Avishai Sam Bitton, angel investor, on reading CAC from the ad platforms

Avishai Sam Bitton

It's my pleasure, Etgar.

Avishai Sam Bitton

I'm doing great.

Avishai Sam Bitton 00:33

I started in the tech scene around 14 years ago. I did a kind of growth hacking, gorilla marketing stunt for myself to get my first job. I ran around $100 worth of Google ads to half a million impressions, just by advertising on the names of CEOs that I wanted to work for.

From there I worked at a startup as employee number one, then later founded my first startup with my co-founder. I didn't see that company through all the way to the end, but my talented co-founder managed to exit that company, and that's kind of my first exit on the belt of a company that I started. [name unclear] My second business, which is still running, is described in the captions as "a booster up media company," spelling and exact name not confirmed; referred to below only as his growth and media business. And I'm now enjoying my time growing and doing marketing for one of my portfolio investments [name unclear], where I'm basically helping entrepreneurs build their business.

Avishai Sam Bitton

Angel investing was something I didn't plan on doing. The first time it happened, it happened completely by mistake. I was hearing from friends about an investment in a company [name unclear], and it seemed that I was intrigued at the time more with the founder, less with the startup. Looking back at it, I saw a founder who basically would not stop at anything, who would break any wall, break any glass ceiling to succeed, and I wanted to put money behind that founder. I can't explain it, it was just something I felt I had to do, and I did that. That was my first investment. I wrote a check of almost six figures.

02:37 And I learned that on the cap table there were other angel investors who had done multiple other investments, and they started introducing me to their portfolio companies and what investments they did. From that one startup I found myself going down a rabbit hole of learning how to create deal flow, how to meet more founders, how to put more early-stage checks in. I now have a friend where every deal that comes across the table, we share with each other. He's with me on the cap table of my first investment. I have multiple friends, and depending on their preference, I share deals with them, they share deals with me.

03:08 And the investment strategy that got built out of this origin story of how I became an angel investor is that I mostly invest in founders that I believe in, not necessarily the company they're building, not necessarily the space. I believe that they will find a way. If you need just one example of how that investment strategy looks in today's time, because we're recording toward the end of July 2024, one of my portfolio companies just finished a very aggressive pivot, [name unclear] and the founder there did an amazing job of taking the company from one direction to a completely different direction. That is what my investment thesis is really built on: how startup founders can be more powerful than a lot of forces, industries, markets and investment appetite. They can move a company to a successful trajectory just by their will and force and attitude. So my whole investment thesis is around which founders can move mountains just by the ability they have inside them. It's not a skill, it's a personality trait, an X factor that you can't teach.

Avishai Sam Bitton

I think what makes a startup marketing team successful is the ability to connect to the revenue goals. If a startup lets the marketing team run without revenue goals, there will usually be a lot of disappointment from the team. I feel that modern marketing should be completely, 100%, aimed at revenue KPIs, because the way companies were built in the past, that's not happening now, and it's going to take a long time, if it happens again in the future. In the past, VCs would put in money, companies would grow without hard KPIs around profitability or good unit economics, and they would just raise, and raise, and raise. In today's world, if you're building a go-to-market strategy, you had better have a roadmap into better unit economics, better profitability, shorter payback periods, higher LTV divided by CAC. These are things that if you're not building toward, you will have a bad time when it comes to marketing and go-to-market, not only in fundraising but also in the day-to-day of managing cash flow and keeping a low burn.

05:41 It is extremely hard to grow aggressively, fast and healthy, and it all starts with the initial mindset and the infrastructure. If both are skipped, companies can find themselves in very problematic situations at the round A or round B stage, where they don't have the infrastructure they need to keep growing without diluting the company very aggressively.

Avishai Sam Bitton 06:43

I'd divide that into two. First of all, I don't think companies really have to invest heavily in brand in the beginning, because the amount of resources you'd have to invest in brand early on isn't high, and it's not really going to be as memorable as you think. I think the best way to invest in a brand is actually the way that doesn't cost anything: a company can start building in public, doing LinkedIn content, documenting the whole experience of building the company, and use the way they see the world. Founders can use their own mantras to build a brand around what the company stands for, what it's trying to do.

