Software stocks set new records despite earnings, pandemic


This post is by Alex Wilhelm from Fundings & Exits – TechCrunch

You might have missed it, but amidst the current political-M&A-pandemic-election-disinformation news cycle we find ourselves in this week, SaaS and cloud companies reached new public market records.

Yesterday, the Bessemer-Nasdaq cloud index closed at 2,035.54, a new record finish for the basket of software companies. And, today, the index broached the 2,040 mark before ceding some ground.


The Exchange explores startups, markets and money. You can read it every morning on Extra Crunch, or get The Exchange newsletter every Saturday.


What matters for our purposes is that with a good chunk of the Q2 earnings cycle behind us, software companies are not only holding onto their gains from earlier in the year, they are managing to add to them, albeit modestly. Of course, valuation expansion during earnings season could still lead to gently falling multiples; as companies grow, if their shares gain value at a slower pace, their price/sales ratio can lose ground.

Regardless, for our purposes it’s notable that recent public market gains are not dissipating. Tech valuation boosts have helped major American indices regain ground lost early in the year, and Q2 earnings were a possible threat to prior progress. So far earnings-related dents are thin on the ground.

So, what’s going on? Why are SaaS and cloud stocks doing so well? Leaning on notes from two VCs — Jamin Ball from Redpoint and Mary D’Onofrio from Bessemer — we can unspool recent valuation highs.

The Midas List Live (Video + Transcript)


This post is by Team SaaStr from SaaStr

A discussion about venture capital and the effects  Covid-19 has had on in the industry. Join Nicole Quinn, General Partner at Lightspeed Ventures, Ann Miura-Ko, Founding Partner at Floodgate, and Alex Konrad, Senior Editor at Forbes as they talk about what they have seen in the industry lately and how they are moving forward.

Nicole Quinn | General Partner @ Lightspeed

Ann Miura-Ko | Founding Partner @ Floodgate

Alex Konrad  | Senior Editor @ Forbes

 

Speaker 1:
Good afternoon and good morning wherever you are and tuning in on around the world. Welcome to the Midas List live. We are joined by Alex Konrad, senior editor of Forbes. Nicole Quinn, general partner of Lightspeed Venture Partners and Ann Miura-Ko, co-founding partner of Floodgate, and I’ll hand it over to you.

Alex Konrad:
Hello everyone, well it’s awesome to be here. I’m Alex Konrad, the editor of the Midas List at Forbes and Ann is a perennial Midas Lister and Nicole here joining us just made up and comer list of frankness people who are likely to make a Midas List in the future so you have the present and the future of the list hopefully here.

But yeah, I’d love if and Nicole… I’m sure a lot of our audience are familiar with your firms but you mind just kind of grounding us a little bit into terms of the size of the funds that you’re working with and the stage of companies that you’re typically partnering with.

Ann Miura-Ko:
Thanks, we are a very early stage firm. Floodgate is now 12 years old. We got started in 2008 when we first spotted this sort of new place in investing, which we called seed. At the time, there maybe four or five other firms doing this same strategy of investing somewhere between $500,000 and $2 million into companies that were just getting started we would call it pre-product market fit.

We like to say we invest early, way too early or questionably legal early, and we take that plunge with the founder, very early on, and we do participate in follow on financing. But we think of it as being sort of CO conspirators with the founder’s pre-product market fit.

Alex Konrad:

That’s almost on a sinister but exciting, the conspiracy. And Nicole, what about you at Lightspeed.

Nicole Quinn:
So, on the other side of the spectrum, at Lightspeed, we’re operating out of our 13th Fund, which is a $4.2 billion fund, which we closed a couple of months ago. And we do have an early stage fund. So within that, it’s 900 million for seed series A, series B, we then have a growth fund, which is 1.8 billion, and then a global growth fund as well as one a half billion.

The great thing about those growth funds is that we carry on investing into our current companies. The majority of those funds actually do go into current portfolio companies. So giving peace of mind to founders that can carry on investing, actually right up until IPO and the global aspect to us really important, likely we actually have nine offices globally.

So we’re constantly looking at interesting new trends. So when are trying to partner invest in pin Duo Duo and tells us this interesting trend and we should watch out for it. In Europe that’s tremendously helpful or when one of our portfolio companies is looking to expand India, we work with our team that do that. So we’re also in Southeast Asia, Israel, Europe, as well as all across the US a regular week, we on a plane a lot.

Alex Konrad:
Awesome, but obviously not so much lately with the planes I’m sure.

Nicole Quinn:
No.

Alex Konrad:
So for everyone who’s joining us in the audience, I just want to make clear, we’re going to have a pretty open-ended chat for a few minutes with these two awesome investors, and then we will be opening up questions. So I think we just got our first one, which is amazing. We will get to those in a few minutes. So please in the q&a section, feel free to weigh in and we will We’ll be trying to get to the best questions.

In the meantime, one more sort of contextual piece of information, if you both don’t mind, could you give us a sense of kind of the companies that in recent months you’ve spent the most time working with or the sectors that you’ve been sort of spending a lot of time in because while I think we can then range from past those, it’ll be helpful for everyone just to get a sense of kind of know where you’ve been investing a lot of your time lately. So maybe, Nicole, we’ll start with you and we’ll go back the other direction this time.

Nicole Quinn:
Sure, so we’ve been investing wisely. One is two-thirds enterprise, one-third consumer, some healthcare as well now, and I would say, over the last few months, we have still continued with the same areas that we were excited about before so very much in marketplaces and consumer subscription and SAS. Within that, I would say there’s this really interesting trend towards thinking about this some new habits that are being built up in these times, and will they be sticky afterward? That to us is a really cool question.

And so if you look at like the slacks and the zooms of the world, yes, there’s tremendous growth that’s being seen. But I’m a big believer that habits are built up, and then they actually do stick with us afterward. I think we are literally part of one of the big trends that I’m seeing right now, which is virtual conferences. And so if you think about it, like the fact that we can take an hour out of our day and be here, there’s no travel time, no one needs to fly in from anywhere.

This is a really efficient way of doing things. Also, in addition to that, if you’re an introvert and you really don’t like networking, then this is like a much better way of being like, okay great. I can do this for in my pajamas from home. And so we think this is a trend that’s going be sticking around for a while. And so that’s definitely an area that we’re investing in.

Alex Konrad:
Awesome. I’d love us to come back to that in a little bit, but first… and do you mind just giving us a sense of either companies or areas where you’ve been spending a lot of time maybe you know, in the months leading up to current events?

Ann Miura-Ko:
Yeah, so I’ll talk about sort of where I’m spending time looking for future companies. And then where I spent some time in the recent past. So some of the more recent investments where we’ve doubled down or we’ve made new investments. One is in the area of discovery-oriented commerce, which is something that I’ve been interested in for probably 10 years or so.

I used to call it lean back commerce, how do you get entertained and then suddenly discover something that you want to buy? I think Instagram is sort of the best example of that. And we invested in a company called Popshop Live in that space, which is really leveraging live streaming, and streaming in the future to bring commerce to almost any retailer, in a live format.

Other areas that we’ve doubled down on knowledge management is a space that we think that with increased remote work with distributed teams, it is one of the areas that’s really sort of still the holy grail. People still haven’t solved that problem. It seems ridiculous that we haven’t. But we need to find better solutions in that space.

So we’ve been spending more time in that space. We have a team called supernote. That’s been doing some really interesting things in the note-taking space. And then a third area is just what I would call a calling of the future of joy. So where do you get actually, the fun back into your life and some people will say it’s education, entertainment. What’s the future there?

One example company I would point to right now is a company called Learn Monthly, where we made an investment, really, because we love the founder. And what we’ve discovered along with him is that this same way people engage in marathons and love to share it, you probably have had friends run a marathon and everyone in their friend’s circle knows that they’re running a marathon…

Alex Konrad:
I think that’s the top role of running a marathon is you have to tell everyone constantly that you’re running a marathon.

Ann Miura-Ko:
Talk about it all the time. Because what’s the point, right, and so I think the same thing will happen in creative pursuits. And this is what Learn Monthly is discovered. They’re doing this for music production and oil painting and singing. And people are spending $300 a month and this was pre-COVID. And you can imagine, now they’re doing it even more.

Sharing their endeavors online and with their friends and creating real products is spending 10-15 hours a week on these types of pursuits. And so I think there are lots of things in sort of what we’ve been seeing in the past which we will continue to double down on. I think there’s been A lot of problems expose because of COVID, where we’re doubling down as well.

I’ve been really interested in federated learning. So how do you combine artificial intelligence with privacy by allowing training at the end nodes? That’s something that I’ve always been interested in doubling down continuously on knowledge management, privacy, those are all areas that we think will continue to become more interesting in the future.

Alex Konrad:
Yeah.

Nicole Quinn:
I have to say future joy is such a good way of putting it. This is exactly how we’ve been thinking about some of the companies in our portfolio so if I think about Calm they’ve been doing terrifically well during this time because they’ve been there for people and you know, helping them get to sleep and reading them a bedtime story when otherwise you know, they can’t get to sleep with anxiety. And Cameo for me is one which is a marketplace and now very much in the like the at-home entertainment it’s like a whole lot of fun.

Alex Konrad:
We used Cameo for my 11-year-old son’s birthday.

Nicole Quinn:
Who did you get?

Alex Konrad:
We were able to get our friend from the Celtics to send him a birthday message. It was pretty awesome.

Nicole Quinn:
Now did it bring him joy? That is the important question.

Ann Miura-Ko:
It did, it was totally the future of joy.

Nicole Quinn:
Perfect.

Ann Miura-Ko:
Who wants to talk about your future of work when you can have the future of joy?

Nicole Quinn:
Exactly.

Ann Miura-Ko:
Yeah, I wonder how much VC messages would go for on Cameo?

Nicole Quinn:
Well, I’m $10 on Cameo.

Ann Miura-Ko:
Or it would be a negative amount.

Alex Konrad:
Well, we’ll just save that for Twitter. So one, a deeper question. I did have though since you’re both starting to riff a bit about areas you’re looking at is, Venture Capital and startups are a long term game where we talked about partnerships that could be seven or 10 years between investors and entrepreneurs and startups that could take that long to kind of reach some sort of outcome. How do you algin that long term time horizon with sort of short term excitement or changes that we’re seeing right now?

Because things that might be really popular in this moment aren’t necessarily going to be popular five or seven years from now. So how are you trying to keep those different time horizons in mind as investors?

Ann Miura-Ko:
I wouldn`t even say, either six to 10 months from now, you don’t even know have that same kind of product-market fit. One of the things that I think is really important, just as an investor and a board member, is that you aren’t in the weeds all the time, right. So the benefit that you have is sort of the 30,000-foot view of what’s happening in the market, and also what’s happening with this company. And so the place where we can tell you is there product-market fit in this company right now? And is it a sustainable product-market fit or in this circumstance is it really COVID market fit?

And I think that’s a conversation that we’re having a lot with our portfolio companies, specifically the ones that are having tremendous success right now, we want to make sure that we aren’t just growing and creating a comp that’s going to be really hard to beat next year. But rather, we’re building in something that’s sustainable that customers love and find joy in and ultimately will continue to use.

And I think that the really tricky part is a company could have had that product-market fit in January, they don’t have it today isn’t going to come back? They have it today, will it sustain itself in six months? They never had it, what’s going to happen now? They build for COVID market fit, because who knows how long this will last? Those are the real tough conversations that we’re having with our portfolio companies today.

Nicole Quinn:
I get asked this question a lot, especially on anything consumer-related, because I do feel like consumer behaviors do just change so rapidly. And so one important thing to note is the fact that nothing goes straight up into the right consistently. And so it’s really important to have investors you’re working with who are patient, and who do have a really long term view.

And so if I look at like Mulesoft or AppDynamics, they took 12 and 14 years respectively to go public. And that’s fine. It’s really important to have both GPs but also LPs, who are patient capital, and then it’s thinking, Okay, so maybe there’s a flat six month period, and then you’ve got to be thinking, what can we learn from this period? We actually… I personally believe you can learn more from when times don’t go well than when they do go well.

And so it really is important to like lean in and make sure to be pushing the team around like learning’s when you do have like a flat period and growth. And then also constantly to be thinking about R&D constantly be thinking about innovation. And so maybe you have something that’s working today, but the consumer behavior will change gradually over time.

We’re always thinking about the fact that we’re in between platforms right now. So that was wearables mobile, we don’t yet know what the next platform is going to be. And so we’ve been investing in marketplaces that I believe will transcend across platforms, to whatever that may be next. We’re pretty bullish on voice.

And so that’s super interesting. And then to Ann’s point, I agree with these companies that were pretty flat before or maybe even declining before, and then suddenly have seen a huge uptick because of this. And, again, you’ve got to ask yourself, well, is this something that will stay around afterward? And is there a way that they’re actually able to capture what’s going on?

So one terrific example of that is, Instacart. Where if you think about it, yeah, a lot more people are shopping online. And really taking advantage of being able to order this food from home. It’s also introducing new customers, like my 70-year-old, 80-year-old parents. And now shopping online. For Instacart is very cleverly done is they have a subscription plan.

So it’s sort of like, okay, we think these people will already shop online in the next couple of months over COVID. But let’s lock them into a year-long subscription or two-year long subscription so that we really capture them afterward as well. And make them lifelong customers. So I love it when companies are thinking that way.

Alex Konrad:
Do the metrics that stand out to you both change in this situation, or is there any sort of… Are there any warning signs that might for our audience as investors or entrepreneurs, are there sort of signals that are more powerful in this moment to try to guess if things are sticky and sort of lasting in that sort of COVID, benefitted, or at least doing well side of the ecosystem?

Ann Miura-Ko:
We’ve always spent a lot of time on cohort analysis, whether it’s enterprise software or consumer software, we find that sort of the best leading indicator for product-market fit and also a prediction of who is your best customer? You know, but one thing that’s interesting is just in COVID-19 I think the shift has become more around how do you survive long enough to get to either cashflow positive or get to a state where the market is a little bit more stable and investors are investing more freely.

And what that means to me is actually one of the things we’re paying attention to is just your ability to outlast and so it’s not really about outgrowing your competitors. And so spending to outgrow, but rather to conserve enough to outlast. And that’s a very different mentality in terms of how the entrepreneur even thinks about the business, and how the people that you even have around you.

And so, to us, it’s actually, it’s a very tricky way in which you need to start to build your business because we’ve over the last five years really rewarded growth, and in a very pure sense, and now it really is about the underlying operations of the business that you really need to pay attention to.

Nicole Quinn:
Whether we think about KPIs, especially during this time, is what are the sort of underlying leading indicators that a true brand is being built here. And I would apply that to Zoom or Slack are one of the companies in our portfolio better off and so those leading indicators are things like cohort analysis on point, but also engagement, retention, customer NPS, the way that people are talking about it, like it’s not always just the quantitative factors.

There’s also the qualitative ones, where you really got to be thinking about how are people talking about this. So people saying, like, “Hey, this is cool, while I’m doing this while I’m working from home. But, I know when I go back to work, it’s not going to be this way anymore.” Also, something that was really building up consistently before this time, and then we’ve never seen a spike, and a lot of that will be captured afterward. So I think that you’ve constantly got to be thinking about all of those different factors as well and, you know, looking at some of the numbers to support that.

Ann Miura-Ko:
One other thing I would say is also, just like the health of the customers is something that we’re also paying a lot of attention to. So we’ll do pipeline analysis where we look at first of all the characteristics that our companies believe are indicative of a best customer.

And then we look at that and we say, under current scenarios, are these businesses, healthy businesses, growing businesses? Or is this actually now suddenly shrinking and non-existent market? So the travel industry isn’t just going to be spending a ton of money on SAS services anymore. And so we need to rethink whether or not the pipeline itself is healthy. And that also in turn, impacts that sense of product-market fit.

Alex Konrad:
Got it, and then in terms of, sort of the luck factor here. For companies that maybe feel like, they just ran into a buzzsaw or there isn’t a need for them right now, but there might be in the future. Are those businesses interesting to VCs like yourselves right now? Or would you rather wait and see and kind of get those companies that next go around because I have to feel like there are businesses.

I saw someone talking about Airbnb and they said, “If Airbnb were to somehow fail, someone else would gladly redo Airbnb in the future because the idea is sound.” It’s just not super needed in this moment, right? And so for businesses that are just sort of unlucky per se, what happens for them, when they are either already backed by investors or meeting with potential new investors?

Nicole Quinn:
I mean, listen one of the companies in our portfolio, that is a terrific business, it’s true factions, and so they have been very directly impacted from what’s going on. But this is a tremendous business and this is a business that will absolutely be around afterward.

And so we look at the fact that the CEO is a wartime leader, and he makes those cuts very quickly. Another company in our portfolio, Carter, I don’t know whether anybody read the CEO’s blog around the firings that he had to do in the business.

But it was very admirable, I would encourage everybody to read it. I think that it’s so important to be thinking about, okay, yes, our business is hit now. But let’s just make sure that we have at least 24 months runway is what we’re saying to folks, hopefully, 20 to 30 months.

But we just don’t know how long this is going to persist for. So just making sure that you’re in it, we will say when you’ve got to be alive, you’ve got to be in it. So let’s just make sure that we’re in this and have enough runway to get through this.

And so that is making the tough decisions to cut people that is making the tough decisions to scale down from that fancy office that you had before to a smaller office or even no office. So many folks are moving to remote, which I think is very sensible. Just the other day concept to me that they feel like they have to stay remote to stay ahead in this game and to be able to hire the very best A-list, A-player in the industry.

And so I think it’s interesting just the way that different companies are responding to it. Some are thinking, okay this will get better in a few months. But the more realistic ones are like, ” No, we need to take drastic action now, we need to make these cuts, we need to do the tough thing.” I need to be doing these motivational talks to my company. The CEO Cameo is always doing these motivational talks every single week for the company to really stay ahead. And I just think that really builds morale in these tough times. And it’s exactly what you need.

