Power laws and blind spots.

VC outcomes notoriously follow a power-law whereby a small share of investments drives the majority of returns. Out of every hundred startups backed, a handful will return the fund many times over. The rest are written off. This dynamic has created a massive blind spot in enterprise software: quality businesses, trapped in misaligned capital structures, overlooked by their own investors.

Power-law math drives rational VC and management behavior to swing for the fences. The “go big or go home” strategy often leads to over-extended spending in sales, marketing, and product expansion. I would argue that the entire ‘Customer Success’ function is excess expenditure, if customers’ success is properly recognized as the entire company’s job. Over time, these businesses develop bloated cost structures and scattered product strategies. Founder and management teams find their equity pushed to the very bottom of the preference stack, leaving little personal upside. But they are the same people that committed to the hyper-growth strategy, built the teams, hired the people — they are emotionally involved, and often ineffective to swiftly correct course. Meanwhile, by this time VC board members have written off the company in order to focus their energy on portfolio winners that are most likely to return their fund.

The irony is that many of these businesses have healthy underlying economics. They continue to grow at what would be viewed by most as healthy rates (>20% ARR growth). They maintain killer gross margins (>70% product GM), and deliver real customer value (>100% NRR). Their malaise is not the result of some fundamental PMF misalignment, but ultimately due to a mismatch between the capital structure and market opportunity: call it Capital-Market Fit.

I’ve Lived This…

I experienced firsthand the outcome that follows a lack of CMF. At one of my prior employers’ we raised >$70M in VC, and proceeded to execute what the power-law playbook: attempt a market share land grab by ramping up sales, marketing, and expanding our product offering. We grew headcount way ahead of revenue, lost strategic focus, and then bled market share to best-of-breed competitors. When the growth story faltered, VC involvement gradually stepped back. Founders’ equity sank under the preference stack, and they went on to their next thing.

That moment would have been perfect timing for a recapitalization under new ownership, to reset incentives and costs structure. The underlying business was still strong — with sticky, satisfied customers, north of 70% product margin (an infra-heavy data analytics business), and a clear path to radical opex reduction. As an example, at that point in time I came to run our international business; within 12 months, we cut opex by >80% while growing ARR by >20% and winning flagship logos in regulated industries (in Europe!). This was clearly a healthy business with room to run, but not the hyper-growth home-run exit that justifies a VC-style capital structure.

Instead of a recap, the board brought in new management to attempt a turnaround, raised venture debt, and a couple years later the company sold for less than the total money that went in. Debt (plus warrants) got paid. Preferred made some of their money back. Common was wiped out.

Beyond Secondaries: Building a CMF Recap Platform

Secondaries are nothing new, but increasingly popular as many high-quality firms stay private longer. At the upper end of Tier-1 markets (US/UK), Big PE has swooped in to exploit the biggest opportunities: see Darktrace (Thoma Bravo), Acumatica (Vista), Movable Ink (Symphony) to name a few. Driven by the need to deploy large pools of capital, the mega-PE firms have concentrated on marquee names and headline transactions. Small- and mid-cap businesses in Tier-2 markets remain comparatively under-covered, and ripe for thesis-driven buyers to focus on fundamentals:

• Recapitalization: Buy out disengaged VC stakes, restructure the cap table to align incentives with a rerated market opportunity.
• Talent Retention: Keep management and key employees who want to stay on for the next chapter, and enable them to continue to hold meaningful equity in a restructured business.
• Cost Rationalization: Strip away the “go big or go home” burn. Refocus product scope, prune excess GTM spend, and run the company like the healthy, mid-sized SaaS business it always was.
• Back-Office Consolidation: Once scale is reached across a portfolio — Finance, HR, IT, Procurement — centralize and drive further efficiency.

Why Now?

I believe we’re in a unique moment. A decade of ZIRP combined with COVID-era stimulus inflated value across asset classes. For VC, this has flooded private software businesses with capital deployed into unnatural valuations. Assuming an average 10-year term, COVID-era vintages are now mid-life and will face increasing LP pressure to convert paper gains into DPI over the next 5–10 years. This digestion and rerating is now well underway in large-cap and Tier-1 markets, with 2025 seeing the highest volume of such deals.

But many valuable businesses are still drifting, waiting for the right capital and ownership structure to unlock their true worth. While it’s difficult to change, I believe everyone wins from transitioning to Capital-Market Fit: VCs get liquidity on their write-off, employees get equity in a company that can actually prosper, customers get stability from vendors that will be around for the long term, and investors build a portfolio of profitable, durable software businesses.