07:15 If a startup has to survive, and by definition it does, because a business is trying to find some way to reach profitability, it has to be revenue-minded first. Even if things might pan out a year or two years from now in terms of the unit economics the company wants to reach, the best time to start demand generation aimed at getting good unit economics was yesterday or today. Every moment the company postpones that, it's postponing a journey that used to be considered unglamorous until a few years ago.

07:47 There used to be a joke on the show Silicon Valley: never make revenue, just create hype. The more companies postpone actually making revenue, the more they postpone things like product-market fit, because how can you have product-market fit without the proof of revenue? How can you even have segment-market fit without the proof of revenue? The only thing a company can do without trying to build a profitable pipeline is maybe find problem-market fit, and that's still at the zero stage, not the one stage. Brand doesn't help with either of those.

08:17 You can have product-market fit without having a brand, and a brand doesn't help you move from zero to one, or from one to ten. If I had to choose the earliest moment a company can start doing brand, it's when the company already sees a path to exit or IPO. Before that, brand should be at most a third priority in a company. It should never be first or second.

Avishai Sam Bitton 08:47

I want to see the average order value, the average contract value coming in from each client, so I can get to the LTV divided by CAC metric, because the CAC metric on its own is not interesting. You could have, for example, paid subscribers to this podcast right now. Say we productize it and put up a paywall: if your CAC is $100 or $10, those numbers don't really matter unless we know how much we're actually bringing in.

09:17 From understanding LTV divided by CAC, I understand the potential payback period we have right now, and the future potential payback period, and I can decide to scale a company now or later, according to the payback period, to match some kind of agenda, like wanting a low burn rate, or wanting to grow without VC funds.

09:47 When I'm looking at marketing metrics, I want to see that a company understands its own metrics: how many clients do we want to bring in, what's the average contract value, how does that translate into how much revenue we want to bring in, how much are we willing to pay for each customer, how long do we want our payback period to be, and what should LTV divided by CAC look like.

10:17 If a company knows all those numbers, I can look at them as an investor and say, okay, I can get behind them, they know what they're doing. Sometimes you talk to founders and the numbers don't align. If you change one of the numbers, they change all of them. If somebody's giving you numbers and they don't align with each other, it's usually a red flag not to invest at that moment, because it means they're not 100% on top of their go-to-market.

10:47 It can be solved. They can bring in someone who understands this, and within a day's work those numbers can be aligned. So it's really about having, I want to say, the mindfulness to know those numbers in order to do go-to-market successfully. Those are the metrics I'm looking for, and none of them can live in a bubble. They're all intertwined with each other. They could be measured in isolation, but I want to see the full picture of all these metrics, and not skip even one of them.

Avishai Sam Bitton 12:18

One of the best ways to handle this issue is by working with founders who are very conservative by nature. This is actually something that changed a bit in my investing thesis, because in the beginning I wanted founders who were very out there, on the attack, raising more money, who knew how to play the startup game in a lot of senses. Now, when I meet people who build plans that look very pessimistic, I know that their attribution models will also be very pessimistic, because, as a personality trait in a startup founder, the only thing that beats someone who is extremely ambitious and wants to reach the stars is someone who is ambitious, wants to reach the stars, and is paranoid at the same time, because a startup is all about surviving. If you can find someone who wants to move the company forward very aggressively while being paranoid, you get the best of both worlds, because they're moving the company aggressively forward based on what they understand and know, wearing a kind of worst-case-scenario glasses.

So, for example, if the company is still young, they assume a churn rate that's higher than anybody in the industry. If the company has an amazing CAC right now, they assume the CAC will only grow higher as they bring more people in. If they have a good average contract value right now, they assume it's only going to get lower, because the first customers are always the easiest to convert, since the founders were focused on them. So, time after time, they convince themselves that whatever they do next is actually going to be harder. So when they have that mindset, they build their metrics from that mindset, they log their data from that mindset, and then they present their data from that mindset. Worst case scenario, the board sees numbers that are actually less impressive than they are in real life, and it's always an option to later go back, fix it, and tell the board, actually, this isn't bad news, we're actually in a better situation than we expected. It's always great to delight the board with "we made a mistake and it's actually more positive," rather than "we made a mistake and it's actually more negative."

