After 10 years operating in-house, I’m launching an advisory firm to de-risk the early-to-growth transition for founders and investors
After a decade of operating, most recently as COO & CFO of pymetrics (now Harver), and 5 years of helping first-time founders and CFOs on the side, I’m building a new team to resolve a critical skill gap in the early-stage market: surviving the early-to-growth transition. This stage of the venture cycle is uniquely perilous - 60% or more of early-stage startups won’t survive the transition to growth (often the Series A to Series B gap). Most will fail due to avoidable and correctable missteps in execution, not product or technology issues.
Struggling startups often can’t get the holistic, situation-specific support they need. They are more likely to be first-time founders and teams. Vendors, including outsourced CFOs, Bankers, and others, can address slices of the challenge but are limited in their functional breadth/depth, ability to be hands-on, and stage-agnostic perspective. Founders don’t have a pure specialist in the early-to-growth transition period that can support strategy and execution, go deep in all functions, and operate at any level from investors to the field.
After 6 months of operating quietly and testing our thesis, I’m thrilled to publicly launch Virgo Strategic alongside my partners Caroline and George. Our mission is to protect great products as a trusted partner to founders during the early-to-growth transition. We specialize in navigating three areas of acute risk - decelerating growth, transformation, and distress. We extend clients’ capabilities in strategy, operations, and capital transactions to survive their situation and reach their next chapter.
The early-to-growth transition is the most perilous
I’ve had a front-row seat at companies of all sizes navigating familiar cycles of rapid but decelerating growth followed by successful reinvention and ownership transition – GE Capital (public), AppNexus (Series F, exit to AT&T), and pymetrics (Series B, exit to Harver) to name a few.
After the AppNexus exit in 2018, I wanted a window into early-stage ventures to figure out what killed companies before they made it to that scale. I hung my own shingle and worked with first-time founders and newly placed CFOs navigating the early-to-growth transition (e.g. pymetrics was a client before I joined them full-time).
The gap between early and growth was more brittle than the stages before or after. I met visionary founders with customer-validated products who struggled to design and execute growth-stage GTM, operations, and transactions (strategic partnerships, financings, tack-on M&A, etc.). Seemingly avoidable or correctable missteps in execution posed existential risk to otherwise viable technologies. Startups in the gap were more sensitive to industry shocks and global crises than their well-capitalized late-stage or pre-revenue neighbors. First-time, underrepresented, and impact founders faced additional challenges and received fewer resources.
I took away three observations that profile the unique difficulty of the early-to-growth transition:
1. What got them here won’t get them there. The early-to-growth gap is the first time a startup faces a set of existential risks that are not product/tech related, and for which most founders cannot draw upon past experience or existing skills. The median founder is a first-timer and their management team is mostly new to the early-stage context, if not new to venture completely. Unscalable GTM motions, an executive mis-hire, or a poorly negotiated distribution partnership can dismantle even companies with strong evidence of product-market-fit in their early customer base.
2. VCs want to help but are stretched thin. The median VC is a career investor and great at pattern recognition and network, but hasn't been a founder or operator. Smaller AUM, emerging fund managers usually don't have operating partners. They are stretched thin across a lot of boards and spending more time with LPs now to differentiate and raise new funds during a period in which capital is consolidating toward larger managers. (Note: more on the median VC profiles and emerging trends in an upcoming piece)
3. Runway is short and capital is increasingly scarce. From the moment a startup realizes they are struggling with the early-to-growth transition, runway can be 12 months or shorter - not enough time to try anything twice. For those that need it, there are few investors in the business of extending second chances, and those few are costly.
Startups struggling with the early-to-growth transition must act decisively to avoid, or overcome, the three stages of a downward spiral
From my client engagements and in-house experience, I saw three distinct stages of increasing risk within the early-to-growth gap. If founders and investors diagnose issues early and take proactive, bold action, they can avoid a rapid descent through all three stages into irrelevance (zombification) or dissolution (death).
Consider each of the following stages in the pressurized context of 18 months average runway, and often fewer than 12 months by the time action is taken.
Stage 1 - Decelerating Growth: product-market-fit (net retention) is good, revenue is growing but decelerating too quickly and too soon, the GTM motion is not scaling well, unit economics are mediocre, there is no plan to layer the next S-curve. This company is at risk of zombification. If the problems are resolved, it can get back on the venture track toward a growth financing or strategic exit.
Stage 2 - Transformation: product-market-fit is weak or has eroded. There is a clear need to pivot or to narrow focus toward a customer segment that is performing and can support a pathway to profitability. If the pivot is successful, this company can sell to private equity (or a PE-backed platform). In some cases, a strategic exit is possible.