Ann Miura-Ko:
Yeah, I just…I go to those comments and just say… I was in the venture industry back in 2001. And my second day of working in the venture was at 9/11. And I actually remember in that period, because that was such a text field bubble, you would actually see companies have to let go 90% of their workforce, it felt like it was happening every day right. And you would see some of these companies actually, five years later surviving.

And so there were companies that had to pull their IPO in 2001. And then they went out for their actual IPO in 2005, 2006 timeframe. And you can only imagine what those CEOs, what those companies went through, in that intervening time, because they were at the brink of being public, pulled it, recognize that they had to let go of a vast majority of their workforce, and then move into the future.

And, you’ll probably have to see some of that kind of action and we’ve already seen some of it already within the tech industry and throughout the economy. But, and some of it is like being deeply, deeply unlucky. But leadership is about what you do in those moments, not when you hit the lucky truck, and you’re able to ride a wave, right and you will see some really inspiring examples of leadership over the next 6,12,18 months.

Alex Konrad:
So we have a couple of really good questions that we’ll get to shortly. And for everyone in the audience, I do encourage you to ask questions in the q&a, we will get to those. I just have a couple more first that I’m dying to know the answer to and hopefully other people will agree. I think the first one is, Ann and Nicole when I do these VC chats.

Historically, one of the most popular questions would always be how to founders find you, how do they reach you and sort of where do the most interesting potential opportunities come in from in terms of sourcing I think that’s probably a more poignant or even like more pressing question today when we’re all sort of working from home. And so I’m curious, what would that answer be? And has it changed at all in recent weeks?

Nicole Quinn:
I guess I have a strong opinion on this, which is that if you’re a founder, and you’re building a business and you take time out of your day to email us, then the very least that we can do is read and reply to that email. So I reply to every single email, my husband doesn’t like it when even at 11 pm at night, I’m still emailing away. But I think it’s really important.

I think that not everybody has venture connections, and they’re building some really interesting businesses across the world. So sometimes something won’t be a fit for me, but I can forward it to our India partner. I would say that these seeds have great websites that really clearly say,” Hey, I’m the healthcare person, Hey, I’m in charge of Southeast Asia.”

So definitely do your research before and then target that specific individual. I think that they really appreciate it when you say something thoughtful, having done your research beforehand. But then yeah, email for me is definitely the keyway most of them Twitter or LinkedIn. Email is going to get the fastest reply.

Ann Miura-Ko:
Yeah, and I’m the same way I’ve gotten approached on Twitter, I get approached by email. And those are probably the best ways. And I think that the key is actually, as Nicole said, just the fit, right. And so, for me, I oftentimes have to explain back, what is actually a great seed investment. From my perspective, and then also, what are areas that I’m focused on. And partially, I recognize that changes a lot for me.

I’m a generalist investor. And so there are lots of different places where I’m investing and so now I’m trying to spend a little bit more time writing, so I can explain to other folks where I’m most interested in I think that’s one of the benefits of the shelter in place is that you just have a little bit more time to think, a little bit more time to write and get your thoughts out.

Alex Konrad:
The other question I had was… And then we’ll go to some of the questions is just, I’ve heard, throughout my career covering the space, investors and founders say that a downturn or a time of crisis is a good time, historically, for entrepreneurs to start businesses and a lot of the most successful tech, venture-backed businesses can’t start it in the financial crisis or after the .com bubble burst and sort of in these down cycles.

Have you all seen any companies getting started right now in sort of the current moment? Or is it too early for that to have, sort of happened and kind of and how will we gauge whether that’s true this time around?

Ann Miura-Ko:
We’re seeing ideas, so I’m seeing founders being very engaged about starting companies. I actually believe it’s not that there are better companies in a down cycle, I just think there is no such thing is a great time to birth a company in the same way as there’s no great time to birth a baby, right.

And so, in my mind, you suddenly discover, you’ve had this idea, and you love it, and you need to form the company. And it’s not like you’re waiting for the stock market to hit a certain number for you to get started with that company. There’s no time like the present.

And so most of the founders that I meet, they are looking about looking at it from such a short term perspective saying the markets not up I’m not going to go out and start my business. They’re doing it now.

And it may be the one reason I would say that you might find grittier entrepreneurs right now is that, it’s probably easier to apply to business school or go work at Google and have a little bit of security right now. And starting a startup right now can be a little bit more scary. And so it creates a better lens for someone starting a business for love and not for merit badges.

Nicole Quinn:
Yeah, I’m a believer that in these times, it does create a great opportunity for folks to building companies, because the world is always changing around us. But right now, the pace of change has increased. And so as I think about that second derivative of change that, therein lies the opportunity to me. And so our habits are changing. And the ways that we have like, gone about the last 10 years during this crazy bull run, are changing so rapidly.

And so I personally love this job because we’re always learning little nuggets of the future from every founder that we meet, who tells us this is actually
the way that I think the world will look like in the future. And that’s based on this tiny little thing right now that is changing.

And so we can’t always look at what’s happening in other countries. COVID and China have definitely shown us that. But quite often, there are things that happen in pockets. And that starts in a little pocket and it really starts to spread. And that’s when we get pretty excited about investing.

We primarily invest sort of series A stage. And so I love to look out for those opportunities. But even now, like the seed, the seed stage idea, as Ann said, is fascinating when it could be such a big opportunity.

Ann Miura-Ko:
You know, just reflecting on that. I was looking at numbers from the Department of Labor Statistics. And what was really interesting there was that if you look at consumer spend, it has been largely flat in terms of buckets of spending for the last 20 years, but then McKinsey has been publishing these reports of what happened in COVID-19.

Over the last two months, consumer spending has drastically changed and it just like this never happens, right? And so certain pieces have fallen off and other things have taken off. And to me, the reason why that’s exciting is it’s an opportunity to create a completely new category of spin that you’ve never seen before.

And part of the reason I think the future of joy is so interesting is that there’s an opportunity to say okay, in-person travel and concerts has gone to zero, effectively. So what replaces that spend, people don’t stay at zero for that spend. They replace it with something and what is that replacement? What is the replacement for the money you would have spent on a restaurant meal with friends.

There has to be a way of recreating those connections and that feeling of joy that you have. So what will those be on the consumer side? But then on the business side? I mean, there are so many vast problems that have been uncovered with COVID-19.

I mean, how stupid is it that you can’t get toilet paper, right, or paper towels or, Clorox wipes. It’s not that there are fundamental restrictions on product or manufacturing, it’s a supply chain problem. And so there’s such opportunities for an intelligence supply chain, or what will happen with, automation and just better systems for identity management.

And how do you know if someone has not… Instead of saying contacts tracing, is there a way of tracing exposure but maintaining privacy, right? We have to be able to solve these problems. And what I love about our state today is that we’ve uncovered all of this incredible surface area for opportunities.

And in the same time, we’ve discovered an enormous amount of pain and, and people losing their jobs and fundamental disruption. Out of that the ashes, there’s there’s potentially ways of creating real abundance for everyone. And the awareness of the fact that people are going through this pain hopefully creates opportunities for software to help create that abundance in the future.

Nicole Quinn:
The way that we’ve been thinking about this Ann, is that this pandemic, as sad as everything is what’s going on. But this pandemic is accelerating trends that were seen before. And so, to give one example, it took 10 years for e-commerce to go from 6% penetration of retail spend to 16%. And then it took 10 weeks for them to go 27%. Shopify, definitely benefiting from this. But there are so many other companies that I think are thinking in a really innovative way around like, wow that’s a trend that I was not expecting to be such a step change and I quickly jump on it.

Ann Miura-Ko:
Yeah, I mean I just look at my family and everyone from my eight-year-old to my who is on Zoom talking to a Spanish tutor and his class, to my 73-year-old mother who is literally taking Zumba classes over Zoom, imagine that. You have this incredible wide audience using the same technology, which hardly ever happens in the United States. And to me, that’s really exciting.

Alex Konrad:
So I’d like to open it up to the audience questions a bit? I’m going to start with one from… I’m going to take a question from Jose from a while back. And I’m going to kind of broaden it a little bit, which is, for international companies or companies that are not in Silicon Valley, in your backyard, rubber, that would be the, does that matter less right now? Can they be getting on the radar of, let’s say, California firms or other firms? Or do they need to be coming to the US and sort of in you know, planning to come to the local markets be interesting, to investors?

Nicole Quinn:
So, I would say the times that we’re in now mean that you guys, like anybody internationally starting a business is in a much stronger position than they were before. Because no one could jump on a flight, no one can meet up and so whether it be meeting somebody who’s in the peninsula, building a company, I’m doing that over Zoom, so I’m going to be having that exact same interaction. But the person down the road as I would somebody who’s building, an interesting company in France.

And so I would say, I personally believe that this is going stick around for a lot longer. And so I would say, take advantage of this and just set up a Zoom call with the founders. The time difference is really the only thing standing in our way right now, but we will work early so we can do things with Europe. So working around the clock.

Alex Konrad:
Would you all back founder without meeting them face to face? Like if they can’t travel? Or you can travel? Is that okay?

Nicole Quinn:
Yeah, we already have. I think that means they’ve got to do a few more meetings, and just spend a little bit more time getting to know them, maybe do a few more references. But we certainly have done and we’ll continue to.

Alex Konrad:
We have a bunch of questions about seed investing, whether bigger firms or bigger funds are still moving earlier and kind of, putting pressure on early-stage investors from sort of a check size perspective. We also had a question about sort of, has the definition of seed, or what might be considered a seed deal evolved at all in the current situation? I’m so curious if you either of you have any thoughts on sort of the state of seed investing right now?

Ann Miura-Ko:
Yeah, I mean, I’ll take that up. We are actually seeing larger firms come down to seed stage. And, seed stage investors go even earlier stage we’re definitely in that market of doing pre-seed to seed. Our argument would be mainly that for us, seed is what we do. You can’t come back to us later and say, can you write a series A check, it’s what we majored in. It’s our expertise.

And the only thing we know is the pre-product market fit and how you get to product market fit. And we’ve done it time and time again with great companies. And we feel like this is the thing that we know.

And so we’re great at helping companies go through pivots, we understand when the product that you’re working on is not the product that you’re going to be pitching for the series A. And so we have lots of reasons why a company should raise with a seed focused firm. We have also partnered actually, with larger firms at the seed stage as well.

So I have a very recent investment, where we’re actually in term sheet negotiations right now, where I did the pre-seed but we brought in a multi-stage firm, or the series seed, and those rounds are becoming larger, so they are typically anywhere between four and $6 million. From what I’ve seen, to me that is actually a very sort of traditional series A.

But what we’ve found is that that partnership can actually work pretty nicely. It reduces the financing risk because the company can get a slightly larger cheque than what we would normally write. But they’re still getting floodgate at the table, helping them through that pre-product market fit. Generally, the larger firms recognize that’s what we bring to the table and so they’re making room for us in the rounds.

Nicole Quinn:
I would just add on to that, because these rounds are getting so large at a point, that it really presents an opportunity to collaborate. And so we love partnering with great funds such as Floodgate to set aside. Okay, well, this is a $4 million seed round. This is larger than we typically call seeds, anything three and under and so it makes a lot of sense for one fun to do to us to do to, and then you get the benefit of both funds coming in.

So we typically collaborate at the seed stage and then also at the growth stage. And I think that these times only present a greater opportunity to do that, because funds, companies are thinking, hey, actually, I’m going to take a little bit more onto the balance sheet so that I can have a longer runway. So maybe instead of working with one fund, I’ll work with two, I think that’s very sensible thinking.

Alex Konrad:
We have a couple of questions about when we were talking about sort of cohort analysis and metrics earlier in the conversation. So to go back to that and to sort of distilling these two questions. How do you think about the sort of smaller sample sizes of users? Whether you’re either still a relatively small company with just thousands of users, or if your users tend to be fewer, but they’re big businesses so they’re larger contracts and a smaller user base, so I guess it’s a sampling question, I don’t know if either of you have a statistics background but it probably helps here.

Ann Miura-Ko:
Yeah, so, even with sampling. We still think about a larger company, it’s less about the account that you go back to the users so I’m usually looking at a per-seat basis so I had a company that was selling six-figure, seven-figure accounts into larger companies, but you could still observe how is the software actually used within the company. And based on that you have a pretty good assessment of whether or not you have product-market fit.

Because a company can pay seven figures and not use it at all. And, actually, when it comes time for renewal, that’s going to be a huge problem. And so those are things you need to track anyway.

Even in consumer at the pre product-market fit stage where a company will have thousands of users. We are actually still tracking to see 30-day usage so at the end of the month, what percentage of your users have you retained. Are you looking at it as a daily habit, is it a weekly habit, is it a monthly habit. Those are the types of things which will indicate to you whether or not someone loves your product, just kind of likes it or is it a throwaway.

Nicole Quinn:
I actually do have a math and statistics background so particularly love this question, but I would say for me, it’s far less about the absolute numbers and much more about the relative numbers. So, in SAS folks typically say I need to do a million dollars an hour for series a three to five four series being, and then in marketplaces, it’s more like, okay, a million a month in gross revenue. Those things to me don’t matter as much, it’s far more important that a product is sticky that customers love it and they’re coming back time and time again.

So, I’m always looking at, to the point about the cohorts, the retention, the engagement, but also our customers telling one another about it. So is the referral right there? Is the word of mouth there? Are you growing through organic means or are you just spending, spending, spending on marketing? And how are people talking about you? So those things to me are much more important you know especially at the early days where you may not have the sheer numbers to compare, but you can still see there’s something very special happening here.

Alex Konrad:
Here’s a question I really like, in the current climate, are there, alternatives to venture capital. That might be a better fit for certain types of businesses that you all come across or that you might see, and also if a founder is wondering if they’re going to get less attractive terms right now, should they be thinking about perhaps trying to hold off on raising venture capital in this moment, and getting no surviving longer to then raise it better terms in the future.

Ann Miura-Ko:
Yeah, I mean… I think look, if you don’t need venture capital, I question why you would raise it right because, on some level, you get a partner and you get, someone who’s going to be with you, as a co-conspirator I can market the heck out of venture capital, but at the same time you’re giving up equity in your company to bring someone in as a, as a partial owner of your business.

And so you have to have a reason for actually raising that money and hopefully what it gets you is to a stage where you actually are valued even greater. And so it was worth selling off that piece of your business. And so if you can actually hold off and grow your business in a capital-efficient way. I would actually say why not.

There are also you know a lot of other mechanisms now that we’re starting to see whether it’s debt products, you have different convertible note structures that we’re starting to see that align the investor alongside the founder, I think there are really interesting ways of actually going about and financing your business, and that should be the case because, really, if you look at the incentives for a venture capitalist we are in it to triple our fund, quadruple our fund right so if I have $100 million fund I’m here to return $300 to $400 million back to my investors.

What that means is if I own let’s say 10% of the company at exit. The whole portfolio market cap needs to be in the multi-billions of dollars, right. And that means that a company that exits at $100 million, $200 million has not made a debt in what I need to do to deliver returns for my investments. And so that that gives you a window into what the aspirations of the founder needs to almost have to be irrational, especially at the very, very early days they need to picture themselves as being the next Zoom for to really be worth taking that venture capital dollars for our incentives to be fully aligned.

Alex Konrad:
I guess one thought just there and maybe Nicole can weigh in on this is whether there’s any bifurcation where we see companies that are sort of buzzy or doing well able to top off and extend the runway because sort of so many investors want in, but then other founders are not getting that attention, and sort of seeing less interest you know where it’s sort of you’re either have or have not in this climate. So I guess the question would be, should folks who maybe don’t feel like they’re in that buzzy side hold off and hope that changes, basically?

Nicole Quinn:
I don’t think venture is right for everybody. I completely agree with what Ann said, and then this is probably more for the growth stage folks who are listening or anything sort of post-series A, and in relation to your question, Alex. This is a really interesting trend right now, where focusing on profitability actually is a pretty smart thing.

We’ve been in 10 years of like just grow, grow, grow time period and then the public markets are looking at companies and they’re like, hey, actually we don’t want to invest in Uber and Lyft and WeWork and these other companies. If they’re not profitable, or they don’t have a route to profitability.

And so, that to me is the important thing. It’s absolutely fine for companies not to be profitable, but I always push our CEOs, to say, do you know the four or five levers that you would pull to very quickly get to profitability if you needed to. And so if you’re not about the company then great that’s absolutely fine but those, you can still get to profitability and be a self-sustaining business. If you know those levers that you need to pull to be profitable.

And then you can go through these times and if there is a point where you’re okay actually now I really want to grow again now I can take money from VCs to really pick up the speed, then that’s fine but let that be your decision. And that can be your decision if he’s very carefully focused on the economics of your business.

Alex Konrad:
So, the last question from the audience for today and then I’m sure I at least will be on Twitter since I’m always there after this. So, we have one question that you know with unemployment so high and sort of social problems, facing US and other places.

Can seed investments in early-stage venture investments really make a difference, facing with these giant challenges and I think for me the broader question there as Venture Capitalists, how do you sort of see the social side or the sort of greater you know public good side of the investing that is available to you right now? Is that something that you think about is it something that matters when you’re, considering an investment?

Ann Miura-Ko:
Yeah, I absolutely think about it. One of the things I also do as I, I also teach at Stanford and so I feel like, one of the things that I’ve seen is that in Gen Z they don’t just want to work for a company right and I remember this feeling when I was actually coming out of college, my parents said,” Why don’t you go work for Hewlett Packard?” And I was like, “That’s just like crazy.”

And, I think kids these days, these young adults, they’re coming out and they want something so much more than work, they want purpose, and you can’t just sell them hey work hard for this company because you’re going to become rich because that’s not what they want.

They want to contribute and so every company that gets built needs to create that sense of purpose, not only to attract the very best employees but also actually to attract customers too. I think customers want to feel like there’s some purpose in what how they’re engaging with the companies that they engage with.