14:22 It tells the board members and investors that there's a very responsible founder at the helm, making sure the company's chances of surviving are going to be very high.

Avishai Sam Bitton 14:53

I think Catch-22 is an interesting book for founders, from multiple directions. It's not just about the paranoia of Yossarian, I think it's also, if you read the parts about how the syndicate works, that startups can learn a lot from the give and take, and how to navigate a world where there are so many ways to move forward, to get to what you want, to partner with who you want, and to get the clients you're looking for. And the straight line is most often the hardest line to take, and a lot of the squiggly lines, the things that seem far-fetched compared to how you're "supposed" to do things, are sometimes the easier way. There's a reason growth hacking, a buzzword that's been thrown around for the past 15 years, is still a prominent buzzword: it's still how companies break glass ceilings and break down walls to keep developing better go-to-market strategies, more profitable ones, and get strategic clients.

Avishai Sam Bitton

I think it's about 60 or 70 years old, if I'm not mistaken. 1961.

Avishai Sam Bitton

This is going to upset a lot of startups, but 99% of startups will hire a marketing manager, head of marketing, director of marketing, VP of marketing, and the first time, they're going to be extremely disappointed. Mostly because there's a flaw in how marketing works compared to other functions. In R&D or product, people usually specialize vertically in something and move up the ranks, learning to be managers within that specialization. Marketing is very multidisciplinary: there's SEO, content marketing, performance marketing, events, partnerships, affiliates. All of these are under the marketing umbrella, and I'm sure there are some I'm forgetting.

16:59 A lot of the time, people move into team lead and manager roles in marketing, or become directors, heads, VPs or CMOs, having only learned one, or one and a half, of the disciplines. Here's what happens: they start building teams, and all the talent under them understands that the person managing them has no idea what marketing is, because each person on their own discipline knows it far better than their manager does.

17:29 I know SEO very well, but my manager knows nothing about it. I know performance marketing very well, but my manager knows nothing about it. That goes on and on in so many companies. What happens is that a lot of startups make the mistake of building a marketing team instead of building a revenue growth team, which brings in extremely successful individual contributors, the unhireable kind, to do the work needed to generate revenue.

18:01 So, for example, in demand creation, bring in the best individual contributor you can to create demand on a platform like Meta, and it doesn't matter if you're B2C or B2B, Meta will work on more platforms than people think, it can work for cybersecurity, it can work for things a lot of people don't believe it can work for. That's demand creation. In demand capture, bring in the best person possible to run Google. Don't bring in a head of marketing, or a VP of marketing, or a CMO who will later look to bring in people they don't understand well enough to judge.

18:32 Don't bring in someone who takes so much of your operating budget that you can't use that money on the person actually managing in a startup: you have to build funnels, be as omni-channel as possible, and be as profitable as possible within your burn budget, and a manager takes a lot of that budget away. Marketing leaders who like to work with their hands, once they get a taste of a management seat, want to manage people who actually do things.

19:02 If you think about the entrepreneurship landscape, especially in the startup world in Israel, where you and I both know a lot of people, there are no CMOs who go on to become startup founders, because that requires the manual labor of going zero to one. There are no CMOs who become angel investors, because they're so disconnected from the world of building a startup, from survivability mode to profitability mode. And there's almost no CMO who wants revenue as their KPI.

19:33 So the biggest mistake startups make is bringing in marketers too early. There are growth people, former solopreneurs, a lot of different types of personalities I would put in charge of marketing before I'd put in a marketer. I know some companies right now who tell me the best CMO they ever had was their former CTO, they moved the CTO to CMO. You have companies like Similarweb, who took their VP of product and put them in as CMO, a great move. [name unclear] You have companies, name not confirmed in the captions, who took someone amazing in operations and made them CMO.

