Outbound Capital Manifesto (v1)

Apr 7, 2023 | Product-Market Fit

At Outbound, we believe that we’ve found a fundamentally better way to invest in seed stage technology startups. Our approach creates value for our founders, beyond funding, and is more capital efficient and less risky for our LPs.

Field Observations

Our founding team has been investing in pre-seed and seed startups since 2014. While our investments, nearly two dozen, are not prolific, we are continuously learning from our investments and the greater VC/startup ecosystem, reflecting on our successes and failures, and iterating on our investment thesis and approach.

Some observations from the last decade investing at the seed stage::

  1. Founders who have a learning and discovery mindset tend to find product-market fit (PMF); founders who focus on ‘growth’ tend to fail at finding PMF.
  2. Customer value can be quantified and is measurable beyond simple heuristics such as the Sean Ellis survey and Net Promoter Score (NPS).
  3. Finding PMF can be broken down into a series of experiments.
  4. Human relationships and connections are critical enablers of PMF experimentation. 
  5. Founders need more runway from seed to Series A to find PMF.

We believe that it is possible for any founding team to find PMF, provided they have a tenacious learning and discovery mindset, are solving a truly painful problem and they have the right technical team to create a novel and economically feasible solution.

Whether founders actually do find PMF before they run out of runway or not is another story. As soon as founders raise a seed round and scale up their team, the clock starts ticking. 

It’s a pretty simple equation:

Money in the bank / monthly cash burn = Number of months of existence remaining

PMF must be found and traction must be made within the ‘number of months of existence remaining.’ This requirement is consistently underestimated.

B2B Focus

The methodologies and tools that we’re developing are applicable to all types of startups:  consumer internet, marketplace, hardware, robotics, biotech, and even consumer products. 

However, with a small team, we have decided to focus on B2B technology startups with the goal of becoming the leading expert in B2B customer value measurement and benchmarking. This focus makes sense for us, as it builds on our past professional experiences working within business organizations of all sizes, and enables us to continue to develop and refine a prepared mind in our focused approach.

In the future, we hope to expand the Outbound portfolio to the non-B2B areas mentioned, potentially through bringing on additional investing partners.

Investment Strategy

Outbound’s investment strategy is built around the observations above and our B2B focus.

We are typically value-add followers in Series Seed investment rounds or de-facto seed rounds. We define a seed round of financing as a round that is raised with the express purpose of finding PMF. This means that prior to this financing, the team has identified a major problem in the world that needs solving, assembled a technical founding team to solve the problem, and has built an early version of the product that they intend to bring to market. 

In partnership with lead seed funds and multi-tier funds, we invest in these rounds.

Founders want us in the round because we bring a lot to the table. Specifically, we bring two key founder tools:

  1. Outbound PMF Insights
  2. Outbound Connect

We work with our portfolio company founders as they navigate the many experiments needed to find PMF. 

We also make more funds available to founders who are navigating these experiments exceptionally well. These funds allow our founders to stay focused on PMF experimentation and building. They avoid losing another six months or more trying to raise a seed-extension from investors who haven’t been working closely with them. 

The additional funding better enables our founders to exceed the metrics that leading Series A investors expect.

Founder Tools

Outbound PMF Insights is our approach to PMF experimentation and measuring customer value. The main experiments that we find to be most useful to our founders are the market experiment, the product feature experiment, the go-to-market (GTM) experiment and the pricing experiment. We recommend measuring customer value on a monthly cohort basis within specific customer accounts. We will get into each type of experiment and how we measure customer value in future posts. 

Outbound Connect is our platform for connecting founders to our broader network, largely consisting of our individual LP’s professional networks. Individual LPs comprise a large portion of Outbound Capital’s LP base.. Our individual LPs are business executives, management consulting partners, technology entrepreneurs and main street entrepreneurs. Many are willing to help make connections to potential customers, convene industry thought leadership groups and provide practical advice on market segmentation, product features, go-to-market approach and pricing strategy.. 

An Invitation

If you are the founder of a B2B technology startup with a learning and discovery mindset, solving a truly painful business problem, we encourage you to get in touch with us by providing some basic information through this form. We’re always scanning for new startups to partner with, where we can serve as a meaningful capital provider and a long-term partner in finding PMF and creating customer value. 

For other industry participants who are interested in learning more about Outbound Capital’s differentiated approach and tools, please subscribe to our community newsletter.

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