So from a larger standpoint, I definitely believe that idea of mission and vision, values is becoming more and more front and center. And if you don’t have that. It’s really hard. But the second thing is I think it’s more of a… it’s a narrative question actually for Silicon Valley and tech, in general, is that we’ve always loved talking about disruption. And we talk about efficiency. And the truth of the matter is, those two things are not valuable in and of themselves, and I think we’ve come to realize that right there’s a cost to valuing those things.

And so, what are other ways of building real businesses that actually have an impact on what I think of as abundance? How do you actually create abundance for the world? Do you believe that software has a role to play in that? I absolutely do, I think technology has a huge role to play in creating a better world, more abundance, more opportunity for the world.

You see how cellphones have created huge opportunities in many different economies and I think that same kind of principle of how do you get software into the hands of people who can then leverage it to create jobs and opportunities for themselves. I think there are huge investments to be made. I think of this concept of sort of the Iron Man suit for the solo-preneur.

There are so many ways in which the solo-preneur will actually be the driver of our economy in the future. And so, I think that it’s a huge area of investment, it’s valuable not only to investors and to the economy, but it’s actually going to create opportunities for so many of these people become unemployed or who are disenfranchised from the economy in general.

Nicole Quinn:
I also think about this question. I guess in twofold you know the first would be true diversity and inclusion I mean that in the broader sense of the word. So it’s like the diversity of background, diversity of opinion, diversity of experience. And I just think that any decision whether that be in a VC whether that be in a company is so much stronger as a result of having such diverse views around the table.

So for us, a third of our investors are women, over a third of our consumer investments are female founders, and they’re the customer at the end of the day, and they’re really making such strong terrific decisions and I think, really driving us forward. And that’s something I’m excited about.

And then the other thing I would say is I think about this question in terms of what are companies doing to really be there for their customers, especially in these tough times. And how can we as investors think about this a little bit more.

And I touched on this at the beginning but I would say that when everybody’s really suffering from anxiety in these times and can’t go to sleep being able to have Calm there as a resource and Calm have really been investing a lot of their time and capital in creating resource pages, and reduced or free resources for people, and just making sure that they’re, you know really there for the customer in the tough times. And, the same for Cameo.

Going back to Ann’s point on you know creating joy. These are tough times. And this is a depression of the recession that we’re going into this could be much longer lived. And so it really is thinking about, okay what can we do to make sure that people are in the best position they possibly can be in these times. I’m so grateful that we’re, working in technology where I do feel like that really is lifting people up in so many different ways and our companies are hiring. And so, I think that we’re grateful to be in this industry and we’ll have to see how the times are ahead.

Alex Konrad:
Well, really amazing answers to end on, thank you. We had a bunch more questions I hope we can keep the conversation going on LinkedIn or Twitter or sort of in the weeks to come. But I want to thank Nicole and Ann so much for these insights. And to everyone in the audience thank you for these really engaging questions you know this was a pleasure to moderate.

Ann Miura-Ko:
Thank you.

Alex Konrad:
All right, thanks everyone.

Nicole Quinn:
Thanks so much.

The post The Midas List Live (Video + Transcript) appeared first on SaaStr.

Decacorns & Unicorns in 2020: Founders Fund Keith Rabois and SaaStr’s Jason Lemkin (Video + Transcript)


This post is curated by Keith Teare. It was written by Team SaaStr. The original is [linked here]

A discussion with SaaStr CEO Jason Lemkin and Keith Rabois, Partner at Founders Fund about the latest on unicorn and decacorn valuations.

Keith Rabois | Partner @ Founders Fund

Jason Lemkin | Founder @ SaaStr

 

Jason Lemkin:
… For a bunch of reasons. One, it’s an important topic. Two, founders care a lot about Venture maybe more than they should. A fun topic maybe I’ll hit with Keith if we have time, there’s maybe too much interest. But also there’s so much Sony Bologna on Twitter and so much change, right? Are we open for business? Are we not open for business? I almost feel like we’ve gone through three phases in Smartsheet shut down, what’s happening and then rush to the new new. I don’t know what’s going on but I knew I wanted someone that would tell us exactly how it is, speak with data, be unvarnished and have enough wins both operationally as investor under his or her belt to not hide anything, just to share it how it is. So I reached out to Keith so that we could hear that because I think we’re still going through times where it’s hard to get the straight scoop.
We had Christoph Jans this morning from Berlin talking about how you needed a much longer list of investors. You had to talk more people, how people will slowly flake out of a process, how it’s harder to build relationships over Zoom. It’s hard to know what’s going on especially from folks Twitter feed and what they say. That’s what I want to dig in today. Again, on Zoom, there’s a Q and A, so ask questions here. To the extent we have time, I’ll ask as many of Keith as we can and we’ll try to answer as many as possible. So pop into the Q and A. I wanted to dig in into Founders Fund and some tactical stuff but Keith, let’s step back because I know this is something that everyone’s thinking about all of the world, everyone on Twitter, tell me what you’re thinking about how do I get my arms around this slide, right? On the left, we go into February and this is the best of times, isn’t it? 10, 11 years… I mean, it’s better than we ever thought. Right?
There was this joke on Twitter the other day, someone who was pointing out how on your LinkedIn you said PayPal, it exited at a billion and now it’s worth 40 billion or 50 billion. So we figured out a long run, but even before you update your LinkedIn and then bam. Look at this, the BVP Cloud Index we plummeted in March and then as we were talking about before, if you just put all your money just into Square on March 20th, you would have doubled your money, right? Let alone the Datadog and the Shopify guys and the Zooms. And yet, as you’ve talked about all, look at what’s happening in California. I mean, it’s devastating. It’s unprecedented. As an investor and as someone looking forward, how do we weigh the two sides of this, the best and the worst of times?

Keith Rabois:
Yeah. I mean, there’s a couple of potential theoretical answers that would reconcile these two worlds. One is maybe stock markets are longterm investors and all the critiques that public market investors are short term thinkers are just false and you can make a stronger, pure argument right now that all of the major industries in the world are basically taking a long term perspective on the value of these companies, looking at the effectively discount cash flow projections and saying, “Hey, there’s this Virus-Clip that’ll be between one and four quarters long, but nothing about a 20 year horizon has gotten worse and if anything, maybe things are better over 20 years.” So all the people who were whining, jumping up and down about the evils of short-termism and public markets, which I never really believed in any way, maybe you’re just factually wrong. That’s one thesis.
The second way to go is typically, when you do your discounted cashflow for those of you who went to business school or something, you’re basic applying it, the key variables, actually your discount rate and with the effective interest rates being so low, your discount rate is basically negligible. Yeah, I know what discount rate you apply. In some ways, if you just held everything cost in and change your discount rate and reduce it by a meaningful amount, you’re going to get exactly the chart on your left. That actually would work just empirically also. I don’t think it’s that hard to reconcile these things. What’s a little harder to reconcile is what’s going on in Venture. We’ll talk about that separately, which is, I actually do think that most private market investors are somewhere between spooked and reorienting their approach and valuations. And that’s a little bit disconnected from the public markets at the moment. At some point, those things need to be in harmony, at least in partial harmony.

Jason Lemkin:
So let’s come back to that in a second, but just to understand these two. Just to unpack a little bit what you’re saying. At least many SMBs are incredibly impacted, right?

Keith Rabois:
Yeah.

Jason Lemkin:
I mean, the levels of small businesses shut down. Many of which the Shopify in the Squares would attempt to power. Some of them are doing better, don’t get me wrong. But the level of businesses in the tenderloin, the level of businesses is a nap on. I mean, it’s going to be devastating. It’ll be years but many will never reopen. Does it not matter for the chart on the left? Does the unemployment… I mean, just getting away from the human impact, does it not impact at the end? Does it not all bubble up to even the best cloud stocks?

Keith Rabois:
It’s unclear which stocks a ball is up to. I mean, many companies are not really serving the target market of the SMBs that are most affected, think like traditional retail, traditional coffee shops, comfort food, gyms, fitness, et cetera. There are some companies that are technology companies that have to do work with them and do target them but that’s not the meat and potatoes of most companies. The Squares absolutely, Yelp to some extent absolutely. But that’s more the exception than the role of the go to market for many companies. So you could still reconcile those if you had to. Then typically, in a recession and depression, whether we’re in a depression or not open question, but the consumer demand falls apart pretty quickly. And because the driver or the impetus for this economic turmoil wasn’t really lack of consumer confidence or lack of consumer resources, it’s not clear that consumers don’t have the money to spend.
In so far as you’re talking about consumer or pseudo consumer stocks, people have a lot of disposable income at the moment, partially because they’re not spending it on things they normally would. Typically, a normal American goes out to eat a certain number of times a week. That’s expensive. They may take a certain number of Uber’s, that’s expensive. They may go see a movie or two or show or play. They’re not doing any of those things. They’re actually effectively saving money. They have the ability to spend it in other places, whether they spend it now or save it and then spend it once the economy opens again. I think that that will help certainly prop up consumer based stocks. Then on the other hand or on top of that, the government’s obviously subsidizing a lot of people who are suffering and so they don’t feel-

Jason Lemkin:
That’s for sure.

Keith Rabois:
… The short, acute pain. They’re not changing their consumption patterns as dramatically as if they were… I was watching a movie the other night about The Great Depression, that was a true 25, 30% unemployment or 20, 25% unemployment, where there was no consumer spending. And so obviously the people that need consumers to spend money for their revenue and then their contribution margin just had no shot of selling things, look at model T-shirts or something. Right now if you look on the other side, an area I know a fair amount about, look at US real estate. Somehow this defies logic but is true. Last month, housing sales in the US are actually ahead of last year, like literally ahead. That makes no sense in many ways. It’s like 16 depths ahead of last year.
There is in another tale two cities is most of the people that were most affected by the March and April shutdowns were not the people that buy and sell houses. They’re people who typically are 1099 workers with lower fiber scores or lower income. And so it didn’t affect the US real estate market, except for like two to three weeks where everything was shut down and just couldn’t transact. But right now, I mean, Redfin has published several studies publicly about how they’re ahead of last year. Zillow, I saw this morning is trading at probably at 52-week high. People are buying and selling houses. That suggest that there is this weird combination of something’s thriving and something’s failing. I think the music industry, for example, at the extreme other end is catastrophically affected. The idea that people are going to go see live shows in dense environments with worst sanitation or they’re going to… I just think that that whole industry doesn’t know what to do in itself at the moment and it’s going to take years to sort that out.

Jason Lemkin:
Since you’re maybe spending more time looking at some of the consumer data than many of us are, it sounds like there is some hints of optimism in what you’re saying and that maybe you think… And we won’t hold you to this if in July you change your mind. We’re all learning. But it sounds like you feel like there’ll be a decent V. The $10 trillion being deployed to prop up the economy and pent up consumer demand may create a weird V, but it may create a V that’s reflective of the chart on the left for consumers.

Keith Rabois:
No, I think it’s going to be more inconsistent. I think by segment. There’ll be some Vs and then there’ll be some complete flat-lining. I think it’s more overall more like 2000 to 2003 in Silicon Valley, but there’ll be some industries and celebrated goals that either aren’t effected as much or snap back very quickly. And then there’s going to be others that take years. There’s a stat I saw after 9/11. Just before 9/11 occurred, we’d hit a USP domestic travel record and it took three years until May 2004 to get back to the level. I think many industries will be like that, where it takes two or three years to get back to the same level. I think some businesses never get back to the same level.
I think international travel is almost permanently affected. Permanently meaning measured in three to 10 year doses, aware of the idea that you can just travel almost anywhere in the globe on a whim is not going to happen. Countries are going to take their borders very seriously. There’s going to be different rules, and different processes, and different tasks and different paperwork you need to travel. Every time you add friction of getting paperwork, tasks, et cetera, less people are going to travel. The idea of a weekend trip from New York, people live in New York, a weekend trip to London probably that’s not going to happen for a very long time. Those industries and the associated industries, hospitality, et cetera, I think are in for a very long non V-shaped recovery. Whereas some industries I can see snapping back, maybe long tail retail definitely. I already see this.
I’m a multiple time investor in a company called [Fair 00:11:21] that basically provides data and services to SMBs all across the US and gives them the tools to compete with Amazon. The company was doing phenomenally well and our customers were doing phenomenally well before March hit. We clearly saw the impact the first three weeks. It’s dramatic. Nobody can go shop in main street America. But in the last three to four weeks, there’s been a sustained week to week improvement. I suspect-

Jason Lemkin:
In store. [crosstalk 00:11:49]

Keith Rabois:
… Well, there’s some substitution. That’s a fair caveat. Some of these businesses, maybe even many of these businesses have started investing more and more in selling online to their preexisting in store customers. They’ve been actually quite clever and scrappy and figured out how to offset the decline of revenue. But then now the fact is now in May, likely to be more like a 10 to 20% net. Well, actually that’s even wrong. The company will grow more than two actual year to year in that despite all the lockdowns. There is definitely a sustained improvement across the country. Inconsistent, they serve the virtue of having 70,000 retailers or something like that is you actually literally have retailers everywhere. And so yes, in San Francisco, they’re probably not selling that much and in LA, probably not selling that much but somewhere in Nebraska, they’re probably back to normal.

Jasom Lemkin:
Yeah. The pieces that recover at which pace is interesting I wrote. I looked a little while ago and I wrote an early Sastry post in 2013. After I sold EchoSign Adobe, I went back and got out. I rented a small office in downtown Palo Alto, and it was middle of 2013 when the last boards came down on a retail store. The West Elm store, I don’t know if you know where it is. It’s near Wahlburgers.

Keith Rabois:
Yes, of course.

Jasom Lemkin:
I was boarded up until 2013. That sounds crazy thinking about it, doesn’t it?

Keith Rabois:
Yeah.

Jasom Lemkin:
2013 had been boarded up.

Keith Rabois:
The lag is very real. Then also, there’s industries where it’s just hard to follow them how they deal, from an economic standpoint, with either consumer or government mandated density caps. Like think restaurants, hard to imagine how the economics of those businesses work with half the tables.

Jasom Lemkin:
Let me just ask you on this one. I want to hit the next slide. Pick your date in February, whatever it doesn’t really matter, where were we overall in Venture one to 10? Say on February 15th or February 1st, where were we on one to 10?

Keith Rabois:
I think we were already down to a six or seven. ,

Jasom Lemkin:
Oh, really?

Keith Rabois:
Yeah, I think some of the corrections in valuation, enthusiasm tolerance for high burn rates and things of that sort, had already been adjusting or were adjusted for the last six to nine months. Somewhat, I would tie it back if you had to put a kind of opinion timeline right around that we worked the debacle is when I think there’s a very clear retrenchment, repricing, re-analysis of what’s the right criteria for a growth around. For example Founders Fund, I don’t think we changed our criteria at all, but I felt like maybe we were on the 20th percentile in terms of conservatism on some of these metrics. I felt like everybody moved to agree with our metrics and goals and objectives very quickly, where maybe there’d be a 10% of people who had still fund stuff that we thought it was a miserable business from an empirical standpoint. It really did move from 80% fund stuff that we didn’t like to only 10% of people would fund stuff we didn’t like. [crosstalk 00:15:11].

Jasom Lemkin:
We may look back that we work IPO is the moment when things changed. Right? And when that was whenever one, we didn’t see it all, but that might’ve been a moment.

Keith Rabois:
I think that was always clear to people. It started to change before that, truthfully, at least in my view from my Venture point. But I think that was when everybody had the proverbial partner meeting discussions about what are we funding, why are we funding, what price are we funding. It was a crystallizing moment even if some of that stuff already had some momentum behind it.

Jasom Lemkin:
If we were a six and a seven there, and that’s good, from a very narrow SaaS perspective, I would have rated it at 11 but I don’t disagree with you [inaudible 00:15:54].

Keith Rabois:
Sure.

Jasom Lemkin:
Where are we today from your perspective if different from Founders Fund, if that was a six or seven, not March, not April, but wherever the heck we are today, May 27th?

Keith Rabois:
Maybe like a three.

Jasom Lemkin:
You think it’s a three?

Keith Rabois:
Yeah. I think there’s deals being announced. I mean, including IAA and now four investments over the last month, let’s say. But almost all of those have significant momentum, at least maybe a handshake, cost of a term sheet, maybe even signed documents before March 16th. Then it takes a while to get through the process of negotiation, real documents, wiring money, [crosstalk 00:16:38]. Yeah. All that stuff at large. I think that the reality is very few new deals are getting done with very few exceptions. I think there are some growth rounds that are getting done because you can look at the spreadsheets and these are pretty impressive businesses. There’s a handful of businesses that just look amazing on paper. They look amazing on Excel or paper or whatever, Excel spreadsheets or something.
Those deals are possible to do, especially with public market comparables being both high and no longer quite as volatile. I mean, just feel some volatility. You could just even look at today, there’s some volatility in the market. But it’s pretty easy to hit the outlier high growth companies with moderate bird, batch payback on a cap basis. Everybody wants to invest in it or most funds are looking into those. And so those deals can still get done. The earliest stage stop, I would probably guesstimate is getting done at 10 to 15% normal in terms of velocity and probably-

Jasom Lemkin:
That’s a lot different than you’d think looking at the press, right? 10 to 15%?

Keith Rabois:
… Oh yeah, absolutely.

Jasom Lemkin:
A lot different.

Keith Rabois:
I mean, 10 to 15% and add probably call it 50% of the valuation of last year.

Jasom Lemkin:
If you’re growing faster than March 15th, how does that impact that calculation?

Keith Rabois:
If you’re going faster in a way where also the unit economics/payback is improving and that’s actually true for some companies, like think DoorDash or some telemedicine companies as extreme examples, those are pretty fundable for two reasons or home fitness in some ways maybe. I’m not sure whether the payback on the home fitness thing has changed that dramatically, the cut payback, but certainly the growth is there. Those companies are very fundable right now because basically, it’s like a version of the old why now question. So every good investor deck has as a white house slide. The postmark 16th is just amplifying that question. Why is your company better post COVID? If you have a great answer to that, people will definitely be interested in funding you. It’s species of the old canonical Why now question. But if you don’t have a great why now question, then I think you’re getting lost in a quicksand in VCs that are polite but not really investing.

