Former CMO in search of martech companies to back
I’ve invested in over 50 companies between my angel and fund portfolios, yet only two are martech companies. As a believer in “investing in what you know,” I’ve been surprised by how rare it is to find a company I want to back in a space I know so well.
It’s not that I haven’t looked. Investor friends often ask me to review martech companies they’re considering, and our team receives a lot of inbound pitches because of our backgrounds (fewer than 1% of investors are former CMOs; one-fourth are former CEOs or founders).
If you’re a martech founder looking for advice on pitching investors with a marketing background, read on.
Marketers are the best ICP
CMOs generally are a fantastic audience to sell to.
They’re risk-takers who are rewarded for being creative, finding new channels, and trying new products. Industry publications and awards reward breaking through the noise and being bold.
They also generally have big budgets. Even as budgets contract during downturns, they always bounce back and are considered critical to maintaining growth rates.
Another reason CMOs are so great to sell to is related to their short tenures (something I’ve written about here before). This becomes a sort of self-fulfilling prophecy in which a CMO heads into a new role with a “go big or go home” attitude that makes them even more risk-taking.
These are the people you want to sell to.
Double-edged sword
I get why once someone unlocks this insight about CMOs, they would be compelled to start a martech company.
However, all the things that make marketers great buyers to sell to can also be a significant driver of churn. The revolving door nature of the CMO role has often left investments made by the CMO (strategic initiatives, brand, team members, tech stack) as casualties of that turnover.
Churn is always an important metric; it’s especially important for evaluating martech companies.
The tech industry has a challenging relationship with marketing because it’s not rooted in objectivity. Much of the investment is hard to measure. Many martech startups feel compelled to solve this problem and find early success in selling into companies led by folks who think like them. The disconnect comes when most of the TAM they raised venture dollars on is marketing spend by top brands in heavy brand spending categories like retail, food & beverage, consumer packaged goods, financial services, and automotive… and not tech.
We’ll likely see more venture-backed companies named to the Fortune 500 list as time goes on—but too many martech founders believe that future exists today.
Why martech?
A lot of smart, technical people start martech companies because of the pain they experienced or witnessed first-hand inside their previous startup. Often what they don’t understand is that kind of pain is unique to startup marketing—leaving a recipe for long-term failure when founders don't understand their ICP or the industry they’re building in.
It tends to work in the short-term. Because so few VCs have a marketing background and digital marketing is such a massive market, investors can get swept away by early traction selling into small startups and SMBs and assume it will be easy to go upmarket.
A fair argument is that as the startup scales, it will bring on more people who have a marketing background and connect with the ICP. However, the best technical founders will likely have to overcome cultural barriers and biases along that journey. I don’t see signs of this until the tech industry has a fundamentally different attitude towards marketing.
Ten years ago, I joked that every Y Combinator company could hit growth milestones to raise their next round by just selling to other YC companies. Now, the joke might be on me because we’re seeing this happen more and more.
I don’t blame founders for thinking of starting companies this way—Brex, Gusto, Vanta, and Stripe are all YC companies that successfully crossed the chasm—but I’m skeptical this will work for martech.
Advice for martech startups
When pitching your martech company to investors with a marketing background, I would show the following:
End goal. Early traction among hot startups feels good, but I want to know that you view those customer acquisitions as mere early steps to reaching the massive TAM you are raising on. Show me we’re aligned on the goal. Remind me that you know how big that goal is and that it makes sense for venture.
Roadmap for winning traditional brands. Maybe it's in your hiring roadmap, your industry marketing strategy, or the core positioning of the company. At some point, you'll have to figure out how to crack industries outside of Silicon Valley. Show me you understand that what got you here won’t get you there.
Stickiness. Because startup and tech marketers are more open to trying new technology than any other ICP, it’s relatively easy to get a lot of folks to do a paid trial. How many of them stay and scale? Show me you’re able to renew when there is a regime change.
I would love to invest in more martech companies. If you’re building something cool in the space, reach out.