Edison Partners’ Kelly Ford: ‘Growth stage companies are focused on several value drivers at once’
- Edison Partners recently published a report on the characteristics of fast growing company.
- Partner Kelly Ford joins us to discuss the findings of the VC's growth index.
For venture investors, it’s really hard picking winners consistently over time. Kelly Ford, a partner at Edison Partners, has been studying the attributes of successful startups in her work on Edison’s Growth Index. For more than 30 years, the venture firm has been helping CEOs and their teams grow and scale successful companies. The 2019 Growth Index, which studies the firm’s portfolio of growth-stage technology companies, finds that fast growers—or companies with 30 percent or more annual growth—share seven key characteristics associated with their growth.
Edison’s Kelly Ford joins us to talk about the key takeaways from this year’s Growth Index which saw a couple of new things added to the report. She discusses how Edison uses the research as part of a broader initiative called Edison Edge, which is a program designed to help portfolio companies scale smartly and efficiently. We also chat about Edison’s portfolio and where it’s looking to make further fintech investments.
Compiling the growth index
It's our fifth year publishing the report. It started out more focused on sales and marketing, looking at unit economics. It's evolved to be more encompassing of top and bottom line characteristics of fast growing companies and how they differ from their slower growing peers. Each year we survey our portfolio of tech companies, which range from $10 million to $50 million in revenue. Our definition of fast growing is a company growing top line 30 percent year over year.
Each year there are core threads around use of proceeds and how companies spend their marketing budgets. You do see patters and consistency year over year, but each year we try to draw out qualitative and quantitative things that these companies are doing to really set themselves apart.
Marketing and sales: 2019 growth index findings
This study illustrates how multi-threaded growth stage companies are -- they are focused on several value drivers at one time. There are seven key fast-grower characteristics this year.
It's not a surprise that the old adage of 'you have to spend money to make money' applies. Fast growers have 100 percent higher investment in sales in marketing as a percentage of revenue versus slower growers. That's a consistent thread every year. A new development this year that we found is that fast growers spend 6x more on customer success, ensuring their customers are adopting their products and making good use of them.
Fast growers are also more successful at capturing maximum value from their customers. They land them and they expand them. Fast growers have 75 percent higher contract values than their peers. We found that they take more sophisticated, value-based approaches to pricing. This seems to be true for companies at the low end of the revenue range all the way up.
How companies can use this data
Our companies look at this data to see how they're doing relative to others at the same size, maturity, and in the same sector. Sales and marketing, pricing, growth -- these are always popular topics. I probably talk to someone everyday in our portfolio about these.
We also use this data when we're evaluating companies to compare their unit economics, revenues, and growth. Points of comparison help us and the companies themselves move the needle to where they could be performing.
Other impactful metrics for growth companies
There are also finance and HR-related dynamics where this study is useful. Fast growers are 3x higher in revenue per employee than slower growers. That's a big general number that's related to other sales and marketing dynamics but it's a metric that our CFOs and CEOs are thinking about where the heads of marketing and sales may not be. So, you have to marry these together.
Fast growers have significantly higher loss rates than their peers. In our view, companies growing slower than 30 percent should be breakeven or close to it. There are tradeoffs between growth and losses.
Bringing operational experience to venture investing
Our team is a mix of seasoned investors and operators. We team on every investment and really value the combination of the investor and operator hats, from selling to evaluating the way we support our CEOs and executive teams throughout the lifecycle of the investment.
Sales and marketing is a primary use of proceeds when we make an investment. About five years ago, our managing parter, Chris Sugden had a vision to add operating chops to the team and start to build out centers of excellence to help accelerate go to market initiatives for our companies. I was the first operating hire in that regard. The CEOs and executives appreciate that there are folks here who have walked in their shoes. Our team benefits from having both points of view. Sometimes the operators around the table see things that otherwise might be missed when you look through a pure investor lens. For us, it's a holistic approach.
Supporting portfolio companies
This growth report is part of Edison Edge, our operating platform. Access to the platform comes with our check. The platform is run by a team of former operators. It includes access to best practices and executive education -- all around growth acceleration, scale, and leadership. It also includes sales and marketing, product, finance, and operations and HR. We have centers of excellence and teams of folks who have seen the movies of this stage of startups.
We also have a board director development program. Our Edison Director Network is a group of around 300 experienced current or previous CEOs and board directors who have served with us. We continue to curate this community and facilitate engagements between them and our companies based on expertise, stage, market and geography.
Outside the boardroom, we continue to develop board directors and leadership skills for these people. We think it's paramount to have seasoned operators around the boardroom table and people who understand how to use the board as a strategic weapon.