Jasom Lemkin:
Yeah. Let me just dig into that a little bit. I think this was the point you were trying to make with Fair, that it’s still doing incredibly well, just not quite as well as it would have done absent COVID-19, right? [crosstalk 00:19:19] instead of 3X.

Keith Rabois:
Yeah, good. Literally, our plan for the year was to grow or plan for 2020 would be to grow more than 3X, which is great. I mean, for a company that had pretty good scale. But we’ll still put up two backs even with COVID, which by most metrics that’s a pretty good year. Maybe not be good enough for the company’s ambitions, but we’ll get back tO 3X. But 2X year to year is actually not that bad in the grand scheme of life.

Jasom Lemkin:
Not that bad. Let me ask the question then for new deals and as you said, you’ve announced a ton of deals personally in the Founders Fund, but most of them were in flight before all this happened. One way or another in flight.

Keith Rabois:
Yeah.

Jasom Lemkin:
For a new deal, that is like a fair. Maybe not literally fair, but let’s say in February you were at 2 million ARR tripling and you love the Founder. Okay? It was in a good space, it’s growing 3X, unit economics are plenty good. Whatever your bar is, your bar is high but tripling, quadrupling going 2.5X and instead of 3X, now it’s 2X or instead of 3X, now it’s 1.8 X and it’s not [inaudible 00:20:29]. So, it’s not restaurants. Do you just do the deal? Do you just connect the dots and say, “I’m going long. I don’t really care if it’s eight to 20 months until this recovers.” Or what’s the honest answer for you and Founders Find? Is it still tough to make that mental leap that it’s just a gap?

Keith Rabois:
I think it depends on how much is this a temporary blip. Meaning can you articulate. Look, everybody’s going to have a weird set of metrics in late March, early April. Typically, when we’re funding a later stage company, they have this super smooth growth curve and everything looks amazing. Very few people are going to be presenting for the next year or two slides that are perfect. Everybody’s going to have some volatility, at least in March and April. And so you can show that the volatility segment of time or time is pretty temporal and that you’re back on a predictable growth rate, et cetera, even if it’s a month or two, three months of that. I think there’ll be some serious interest in investing in companies like that.
I think you get basically a pass. In most company here you get a pass between March and maybe May in some of their metrics, but the metrics before that pass is on better be pretty damn good and at some point after that pass on, they now start looking good again. If you can do that, I think people would just close their eyes to this middle [inaudible 00:22:02] we’re typically in a growth out and even a series of C can’t really get away with that. A missed quarter looks terrible typically. Everybody’s going to have a missed quarter or so.

Jasom Lemkin:
Got it. But for what I call them, the COVID beneficiaries, the COVID impacted and the COVID we don’t need you anymore. For the impact that I think you’re saying, look, it is hard. It’s a fact that it’s hard. Even if intellectually you know that these industries are coming back, you have to resume growth in two, three it sounds like, to get funded. You have to resume your normal growth.

Keith Rabois:
Yeah. I think you do need to show that if you want more money, that the company has either figured out or at least the macro world has adjusted and so you’re back on whatever trajectory you’re on. Or the company has figured out how to tune what it does, whether in small tuning or large pivoting to the new world and that there’s evidence that whatever adjustments you made are working. If not that, then I think there’s not a lot of appetite to fund companies, especially if they’ve already raised a sizeable chunk of capital. It’s much easier and let’s say to raise sizable chunks, let’s call it 10 million or more. If you’re not able to show that the world has been fixed from whatever perspective advantage point you’re in business or you fixed your company to take advantage of the new world, it’s much easier to past at somebody who’s already raised a dose of capital. Just say, I’d rather take a shot at something new that’s built from the ground up in this new world.

Jasom Lemkin:
Yeah. Then I want to make sure we have time for a couple points. But let me ask you a question that I’ve thought a lot about but you may have much better data and thinking, which is my gut and I don’t have the data to support this but I have my anecdotal data. I’ve made 25 investments and I talked to a lot of founders. I think 15 to 20% of SaaS companies that we work with are COVID beneficiaries. 15 to 20% are in collaboration, sharing E-Learning, even just e-commerce. I invested in a company called Gorgeous, which is a contact center for SMBs on Shopify. March was rough. April it grew 70%. That was an unexpected one. If 15 to 20% are COVID beneficiaries, can that absorb all the ventured capital? Does venture capital even need to bother? Venture capital, no matter how it looks, it’s not a huge asset class. Is it? Is there even any point for new investments in doing anything but a COVID beneficiary?

Keith Rabois:
You could rarely argue that because if you believe that there’s a fundamental shift in the world in any way towards e-commerce verticals, towards ad foam, fitness training, et cetera, absolutely, it would make sense to take your money and only invest in COVID beneficiaries. There’s a big argument. We debate internally all the time. You can debate publicly. How much does human behavior snap back into traditional norms or is there a “new normal”?

Jasom Lemkin:
Now what’s the answer?

Keith Rabois:
Well, I actually think it varies by vertical. I actually think that there are some things that have had a permanent change and people are not going to go back. For example, let’s talk about telemedicine just because it’s easy to grow. Telemedicine had been growing nicely for the last five to seven years. I mean, there’s a couple public companies, several private companies, but it had step function. What I mean step function, I’ll give you some real numbers. Stanford Hospital went from roughly 1700 telemedicine consults a day to 74,000 a day. Cleveland Clinic has roughly the same scale there. So massive step function.
What’s happened is people realize actually, you know what, telemedicine is actually better. I don’t want to go to a doctor’s office where everybody else there has germs or something. I have to sit in this waiting room and the doctor’s never on time whereas mostly 50 to 70% of things that go wrong with me, the doctor can easily diagnose or triage by a telephone call from my home when I haven’t even had a community where let alone to get exposed to other people’s germs. And by the way, they’re probably on time for the telemedicine cough. That I don’t think flips back at all.
Also, the companies, at least the private companies get better marginal economics. I run a telemedicine wave. The regulators also stepped in and made things easier, relaxed some cross state border restrictions on practicing medicine. Unfortunately, I suspect they’ll go back to normal and insist the California doctors could only treat people that are in California, which makes no sense, but they had suspended that which also allowed for this growth. But maybe even the regulators will cave now. I’m sure there’s no, maybe not no, but almost trivial negligible examples of California doctors either really screwing up the practice of medicine for Virginia residents. All of that is just a permanent change. Then you can even see, well, maybe if that’s true, maybe there’s applications that caused him to other versions or species of medical care where telemedicine or quality telemedicine takes off as well.
There’s some things that I don’t think are complete substitutes and really are unfortunate inferior substitutes. You can argue some of the… Even if you go into a home fitness, break this down, I think Peloton is a pretty good substitute for SoulCycle for many people. Maybe superior, cost-effective, more convenient, more adoptable to their schedule, et cetera. I’m not sure the ad home equivalent of weight training is for going to a gym. Most people are not going to have the same equipment, the space, et cetera. We funded a company that provides a really good ad home experience called Tempo for straight training. But to some extent, there’s limits on what you can do in a normal person’s house in America or apartment. I think that is a function of what’s the healthcare situation in estates, what’s the risk tolerance of people were getting exposed to germs. But are people going to permanently stay away from gyms if the healthcare crisis alleviates? I doubt it.

Jasom Lemkin:
Georgia doesn’t suggest it.

Keith Rabois:
No, that’s true. Truthfully, the facts in Georgia don’t suggest that it’s as big a problem as people thought. But yeah, I personally wouldn’t want to be in a gym right now with a lot of other people. It’s just hard to keep everything perfectly sanitized all day long, even if you put density caps on. But I would imagine, you’ll see gyms, even the equinoxes of the world where you have to schedule your workout.

Jasom Lemkin:
Yeah. It’s complicated. Before we run out at a time, let me just talk a little bit about Founders Fund and you as an investor. I want us to just take advantage of having you to understand how fun investing actually works for a minute because I think it’s interesting. We can talk about whether it’s really changed today but I don’t think it’s changed that much. Let’s start for a minute. You guys just raised $3 billion, right?

Keith Rabois:
Yeah.

Jasom Lemkin:
And perhaps the time [inaudible 00:29:33] with winter typically, maybe not, but you joined $3 billion and your last deal was $8 million or something. The last check that I saw, Run The World was $8 million.

Keith Rabois:
Yeah. I saved-

Jasom Lemkin:
How does that-

Keith Rabois:
Sorry.

Jasom Lemkin:
Yeah, go ahead.

Keith Rabois:
You’re right. We raised $3 billion. We announced it earlier this year, really raised it mostly late last year. We divided into two funds, which is pretty important. The first fund is about 1.4 billion and that’s the Traditional Venture Fund. Then we added a growth opportunity fund of the other half, basically, which is designed for late stage investments, very large rounds, pretty high valuation companies. That’s new for us.

Jasom Lemkin:
And that’s the same GPs and same LPs in both?

Keith Rabois:
It’s the exact same GPS currently. There is some difference in the LP base mostly because we were able to fortunately bring in some new LPs. The Venture Funds we’ve had the benefit of having done fairly well historically. There’s not a lot of allocation or availability for new LPs but we were able to bring on some really top tier new LPs into the growth fund so it’s not the same. We’ll see where we deploy the growth fund is a work in progress. It’s somewhat opportunistic. We’ll see where there’s sweet spots and vacuums in the market and have the capital take advantage of that. With Venture Fund, Founders Funds, this is Founders Fund seven. We’ve been doing this for a while collectively, at least. We started to know mostly what we want to be doing. We did just announce of that. Actually, we only invested 4.6 million, I believe of that round. It’s even smaller than the eight. That could still work though for $1.4 billion fund for a couple of reasons.
One, if the company is doing well, even if we did nothing, but our pro rata along the way, which is not our style by the way but if we did, we wind up with a measure over the next two or three rounds. For example, I’ll give you some data back at my KV, when I was at Khosla for six years, Khosla Ventures, I led the seed investment in DoorDash and never let another round, but overall because KV continued to do our pro rata in each of the next four or five rounds KV as well, North of $30 million invested in the company, even though the initial investment was 750,000 to a million dollars. But if the company does really well and you continue to have conviction and do at least your pro rata you can wind up with a pretty reasonable exposure, but at Founders fund, we tend not to do that. We tend to double down or triple down. Instead of doing pro rata on the way, we will typically like to “power money” into the company and lead subsequent rounds. To some extent, maybe we only invested 4.6 million now, but if the company continues to progress the next round, maybe we would lead with a 10, $15 million chat even the round thereafter. Then with the new growth fund, we could lead the 100 million, $200 million financing on it.

Jasom Lemkin:
I got it. That’s a good case study because it might be a piece of that that’s non-traditional, that’s worth folks quickly learning about. I would say my rough rule for most funds is look at the fund size and it’s important to understand Founders Fund has to split it in half because only half is the Venture Fund. So don’t do the math on 3 billion, do the math on 1.4 billion. But for most partners that spend a lot of the winters skiing in Yellowstone and have a lot of their things going on, a check much less than 1.5% of the fund is going to be tough. It’s not going to move the needle in terms of cash deployment.
Even if a DoorDash, it could make you an insane amount of money, just doesn’t move the needle in terms of their quota. So typically I say, if you’re meeting with a billion dollar fund, they’re going to want to write a 15 to $20 million check to build or start the relationship. You’re suggesting different math that you’ll start earlier, do more work. I think though, that’s a little non-traditional. Will all the partners do it. Is that pretty common?

Keith Rabois:
It is non-traditional to start. That’s clearly right. I mean, At Khosla Ventures where I spent six years before my last year or so at Founders Fund, we would not do that.

Jasom Lemkin:
You wouldn’t do that.

Keith Rabois:
No, we wouldn’t

Jasom Lemkin:
Khosla did see checks but maybe they experiments are small things or…

Keith Rabois:
We did do see checks but they were typically designed to get a reasonable amount of ownership in seed and then we would follow it in an A or try to lead an A. But after that, we were using other people’s money and might make to pro rata but we definitely didn’t want to be doubling down, tripling down. But for the Founders Fund, across several funds now, but we have 17 companies where we’ve invested $200 million or more across multiple funds. We concentrated in positions. It’s one of the biggest differences at least from an LP perspective of how we invest, as if we like the company, we have incredible conviction and this is even before we had growth fund. So I suspect that we will have many more than 17 in the above or 200 million will be the low end, where we have significant dollars invested in a position. But that is very typical.
I wouldn’t count on… I think your guidance to Founders is completely accurate that it wouldn’t make sense to take a million or $2 million or even a position for a million or $2 million from a traditional billion dollar plus fund. It just doesn’t make a lot of sense. I tend to personally like to meet seed investments for three or four reasons. Even though I’m helping quarterback for one point $4 billion Venture Fund, my ideal investment is one to $3 million. That was [inaudible 00:35:46]. Actually at KV too, I had a little bit stricter standard on the ownership for the one to 3 million at KV because I knew we would eventually get diluted downwards and Founders Fund we might actually buy up. So I have a little bit less ownership mentality or handcuffs on me to lead this rounds but I would prefer to be doing one to three, one to $4 million checks all day long. If I could avoid doing other investments, I’d actually be thrilled.

Jasom Lemkin:
Yeah. Some of them might even be personality based as well as economics, right?

Keith Rabois:
Yeah.

Jasom Lemkin:
It is how it works.

Keith Rabois:
Among the reasons why I prefer to be writing one to three or $4 million dollar check is first of all, psychological satisfaction to me in terms of impact to the company. Writing a $200 million check into the next Airbnb when everything’s already working perfectly, they make you a lot of money as an investor but it certainly doesn’t psychologically invigorate me anyway. Secondly, I actually am a Founder driven investor so 90% of my decision or 85% of my decision is based upon the skills and the attributes of the founding team. I’d rather be competing on that to mention before there’s any metrics, because it basically leaves all the other investors without the safety net.
Then third is obviously there’s a risk reward equation in Venture. If you’re right, you want to be really right and say the earlier you’re getting involved, the better that looks as to I’d rather fund things before other people realize they’re good because one way or the other, we’ll get compensated for that. Then fourth is, maybe a little more subtle, when you inherit a company later, it’s a little bit concrete. Concrete is very malleable when it’s in liquid form and you can shape it. Once it solidifies, it’s extremely expensive, wild and destructive to change concrete. So the earlier we get involved, hopefully we can help avoid unnecessary mistakes versus inheriting this die being cast in a solid form where you’re distracted, fixing prior mistakes. Prior mistakes at a top table, prior mistakes and go to market, prior mistakes in hiring to avoid those mistakes and try to be off the races without any unforced errors.

Jasom Lemkin:
Let me ask you an inside baseball question on that strategy of going in seed, which is very attractive. I get Keith to help me early and then leaning in. So if it goes well, lead the next round, maybe even lead the next three rounds. Whatever it is. Is that a negative if things don’t go perfectly? There’s nothing easier than when you’re existing investor, than when your Accelerus Sequoia sends you an email saying, “We’ll lead the next [inaudible 00:38:34]. Don’t bother doing all the diligence, and young woman we’ll do it for you.” It’s so appealing as a Founder but I can think of a few cases where it’s turned out to be a negative. The concentration gets so high and you hit a bump and you end up with a dis-alignment you might not have had if Keith was also on your board as well as someone else or if you had two or three people in that meeting.

Keith Rabois:
Well, I think there’s several components to answer that question because obviously, it’s a complicated topic. I’d say there’s two scenarios where it doesn’t matter at all. One is called the eight, eight plus performance scenario.

Jasom Lemkin:
Doesn’t matter. Nothing matters.

Keith Rabois:
It doesn’t matter. Everybody knows you’re kicking ass and everybody wants to fund you. And then there’s the C minus performance when it really doesn’t matter because nobody’s going to find you regardless of the situation. So you’re really talking about the B zone in the B to B plus maybe A minus zone of when it might matter. To be fair, the bell curve distribution of performance suggests there’s a lot of companies in that part of the curve. The way I think that matters though or not matters lost and sometimes people realize is there’s benefits to having a talented investor who really understands your business involved in the company because they can help you problem solve the reasons why it’s being perceived as let’s say a B or B plus versus an A minus or A, and ideally with enough time to fix it.
One of the most value added things a really good investor can do is with a year or two advanced warning, isolate for you how your company is going to be perceived by other sources of capital. With a year or two, 12 to 24 months warning, you have enough time and leverage at your control to make changes and edit so that you look more appealing versus getting blindsided. When you find out, when you go out to pitch people, when you need money in the next year and the critiques start raining down on you, it’s too late to fix most things. You don’t have enough time, bandwidth capital to fix it. One of the best things a great investor can do is accurately forecast for you what you need to look like well into the future.
The way I typically will do that is I will give them two targets. One is, this is going to be a no brainer. If you can achieve X, Y, and Z everybody’s going to love you. They’d be easiest possible finance saying, “I’d love to invest more.” Other people will be calling you and dailies you with emails. Then here’s the minimum viable financing targets. Where with a lot of work and us crafting a deck together and setting this up and targeting the right VCs, we can get a financing done. And so that they have complete visibility into where they need the land the company, with enough time to land it there. Then what we’ll do is let’s say the landing closer to the B level, we will work very carefully in crafting the deck with Founders. Certainly at KV, I would spend six weeks per deck, per company editing the deck to make sure the story was as polished as possible given the facts and also help isolate which investors on the planet are most likely to resonate with this story.
If you do those two things as a board member, you’ve really increase the odds of success for the company even if the facts aren’t perfect. That offsets some of the potential signaling negatives if you can help place the company in the hands of the right investors who are really going to appreciate what’s working and then help frame the story in the way that makes it attractive knowing who’s on the other side of the table and what their criteria is. I think those two things can be extraordinarily valuable. I watched this as a board member and executive and learn this from the other side, the first 13 years of my career, watching really good board members be able to do this for me.