This is the second article in a series on expanding US B2B SaaS businesses to the EMEA region. For the first article in the series reviewing the importance of international expansion and common pitfalls, see Go-to-Europe: Scaling Your SaaS Team in EMEA.

One pitfall I often advise software business managers to avoid when considering an expansion to Europe is “going wide,” and instead choosing to “go deep” when it comes to developing an initial EMEA team and operation.

“Going wide” is what I call the practice of hiring your first go-to-market European personnel to operate separately across multiple country markets. It’s common for companies to tackle Europe with initial hires across the UK, a France, Germany, and so on… The perception is often that, because of the language and cultural differences, Europe requires remote, in-country staff. But the approach often yields the kind of results you would expect from hiring your first team across San Francisco, Denver, and New York. Remote work means less opportunity for organic sharing and collaboration that is the basis for a team culture to take root.

“Going deep,” on the other hand, means building up in a single physical location the critical mass of people, skills, and knowledge required to create a regional company culture of collaboration and trust. The reality is that for many young businesses, the EMEA region can effectively be served from one location. It’s also easier to “seed” a single location of people working together with your company’s homefield culture by “transplanting” the right staff early on. These are typically top performers early in their careers with leadership ambitions, already working with your European customers, and view relocation as an opportunity to gain valuable experience and accelerate their career.

When you choose to go deep, the question then becomes: “Where?”

There are many great places to build a business in Europe, and the answer will differ dramatically depending on your customer, product, market, and organization. But for most American high-growth B2B software businesses, there are a few markets that are far more attractive as a base of operations your initial “going deep” expansion:

London is the path most trodden, and obvious choice for most companies. The UK market typically adopts US technology earlier than continental Europe, meaning that your EMEA customer base may already be disproportionately there. The UK also has a language (English), legal system (common law), and culture that is more similar to the US than either is to much of continental Europe. Besides having fantastic universities both in the city and within a two-hour commute, London boasts Europe’s strongest cluster of go-to-market talent (e.g. sales, marketing, customer success) and best transport connections via three international airports (including Europe’s largest, Heathrow) and the Eurostar train. Finally, the UK timezone is one hour closer to the US which gives your EMEA and home market offices that much more overlap in their workday.

Examples of successful EMEA expansions to London: InVision, Medallia, Zendesk.

Amsterdam is an increasingly popular base of operations for an EMEA expansion. This has had the effect of creating in the Netherlands, and greater Benelux subregion, a strong international talent pool which is highly accustomed to doing business across Europe’s major markets. While the English language is universally spoken in practice, most professionals also speak at least one other European language either natively or with high fluency. In addition to being well-connected to the rest of Europe by rail, Amsterdam has Schipol airport which is Europe’s third-largest and, in my experience, most convenient to get to, from, and through. While Amsterdam is still comparatively expensive, salaries and office space in particular are still lower than in London for now.

Examples of successful EMEA expansions to Amsterdam: Optimizely, DoubleDutch, Lucidchart.

Dublin has also become an increasingly popular beachhead for regional operations. The Irish capital brings many of the same benefits as London in terms of English language, legal system, and culture, and all at a significantly lower cost. As a result of the Irish government offering favorable tax incentives, many of the large US technology giants including Google, Apple, and Twitter have built a significant presence in Dublin and that has had the effect of creating the seeds of a local talent pool experienced with the business of software — especially for key administrative functions across recruiting, finance, and customer support. However, Dublin is still behind London and Amsterdam on talent and transportation connections to Europe’s major markets.

Examples of successful EMEA expansions to Dublin: Dropbox, Slack, Squarespace.

In the end, the answer to where to plant your businesses’ EMEA flag will differ depending on the specifics of your product, market, and type of talent that you are targeting to hire. While London, Amsterdam, and Dublin are among the most common general choices — these specifics may make other locations equally or even more desirable. Businesses focussed on providing software to the manufacturing industry, for example, will benefit from building a physical presence in industrial Germany. Others with a very low-touch, transactional sales model may benefit from the relatively low labour costs and international appeal of Berlin or Barcelona.

Finally, do not discount finding the right leader for your EMEA operation in deciding where to setup your regional presence. Whether a General Manager, or VP Sales, your local leader should be intimately involved in guiding the decision so as to maximize the advantage they bring through their network and local experience.

