7 Percent | help not hinderance with early stage tech investing

A SHORT HISTORY OF 7PERCENT

7percent Ventures was founded in 2014 to seek out the most ambitious founding teams who want to transform markets and ultimately change the way the world works for the better. We’re mostly venture, part capital.

As you can read here all the partners at 7percent are ex-Founders. We’ve been there where the Founders who pitch us have: started a company (or more than one), raised money, failed, succeeded, done the hard graft.

We support Founders with a straight forward communication style, opting for openness over optionality, do our best to empathise with the Founders perspective and add value via a highly curated adviser platform 7EVN and our team’s own entrepreneurial experience.
Founders are our customers.

WHY ARE WE CALLED 7PERCENT?

Rate of growth differentiates startups from other types of business and 7% represents a week on week growth rate which usually means your startup is doing something right; that growth KPI should ideally be one of revenue, or if not then a proxy for revenue, some other metric which will define future value in the business; e.g. user base.

We believe rate of growth defines a startup over a more traditional business. Paul Graham Founder of Y-Combinator wrote at length about startup growth here.

The number seven is also a lucky number. It is also said there are seven fundamental types of catastrophe – and we’d like to help you avoid catastrophes.

ARE WE ACTIVELY INVESTING AT THE MOMENT?

Yes, though our rate of investment has slowed a little currently as we’re raising a Fund II (much as growth rate can suffer in a very early stage startup when the Founders are focused on raising institutional money rather than everyday business building, so does our outreach and pace of deal flow).

However, if you have something exciting contact us or grab our attention and we’ll do our best to be responsive. If you have already contacted us and we’re not as responsive as you would have expected, we extend our sincere apologies, it’s certainly not for lack of trying!

NORTH STAR METRIC

Driving the business toward a key North-star metric enables an early stage startup to avoid distraction and clearly track the impact of iteration, product optimization and success or failure of product/market fit.

Failure to focus on growth rate early on means you can be distracted by lots of things which will keep you and your team busy, they might even be genuinely important, but with limited cash runway (and thus limited time) every hour counts towards demonstrating (through an aggressive growth rate with a curve up and to the right) that you’re solving a painful problem for a someone in a great way and have found a scalable way to go to market, even if initially in a specific vertical, segment or territory, of your SOM.

As with all rules there are exceptions. For some deep-tech startups or startups who are pre-product, week on week growth is may not be an appropriate measure; but the need for urgency remains.

WHAT IS A GOOD GROWTH RATE?

Early stage companies should aim for between 5 and 10% week on week growth of your primary core metric; ideally revenue but if not revenue it could be user signups for example, if user signups represent the future value in the business from which revenue will be generated.

5 to 10% week on week is not sustainable forever but should be achievable early on (e.g. your first couple of million in revenue or your first million users). Paul Graham (Founder of Y-Combinator) wrote an excellent blog on startup growth we recommend you read.

WHAT IS THE RIGHT NORTH-START METRIC?

The most appropriate North-star metric may change over time and can be different for each business.

For example, a marketplace startup might start by focusing on inventory growth, before switching to transactions (thus customer, growth) and then move on to GMV. Other types of startup may from day one be able to use week on week or month on month revenue growth, which is ideal.

Other metrics are still important (in our marketplace example they could include liquidity or LTV) but early on we believe you need to work out which the headline number is – and which other metrics feed into moving the dial on that number.

HOW IS 7PERCENT DIFFERENT (OR, WHY TAKE MONEY FROM US)?

Our mantra is to help not hinder your startup. This is a guiding principle in everything we do.

ALL our Partners are ex-Founders themselves.

This helps us empathise; we have a better understanding of the challenges you experience in building a company from scratch, because we’ve done it ourselves.
We have all:

  • all run successful (and failed!) startup businesses
  • all taken angel and venture capital investment for our own startups and raised it for others
  • are from diverse tech sectors, spanning a variety of industries
  • have a transatlantic reach in the startup ecosystem, from West and Eastern European to North American

7EVN: our advisor network
Most decent investment funds have a network of friends, colleagues, trusted suppliers and alumni to call on.

At 7percent we have gone a step further and brought together seasoned entrepreneurs, specialist and corporate operators who can add value or specific knowledge at the right time in the right way for your startup, via our platform: 7EVN.

Who are the 7EVN advisors?
Many are ex-Founders and friends of ours who are experts in their field from the top startups in the world (Facebook, AirBnB, Oculus, etc).

You can use this network for introductions, explore joint ventures, gain introductions to customers or even eventual M&A, as well as tangible help when you need it providing advice for specific areas of your business adhoc e.g. data science, SEO, product virality, sales, etcetera.

How 7EVN work?
All these advisors are themselves investors in our Fund and paid for by us, because we share our own partnership management carry (fund profits) with them, meaning you can pick up the phone, or send an email for advice without worrying if they’re going to expect share options or payment. Simple.

Any other benefits of working with 7percent?

  • Access to the other Founders in our portfolio

    At least once a year bringing everyone together into one place for a weekend of shared experiences, discussions, learning and fun

  • An invitation to The ICE List tech Founders group

    Co-Founded by 7percent Founding Partner Andrew J Scott in 2009, this is ICE is a not-for-profit tight-knit group of Founders, Investors and key ecosystem players who travel, do away weekends, dinners and off-sites to share knowledge, war stories and build friendships.