20:04 Nobody wants a marketer in the CMO seat, it's a net loss for the company, and I know this is going to upset a lot of marketers, but marketers need to reinvent themselves to be helpful for startups. Right now they're, at best, helpful for very large corporations that already have the infrastructure in place to keep succeeding and growing. But what about the companies that aren't growing yet? In 2025, there's going to be a lot of disruption, and SDRs and BDRs are going to have to move from the sales seat into the marketing seat.

20:35 If the CMOs of tomorrow don't understand how to build the infrastructure they need to work smarter with their hands, with AI and automation, how will a company move into the future? I'll give you cybersecurity as one space where this is very obvious: all the marketers come from events and event coordination, and it's a huge loss for a company to bring in that kind of marketer instead of somebody who can aggressively grow a company through LinkedIn and Google.

21:06 So, I know I went on a whole rant here, but it applies to almost every startup: don't hire a marketer as your first hire to do go-to-market. There are people with no knowledge of brand, no idea what good design looks like, but they know how to bring qualified people down the funnel, and they have a way of doing it that I'm not great at explaining, and they're not great at explaining either. Just let them do it.

Avishai Sam Bitton 21:36

Yes. Monday.com is a great example. They had amazing ICs, [names unclear] two individual contributors named in the captions as "RM Shai" and "L katav," doing Meta and YouTube, and to my knowledge never had a CMO. The co-CEOs were the real bosses of the marketing team, working with KPIs around payback period, connecting everything to their own thinking. I ran ads for the product for a while, back when it was still called Pulse, before it became Monday.com, and I saw, inside that account, the level of professionalism they had: an extremely dedicated team of ICs who ran based on the data, made data-driven decisions, and just grew the company. There are other people who worked there too, I'm sure, I don't remember all the names, I don't know all the names. Almost anybody who came into that department had nobody to fall back on, because there was no CMO, you had to answer to the co-CEOs directly, which is extremely difficult when you have two such amazing operators running that company.

Avishai Sam Bitton 22:38

I think almost every founder, in the beginning, works with their marketing team based on all kinds of assumptions, either pre-existing ones from their former companies, or, a lot of founders are engineers or product people who thought the marketing function did one thing, but they'd only seen it work at a bigger company, not at a startup. So there's a mismatch sometimes, and those previous notions also come from the board, from investors.

23:08 Investors, a lot of the time, will push founders: you should hire a first marketing person. But when I sit with general partners over coffee or dinner, and I tell them, I apologize, but I don't know many good marketing people in the industry, I don't think there are even good CMOs in Israel, a lot of the time I'm waiting for them to start arguing with me, and they say, you don't have to apologize, that's actually right.

23:38 Some of the very rare good cases of a good Israeli CMO are actually living abroad. Growth is something Israel is amazing at, marketing not so much, and you'll see that the most successful big companies grew on top of performance, the next generation of insurance-style companies. And you have Monday, which I talked about before, and you have other companies that are, on the other end, very sales-led, and the way you get to that sales-led place is by making that same set of mistakes in the beginning of working with your marketing, in the early days, around things that aren't revenue-oriented. You leave the marketing team without revenue goals, and you end up sales-led, like that: you make the CRO look better than your CMO, your VP of sales look better than your VP of marketing, just based on the fact that you set revenue as the target for one and not the other. So if you have a marketing team, and you're already working with them, and they don't have revenue KPIs, you might be better off without them.

Avishai Sam Bitton 24:39

I think a good CMO understands that their success is going to be based a lot on their ability to use data and to find real, needle-moving opportunities for a startup. Startups usually have, at any given moment, one, or maybe two, great ways to scale revenue, and any action a CMO takes that doesn't fulfill that opportunity is a wasted action. Only in later stages are there what I'd call satellite actions, that support and build and add other things, but in the beginning, until a company has a well-oiled machine to scale customer acquisition and increase annual revenue, that's all a CMO should focus on.