Jasom Lemkin:
Yeah. Just for fun, and I want to make sure with our last bit of time we talk about your last few deals and how people find you because I think it’s interesting. Even if it isn’t interesting, it’s interesting. But can you think of an investment you’ve done that was a B that only got funded barely due to great packaging and then became an A plus? I’m sure there’s many or maybe there’s none, right? But what some other that went through that phase transition that would be a slightly inspiring story during shelter? Can you think of one?

Keith Rabois:
Great question. Yes. Well, I think Jury Store onto whether they’ll be great companies but I can definitely think of a few that the deck made all the difference in the world. It would have been very easy for me to pass or other people to pass before the company was able to really nail and frame everything. There’s one in specific I’m thinking which I won’t name because they’re out raising money at some point but I first passed on and then a month later they came back with some evidence and with a really good DAC for a very complicated story. And I immediately decided to invest additionally in the C then in A and actually wound up leading there C. So didn’t do the B.
It’s very possible to reframe things in a way and calibrate them. I think here in another version of this, maybe that’s more actionable because that’s an abstract, very complicated topper what makes it a great DAC. But there was a company I’m thinking of right now where it would be incredibly controversial to fund. There’s just so many things in criticisms one could level even though there’s a lot of upside and a lot of positives that my feedback to that founder was you need to meet only the four or five or senior GPS and sort them out because the only people who possibly-

Jasom Lemkin:
No one else can do the check, right?

Keith Rabois:
… Nobody else would do this because they’re going to go to a partnership meeting and there’s going to be so many inbound missiles critiquing this that there’s no way that it gets approved. You need to go to Peter Fenton to benchmark and get him convinced that he must do this. You need to find the other four or five funds that if they long something it’s actually realistic to get funded. It turned out is actually exactly what happened, which is most of the more junior partners in the world hated the company, even though it was liked, it wound up getting sabotaged by their partners. There’s a few fairly senior people who could immediately appreciate what was potentially special but that level of precision can A say found us a lot of time but B also make it more likely to succeed.
There’s some funds where if you go to the wrong [inaudible 00:45:49] you’re screwed whether they have an internal policy about you can’t form shop, once you pitch somebody or just there’s email threads that are particularly on favorable. That’s not true at Founders Fund and that’s definitely not true at KV. We are pretty open minded on people finding the right partner for them but there’s definitely funds that are really good funds where you pitch one partner and they say no, you’re basically done. So even getting to the right person increases the odds because other people are going to say no.

Jasom Lemkin:
Yeah, attribution’s a topic we’re run out of time for today but it is an important one, especially outside of a handful of funds. Before we run out of time, let’s just talk about this. You’ve invested a lot of time in New York and getting out there and being in front of founders. You’re investing time today. You do a lot of work on this whether it’s marketing or PR, you could tell me, but you invest time, right? Even though you are an iconic part of Silicon Valley, you invest the time. How do you find deals? What percent of deals do you not see? Do you ever looked back in Gmail or in whatever half-baked CRM people try to use and say, “Well, I didn’t see that one.” How do you find them and how many do you miss?

Keith Rabois:
Great question. Well, let’s start with the back end of the question first. For me, all the biggest mistakes I’ve made in my investing career are first meetings that I didn’t take.

Jasom Lemkin:
They were there and you just didn’t do it, right?

Keith Rabois:
Yeah, I didn’t prioritize them or turn them down. I’ve actually surprisingly, and this may sound ridiculous, but it’s actually really true, almost never made the wrong decisions at a meeting that I actually took. I can definitely count those and there they’re less than three over 20 years. But definitely filtering some people incorrectly and not taking meeting, few Pretty massive mistake. It’s there and it’s hard. I mean, you get so many introductions emails, you can’t meet them all. You literally can’t meet them all and especially if you’re focused on seed, like what are you going on in that email. There’s not a lot of raw material there. As a result of that at the margin, I’d prefer to take more meetings than less but you still can’t take the all. If you do take too many, I think your brain is also just dead. If you take too many meetings per day and your brain is just not sharp, you’re a little cynical, skeptical, you’re tired so you may miss things in any way. You certainly don’t present that well to founders. That’s one of the hardest things about seed and series A investing.
Series B and later, I think the set of interesting companies is pretty well defined and you can actually exhaustively “cover” or meet them. There’s a KV we’re pretty stringent at tracking this. The way I would track it and redo it on a quarterly basis basically, is I would look at all the announced deals which obviously lie unfortunately, but all the announced deals and basically, just look for the ones that I found interesting and hadn’t met. So we look up. This week we track 10 funds that were our closest competitors, look at all their announced deals and then go back to our CRM and see when we met with them, et cetera, and look at a ratio, just be a percentage and make sure that percentage wasn’t going down because there was actually a quarter two when it went down. It actually led me to think about why is this happening. And made some corrections actually I’m in my process and my staffing as a result of that going down for two quarters. But that’s what I’m really doing is just looking at deals that are interesting to me, what fraction did I see?
There are lots of deals that may be good deals, maybe very interesting companies, maybe super successful but are not my style of investing. I personally don’t track that. I may track it for the fund and see oh yeah, this person should have met one of my partners but I never would have liked to invest even if it’s a great company because it’s just not something I care about. It’s not something that makes me passionate. It’s just not something I have insight into. I actually really care about a comparative advantage. So, very rare [inaudible 00:50:08] why invest just because I think it’s going to be a successful company. There’s usually something specific about the founder of the market, the value proposition that’s resonating with me personally to allocate my time.

Jasom Lemkin:
Founders have to remember that if you can’t take a no personally, because if it doesn’t resonate, it doesn’t resonate. There’s [inaudible 00:50:26].

Keith Rabois:
Yeah. Even if it did, I’m not sure you want to work with that person. There are times when founders tried to talk me into investing in something that’s against my business religion. Once in a while maybe I’ll consider it but it’s fundamentally, I’m not sure it’s the best for them either of like, I don’t do a component based and not staying. I don’t like components. They usually like vertically integrated businesses. Once in a while you can try to pitch me on a component based business, but I’m not sure you really want me for eight, 10 years in something that I don’t fundamentally believe in. If I know the founder already, I’ll definitely go along for the ride for people I know and I have worked with before because I can justify it from that perspective.
In fact, to answer your question, that’s basically how I find people. The best way are people that I’ve previously worked with or one degree removed from. Think of people who are funded a lot of former squares, a fair number of actually square interns have turned out to be great sources. These days in the network ages you have to go back to the drawing board. I funded people that have left DoorDash. I funded people now that have left Opendoor. You basically take your best companies with pools of pro entrepreneurs. As those people leave to go start their own companies because that’s a goal for a reasonable fraction of the pool of people at these high profile companies is hopefully they come to you first. That’s the best source.
Second source are other angel and some extensive seed fund investors. It isn’t as ideal because I want to be the first money in typically leading a seed, but I could still be Denali but those are highly qualified. That’s how we found Run The World. As I highlighted interview with business insider, two different angels in the company had simultaneously introduced me to the company and because it was two and I knew both pretty well, I think immediately responded because it was like, “Oh, well two people like this, there must be a signal there that’s interesting”.

Jasom Lemkin:
Who is a good invite.

Keith Rabois:
Yeah. I’d say, who introduced to you but also the velocity of who’s introducing you. People will reach out called though certainly through Twitter and Email. My email is public. It’s keith@foundersfund. People are happy to read emails or docs just cold or people tweet at me and occasionally there’s like a real insight in the tweet, so I’ll be happy to engage with it. Then, we do have principals in that sounded funded are pretty aggressive and looking for stuff. We don’t have that many of them, but we have like three they’re running around trying to meet interesting things, three or four actually and the flag stuff that I might’ve missed.
So for example, one of the big investments we made over this COVID virus or announced is a company in Germany called Trade Republic. That was found by one of our principals. He was super passionate and excited about that. I absolutely would’ve missed it. How do you not highlighted it for me? But once I met the company, I knew maybe 30 seconds to three minutes into the meeting that I wanted to fund it. It was so obvious that I’d met the best founder I’d ever met from Europe and I was like “How do we close this now?”

Jasom Lemkin:
Maybe just to wrap up because we’re running out of time. There’s a couple of good learnings for people to take away from that, one is, it doesn’t have to be the GP. You don’t have to get to Marc Andreessen. You don’t have to get to the very top. The folks that hustle can get you in, right? Never be condescending but here’s a perfect example. You don’t have to [crosstalk 00:54:14].

Keith Rabois:
It does depend on the fund and then promote a point about some businesses being so crazy or having so many perceived flaws. There are types of companies where that would be a bad idea and some funds where that would be about idea. So you have to cut into the fund in what company that were talking about. But this one definitely, had they come to me first, I wouldn’t have paid that much attention because Trade Republic on paper sounds like Robinhood for Europe, even though that’s not what we’re doing.

Jasom Lemkin:
That’s probably what I thought.

Keith Rabois:
I typically am not like a go invest in X for Y region investor at all. It’s incredibly inconsistent with all my philosophies wife, but it’s actually not that. The founder is extraordinary and I would not have been able to tell that had they just sent the ADAC or something.

Jasom Lemkin:
And then very last one because we’re out of time but the third one on the email. If I send you an email to keith@foundersfund. That’s the email, right? Foundersfund.com?

Keith Rabois:
Yeah.

Jasom Lemkin:
If that email is awesome, “Dear Keith, this is like Stripe but it’s better. Here’s why. We’re at 3 million in revenue. We’re growing 15% a month. We’re cashflow positive. We have no one in sales and marketing yet, and here are the four websites we power you didn’t know about.” I’m making a note but that’s a pretty good email. What are the odds you normally read an email just statistically? If I send you that [inaudible 00:55:43].

Keith Rabois:
If it is that good, very high.

Jasom Lemkin:
Very high, right?

Keith Rabois:
Yeah.

Jasom Lemkin:
That you’ll actually [crosstalk 00:55:48].

Keith Rabois:
Extremely high. Ironically, people don’t write emails like that very often. Maybe it’s not intuitive but the number of people who do not write an email even of that level is shockingly high. So if you wrote that email alone, I’d probably read it. You can tell by fonts sometimes but length, the precision, the beginning and being very clear I guess is the thing I’m really looking for. It could be in the depth or the email body but what’s special? What’s the secret? What’s special? The secret meaning like the zero to one thing that Peter talks about a lot or what’s the anomalous something? What’s the secret or what’s the anomaly? That needs to be there. If that’s clear, then I’m obviously going to pay a lot of attention. Probably take a meeting. Worst case, ask probably [inaudible 00:56:42], one of our principals to like meet the company.

Jasom Lemkin:
Yes. Let’s wrap on that but I think this is a great takeaway from Founders, privilege matters and it’s a bummer if I’m not a Square intern and I can’t reach Keith. I’m not part of that inner circle. I wasn’t at Opendoor. But the most awesome email in the world even the early metrics to back it up, it’s going to get open. It’s going to get red. It works for you. It works all the time and founders don’t get it but it has to be awesome.

Keith Rabois:
[crosstalk 00:57:13].

Jasom Lemkin:
Don’t ask for a coffee, make it awesome.

Keith Rabois:
It has to cut through the clutter, which is actually a pretty good signal anyway. If you started business from scratch, the inertia against you is pretty strong. So the ability to cut through the clutter from a value proposition to customers from potential employees is the same skill.

Jasom Lemkin:
Same skill.

Keith Rabois:
[crosstalk 00:57:31]. It actually predicts pretty well but it’s surprisingly rare how inattentive people are. I mean, again, it’s a hard skill to cut through the clutter but simple, short. Dexter better truthfully than emails because at least Dexter will tend to want to out of curiosity click through. We’re scanning emails less exciting to me. I almost always will click through a database at least really quickly and then if I see anything that snaps against a benchmark framework of what normal is, then I definitely will be intrigued and it’s going to be ideally, in the first seven or nine slides or something that snaps.

Jasom Lemkin:
Yeah. All right. Keith, this was incredible. I wish we could dig it even more but we’ve gone our full length of time. So thanks for anything. Anything else last minute you want to share? I think we’ve had some amazing stuff.

Keith Rabois:
That’s great. It’s a pleasure to be with you.

Jasom Lemkin:
All right. Stay safe and we’ll talk soon. Thanks everybody for joining.

Keith Rabois:
Great. All right.

The post Decacorns & Unicorns in 2020: Founders Fund Keith Rabois and SaaStr’s Jason Lemkin (Video + Transcript) appeared first on SaaStr.

Decacorns & Unicorns in 2020: Founders Fund Keith Rabois and SaaStr’s Jason Lemkin (Video + Transcript)


This post is by Team SaaStr from SaaStr

A discussion with SaaStr CEO Jason Lemkin and Keith Rabois, Partner at Founders Fund about the latest on unicorn and decacorn valuations.

Keith Rabois | Partner @ Founders Fund

Jason Lemkin | Founder @ SaaStr

 

Jason Lemkin:
… For a bunch of reasons. One, it’s an important topic. Two, founders care a lot about Venture maybe more than they should. A fun topic maybe I’ll hit with Keith if we have time, there’s maybe too much interest. But also there’s so much Sony Bologna on Twitter and so much change, right? Are we open for business? Are we not open for business? I almost feel like we’ve gone through three phases in Smartsheet shut down, what’s happening and then rush to the new new. I don’t know what’s going on but I knew I wanted someone that would tell us exactly how it is, speak with data, be unvarnished and have enough wins both operationally as investor under his or her belt to not hide anything, just to share it how it is. So I reached out to Keith so that we could hear that because I think we’re still going through times where it’s hard to get the straight scoop.
We had Christoph Jans this morning from Berlin talking about how you needed a much longer list of investors. You had to talk more people, how people will slowly flake out of a process, how it’s harder to build relationships over Zoom. It’s hard to know what’s going on especially from folks Twitter feed and what they say. That’s what I want to dig in today. Again, on Zoom, there’s a Q and A, so ask questions here. To the extent we have time, I’ll ask as many of Keith as we can and we’ll try to answer as many as possible. So pop into the Q and A. I wanted to dig in into Founders Fund and some tactical stuff but Keith, let’s step back because I know this is something that everyone’s thinking about all of the world, everyone on Twitter, tell me what you’re thinking about how do I get my arms around this slide, right? On the left, we go into February and this is the best of times, isn’t it? 10, 11 years… I mean, it’s better than we ever thought. Right?
There was this joke on Twitter the other day, someone who was pointing out how on your LinkedIn you said PayPal, it exited at a billion and now it’s worth 40 billion or 50 billion. So we figured out a long run, but even before you update your LinkedIn and then bam. Look at this, the BVP Cloud Index we plummeted in March and then as we were talking about before, if you just put all your money just into Square on March 20th, you would have doubled your money, right? Let alone the Datadog and the Shopify guys and the Zooms. And yet, as you’ve talked about all, look at what’s happening in California. I mean, it’s devastating. It’s unprecedented. As an investor and as someone looking forward, how do we weigh the two sides of this, the best and the worst of times?

Keith Rabois:
Yeah. I mean, there’s a couple of potential theoretical answers that would reconcile these two worlds. One is maybe stock markets are longterm investors and all the critiques that public market investors are short term thinkers are just false and you can make a stronger, pure argument right now that all of the major industries in the world are basically taking a long term perspective on the value of these companies, looking at the effectively discount cash flow projections and saying, “Hey, there’s this Virus-Clip that’ll be between one and four quarters long, but nothing about a 20 year horizon has gotten worse and if anything, maybe things are better over 20 years.” So all the people who were whining, jumping up and down about the evils of short-termism and public markets, which I never really believed in any way, maybe you’re just factually wrong. That’s one thesis.
The second way to go is typically, when you do your discounted cashflow for those of you who went to business school or something, you’re basic applying it, the key variables, actually your discount rate and with the effective interest rates being so low, your discount rate is basically negligible. Yeah, I know what discount rate you apply. In some ways, if you just held everything cost in and change your discount rate and reduce it by a meaningful amount, you’re going to get exactly the chart on your left. That actually would work just empirically also. I don’t think it’s that hard to reconcile these things. What’s a little harder to reconcile is what’s going on in Venture. We’ll talk about that separately, which is, I actually do think that most private market investors are somewhere between spooked and reorienting their approach and valuations. And that’s a little bit disconnected from the public markets at the moment. At some point, those things need to be in harmony, at least in partial harmony.

Jason Lemkin:
So let’s come back to that in a second, but just to understand these two. Just to unpack a little bit what you’re saying. At least many SMBs are incredibly impacted, right?

Keith Rabois:
Yeah.

Jason Lemkin:
I mean, the levels of small businesses shut down. Many of which the Shopify in the Squares would attempt to power. Some of them are doing better, don’t get me wrong. But the level of businesses in the tenderloin, the level of businesses is a nap on. I mean, it’s going to be devastating. It’ll be years but many will never reopen. Does it not matter for the chart on the left? Does the unemployment… I mean, just getting away from the human impact, does it not impact at the end? Does it not all bubble up to even the best cloud stocks?

Keith Rabois:
It’s unclear which stocks a ball is up to. I mean, many companies are not really serving the target market of the SMBs that are most affected, think like traditional retail, traditional coffee shops, comfort food, gyms, fitness, et cetera. There are some companies that are technology companies that have to do work with them and do target them but that’s not the meat and potatoes of most companies. The Squares absolutely, Yelp to some extent absolutely. But that’s more the exception than the role of the go to market for many companies. So you could still reconcile those if you had to. Then typically, in a recession and depression, whether we’re in a depression or not open question, but the consumer demand falls apart pretty quickly. And because the driver or the impetus for this economic turmoil wasn’t really lack of consumer confidence or lack of consumer resources, it’s not clear that consumers don’t have the money to spend.
In so far as you’re talking about consumer or pseudo consumer stocks, people have a lot of disposable income at the moment, partially because they’re not spending it on things they normally would. Typically, a normal American goes out to eat a certain number of times a week. That’s expensive. They may take a certain number of Uber’s, that’s expensive. They may go see a movie or two or show or play. They’re not doing any of those things. They’re actually effectively saving money. They have the ability to spend it in other places, whether they spend it now or save it and then spend it once the economy opens again. I think that that will help certainly prop up consumer based stocks. Then on the other hand or on top of that, the government’s obviously subsidizing a lot of people who are suffering and so they don’t feel-

Jason Lemkin:
That’s for sure.

