The Arrowroot Way
Following Arrowroot Capital’s inception in 2014, the firm has prided itself on its unique ability to provide thoughtful capital in an underserved and often overlooked market. We partner with management teams that share our core values and provide capital as a catalyst for growth-related initiatives. Arrowroot is solely focused on partnering with companies that are building mission critical B2B software and helping those companies accelerate growth.
Arrowroot’s core investment thesis is as follows:
– Alignment between Arrowroot and company management is key to success
– Arrowroot is an active partner through all phases of scaling a SaaS business
– Our Strategic Resources Group (“SRG”) drives true engagement and growth
Alignment with Management
Arrowroot is focused on making sure our capital is completely aligned with our management team’s goals and success. We strive to answer the hard questions upfront before entering into a partnership that can last years. Many investors want to force as much capital into a business as possible even if the business case doesn’t make sense or the management team disagrees with the approach. We instead focus on creating a realistic plan with management and determine together how much capital a business needs to achieve that plan. A few of the hard questions many investors avoid discussing are as follows:
What is the exit goal for the management team?
How are we defining success? Is it a $100 million, $500 million or $1 billion sale?
Do you want to sell in 3 years, 10 years or IPO and never sell?
What areas of the business do you need support in and what areas would you prefer we stay out of your way and let you execute?
What is the 6-month value creation plan post investment?
When incentives and expectations get misaligned, the focus of the management team tends to shift away from growing the business and towards fighting amongst the board and cap table participants. This benefits no one in the long run.
Arrowroot is an Active Investor
Arrowroot considers itself lucky to have the opportunity to partner with and invest in some of the best SaaS companies in the world. We take the responsibility of being a part owner and contributor very seriously. As such, we aim to have active engagement with the companies we invest in. This style of investing isn’t for everyone, but we view it as vital to the success of our portfolio companies. We are investing our time, energy and intellect alongside the management teams we support to increase the probability of a success for everyone. As such, we request a board seat at each of the portfolio companies we invest in to ensure we are aligned as a fiduciary of the business.
In addition to being active on the board of our portfolio companies, we also serve as an outsourced corporate development team to drive acquisitions when it makes sense. We track close to 20,000 software companies globally and work with our portfolio companies to develop a M&A strategy for inorganic growth. Areas of focus include (1) acquiring subscale competitors to accelerate growth, (2) purchasing point solutions to build out product features, and (3) acquiring or partnering with competitors to enter a new geography.
We are maniacal about scaling efficiently and we do not subscribe to the “grow at all cost” philosophy commonly seen in Silicon Valley. To get a premium SaaS revenue multiple, you need to have premium SaaS metrics. We challenge our management teams to be thoughtful about where to spend the next dollar, when to hire the next sales representative and how to shape their product roadmap to drive efficient growth.
Advantage of the Strategic Resources Group
Arrowroot has developed an extensive array of resources available to its portfolio companies. Our in-house Strategic Resources Group is designed to serve as an extension to our management teams and supplement their domain knowledge. This team focuses on three functional areas to drive success.
Human Capital – our in-house human capital team collaborates with management teams to facilitate organizational growth by providing on-the-ground recruiting, building high caliber teams and freeing management to focus on revenue-generating activities. In 2019, our recruiting team hired over 100 full-time employees across our portfolio and have saved our portfolio companies millions of dollars in agency fee deferments. With over 28,000 candidates in our ever-growing data base, we have never been more excited to find the best talent for our companies.
Sales & Marketing – Our Sales & Marketing team partners with management to drive revenue by optimizing sales growth acceleration, enhancing go-to-market strategies, creating market-leading positions and implementing sales and marketing best practices. This team will get into the trenches with your sales reps and review product demos, sales calls and outbound prospecting techniques.
Technology & Operations – our Technology & Operations team ensures our companies can scale effectively and avoid potential impediments to growth in the areas of development, infrastructure, and support. This team provides consultative support to plan for team integration and product migrations, ongoing assessment and monitoring with recommendations for KPI’s/reporting as well as vendor referrals and vetting for consultants, staff augmentation, and managed services.
The key focus for Arrowroot Capital is to help build your playbook of the future. We don’t prescribe a standard playbook to our companies. Every company has their own struggles and we work together to create a customized plan for each portfolio company. We can be your coach to help you make minor improvements here and there or becoming a part-time executive at the company, if that level of engagement is needed. SRG builds long term partnerships with management, working together to make operational improvements that drive value and bring focus to the things that matter.