Avishai Sam Bitton

This is my surprising lesson: no matter how many startups you see, no matter how many startups you invest in, you still don't know anything. I thought that investing in a lot of startups would give me the experience to know more, and the more I dealt with different investment rounds, and founders, and their challenges, and watched their companies grow, really, the whole experience, from the minute I decided to become an investor to what's happening right now, in real time, you understand that you really don't know anything. I've come very humble to the next investment I'm going to make, knowing that whatever I knew a day before I became an angel investor is as good as what I know now. There was a gut feeling that might work out, might not.

I can't be an expert in every industry. I don't have x-ray eyes to figure out the inner workings of every founder. I can make assumptions, I don't know where the market is going, I don't know what the investment appetite is going to be, and the only thing I can say is that I really enjoy it, although the surprise is that I don't know anything about angel investing. I feel like it's a professional path, and as an entrepreneur, I've learned a lot, and that balances out the surprising lesson of not knowing anything as an investor. I think I've learned a lot. I know a lot of startup founders will hear this, and one of the questions I got, that actually got reactions on, was: what's the common misconception about running a startup?

I think the most common misconception about running a startup is that it's easier to run a company just because you're getting funding. I've spent a lot of time in VC-backed companies, and a lot of time in bootstrapped companies, and I think there's a mental toll that venture capital brings that's not comparable to any other type of business you build, because when your startup isn't doing great, and you get diluted, and you have a board, if you're not doing great the board might get aggressive, and even if you are doing great, the board might get aggressive too. I know founders who have basically been struggling even though they had millions of dollars of cash in the bank, and I think that's the biggest misconception, just because a company has millions of dollars doesn't mean the founders are sitting back with their legs up and a margarita in hand. When you see a 40 million dollar investment in a company, remember somebody has to bring a return on that investment, and the level of stress that comes from raising 100 million dollars is extremely high.

28:12 You're an ambitious person, you're not doing it for the money, you're not doing it for the fame, you're looking to solve a big problem, and raising 100 million dollars brings an immense amount of pressure, because you have to give the investors back a multiple. How do you give back a multiple on 100 million dollars? Well, you'd better build a billion-dollar company, in the worst case.

Avishai Sam Bitton 28:43

I think my younger self should have learned more about the legal side. I think I signed a lot of contracts in a rushed way, I don't think I negotiated enough on all kinds of terms. Today I don't move without having terms I feel comfortable with. I believe that at this stage, when I'm not young, I'm older, I'm confident, I've had some success behind me, I think at this stage I understand the power of having very good deals in place from the start, and not having deals that put you at a disadvantage later. I would probably do my co-founder agreement differently than in my first startup. I would do different partnership agreements. In my second one, I would do different types of investments, and probably some angel investments I wouldn't get into at all, based on the kind of legal beginner mindset I had in the past. Today I feel like I'm in a place where I could call up my younger self and say, you really need to understand the repercussions, or the potential consequences, of everything you sign.

Avishai Sam Bitton

I think the question you needed to ask is: when should founders decide to leave the business? Because there's this notion that a founder is there forever, but it shouldn't be. When should a founder remove themselves from the startup? And the answer to that is: whenever the founder believes they can no longer bring the level of impact they'd like to, because it's mentally draining to want to help your own startup and not be able to. I think any founder who believes somebody else could come in from the outside as a hire and do a better job at their role should decide first of all to move aside from their role, and then figure out if there's still room for them in the startup. I think removing a founder from a startup is always treated like, oh, that's bad news for the startup, like something bad is happening, it has that stigma, and I don't think it should. I think it's very responsible when a founder removes themselves on their own terms, or at least on terms they've agreed with the board, to remove themselves. I think it's very responsible to say, I know I founded this company, but there's someone who can take my role and do a much better job.

Avishai Sam Bitton

Thank you, Etgar, I had a great time too, and I'm looking forward to doing more content with you again in the future, because this was a really great conversation, a really fun one, and I think a very educational one.

Avishai Sam Bitton

Thank you.