Keith Rabois:
… The short, acute pain. They’re not changing their consumption patterns as dramatically as if they were… I was watching a movie the other night about The Great Depression, that was a true 25, 30% unemployment or 20, 25% unemployment, where there was no consumer spending. And so obviously the people that need consumers to spend money for their revenue and then their contribution margin just had no shot of selling things, look at model T-shirts or something. Right now if you look on the other side, an area I know a fair amount about, look at US real estate. Somehow this defies logic but is true. Last month, housing sales in the US are actually ahead of last year, like literally ahead. That makes no sense in many ways. It’s like 16 depths ahead of last year.
There is in another tale two cities is most of the people that were most affected by the March and April shutdowns were not the people that buy and sell houses. They’re people who typically are 1099 workers with lower fiber scores or lower income. And so it didn’t affect the US real estate market, except for like two to three weeks where everything was shut down and just couldn’t transact. But right now, I mean, Redfin has published several studies publicly about how they’re ahead of last year. Zillow, I saw this morning is trading at probably at 52-week high. People are buying and selling houses. That suggest that there is this weird combination of something’s thriving and something’s failing. I think the music industry, for example, at the extreme other end is catastrophically affected. The idea that people are going to go see live shows in dense environments with worst sanitation or they’re going to… I just think that that whole industry doesn’t know what to do in itself at the moment and it’s going to take years to sort that out.

Jason Lemkin:
Since you’re maybe spending more time looking at some of the consumer data than many of us are, it sounds like there is some hints of optimism in what you’re saying and that maybe you think… And we won’t hold you to this if in July you change your mind. We’re all learning. But it sounds like you feel like there’ll be a decent V. The $10 trillion being deployed to prop up the economy and pent up consumer demand may create a weird V, but it may create a V that’s reflective of the chart on the left for consumers.

Keith Rabois:
No, I think it’s going to be more inconsistent. I think by segment. There’ll be some Vs and then there’ll be some complete flat-lining. I think it’s more overall more like 2000 to 2003 in Silicon Valley, but there’ll be some industries and celebrated goals that either aren’t effected as much or snap back very quickly. And then there’s going to be others that take years. There’s a stat I saw after 9/11. Just before 9/11 occurred, we’d hit a USP domestic travel record and it took three years until May 2004 to get back to the level. I think many industries will be like that, where it takes two or three years to get back to the same level. I think some businesses never get back to the same level.
I think international travel is almost permanently affected. Permanently meaning measured in three to 10 year doses, aware of the idea that you can just travel almost anywhere in the globe on a whim is not going to happen. Countries are going to take their borders very seriously. There’s going to be different rules, and different processes, and different tasks and different paperwork you need to travel. Every time you add friction of getting paperwork, tasks, et cetera, less people are going to travel. The idea of a weekend trip from New York, people live in New York, a weekend trip to London probably that’s not going to happen for a very long time. Those industries and the associated industries, hospitality, et cetera, I think are in for a very long non V-shaped recovery. Whereas some industries I can see snapping back, maybe long tail retail definitely. I already see this.
I’m a multiple time investor in a company called [Fair 00:11:21] that basically provides data and services to SMBs all across the US and gives them the tools to compete with Amazon. The company was doing phenomenally well and our customers were doing phenomenally well before March hit. We clearly saw the impact the first three weeks. It’s dramatic. Nobody can go shop in main street America. But in the last three to four weeks, there’s been a sustained week to week improvement. I suspect-

Jason Lemkin:
In store. [crosstalk 00:11:49]

Keith Rabois:
… Well, there’s some substitution. That’s a fair caveat. Some of these businesses, maybe even many of these businesses have started investing more and more in selling online to their preexisting in store customers. They’ve been actually quite clever and scrappy and figured out how to offset the decline of revenue. But then now the fact is now in May, likely to be more like a 10 to 20% net. Well, actually that’s even wrong. The company will grow more than two actual year to year in that despite all the lockdowns. There is definitely a sustained improvement across the country. Inconsistent, they serve the virtue of having 70,000 retailers or something like that is you actually literally have retailers everywhere. And so yes, in San Francisco, they’re probably not selling that much and in LA, probably not selling that much but somewhere in Nebraska, they’re probably back to normal.

Jasom Lemkin:
Yeah. The pieces that recover at which pace is interesting I wrote. I looked a little while ago and I wrote an early Sastry post in 2013. After I sold EchoSign Adobe, I went back and got out. I rented a small office in downtown Palo Alto, and it was middle of 2013 when the last boards came down on a retail store. The West Elm store, I don’t know if you know where it is. It’s near Wahlburgers.

Keith Rabois:
Yes, of course.

Jasom Lemkin:
I was boarded up until 2013. That sounds crazy thinking about it, doesn’t it?

Keith Rabois:
Yeah.

Jasom Lemkin:
2013 had been boarded up.

Keith Rabois:
The lag is very real. Then also, there’s industries where it’s just hard to follow them how they deal, from an economic standpoint, with either consumer or government mandated density caps. Like think restaurants, hard to imagine how the economics of those businesses work with half the tables.

Jasom Lemkin:
Let me just ask you on this one. I want to hit the next slide. Pick your date in February, whatever it doesn’t really matter, where were we overall in Venture one to 10? Say on February 15th or February 1st, where were we on one to 10?

Keith Rabois:
I think we were already down to a six or seven. ,

Jasom Lemkin:
Oh, really?

Keith Rabois:
Yeah, I think some of the corrections in valuation, enthusiasm tolerance for high burn rates and things of that sort, had already been adjusting or were adjusted for the last six to nine months. Somewhat, I would tie it back if you had to put a kind of opinion timeline right around that we worked the debacle is when I think there’s a very clear retrenchment, repricing, re-analysis of what’s the right criteria for a growth around. For example Founders Fund, I don’t think we changed our criteria at all, but I felt like maybe we were on the 20th percentile in terms of conservatism on some of these metrics. I felt like everybody moved to agree with our metrics and goals and objectives very quickly, where maybe there’d be a 10% of people who had still fund stuff that we thought it was a miserable business from an empirical standpoint. It really did move from 80% fund stuff that we didn’t like to only 10% of people would fund stuff we didn’t like. [crosstalk 00:15:11].

Jasom Lemkin:
We may look back that we work IPO is the moment when things changed. Right? And when that was whenever one, we didn’t see it all, but that might’ve been a moment.

Keith Rabois:
I think that was always clear to people. It started to change before that, truthfully, at least in my view from my Venture point. But I think that was when everybody had the proverbial partner meeting discussions about what are we funding, why are we funding, what price are we funding. It was a crystallizing moment even if some of that stuff already had some momentum behind it.

Jasom Lemkin:
If we were a six and a seven there, and that’s good, from a very narrow SaaS perspective, I would have rated it at 11 but I don’t disagree with you [inaudible 00:15:54].

Keith Rabois:
Sure.

Jasom Lemkin:
Where are we today from your perspective if different from Founders Fund, if that was a six or seven, not March, not April, but wherever the heck we are today, May 27th?

Keith Rabois:
Maybe like a three.

Jasom Lemkin:
You think it’s a three?

Keith Rabois:
Yeah. I think there’s deals being announced. I mean, including IAA and now four investments over the last month, let’s say. But almost all of those have significant momentum, at least maybe a handshake, cost of a term sheet, maybe even signed documents before March 16th. Then it takes a while to get through the process of negotiation, real documents, wiring money, [crosstalk 00:16:38]. Yeah. All that stuff at large. I think that the reality is very few new deals are getting done with very few exceptions. I think there are some growth rounds that are getting done because you can look at the spreadsheets and these are pretty impressive businesses. There’s a handful of businesses that just look amazing on paper. They look amazing on Excel or paper or whatever, Excel spreadsheets or something.
Those deals are possible to do, especially with public market comparables being both high and no longer quite as volatile. I mean, just feel some volatility. You could just even look at today, there’s some volatility in the market. But it’s pretty easy to hit the outlier high growth companies with moderate bird, batch payback on a cap basis. Everybody wants to invest in it or most funds are looking into those. And so those deals can still get done. The earliest stage stop, I would probably guesstimate is getting done at 10 to 15% normal in terms of velocity and probably-

Jasom Lemkin:
That’s a lot different than you’d think looking at the press, right? 10 to 15%?

Keith Rabois:
… Oh yeah, absolutely.

Jasom Lemkin:
A lot different.

Keith Rabois:
I mean, 10 to 15% and add probably call it 50% of the valuation of last year.

Jasom Lemkin:
If you’re growing faster than March 15th, how does that impact that calculation?

Keith Rabois:
If you’re going faster in a way where also the unit economics/payback is improving and that’s actually true for some companies, like think DoorDash or some telemedicine companies as extreme examples, those are pretty fundable for two reasons or home fitness in some ways maybe. I’m not sure whether the payback on the home fitness thing has changed that dramatically, the cut payback, but certainly the growth is there. Those companies are very fundable right now because basically, it’s like a version of the old why now question. So every good investor deck has as a white house slide. The postmark 16th is just amplifying that question. Why is your company better post COVID? If you have a great answer to that, people will definitely be interested in funding you. It’s species of the old canonical Why now question. But if you don’t have a great why now question, then I think you’re getting lost in a quicksand in VCs that are polite but not really investing.

Jasom Lemkin:
Yeah. Let me just dig into that a little bit. I think this was the point you were trying to make with Fair, that it’s still doing incredibly well, just not quite as well as it would have done absent COVID-19, right? [crosstalk 00:19:19] instead of 3X.

Keith Rabois:
Yeah, good. Literally, our plan for the year was to grow or plan for 2020 would be to grow more than 3X, which is great. I mean, for a company that had pretty good scale. But we’ll still put up two backs even with COVID, which by most metrics that’s a pretty good year. Maybe not be good enough for the company’s ambitions, but we’ll get back tO 3X. But 2X year to year is actually not that bad in the grand scheme of life.

Jasom Lemkin:
Not that bad. Let me ask the question then for new deals and as you said, you’ve announced a ton of deals personally in the Founders Fund, but most of them were in flight before all this happened. One way or another in flight.

Keith Rabois:
Yeah.

Jasom Lemkin:
For a new deal, that is like a fair. Maybe not literally fair, but let’s say in February you were at 2 million ARR tripling and you love the Founder. Okay? It was in a good space, it’s growing 3X, unit economics are plenty good. Whatever your bar is, your bar is high but tripling, quadrupling going 2.5X and instead of 3X, now it’s 2X or instead of 3X, now it’s 1.8 X and it’s not [inaudible 00:20:29]. So, it’s not restaurants. Do you just do the deal? Do you just connect the dots and say, “I’m going long. I don’t really care if it’s eight to 20 months until this recovers.” Or what’s the honest answer for you and Founders Find? Is it still tough to make that mental leap that it’s just a gap?

Keith Rabois:
I think it depends on how much is this a temporary blip. Meaning can you articulate. Look, everybody’s going to have a weird set of metrics in late March, early April. Typically, when we’re funding a later stage company, they have this super smooth growth curve and everything looks amazing. Very few people are going to be presenting for the next year or two slides that are perfect. Everybody’s going to have some volatility, at least in March and April. And so you can show that the volatility segment of time or time is pretty temporal and that you’re back on a predictable growth rate, et cetera, even if it’s a month or two, three months of that. I think there’ll be some serious interest in investing in companies like that.
I think you get basically a pass. In most company here you get a pass between March and maybe May in some of their metrics, but the metrics before that pass is on better be pretty damn good and at some point after that pass on, they now start looking good again. If you can do that, I think people would just close their eyes to this middle [inaudible 00:22:02] we’re typically in a growth out and even a series of C can’t really get away with that. A missed quarter looks terrible typically. Everybody’s going to have a missed quarter or so.

Jasom Lemkin:
Got it. But for what I call them, the COVID beneficiaries, the COVID impacted and the COVID we don’t need you anymore. For the impact that I think you’re saying, look, it is hard. It’s a fact that it’s hard. Even if intellectually you know that these industries are coming back, you have to resume growth in two, three it sounds like, to get funded. You have to resume your normal growth.

Keith Rabois:
Yeah. I think you do need to show that if you want more money, that the company has either figured out or at least the macro world has adjusted and so you’re back on whatever trajectory you’re on. Or the company has figured out how to tune what it does, whether in small tuning or large pivoting to the new world and that there’s evidence that whatever adjustments you made are working. If not that, then I think there’s not a lot of appetite to fund companies, especially if they’ve already raised a sizeable chunk of capital. It’s much easier and let’s say to raise sizable chunks, let’s call it 10 million or more. If you’re not able to show that the world has been fixed from whatever perspective advantage point you’re in business or you fixed your company to take advantage of the new world, it’s much easier to past at somebody who’s already raised a dose of capital. Just say, I’d rather take a shot at something new that’s built from the ground up in this new world.

Jasom Lemkin:
Yeah. Then I want to make sure we have time for a couple points. But let me ask you a question that I’ve thought a lot about but you may have much better data and thinking, which is my gut and I don’t have the data to support this but I have my anecdotal data. I’ve made 25 investments and I talked to a lot of founders. I think 15 to 20% of SaaS companies that we work with are COVID beneficiaries. 15 to 20% are in collaboration, sharing E-Learning, even just e-commerce. I invested in a company called Gorgeous, which is a contact center for SMBs on Shopify. March was rough. April it grew 70%. That was an unexpected one. If 15 to 20% are COVID beneficiaries, can that absorb all the ventured capital? Does venture capital even need to bother? Venture capital, no matter how it looks, it’s not a huge asset class. Is it? Is there even any point for new investments in doing anything but a COVID beneficiary?

Keith Rabois:
You could rarely argue that because if you believe that there’s a fundamental shift in the world in any way towards e-commerce verticals, towards ad foam, fitness training, et cetera, absolutely, it would make sense to take your money and only invest in COVID beneficiaries. There’s a big argument. We debate internally all the time. You can debate publicly. How much does human behavior snap back into traditional norms or is there a “new normal”?

Jasom Lemkin:
Now what’s the answer?

Keith Rabois:
Well, I actually think it varies by vertical. I actually think that there are some things that have had a permanent change and people are not going to go back. For example, let’s talk about telemedicine just because it’s easy to grow. Telemedicine had been growing nicely for the last five to seven years. I mean, there’s a couple public companies, several private companies, but it had step function. What I mean step function, I’ll give you some real numbers. Stanford Hospital went from roughly 1700 telemedicine consults a day to 74,000 a day. Cleveland Clinic has roughly the same scale there. So massive step function.
What’s happened is people realize actually, you know what, telemedicine is actually better. I don’t want to go to a doctor’s office where everybody else there has germs or something. I have to sit in this waiting room and the doctor’s never on time whereas mostly 50 to 70% of things that go wrong with me, the doctor can easily diagnose or triage by a telephone call from my home when I haven’t even had a community where let alone to get exposed to other people’s germs. And by the way, they’re probably on time for the telemedicine cough. That I don’t think flips back at all.
Also, the companies, at least the private companies get better marginal economics. I run a telemedicine wave. The regulators also stepped in and made things easier, relaxed some cross state border restrictions on practicing medicine. Unfortunately, I suspect they’ll go back to normal and insist the California doctors could only treat people that are in California, which makes no sense, but they had suspended that which also allowed for this growth. But maybe even the regulators will cave now. I’m sure there’s no, maybe not no, but almost trivial negligible examples of California doctors either really screwing up the practice of medicine for Virginia residents. All of that is just a permanent change. Then you can even see, well, maybe if that’s true, maybe there’s applications that caused him to other versions or species of medical care where telemedicine or quality telemedicine takes off as well.
There’s some things that I don’t think are complete substitutes and really are unfortunate inferior substitutes. You can argue some of the… Even if you go into a home fitness, break this down, I think Peloton is a pretty good substitute for SoulCycle for many people. Maybe superior, cost-effective, more convenient, more adoptable to their schedule, et cetera. I’m not sure the ad home equivalent of weight training is for going to a gym. Most people are not going to have the same equipment, the space, et cetera. We funded a company that provides a really good ad home experience called Tempo for straight training. But to some extent, there’s limits on what you can do in a normal person’s house in America or apartment. I think that is a function of what’s the healthcare situation in estates, what’s the risk tolerance of people were getting exposed to germs. But are people going to permanently stay away from gyms if the healthcare crisis alleviates? I doubt it.

Jasom Lemkin:
Georgia doesn’t suggest it.

Keith Rabois:
No, that’s true. Truthfully, the facts in Georgia don’t suggest that it’s as big a problem as people thought. But yeah, I personally wouldn’t want to be in a gym right now with a lot of other people. It’s just hard to keep everything perfectly sanitized all day long, even if you put density caps on. But I would imagine, you’ll see gyms, even the equinoxes of the world where you have to schedule your workout.

Jasom Lemkin:
Yeah. It’s complicated. Before we run out at a time, let me just talk a little bit about Founders Fund and you as an investor. I want us to just take advantage of having you to understand how fun investing actually works for a minute because I think it’s interesting. We can talk about whether it’s really changed today but I don’t think it’s changed that much. Let’s start for a minute. You guys just raised $3 billion, right?

Keith Rabois:
Yeah.

Jasom Lemkin:
And perhaps the time [inaudible 00:29:33] with winter typically, maybe not, but you joined $3 billion and your last deal was $8 million or something. The last check that I saw, Run The World was $8 million.

Keith Rabois:
Yeah. I saved-

Jasom Lemkin:
How does that-

Keith Rabois:
Sorry.

Jasom Lemkin:
Yeah, go ahead.

Keith Rabois:
You’re right. We raised $3 billion. We announced it earlier this year, really raised it mostly late last year. We divided into two funds, which is pretty important. The first fund is about 1.4 billion and that’s the Traditional Venture Fund. Then we added a growth opportunity fund of the other half, basically, which is designed for late stage investments, very large rounds, pretty high valuation companies. That’s new for us.

