Whales, Orcas, and Dolphins - Enterprise Software Sales Pipeline Segmentation


Whales, Orcas, and Dolphins - Enterprise Software Sales Pipeline Segmentation

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Before becoming a VC, my career began with enterprise sales and marketing. When I was tasked with building the business development strategy for a large financial services organization, I quickly and painfully learnt the important lesson that it is critical to segment a pipeline of prospects before you start the outreach.

Fast forward to today, I get the opportunity to review many new business pipelines, both within our portfolio and of those companies that approach us for investment and I have learnt a few thins that I thought it might be useful to share.

This post introduces my methodology for segmenting your pipeline - the Cephalopod Framework (yup!). The model defines the characteristics of each segment and how you might want to apply a weighting to each category within your pipeline.

Sales is an art and these are just my own personal brush strokes - I would welcome any feedback or comments.

Pipeline Segmentation - Whales

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Whales are large, monolithic companies that will flatten your startup, take forever to close, eat lots of acquisition budget to land, and will consume your business development and project management team’s time. But, if successfully landed, a whale can provide a generational leap for your business from both from a reputation and fiscal performance perspective.

Whales are likely to have had some experience of negotiating with technology vendors and probably have a large procurement team for you to contend with, which means the issuance of RFP’s (sometimes nasty, box-checking exercises). Expect you, your pricing and your business to receive a proctologist’s exam and prepare for your margin to be clobbered. Whales know that they are big and grand prizes for any small company to win and they will behave like it.

They may also want to start with a divisional trial as opposed to a company-wise roll-out, which further extends deployment timelines, the full realization of revenue, and the chance of the partnership fizzling out.

Be prepared to have multiple stakeholders managing or playing a role in your relationship with the Whale and that they may move roles to another division in 18 months time. The politics and employee motivations within large corporates is very different from startup land. Bringing on new technologies may be a stepping stone for that individual to show that she/he is innovative and to ultimately get a promotion in her/his preferred department. Don’t forget that if this person leaves, make sure you stay in touch as you never know what opportunities they may bring in the future.

With people transitioning and leaving this may mean that you will need to build a new relationship every 2 years with the newly-minted project lead. Be prepared for this new person to come with either a different mindset or another preferred vendor within your market — in my experience, this is the dangerous time for your company/whale partnership.

They may also stipulate the creation of bespoke tools and product features so that your software can fit within their legacy architecture. Whilst this can produce useful outcomes for your product feature set, try to avoid this as much as possible as it can build technical debt within your core architecture and also detract from your primary product strategy. If they really want something unique, charge them for it.

Whales will also probably insist upon or need, a full-time dedicated account manager for the relationship. This will be useful from a stakeholder management perspective but can also be expensive and not always a long-term engaging role for the account managers. I have always found that account managers who have some variety in their roles perform better than those who are focused on one customer. Instead of a dedicated person perhaps consider an account team that is largely focused on the Whale but has some flexibility to work for other customers.

If successfully landed, a Whale can provide a generational leap for your business from both from a reputation and fiscal performance perspective. Whales will probably deliver more than $2m in annual recurring revenue, but be prepared for a long on-boarding process, which will have delays and frustrations along the way.


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Orcas are not members of the Fortune 500 but can still be pretty sizable, nationwide companies that can deliver large growth opportunities for your business. They can also still flatten your business with their requirements but are just a tad more friendly.

They may not have quite the experience of dealing with frontier technology vendors and this could transpose itself in a few ways:

  • They may not issue an RFP process and instead deal directly with a handful of similar companies (if any exist) when making a decision (which is often quicker). You may also find that the senior management will be making the purchase decision and not necessarily a procurement team. Be prepared to pitch the CEO.

  • They could expect you to be in the driving seat for the integration of your product/service, which may require an injection of project management from your side of things. This may also help maintain a more healthy margin and sustainable pricing structure.

  • They are usually a strong contender in a market, but not a leader. This means that they have a need for new technologies and offerings to increase their position. They are hungry, sea-going cephalopods.

The likelihood of needing a dedicated account manager is slightly diminished but do not expect this to be a light touch account. If you nail an Orca partnership then they will become a highly valued source of reference, revenue, and support. Treasure these deals more than any others.

There very well may be a similar risk of stakeholder transition within Orcas but I have seen it on a reduced scale mostly because the project leads have a considerable vested interest in the project and the company.

I would anticipate that an Orca would represent approximately $750 - $1m in ARR.


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Dolphins are wonderfully nimble, intelligent, and charming creatures. They are typically small in size, regionally based, and focused on a particular niche.

They can also be new entrants in a market, who are hungry to impress and increase their standing. It is unlikely that there will be a procurement team, nor an RFP, and it will probably be a relatively quick, CEO/Founder decision.

Dolphins can be wonderful, fledgling opportunities for you to test your products and will likely be great advocates for your own company and products. They are friendly mammals.

That being said, due to the occasional fragility of their core business, Dolphins can also churn somewhat frequently and you need to be prepared to have other prospects in the pipeline to fill their vacated spot.

They can also waste your time and consume resource for relatively little amounts of value so you need to be careful about how much time you allocate to them. I would recommend grouping Dolphins into their own industry pods and allocating each pod to account management.