  • Soft introductions to follow on investment via 7EVN and our wider network

WHAT ARE TYPICAL DEAL TERMS FOR 7PERCENT?

We believe in using standard plain English term sheets with nothing onerous.

Terms vary from deal to deal (we’ll be publishing our own standard terms in the near future).

Pre-requisites in a business / standard terms we like are:

  • Co-Founder vesting – if not already in place
  • An effective board – three or maybe four people with appropriate experience at early stage is plenty, any more are a distraction
  • Regular monthly board meetings – you might be surprised how many very early startups don’t do this and while it might sound bureaucratic to the uninitiated there are very obvious reasons why a monthly check-in with a supportive board is great for your startup and you as a Founder(s)
  • Weekly – or sometimes monthly depending upon the business – projections for your primary KPI

For some startups, depending on the type of business and the stage we may also ask for:

  • Access to weekly metrics reports – this could be as simple as one number or a WoW % growth rate, sent by email or via access to a platform
  • Board observer rights, or a Board seat – We don’t ever take a board seat for the sake of taking a board seat and we actually prefer not to. It’s vital a startups board reflects the skills and experience the start-up needs at that moment in its life cycle. Whether we ask for a board seat will depend on:
  • the stage of company
  • the prior experience of the Founder/CEO
  • the existing board expertise (i.e. is there is a co-investor we trust and know, or you have a relevant non-exec already in place)
  • how much value we can add
  • if there is a suitable candidate from our 7EVN advisors

WHERE OR WHO DOES THE MONEY COME FROM?

The money invested up until Q2 2108 was private money generated by the entrepreneurs who are partners in the fund.

HOW DO YOU MAKE INVESTMENT DECISIONS?

We are our own investment committee. All partners contribute opinions during our weekly Investment Committee calls, but Partners are able to make investments without consensus. We believe this helps us avoid the perils of group-think.

WHAT FEES DO YOU CHARGE YOUR INVESTORS?

We keep operational costs low and do not operate as a traditional VC from the POV of having large fancy offices or big salaries. In this respect, we operate more like angels than a traditional VC fund. 7percent Partner success is aligned with our own investors success. Our fee load across the hole 10 year fund period is just 15%, and we recycle those fees (meaning we recycle profit into new investments up to the level of the fees we took to operate the fund).

HOW DO INVESTORS GET PAID BACK?

Taking Fund II as an example, we pay back our investors in full and recycle the fess before we take any profit ourselves. The waterfall looks like this:

  • Limited Partners (Investors) – receive all their money back
  • Recycle Fees – profits are invested into startups up to the fee load
  • Further Profits – shared between investors and 7percent with a 20% carry (30% over 3x fund performance)

DO YOU FOLLOW ON YOUR INVESTMENTS?

Yes, if your startup is performing we will invest more money.

HOW DO YOU DECIDE WHETHER TO FOLLOW ON?

We’ll always be transparent with you about whether we think your startup growth is tracking appropriately. We’ll also try and help you solve problems and remove blockers to your success, along the way, if it is not.

We recognise that an investor simply saying you need more traction as feedback on the likelihood of investment (or a follow-on investment) is unhelpful.

Whenever possible we’ll give you specific metrics that mean we’ll be able to re-invest and articulate to you what we believe success looks like and what we believe the rest of the investor market will respond positively to.

The follow-on rate can be a contentious issue for both funds and startups. For example, some startups have found that the most famous VC names, especially at Series B level, when choosing not to follow-on can create a signalling problem to the market, because if a ‘first tier’ VC won’t put money in, why would anyone else want to? It’s the same reason Y-Combinator started giving a cheque post-accelerator to all their startups, to avoid signally negatively to a specific company which it didn’t cut a cheque to.

The hard truth is that if your startup is making decent progress we’ll reinvest. If your startup is tanking/failing, we probably won’t – but then neither is anyone else likely to.

We believe you should only try and raise money when you can and we’ll very happily help you formulate a strategy which is realistic and attainable.

Throughout, we will be honest with you every step of the way about how we feel you’re doing and help you however we can to resolve any problems along the way. We’ve all been Founders ourselves and all raised money, so we know what it feels like to be in your shoes.

Any surprises then, when it comes to the next round of funding. won’t come from us.

DO YOU “LEAD” ROUNDS?

We do sometimes. We’ve led around 15% of our investment rounds to date.

HOW IS IT BEST TO PITCH MY STARTUP?

Please make sure you:

  • understand the size and stage and type of investments we do
  • can articulate why you think your startup will be a $1bn+ company
  • include your current week on week growth rate (or equivalents) for your current key metric
  • provide a presentation/deck to give us context
  • it’s not mandatory but if possible get a personal introduction to one of our partners; this is a people business and good recommendations always help
  • complete our short submission form here so you’re in our system

We reply to every enquiry, provided it fits the above criteria, though it can take us a little while sometimes as we are a small team and have a lot of inbound investment submissions.

WILL YOU SPONSOR MY TECH EVENT?

Please note that due to of our operational structure and to minimize operational overheads (thus fees to our LP’s) we do not have available capital to sponsor events.
We are happy to speak at, or support, events in any other way we can and often do.