The most important skill in bifurcation-aware investing is recognizing middle-market companies and passing on them — regardless of growth rates, team quality, or market size. The structural math doesn’t work.
Automatic Disqualifiers
Related: Understand the probability math in The Middle Math.
Any of the following characteristics should trigger a pass:
ACV $20-100K with a sales team — This is the classic middle trap. The ACV is too low to justify enterprise sales costs, but the company has already built the sales motion. The math is structurally broken.
NRR 90-105% — This range indicates no expansion engine. Customers aren’t churning dramatically (Floor), but they’re not expanding either (Ceiling). The company is in purgatory.
“We’ll go enterprise later” — This is middle-market cope. If the company doesn’t have enterprise characteristics now (integration depth, services, multi-year contracts), it won’t magically develop them.
Features cited as primary moat — If the pitch deck’s competitive advantage section focuses on features, the company has no moat. Features can be replicated in days with AI.
Switching cost < 6 months ACV — If customers can leave easily, they will — especially as Floor alternatives proliferate.
Monthly churn > 2% — At 2%+ monthly churn, the company loses 22%+ of customers annually. This is a leaky bucket that no growth rate can fill profitably.
CAC payback > 24 months — Long payback periods indicate broken unit economics. In a capital-constrained environment, this is fatal.
LTV:CAC < 3x — Below 3x, there isn’t enough margin to fund growth and operations. The business is structurally unprofitable.
Gennaro is the creator of FourWeekMBA, which reached about four million business people, comprising C-level executives, investors, analysts, product managers, and aspiring digital entrepreneurs in 2022 alone | He is also Director of Sales for a high-tech scaleup in the AI Industry | In 2012, Gennaro earned an International MBA with emphasis on Corporate Finance and Business Strategy.