Jasom Lemkin:
And that’s the same GPs and same LPs in both?

Keith Rabois:
It’s the exact same GPS currently. There is some difference in the LP base mostly because we were able to fortunately bring in some new LPs. The Venture Funds we’ve had the benefit of having done fairly well historically. There’s not a lot of allocation or availability for new LPs but we were able to bring on some really top tier new LPs into the growth fund so it’s not the same. We’ll see where we deploy the growth fund is a work in progress. It’s somewhat opportunistic. We’ll see where there’s sweet spots and vacuums in the market and have the capital take advantage of that. With Venture Fund, Founders Funds, this is Founders Fund seven. We’ve been doing this for a while collectively, at least. We started to know mostly what we want to be doing. We did just announce of that. Actually, we only invested 4.6 million, I believe of that round. It’s even smaller than the eight. That could still work though for $1.4 billion fund for a couple of reasons.
One, if the company is doing well, even if we did nothing, but our pro rata along the way, which is not our style by the way but if we did, we wind up with a measure over the next two or three rounds. For example, I’ll give you some data back at my KV, when I was at Khosla for six years, Khosla Ventures, I led the seed investment in DoorDash and never let another round, but overall because KV continued to do our pro rata in each of the next four or five rounds KV as well, North of $30 million invested in the company, even though the initial investment was 750,000 to a million dollars. But if the company does really well and you continue to have conviction and do at least your pro rata you can wind up with a pretty reasonable exposure, but at Founders fund, we tend not to do that. We tend to double down or triple down. Instead of doing pro rata on the way, we will typically like to “power money” into the company and lead subsequent rounds. To some extent, maybe we only invested 4.6 million now, but if the company continues to progress the next round, maybe we would lead with a 10, $15 million chat even the round thereafter. Then with the new growth fund, we could lead the 100 million, $200 million financing on it.

Jasom Lemkin:
I got it. That’s a good case study because it might be a piece of that that’s non-traditional, that’s worth folks quickly learning about. I would say my rough rule for most funds is look at the fund size and it’s important to understand Founders Fund has to split it in half because only half is the Venture Fund. So don’t do the math on 3 billion, do the math on 1.4 billion. But for most partners that spend a lot of the winters skiing in Yellowstone and have a lot of their things going on, a check much less than 1.5% of the fund is going to be tough. It’s not going to move the needle in terms of cash deployment.
Even if a DoorDash, it could make you an insane amount of money, just doesn’t move the needle in terms of their quota. So typically I say, if you’re meeting with a billion dollar fund, they’re going to want to write a 15 to $20 million check to build or start the relationship. You’re suggesting different math that you’ll start earlier, do more work. I think though, that’s a little non-traditional. Will all the partners do it. Is that pretty common?

Keith Rabois:
It is non-traditional to start. That’s clearly right. I mean, At Khosla Ventures where I spent six years before my last year or so at Founders Fund, we would not do that.

Jasom Lemkin:
You wouldn’t do that.

Keith Rabois:
No, we wouldn’t

Jasom Lemkin:
Khosla did see checks but maybe they experiments are small things or…

Keith Rabois:
We did do see checks but they were typically designed to get a reasonable amount of ownership in seed and then we would follow it in an A or try to lead an A. But after that, we were using other people’s money and might make to pro rata but we definitely didn’t want to be doubling down, tripling down. But for the Founders Fund, across several funds now, but we have 17 companies where we’ve invested $200 million or more across multiple funds. We concentrated in positions. It’s one of the biggest differences at least from an LP perspective of how we invest, as if we like the company, we have incredible conviction and this is even before we had growth fund. So I suspect that we will have many more than 17 in the above or 200 million will be the low end, where we have significant dollars invested in a position. But that is very typical.
I wouldn’t count on… I think your guidance to Founders is completely accurate that it wouldn’t make sense to take a million or $2 million or even a position for a million or $2 million from a traditional billion dollar plus fund. It just doesn’t make a lot of sense. I tend to personally like to meet seed investments for three or four reasons. Even though I’m helping quarterback for one point $4 billion Venture Fund, my ideal investment is one to $3 million. That was [inaudible 00:35:46]. Actually at KV too, I had a little bit stricter standard on the ownership for the one to 3 million at KV because I knew we would eventually get diluted downwards and Founders Fund we might actually buy up. So I have a little bit less ownership mentality or handcuffs on me to lead this rounds but I would prefer to be doing one to three, one to $4 million checks all day long. If I could avoid doing other investments, I’d actually be thrilled.

Jasom Lemkin:
Yeah. Some of them might even be personality based as well as economics, right?

Keith Rabois:
Yeah.

Jasom Lemkin:
It is how it works.

Keith Rabois:
Among the reasons why I prefer to be writing one to three or $4 million dollar check is first of all, psychological satisfaction to me in terms of impact to the company. Writing a $200 million check into the next Airbnb when everything’s already working perfectly, they make you a lot of money as an investor but it certainly doesn’t psychologically invigorate me anyway. Secondly, I actually am a Founder driven investor so 90% of my decision or 85% of my decision is based upon the skills and the attributes of the founding team. I’d rather be competing on that to mention before there’s any metrics, because it basically leaves all the other investors without the safety net.
Then third is obviously there’s a risk reward equation in Venture. If you’re right, you want to be really right and say the earlier you’re getting involved, the better that looks as to I’d rather fund things before other people realize they’re good because one way or the other, we’ll get compensated for that. Then fourth is, maybe a little more subtle, when you inherit a company later, it’s a little bit concrete. Concrete is very malleable when it’s in liquid form and you can shape it. Once it solidifies, it’s extremely expensive, wild and destructive to change concrete. So the earlier we get involved, hopefully we can help avoid unnecessary mistakes versus inheriting this die being cast in a solid form where you’re distracted, fixing prior mistakes. Prior mistakes at a top table, prior mistakes and go to market, prior mistakes in hiring to avoid those mistakes and try to be off the races without any unforced errors.

Jasom Lemkin:
Let me ask you an inside baseball question on that strategy of going in seed, which is very attractive. I get Keith to help me early and then leaning in. So if it goes well, lead the next round, maybe even lead the next three rounds. Whatever it is. Is that a negative if things don’t go perfectly? There’s nothing easier than when you’re existing investor, than when your Accelerus Sequoia sends you an email saying, “We’ll lead the next [inaudible 00:38:34]. Don’t bother doing all the diligence, and young woman we’ll do it for you.” It’s so appealing as a Founder but I can think of a few cases where it’s turned out to be a negative. The concentration gets so high and you hit a bump and you end up with a dis-alignment you might not have had if Keith was also on your board as well as someone else or if you had two or three people in that meeting.

Keith Rabois:
Well, I think there’s several components to answer that question because obviously, it’s a complicated topic. I’d say there’s two scenarios where it doesn’t matter at all. One is called the eight, eight plus performance scenario.

Jasom Lemkin:
Doesn’t matter. Nothing matters.

Keith Rabois:
It doesn’t matter. Everybody knows you’re kicking ass and everybody wants to fund you. And then there’s the C minus performance when it really doesn’t matter because nobody’s going to find you regardless of the situation. So you’re really talking about the B zone in the B to B plus maybe A minus zone of when it might matter. To be fair, the bell curve distribution of performance suggests there’s a lot of companies in that part of the curve. The way I think that matters though or not matters lost and sometimes people realize is there’s benefits to having a talented investor who really understands your business involved in the company because they can help you problem solve the reasons why it’s being perceived as let’s say a B or B plus versus an A minus or A, and ideally with enough time to fix it.
One of the most value added things a really good investor can do is with a year or two advanced warning, isolate for you how your company is going to be perceived by other sources of capital. With a year or two, 12 to 24 months warning, you have enough time and leverage at your control to make changes and edit so that you look more appealing versus getting blindsided. When you find out, when you go out to pitch people, when you need money in the next year and the critiques start raining down on you, it’s too late to fix most things. You don’t have enough time, bandwidth capital to fix it. One of the best things a great investor can do is accurately forecast for you what you need to look like well into the future.
The way I typically will do that is I will give them two targets. One is, this is going to be a no brainer. If you can achieve X, Y, and Z everybody’s going to love you. They’d be easiest possible finance saying, “I’d love to invest more.” Other people will be calling you and dailies you with emails. Then here’s the minimum viable financing targets. Where with a lot of work and us crafting a deck together and setting this up and targeting the right VCs, we can get a financing done. And so that they have complete visibility into where they need the land the company, with enough time to land it there. Then what we’ll do is let’s say the landing closer to the B level, we will work very carefully in crafting the deck with Founders. Certainly at KV, I would spend six weeks per deck, per company editing the deck to make sure the story was as polished as possible given the facts and also help isolate which investors on the planet are most likely to resonate with this story.
If you do those two things as a board member, you’ve really increase the odds of success for the company even if the facts aren’t perfect. That offsets some of the potential signaling negatives if you can help place the company in the hands of the right investors who are really going to appreciate what’s working and then help frame the story in the way that makes it attractive knowing who’s on the other side of the table and what their criteria is. I think those two things can be extraordinarily valuable. I watched this as a board member and executive and learn this from the other side, the first 13 years of my career, watching really good board members be able to do this for me.

Jasom Lemkin:
Yeah. Just for fun, and I want to make sure with our last bit of time we talk about your last few deals and how people find you because I think it’s interesting. Even if it isn’t interesting, it’s interesting. But can you think of an investment you’ve done that was a B that only got funded barely due to great packaging and then became an A plus? I’m sure there’s many or maybe there’s none, right? But what some other that went through that phase transition that would be a slightly inspiring story during shelter? Can you think of one?

Keith Rabois:
Great question. Yes. Well, I think Jury Store onto whether they’ll be great companies but I can definitely think of a few that the deck made all the difference in the world. It would have been very easy for me to pass or other people to pass before the company was able to really nail and frame everything. There’s one in specific I’m thinking which I won’t name because they’re out raising money at some point but I first passed on and then a month later they came back with some evidence and with a really good DAC for a very complicated story. And I immediately decided to invest additionally in the C then in A and actually wound up leading there C. So didn’t do the B.
It’s very possible to reframe things in a way and calibrate them. I think here in another version of this, maybe that’s more actionable because that’s an abstract, very complicated topper what makes it a great DAC. But there was a company I’m thinking of right now where it would be incredibly controversial to fund. There’s just so many things in criticisms one could level even though there’s a lot of upside and a lot of positives that my feedback to that founder was you need to meet only the four or five or senior GPS and sort them out because the only people who possibly-

Jasom Lemkin:
No one else can do the check, right?

Keith Rabois:
… Nobody else would do this because they’re going to go to a partnership meeting and there’s going to be so many inbound missiles critiquing this that there’s no way that it gets approved. You need to go to Peter Fenton to benchmark and get him convinced that he must do this. You need to find the other four or five funds that if they long something it’s actually realistic to get funded. It turned out is actually exactly what happened, which is most of the more junior partners in the world hated the company, even though it was liked, it wound up getting sabotaged by their partners. There’s a few fairly senior people who could immediately appreciate what was potentially special but that level of precision can A say found us a lot of time but B also make it more likely to succeed.
There’s some funds where if you go to the wrong [inaudible 00:45:49] you’re screwed whether they have an internal policy about you can’t form shop, once you pitch somebody or just there’s email threads that are particularly on favorable. That’s not true at Founders Fund and that’s definitely not true at KV. We are pretty open minded on people finding the right partner for them but there’s definitely funds that are really good funds where you pitch one partner and they say no, you’re basically done. So even getting to the right person increases the odds because other people are going to say no.

Jasom Lemkin:
Yeah, attribution’s a topic we’re run out of time for today but it is an important one, especially outside of a handful of funds. Before we run out of time, let’s just talk about this. You’ve invested a lot of time in New York and getting out there and being in front of founders. You’re investing time today. You do a lot of work on this whether it’s marketing or PR, you could tell me, but you invest time, right? Even though you are an iconic part of Silicon Valley, you invest the time. How do you find deals? What percent of deals do you not see? Do you ever looked back in Gmail or in whatever half-baked CRM people try to use and say, “Well, I didn’t see that one.” How do you find them and how many do you miss?

Keith Rabois:
Great question. Well, let’s start with the back end of the question first. For me, all the biggest mistakes I’ve made in my investing career are first meetings that I didn’t take.

Jasom Lemkin:
They were there and you just didn’t do it, right?

Keith Rabois:
Yeah, I didn’t prioritize them or turn them down. I’ve actually surprisingly, and this may sound ridiculous, but it’s actually really true, almost never made the wrong decisions at a meeting that I actually took. I can definitely count those and there they’re less than three over 20 years. But definitely filtering some people incorrectly and not taking meeting, few Pretty massive mistake. It’s there and it’s hard. I mean, you get so many introductions emails, you can’t meet them all. You literally can’t meet them all and especially if you’re focused on seed, like what are you going on in that email. There’s not a lot of raw material there. As a result of that at the margin, I’d prefer to take more meetings than less but you still can’t take the all. If you do take too many, I think your brain is also just dead. If you take too many meetings per day and your brain is just not sharp, you’re a little cynical, skeptical, you’re tired so you may miss things in any way. You certainly don’t present that well to founders. That’s one of the hardest things about seed and series A investing.
Series B and later, I think the set of interesting companies is pretty well defined and you can actually exhaustively “cover” or meet them. There’s a KV we’re pretty stringent at tracking this. The way I would track it and redo it on a quarterly basis basically, is I would look at all the announced deals which obviously lie unfortunately, but all the announced deals and basically, just look for the ones that I found interesting and hadn’t met. So we look up. This week we track 10 funds that were our closest competitors, look at all their announced deals and then go back to our CRM and see when we met with them, et cetera, and look at a ratio, just be a percentage and make sure that percentage wasn’t going down because there was actually a quarter two when it went down. It actually led me to think about why is this happening. And made some corrections actually I’m in my process and my staffing as a result of that going down for two quarters. But that’s what I’m really doing is just looking at deals that are interesting to me, what fraction did I see?
There are lots of deals that may be good deals, maybe very interesting companies, maybe super successful but are not my style of investing. I personally don’t track that. I may track it for the fund and see oh yeah, this person should have met one of my partners but I never would have liked to invest even if it’s a great company because it’s just not something I care about. It’s not something that makes me passionate. It’s just not something I have insight into. I actually really care about a comparative advantage. So, very rare [inaudible 00:50:08] why invest just because I think it’s going to be a successful company. There’s usually something specific about the founder of the market, the value proposition that’s resonating with me personally to allocate my time.

Jasom Lemkin:
Founders have to remember that if you can’t take a no personally, because if it doesn’t resonate, it doesn’t resonate. There’s [inaudible 00:50:26].

Keith Rabois:
Yeah. Even if it did, I’m not sure you want to work with that person. There are times when founders tried to talk me into investing in something that’s against my business religion. Once in a while maybe I’ll consider it but it’s fundamentally, I’m not sure it’s the best for them either of like, I don’t do a component based and not staying. I don’t like components. They usually like vertically integrated businesses. Once in a while you can try to pitch me on a component based business, but I’m not sure you really want me for eight, 10 years in something that I don’t fundamentally believe in. If I know the founder already, I’ll definitely go along for the ride for people I know and I have worked with before because I can justify it from that perspective.
In fact, to answer your question, that’s basically how I find people. The best way are people that I’ve previously worked with or one degree removed from. Think of people who are funded a lot of former squares, a fair number of actually square interns have turned out to be great sources. These days in the network ages you have to go back to the drawing board. I funded people that have left DoorDash. I funded people now that have left Opendoor. You basically take your best companies with pools of pro entrepreneurs. As those people leave to go start their own companies because that’s a goal for a reasonable fraction of the pool of people at these high profile companies is hopefully they come to you first. That’s the best source.
Second source are other angel and some extensive seed fund investors. It isn’t as ideal because I want to be the first money in typically leading a seed, but I could still be Denali but those are highly qualified. That’s how we found Run The World. As I highlighted interview with business insider, two different angels in the company had simultaneously introduced me to the company and because it was two and I knew both pretty well, I think immediately responded because it was like, “Oh, well two people like this, there must be a signal there that’s interesting”.

Jasom Lemkin:
Who is a good invite.

Keith Rabois:
Yeah. I’d say, who introduced to you but also the velocity of who’s introducing you. People will reach out called though certainly through Twitter and Email. My email is public. It’s keith@foundersfund. People are happy to read emails or docs just cold or people tweet at me and occasionally there’s like a real insight in the tweet, so I’ll be happy to engage with it. Then, we do have principals in that sounded funded are pretty aggressive and looking for stuff. We don’t have that many of them, but we have like three they’re running around trying to meet interesting things, three or four actually and the flag stuff that I might’ve missed.
So for example, one of the big investments we made over this COVID virus or announced is a company in Germany called Trade Republic. That was found by one of our principals. He was super passionate and excited about that. I absolutely would’ve missed it. How do you not highlighted it for me? But once I met the company, I knew maybe 30 seconds to three minutes into the meeting that I wanted to fund it. It was so obvious that I’d met the best founder I’d ever met from Europe and I was like “How do we close this now?”

Jasom Lemkin:
Maybe just to wrap up because we’re running out of time. There’s a couple of good learnings for people to take away from that, one is, it doesn’t have to be the GP. You don’t have to get to Marc Andreessen. You don’t have to get to the very top. The folks that hustle can get you in, right? Never be condescending but here’s a perfect example. You don’t have to [crosstalk 00:54:14].

Keith Rabois:
It does depend on the fund and then promote a point about some businesses being so crazy or having so many perceived flaws. There are types of companies where that would be a bad idea and some funds where that would be about idea. So you have to cut into the fund in what company that were talking about. But this one definitely, had they come to me first, I wouldn’t have paid that much attention because Trade Republic on paper sounds like Robinhood for Europe, even though that’s not what we’re doing.

Jasom Lemkin:
That’s probably what I thought.