Stage 3 - Distress: stabilize, rationalize cost, execute a recap or exit. If this is executed well, it remains possible to preserve some capital and transition the technology to a new home where it will live on.
Founders don't have a partner with deep specialization in the early-to-growth transition and broad capabilities across functions and levels
I’ve watched too many founders fail to get the holistic, situation-specific support they needed. They were often dragged into vertical (siloed) problem-solving where challenges were horizontal in nature. They relied on a patchwork of investors, advisors, friends, and C-level leaders; each group having different and competing perspectives, incentives, depth, and ability to be hands-on. Common results were wait-and-see (denial), indecision, or poorly aligned execution.
VCs are stretched thin and their networks/platforms aren't built for this purpose (with some exceptions)
Many founders believed their VCs would step in to provide both answers and muscle. Experienced VCs have seen every permutation of this problem and often know the right playbook. However, despite the best of intentions, the median VC is stretched incredibly thin and can't provide muscle.
VCs must constantly balance between deploying capital, doubling down on winners, supporting strugglers, raising new funds, and operating their own business. They’re on more boards than ever after 3 years of record deal volumes without an equivalent growth in partners per fund. Macro trends are driving a higher percentage of investments to struggle. Raising new funds will become more difficult and time-consuming as LPs respond to yields and begin their consolidation toward the largest fund managers with the most consistent returns.
You might expect that VC networks/platforms would be the solution, and many founders are surprised when these groups can't be as hands-on or detailed as expected. Great at opening doors for sales and talent, or for high-level strategy, but limited in their ability to support execution (notable exceptions being $B+ funds with stellar operating groups like Insight Partners and OpenView).
Consultants and bankers tend to be one-dimensional and expensive
The vendor landscape is generally stage agnostic and organized vertically around specific corporate functions or deal types.
Consultants, including outsourced CFOs, tend to be too narrow in their expertise (e.g. ops but not strategy; finance but not GTM; decent with internal comms but can't trust with external comms). The sheer number of specialists and agencies that need to be stitched together to get a holistic solution is impossible to manage or afford.
Bankers, particularly the generalists, don't have a good track record with struggling companies at this end of the market (but some sector-focused specialists do well). The first challenge is price. Minimum fees are usually 7 figures which can be chilling to buyers and sellers at best, and preventative of a transaction at worst. Second, their focus is solely on closing a deal. Bankers can't be embedded in the client's team to design and execute operational improvements which limits their ability to drive fundamental valuation improvements. If a deal needs to be done quickly, and the banker has existing repeat relationships with a credible buyer, this can be an acceptable alternative to dissolution, but they won't build your business, shore up employee morale, or widen your paths to survival.
We are launching an advisory firm with deep specialization in the early-to-growth transition and broad capabilities across strategy, ops, and capital
It became clear to me that founders with viable products needed creative, holistic solutions to de-risk the early-to-growth transition. Founders needed a partner with situation-specific expertise in navigating decelerating growth, transformation, and distress. A specialist in designing and executing the extreme changes required to survive and achieve a financing or exit. A firm guiding hand to work alongside their internal team and build muscle back into the business.
From my own operating experience and my work with successful serial founders, I saw effective solutions were highly contextual in design, horizontal first and vertically integrated second. Teams that survived were those that leveraged a broad set of capabilities:
Ability to drive strategic planning, operations turnarounds, and major capital transactions
Hands-on experience leading functions through periods of extreme change including industry shocks, strategic pivots, and crises
Ability to operate and communicate at all levels including externally and internally, from investor to field employee
In private equity, situation-specific solutions have existed for decades (e.g. turnaround, distressed, workout, etc.). They have been notably absent or highly fragmented in venture capital. As a result, good technologies have met premature ends due to avoidable and correctable missteps in execution. With the right support and resources, many struggling startups could have reinvented themselves and seen their innovations live on.
At Virgo Strategic, our mission is to improve the survival rate of early-stage technologies. We are situation-specific experts and leverage decades of executing through growth, shocks, pivots, and crises to identify viable paths forward, working backwards from desirable outcomes. As former functional leaders ourselves, we know how to effectively partner with the management team to drive durable improvements. Most importantly, we align our incentives with clear client milestones, whether that’s a successful financing, M&A, or exit.
I couldn’t be more excited to begin this journey with our clients and to lead this growing team in delivering creative and impactful work for society’s most innovative sectors.
All the best,
Foos