1. Contribute to the kind of T2D3 ARR growth pattern empirically observed across a representative set of high-growth SaaS companies to generate +$1 billion valuations and successful IPOs;
2. Prove the existence of, and organizational ability to capture a large addressable market for their products and services which extends beyond the domestic US market.

For SaaS businesses that are entering their third or fourth year of multi-million dollar, triple-digit revenue growth, this is why ‘getting EMEA right’ is so important to hitting their next revenue and valuation milestones.

So, what does it take to scale a SaaS team in Europe? The answer is not easy. It varies depending on your target customer, product, business model, and organization. But there are some general concepts to keep in mind as you’re preparing for a leap across the pond:

1. Go deep over wide. Choose a location to plant your flag in the region, and then build out the initial team in the same office to foster a culture of collaboration and learning. This first office could grow up to 15 people before you hire remote or open a second regional location. Some companies choose to send a leader from HQ over to seed the company culture, and accelerate local ramp on product and market knowledge. Others opt to hire a local leader who has a network to quickly hire talent and win anchor regional customers. Either way, the most successful EMEA teams start by creating a critical mass in one office location.
2. Upfront HQ immersion. Make it mandatory for any new EMEA hires to spend a minimum of 10 days at HQ at some point in their first month on the job. Include them into your larger on-boarding program, and have them meet with key operational leaders across Product, Marketing, and Customer Success. If you choose to hire a local leader over sending someone from HQ as a VP/GM for the region, the minimum immersion period is more like 30–60 days depending on their familiarity with your product and market.
3. Follow the path of least resistance. Building a remote office and business on a separate continent is hard work. Keep it simple and follow The Path. For example, plant your ‘first-office-flag’ in a location with similar language, laws, culture. London is the safe bet with the highest density of talent and three international airports, including the largest in Europe, but comes at a higher cost. Amsterdam is emerging as having a critical mass of generally more multilingual talent, Europe’s #3 airport, and comes at a slightly lower cost.
4. Copy/paste your home-market motions and org structure. You’ve already done the hard work to find out how to generate repeatable business in the US. Use the same methodology as a baseline for your expansion to Europe. In Sales, replicate your same sales process, qualification criteria, reporting cadence, persona and competitive positioning. In Demand, see if any of your existing event partners can accommodate your expansion with in-region events. Resource existing accounts with Success staff using the same unit economics as back home. Then make tweaks only if and when it becomes obvious to do so.

There are few high-growth SaaS businesses which can afford to ignore European expansion after passing $20 million in annual revenue. The good news is that examples of what success looks like are plenty, and a handful of best practices can be observed across them.

The “equity side” of consumer finance — wealth management — was fundamentally shook by the low-cost index trackers like Vanguard, iShares, and I would argue that the robo-advisors like Wealthfront, Robinhood, and Betterment are really an extension of the index model in that they are automating the profession of wealth management. For example, automated tax harvesting has competed away profits from high net worth clients that realize significant value from tax optimising losses.

However, the “debt side” of consumer finance — personal loans, credit cards, auto and home lending — is still opaque and complex to manage as a consumer. The PFM model that Mint.com invented has proliferated, but there is so much more to do than simply recommend new financial products. Automatically refinancing consumer debt portfolios in real-time, based on personal info like income, assets, FICO, existing loans, and market offers has yet to arrive. There is too much information and too many options out there for anyone to manage it on their own.

The same could be extended to SMEs. The leveraged buyout model of private equity has largely thrived on optimising private companies’ leverage based on corporate loan rates and interest tax shields… Which today is again, too cumbersome for most small businesses to manage on their own.

There are some approaches which add big value for me as a customer, and then either non-obvious or indirect value to the company. For example, Google Search spell-checking my search queries, or Google Maps saving a recent history of places I have viewed, makes my life easier when I need to find information quickly. That’s real value for me, the customer. And then there’s certainly some indirect value that Google gets in terms of retaining me as a satisfied user of their services.

On the other hand, there are some approaches which really don’t add any value for me, but are clearly valuable to the company. One classic example is the retargeted display ad, which ‘follows the customer’ around the Internet advertising recently viewed products or services. Most people find those annoying, despite it being effective at driving brand recall and sales. Big company value, low customer value.