I would expect a Dolphin to represent somewhere between $50k to $300k in ARR.

Pipeline structure

While I would not recommend building a pipeline solely on Dolphins (or Whales, for that matter), I tend to use the following assumptions:

  • One landed Whale is equivalent to three Orcas

  • There are eight Dolphins for every Orca

  • The likelihood to win is a sliding scale from Dolphin to Whale, with the former being 10% after the first meeting and the latter to be at 1%

  • Acquisition costs are often in the lap of the Gods but I would prepare for hefty CPA’s for whales and decreasing for Orcas and Dolphins.

With this in mind, you need to make sure your pipeline is suitably diversified to reflect the potential value, likelihood of winning and the cost of acquisition.

All too often I see pipelines that look like this:

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...when instead I would prefer them to look like this:

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Having a dynamic and sensibly allocated pipeline is important, however without a segmentation strategy and an individual plan of attack for each segment the pipeline is rendered largely useless.

In my startup days, I was introducing a new product into a massive, uninitiated market that had little to no idea that they had a need for products like my own. The potential for time wastage, exhaustion and poor performance was truly daunting. This approach helped me clear the fog of trying to allure lots of Whales, spending too long trying to land Dolphins, and instead allow me to focus more on Orcas and have a diversified portfolio.

Happy hunting!



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Think twice before investing in startups using an IRA

We frequently hear from high net worth individuals and family offices who are interested in investing in startups, either directly as angel investors, or indirectly as limited partners in venture capital funds. Often, we are asked about making these investments through an IRA account, prompted by media reports of vast riches accumulated inside an IRA by early investors in iconic technology companies.

Mainstream IRA custodians, like Fidelity and Schwab, are not set up to allow illiquid investments inside IRA accounts. Instead, investors need specialized custodial firms like Millennium, Pensco, or others. Setting up an account and funding an investment are more cumbersome processes than opening a regular IRA, so you should open your account and fund it before committing to a funding round with an imminent closing date.

So, the answer is that investing in startups with an IRA can be done, but should it be done? As with any tax-related advice, it depends. There are several factors to consider.

Minimum Required Distributions: If you’re required to take MRDs from your IRA, you need to base the amount of your MRD on the total value of your IRA holdings, across all accounts, including illiquid assets. So you must always keep enough liquid assets to meet the MRDs over the life of your illiquid investment, even if that’s a decade or more. The valuation of illiquid investments with asymmetrical upside can also be a problem. If you invest in the next Uber through an IRA and you are subject to MRDs, your MRDs could exceed the value of the liquid assets in your IRA as the value of your startup investment increases. Practically speaking, anyone subject to MRDs or close to the MRD age threshold should think very hard before investing IRA money in illiquid assets.

Unrelated Business Taxable Income: UBTI is income generated by a tax-exempt entity through active business activities. Investing in an active business structured as a pass-through entity, like a limited partnership or an LLC, can create UBTI for your IRA, which is a serious problem. Especially outside of California, startups are often organized as LLCs, so investors need to be careful about this issue. The easiest way to avoid this problem is to invest only in entities that do not have pass-through active business income, like startups organized as C-corporations, or venture capital funds.

Qualified Small Business Stock: Before 2015, the prospect of a tax-free windfall from investing in a startup via an IRA was a pretty good reason to consider the investment, even with all the inconvenience and caveats. But since Congress passed the Protecting Americans from Tax Hikes Act of 2015 (the PATH Act), the story has changed. Under the PATH Act, Congress amended §1202 and §1045 of the Internal Revenue Code to simplify the rules for claiming a tax exemption from an investment in qualified small business stock. A QSBS issuer must have gross assets below $50 million, must be a C-corporation, and must not engage in certain business activities (including financial services, professional services, real estate, hotels, restaurants, and resource extraction activities that can claim percentage depletion). Under §1202, an investor who buys QSBS stock from the issuer and sells the shares after five years to a third party can exclude from federal taxation 100% of their gain, up to $10 million or 10 times their investment, whichever is greater. For shares held for less than five years, §1045 allows rollover investments similar to §1031 for real estate investors.

The favorable tax treatment for startup investments now makes it much less attractive to hold such investments inside an IRA. A typical investor would maximize his or her after-tax returns by allocating to active public equity strategies and taxable bonds inside an IRA, and real estate, passive public equities, tax-free bonds, and startups with their taxable funds. Obviously, everyone’s situation is different, and anyone reading this blog post should not rely on it as investment or tax advice. Rather, consult with your financial planner and your tax advisor before making any decisions. When you do, ask whether your advisor is familiar with the recent changes to QSBS treatment. Many accountants and financial advisors we meet are unfamiliar with this tax break, so don’t be surprised if your advisor needs to read up on the topic before advising you. And as always, invest thoughtfully and carefully. A tax break is only valuable, after all, if you’re expecting a capital gain.

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Welcome to the Stage Venture Partners blog

The start of a new year is always a good time to begin a new project. With 2019 days away, the time is right to begin writing in public more frequently. Our blog will cover all aspects of startup investing, from limited partners to portfolio companies. We’re excited to begin this project, and we look forward to the conversations that will start here.