this specific campaign,” “Build channel attribution,” when in the past, it was okay to just, like, anecdotally report on a thing, and all of this is just an indication of the anxiety around the milestones, right?
And not just anxiety around the milestones, but, like, “Are we going to lose this company? Am I going to have to cut people that I love that have been working so hard for this community over time?” They don’t want that to be you. All they’re asking, really, is, like, “Are we cool against the milestones that we have?”
So, really, my advice out of this talk is just to understand what the milestones are and have that conversation, and then, secondly, to continue to check the timer, right? If your strategies are time sensitive, you’re going to be fine.
I think the thing around it is if you’re building, like, something that’s going to pay off in two years, but you have a milestone that you need to hit in four months, think about, like, changing what that strategy looks like in order to ensure that the team is doing well, and in order to ensure that the strategy that you want for the long term is going to be able to be worked on.
So really, I think you’re made for this. You are the people that are the best communicators in the house. You are the people that are the most understanding of flexibility and change.
We have this site called devcojobs.com, and it’s where everybody just list dev rel opportunities and developer opportunities. And they’re always asking for people like you, who are conveners and collaborators, so people who can rally a community as well as work with them and work on their projects.
People who are great listeners, who can offer product feedback back to the team, as well as get an understanding of what the larger platform is going to look like, and who are adaptable and flexible.
You are going to be the ones that are able to move between stages, and you are the best people to talk internally to the rest of the company who might stubbornly hold on to those, some of the older ideas, right?
So, really, I mean, that’s it on my part, but thank you so much for listening. And thank you so much for the contributions that you have made to Heavybit and our companies over the years, as well as my career.
And I want to thank Tamao, and I want to thank Matthew, and all the others who have just given so much. Thanks so much.
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