Then there are approaches to using customer data which I think actually erode trust and are value detractors for both the customer (directly), and the company (indirectly). Quora recently sent me a message with title “What is something to know before becoming romantically involved with a Thailand native?” This is a website I’ve rarely visited in years, and with which I haven’t shared any information about my personal life… It could be a coincidence, but unlikely, that such content was targeted to me. But it did feel like a violation of my private life, and I’ve since taken measures to reduce my ‘data exposure’ to their service.

Imagine a typical dialogue with a salesperson as follows:

“So why did you decide to take the time to meet with me?”

“Well, I was just curious to know more about your products / services.”

“OK. I’ve spoken to a number of people like yourself, in positions and in industries similar to yours, who are also curious to know more about what I do. And the most interesting thing is that they all have different reasons for their curiosity. Why are you curious?”

“Well, I am working on a project to do XYZ and we think your product and services could help us execute that project.”

“Sounds interesting, I’ve had exposure to similar projects for similar companies. One of the projects was funded for this business reason, another for that business reason. What is the goal of the project you’re working on?”

“Well, we think that this project will help us to grow revenue.”

“I’ve heard a similar story from others… why do you think the project will increase revenue? What are the key assumptions you and your team are making?”

And so on… Rarely do conversations ever evolve so cleanly, but you get the gist: An artful line of inquiry hits what I call intellectual or emotional bedrock after about 5–6 consecutive ‘Whys’ at which point, if asked with empathy and in a way which builds rapport, will do more to accelerate a relationship than any other interaction.

The fresco was painted by Mexican artist J Orozco and depicts the history of human civilization from the purported perspective of the indigenous peoples of Latin America. I was struck by the persistent bleakness of the interpretation, and emphasis on themes of violence, subjugation, and despair. Orozco produced the work upon returning from Europe in the 1930s, and I suspect was heavily influenced by particularly pronounced political instability and social upheaval which accompanied a period of global economic depression following 1929.

It also made me think of Carlota Perez’s theory on the relationship between technology and finance, and that the 1930s represented a time when Western societies struggled to reconcile the productivity gains resulting from new technological innovations like the automobile and mass manufacturing with a majority populace which had yet to participate in the benefits of those gains.

“As the maturity of the paradigm is approached, new profit opportunities are harder to come by and this loss in momentum could manifest itself in a sort of mid-life crisis as, for example, the crash of 1857 in Britain and the 1960 recession in the US.”

It certainly feels as though Big Tech today has entered well into what Perez calls the deployment phase and is possibly on the brink of maturity, characterized by consolidating market structure and slowing market growth. Despite the end-of-year correction, public equities still look overvalued and I suspect a further, more dramatic, correction awaits.

I’m not a super long distance runner, 5–10k is my usual session and my current max is at 15k. I know this because I’ve typically used some software to track my distance, route, and pace. When I started, I used Runkeeper, and in 2015 I switched to Strava which I think is better suited for mobile and has a larger community against which I can benchmark. They’re both excellent products and have kept me motivated to run regularly, compete against myself, and observe how I progress (or digress) in my run fitness over time.

I’ve always used these mobile apps to track my run by strapping my smartphone to my arm. But recently, I upgraded to a newer, larger device (iPhone Xs) and it is just too big to run with on my arm.

So I searched for an alternative. The best option has been the Garmin vivosport, because it has a small face and is GPS enabled. I was surprised that there was a pretty limited set of options for GPS enabled ‘bands’ with most GPS wearables coming with a full watch face… aside from the vivosport I believe there really no other option. For those that don’t want a full watch face, it seems like this is a category that could use more choice. Most ‘bands’ and lighter devices do not include GPS.

So far I have been happy with my new purchase. The GPS works well, the device is not too bulky, and Garmin maintains an integration to sync my run data back to my favorite tracking software, Strava, so I can continue to measure and improve my run fitness.

I met with the Head of Data Security today at a large international online travel agency, who had concern around a specific GDPR clause stipulating that organizations must report a data breach within 72 hours of becoming aware of it.

His interpretation, which was predictably conservative given the nature of his occupation, was that he would be in violation of the clause if failing to report a breach within 72 hours after anyone — whether directly associated with the organization or not — becomes aware of a breach. My own interpretation was that the stipulation only applies when an employee of the organization becomes aware of a breach.

Regardless, the breach reporting issue represents just one of the many ambiguities being introduced by the new rules. GDPR compliance is increasing the cost of doing business in Europe, and bolstering an emerging demand for data security and privacy regulatory compliance services.