3 ms·

What % of a Seed Round Should Be Marketing Budget

1 points by dolev__yao 4y ago

What % of a Seed / Series A stage fundraise should the company earmark for marketing budget? A VC told me that they would expect 30-40% of a raise to go towards user acquisition for a consumer-facing technology product. How does that sound? (Disclaimer: every company is different, however I would be curious about high level benchmarks or expectations.) Thanks!

sn0w_crash 4y ago
I don’t know about B2C, but any dollar not spent finding product market fit will put your business at risk. If you can, focus on low cost / high yield tactics: - social media - SEO-driven content - newsletters - partnerships with highly visible friends in the industry
- dolev__yao 4y ago
  Right, agree with you. But I'm looking for something slightly different, i.e. whether there are any benchmarks on average marketing allocations for seed or series A rounds in the US early stage market (ideally average but even vertical-specific would be great). Similarly to how there are standard benchmarks for other variables like dilution, round size, salaries, etc. (assuming the company has early PMF). Ideally some kind of data set, but even just practitioner views would be fantastic. Perhaps this is just too deal-dependent to generalize, which I would also understand.
yorwba 4y ago
Disclaimer: I've never been involved in fundraising on either side of the table, but I don't think it makes sense to earmark a fixed marketing budget for an early stage company. Fixed budgets are good for fixed, predictable costs, but an early stage company needs to experiment, which means variable costs. It may well turn out after the fact that 30-40% of the funding went to marketing, but trying to fix it beforehand is just going to limit the company's flexibility. Once you do have some experimental data, here's how I'd determine the optimal marketing budget in a simplified model: Assume you have i people interested in your product and the conversion rate is c, so you got ic conversions and would like to make this number go up. You do a small marketing campaign and get m more interested people per marketing dollar spent. You also do some product work and improve the conversion rate by d per development dollar spent. You have an overall budget of b and would like to know the share x to be spent on marketing, with the remaining b - x spent on product. The objective function to maximize is (i + mx)(c + d(b - x)). Take the derivative in x and you get m(c + d(b - x)) - (i + mx)d. Set equal to 0 and rearrange to solve for x = (c/d + b - i/m)/2. (The numbers c/d and i/m have a neat interpretation as the amount of money that would have been spent on improving these factors so far, assuming constant m and d.) The second derivative is -2md, so as long as spending more money improves outcomes, x is the optimal marketing spend.
hitpointdrew 4y ago
I am surprised that people still actually spend significant money on marketing. Marketing usually never materializes into sales/customers, it’s largely a waste of money. I would say ideally spend as close to 0 as possible. https://theantistartup.com/i-stopped-advertising-everywhere-and-nothing-happened/ https://theantistartup.com/i-stopped-advertising-everywhere-...

1 points by dolev__yao 4y ago

sn0w_crash 4y ago

I don’t know about B2C, but any dollar not spent finding product market fit will put your business at risk. If you can, focus on low cost / high yield tactics: - social media - SEO-driven content - newsletters - partnerships with highly visible friends in the industry

dolev__yao 4y ago
Right, agree with you. But I'm looking for something slightly different, i.e. whether there are any benchmarks on average marketing allocations for seed or series A rounds in the US early stage market (ideally average but even vertical-specific would be great). Similarly to how there are standard benchmarks for other variables like dilution, round size, salaries, etc. (assuming the company has early PMF). Ideally some kind of data set, but even just practitioner views would be fantastic. Perhaps this is just too deal-dependent to generalize, which I would also understand.

yorwba 4y ago

Disclaimer: I've never been involved in fundraising on either side of the table, but I don't think it makes sense to earmark a fixed marketing budget for an early stage company. Fixed budgets are good for fixed, predictable costs, but an early stage company needs to experiment, which means variable costs. It may well turn out after the fact that 30-40% of the funding went to marketing, but trying to fix it beforehand is just going to limit the company's flexibility. Once you do have some experimental data, here's how I'd determine the optimal marketing budget in a simplified model: Assume you have i people interested in your product and the conversion rate is c, so you got ic conversions and would like to make this number go up. You do a small marketing campaign and get m more interested people per marketing dollar spent. You also do some product work and improve the conversion rate by d per development dollar spent. You have an overall budget of b and would like to know the share x to be spent on marketing, with the remaining b - x spent on product. The objective function to maximize is (i + mx)(c + d(b - x)). Take the derivative in x and you get m(c + d(b - x)) - (i + mx)d. Set equal to 0 and rearrange to solve for x = (c/d + b - i/m)/2. (The numbers c/d and i/m have a neat interpretation as the amount of money that would have been spent on improving these factors so far, assuming constant m and d.) The second derivative is -2md, so as long as spending more money improves outcomes, x is the optimal marketing spend.

hitpointdrew 4y ago

I am surprised that people still actually spend significant money on marketing. Marketing usually never materializes into sales/customers, it’s largely a waste of money. I would say ideally spend as close to 0 as possible. https://theantistartup.com/i-stopped-advertising-everywhere-and-nothing-happened/ https://theantistartup.com/i-stopped-advertising-everywhere-...