Keith Rabois:
I typically am not like a go invest in X for Y region investor at all. It’s incredibly inconsistent with all my philosophies wife, but it’s actually not that. The founder is extraordinary and I would not have been able to tell that had they just sent the ADAC or something.

Jasom Lemkin:
And then very last one because we’re out of time but the third one on the email. If I send you an email to keith@foundersfund. That’s the email, right? Foundersfund.com?

Keith Rabois:
Yeah.

Jasom Lemkin:
If that email is awesome, “Dear Keith, this is like Stripe but it’s better. Here’s why. We’re at 3 million in revenue. We’re growing 15% a month. We’re cashflow positive. We have no one in sales and marketing yet, and here are the four websites we power you didn’t know about.” I’m making a note but that’s a pretty good email. What are the odds you normally read an email just statistically? If I send you that [inaudible 00:55:43].

Keith Rabois:
If it is that good, very high.

Jasom Lemkin:
Very high, right?

Keith Rabois:
Yeah.

Jasom Lemkin:
That you’ll actually [crosstalk 00:55:48].

Keith Rabois:
Extremely high. Ironically, people don’t write emails like that very often. Maybe it’s not intuitive but the number of people who do not write an email even of that level is shockingly high. So if you wrote that email alone, I’d probably read it. You can tell by fonts sometimes but length, the precision, the beginning and being very clear I guess is the thing I’m really looking for. It could be in the depth or the email body but what’s special? What’s the secret? What’s special? The secret meaning like the zero to one thing that Peter talks about a lot or what’s the anomalous something? What’s the secret or what’s the anomaly? That needs to be there. If that’s clear, then I’m obviously going to pay a lot of attention. Probably take a meeting. Worst case, ask probably [inaudible 00:56:42], one of our principals to like meet the company.

Jasom Lemkin:
Yes. Let’s wrap on that but I think this is a great takeaway from Founders, privilege matters and it’s a bummer if I’m not a Square intern and I can’t reach Keith. I’m not part of that inner circle. I wasn’t at Opendoor. But the most awesome email in the world even the early metrics to back it up, it’s going to get open. It’s going to get red. It works for you. It works all the time and founders don’t get it but it has to be awesome.

Keith Rabois:
[crosstalk 00:57:13].

Jasom Lemkin:
Don’t ask for a coffee, make it awesome.

Keith Rabois:
It has to cut through the clutter, which is actually a pretty good signal anyway. If you started business from scratch, the inertia against you is pretty strong. So the ability to cut through the clutter from a value proposition to customers from potential employees is the same skill.

Jasom Lemkin:
Same skill.

Keith Rabois:
[crosstalk 00:57:31]. It actually predicts pretty well but it’s surprisingly rare how inattentive people are. I mean, again, it’s a hard skill to cut through the clutter but simple, short. Dexter better truthfully than emails because at least Dexter will tend to want to out of curiosity click through. We’re scanning emails less exciting to me. I almost always will click through a database at least really quickly and then if I see anything that snaps against a benchmark framework of what normal is, then I definitely will be intrigued and it’s going to be ideally, in the first seven or nine slides or something that snaps.

Jasom Lemkin:
Yeah. All right. Keith, this was incredible. I wish we could dig it even more but we’ve gone our full length of time. So thanks for anything. Anything else last minute you want to share? I think we’ve had some amazing stuff.

Keith Rabois:
That’s great. It’s a pleasure to be with you.

Jasom Lemkin:
All right. Stay safe and we’ll talk soon. Thanks everybody for joining.

Keith Rabois:
Great. All right.

The post Decacorns & Unicorns in 2020: Founders Fund Keith Rabois and SaaStr’s Jason Lemkin (Video + Transcript) appeared first on SaaStr.

Seed Investing Today: What’s Changed, What Hasn’t with Aileen Lee and Jason Lemkin (Video + Transcript)


This post is curated by Keith Teare. It was written by Team SaaStr. The original is [linked here]

What Nobody Tells You About Seed Investing with SaaStr CEO Jason Lemkin and Cowboy Ventures Founder and Partner Aileen Lee

Aileen Lee | Founder @ Cowboy Ventures

Jason Lemkin | Founder @ SaaStr

 

Jason Lemkin:
… founders what, how things really work, what it’s really like. And not only is Aileen one of the investors that many of us all look up to-

Aileen Lee:
Oh, God.

Jason Lemkin:
… but she also… What’s that?

Aileen Lee:
Oh, God.

Jason Lemkin:
Well, we admire, but also she’s very early in the micro VC trend. We won’t talk about it too much today, but we will talk about a little bit. When Aileen founded Cowboy Ventures in 2012…

Aileen Lee:
12, yep.

Jason Lemkin:
2012. Now you open up TechCrunch or StrictlyVC or anything, you’ll see a dozen firms a week literally sometimes. Five or 600 since then, but back then, you could probably count the seed firms on one hand or two hands.

Aileen Lee:
Yep. And I was not the earliest. We can talk about that.

Jason Lemkin:
But you were in the… Let’s call you Gen 1, even though… At this new wave. I think it gives us a perspective that maybe we don’t get in some other places, in addition to many great investments over the years. I thought we could talk about really what’s changed, what hasn’t. And it’s funny, just to kick it off, I’ll tell you we’ve heard two… First of all, two things. We’ll have some time. I know I’m not always great at it. But put your questions in the Q&A and we’ll answer as many as we can, right in the Zoom, put them in.
But what I want to do… Oh, I had forgot about this slide. Oh, hold on. Just one take pause. Sorry, I’ll come back to this. I don’t want to go out of order, but I did want to highlight one thank you and whatnot. We’ve been doing these SaaStr events since 2015, the SaaStr Annual. This is just a funny story. You can learn a lot from people on how they act and treat people backstage. You can learn a lot from the COs that bail the last two weeks and how they quit. They say that they have other issues. Then, you see them heli skiing on Instagram. There’s one like that. Those are the unicorns that always bail.
You can learn what founders think of VCs. I will tell you how many COs I’ve talked to that say, “I’ll come to SaaStr, but I don’t want my series B or series C VC interviewing me,” which is sort of interesting. And then you can learn about the people that are for you and this is maybe too nuanced for some of the folks here, and I want Aileen to do most of the talking, but we had to reschedule SaaStr Annual this year right during COVID-19. It was terrible.
The last speaker I was talking to was Aileen and she was like, “I’m coming. I’m here.” We were going through these slides, and not that many people are troopers and supportive. It sounds minor or technical, but if you want to due diligence on a human being, I get to do it a few 100 times a year. And to see someone that is supportive… Even if it’s something that seems minor, most people don’t do it. Most people don’t don’t go the extra yard, so that meant a lot to me. It’s another reason just to take their money as an aside [crosstalk 00:02:58].

Aileen Lee:
Both of our money, actually. Not just mine. Jason’s, too.

Jason Lemkin:
But it meant a lot to me. I want to talk about this slide. I used it in kind of my breakfast pre warm-up, the crazy times we’re in. But before we even get there, we had two talks today. I sat in on all of them and I heard different opinions. From Satya from Homebrew, we just heard that seed’s at an all time high. People have to deploy money. Deals are getting done left and right. They’ve done four or five deals since March and valuations are down a bit and the bar’s gone up, but seed investors know they only get one bite of the apple.
They can’t do the A or the B if they miss the seed. We heard, in a way, like an 11, right? And then I asked Keith Rabois this morning how it’s doing. He said, “Seed is at 10% of what it was.” So, we’re [inaudible 00:03:48]. If you had to summarize, then I want to talk about this slide, just where are we? On either a scale of 1 to 10 or a percentage basis, where is seed investment?

Aileen Lee:
I would say… I don’t know if I can put a number on it, but also, thank you for having me, Jason.

Jason Lemkin:
Thank you for coming.

Aileen Lee:
And hi, everyone. Thanks so much for coming to hang out with us. When shelter in place started, the conversation we’ve had internally on our team is we have to think of ourselves as Navy SEALs, where we’re at base camp right now, and we’re going to train and we’re going to work on our playbooks and do our research. Obviously, our first priority was working with our portfolio companies, but if you’ve got your investing engine on and you’re rearing to go, it didn’t feel like in February or March or April or May was really the time to deploy. I have that feeling we will get super deployed probably maybe end of summer, this fall, and the winter, because I think a lot of the people who are raising right now are still raising on ideas and plans that were pre-COVID.
And I think we need to give people time to adjust their plans and their mentalities, and also, we also need to give folks time, folks who’ve been laid off who have a little time to decompress, and then they think about an idea and they spend the summer working on it and they’re planning it out. Maybe they’ll come out and raise the fall, but if you look at historical recessions, at least in tech, those are just one of the best times to be an investor and the best times to start a company that people are scrappier, they’re really on a mission, they’re clearly not going to get rich quick, and they attract really great hardworking people who are on the mission with them.
I think that’s going to be an awesome time to invest, but I don’t think we’re quite there yet. Personally, our team has been holding back a little bit. We’re taking a ton of meetings, but I think in terms of quality, the best time will probably be… It hasn’t really started yet.

Jason Lemkin:
Let’s just-

Aileen Lee:
I don’t know. What do you think about that?

Jason Lemkin:
Well, I don’t know the answer. My view… I want to depack your term deploy, because it’s an insider term and I want to explain it to founders and [inaudible 00:06:00] what deploy means, because it’s not obvious. I want to hear more views. My views… First of all, March 15th, today has been utterly exhausting on many levels. The rate of change, right? I think whether it’s doing portfolio triage or learning to take pitches over Zoom or whatever people are doing, it’s hard as human beings. We can only process so much change, and I feel like we’ve been through three worlds since early March. I think everyone needs some stability, whether it’s good, bad, or ugly or in the middle to survive.
So, I’m just trying to learn. What I personally have seen in my little portfolio and the founders I work with is what I call the COVID beneficiaries. The ones that have accelerated since March. I mean, it’s what you see on the BBP cloud on the left. They’re on fire. They are on fire, the ones that have grown faster and I’ve seen, and I want to get your views on this. I’ve seen the folks that are the ones that are even growing a little bit less fast where you would think a VC should take a bet.
Look, okay, let’s say half your business sells to eCommerce, but 20% sells to live events. Okay. Well, do the math in your head. You should still be growing, but growing more slowly. I see those folks struggling, which maybe isn’t totally logical, but if you’re a COVID beneficiary, it’s like the money is there at least from someone you’ve met. At least from someone you’ve met, the money’s there.

Aileen Lee:
But these are also super… I mean, you were talking about growth stage companies where they’ve got strong product market fit.

Jason Lemkin:
Anyone post-revenue.

Aileen Lee:
Yeah, and they’ve got referenceable customers, they’ve got pipeline, they’ve got funnels. Seed is just a totally different game, right?

Jason Lemkin:
Yes.

Aileen Lee:
But I think, yeah, for … I mean, the cloud index is not even post-revenue. That’s way post-revenue.

Jason Lemkin:
Yes.

Aileen Lee:
And so, they’re just way easier due diligence, I think.

Jason Lemkin:
I want to get your thoughts on this slide on the best of times and the worst of times, but when you say deploying capital, let’s just [inaudible 00:08:00] for a minute. How big is your… I was going to tease on this in a later slide, but how big is your current fund?

Aileen Lee:
95 million.

Jason Lemkin:
Okay, 95 million. And you have two GPs, right?

Aileen Lee:
Mm-hmm (affirmative).

Jason Lemkin:
[crosstalk 00:08:11]. You have two partners and one or two other investing?

Aileen Lee:
Yeah. We’ve got two awesome other people on our team, Amanda and [Jamara 00:08:18]. [crosstalk 00:08:19].

Jason Lemkin:
Okay, but roughly that means you and Ted each have 50 million. It could vary, but it doesn’t really matter. 50 million. How long before COVID were you planning to take to deploy that 50 million? Because, that’s what this deploy means. It means over a timeframe. Right?

Aileen Lee:
Yeah, it’s … I mean, my version of deploys is kind of deploy capital, but kind of deploy yourself as an investor. [crosstalk 00:08:40] So, when you think about there are … Sometimes, on work it’s super intense and then you have a little … You have to take advantage of the lulls, because sometimes it gets super intense, whether you’re an operator or you’re an investor.
Sometimes, when it rains it pours, right? There’s just, you’ve got five really interesting companies in diligence and parallel and you think they’re all potentially things that you could invest in and founders you really want to work with, and there’s times that you’re not really seeing things that you think are going to get there on the other side.
And so, I think probably it will be really intense this fall and in the winter in terms of great ideas, new waves. Now, the one thing we don’t have that’s new is … Some of the waves have been because there have been new platform shifts, because of mobile or because of cloud or because of security or because of a bunch of other stuff. We don’t…
That’s not clear what the next big tech platform shift opportunity is, so I think that will dampen the intensity a little bit, but I think in terms of some investors feel anxious, like “I need to be writing checks all the time” or “I need to be making investments all the time”, I don’t think that’s true.
You got to … Sometimes it’s slow and let it be slow, and then sometimes it’s really fast and really intense and you’ve got a lot going on, and that’s when you make your investments and sign up to work with new folks.

Jason Lemkin:
So, traditionally in normal and good times, there is a sort of very slow-paced pressure as a VC, which is to do X deals a year. There’s many types of pressure. As time goes on, it’s how many unicorns, what’s your multiple, what’s your DPI, but in the earliest it’s just if you don’t do enough investments, you just can’t make money, right?

Aileen Lee:
Yes.

Jason Lemkin:
If you do no investments, you’re toast. So, and if you’re … How many investments do you and Ted each do a year, roughly? What’s the target?

Aileen Lee:
It’s a wide range. We might do six to 12 a year.

Jason Lemkin:
Together as a team, right?

Aileen Lee:
Yeah. Mm-hmm (affirmative).

Jason Lemkin:
So, each of you will do three to six.

Aileen Lee:
Yeah.

Jason Lemkin:
Okay, that’s a classic seed portfolio. And then as you get [crosstalk 00:10:37].

Aileen Lee:
It’s probably actually a slower pace than I think. We’re probably on a three, three and a half year fund cycle where we’ll make our initial investments. Whereas, other funds are maybe on two years.

Jason Lemkin:
Got it. So, that’s why you were less, right?

Aileen Lee:
Yeah. Yeah.

Jason Lemkin:
And then later-

Aileen Lee:
We’re definitely more [crosstalk 00:10:51]-

Jason Lemkin:
… it’s one to two.

Aileen Lee:
… hopefully a quality, not quantity kind of a thing.

Jason Lemkin:
And so, usually what happens… Let’s say I’m working at Cowboy and I’m supposed to do three or four a year. We’re coming up on June and I’ve done none. I start to feel pressure, don’t I?

Aileen Lee:
Yeah.

Jason Lemkin:
Even if no one says it.

Aileen Lee:
Totally.

Jason Lemkin:
Do you think that pressure is going to come back at the end of the year and therefore … When you talk about deployment, do you think folks will want to do a lot of deals in the back half of the year because they’ll feel the pressure to hit their quota?

Aileen Lee:
It’s very possible.

Jason Lemkin:
Okay, so let’s talk about this slide for a minute. And you have a broad exposure. You have exposure to segments that are, I call COVID beneficiaries. You have exposure to segments that probably are heavily impacted, right?
How do I … How you get your arms around the fact that cloud stocks on the left are at an all time high and we almost, and California is one of the worst economies in the Western world? How do I … How are you thinking about this?

Aileen Lee:
I mean, the multiples that folks are trading at right now on the left hand, I don’t totally understand it. I think it’ll be interesting to see, because also the numbers, we don’t have Q2 numbers yet. When Q2 numbers come out, for some folks they may be softer because budgets were not really locked up for most of Q1.
And so, I mean, I think if you are Zoom, obviously, or maybe an infrastructure, you probably won’t see a lot of the budget freezes and the layoffs and your sponsor being laid off. But I think for a lot of vertical SAS, they’ll see impacts when the Q2 numbers come out. And so that may change what this chart looks like maybe in July or August.

Jason Lemkin:
Yep. When you look at Main Street versus the cloud index, what are you excited about today? Are you more excited about eCommerce? I mean, what especially non-obvious things are you more excited about?

Aileen Lee:
Yeah. I mean, I think in a bunch of categories like healthcare and distance learning and infrastructure, this recession, which super sucks for a lot of people, it is going to be an accelerator for tech, because businesses are going to rely on technology and are also going to adopt technology faster.
So, it’s like in healthcare, one of my friends who’s a doctor says she feels like she fell asleep in 2020 and woke up in 2030 in terms of …

Jason Lemkin:
Yeah, I bet.

Aileen Lee:
… the industry’s willingness to adopt technology. Because it’s been a fight and it needs to be adopting technology across the board. And so, but now they have to.

Jason Lemkin:
Yes.

Aileen Lee:
And so, I think for a lot of states and regulatory agencies and businesses that have been pushing back to enable remote work, they’re going to have to change a lot of stuff and that’s going to take … A lot of investment’s going to happen in software. It’s not going to be like …
If the question would be like, “Do you feel like we have too many unicorns?”, we are going to have more unicorns. There’s no question in my mind there’s going to be more in the US and more in China, and then an increasing number in Latin America and in India and other markets that are really huge because this is… We’re in a good sector, tech is only going to get more important and more valuable.

Jason Lemkin:
So even if you feel that multiples on the left are a little aggressive, if you’re bullish on unicorns, having coined the term. If you’re bullish on unicorns, what does that mean overall for seed investing and venture investing? If folks feel good about unicorns, does that mean it should still be easier? There’s room for many, many more startups. What does that mean for a founder?

Aileen Lee:
Wait, hold on a second. I have kids in the background.

Jason Lemkin:
Bring them on.

Aileen Lee:
Thanks.

Jason Lemkin:
Lunch time?

Aileen Lee:
Yeah, exactly. It’s lunch break at school. Wait. What was the question?

Jason Lemkin:
What does it mean… So we’re in these weird times, the cloud shares are at an all time high, NASDAQ’s closed, this crazy recession we’re in, but you’re bullish about unicorns. Right?

Aileen Lee:
Yeah.

Jason Lemkin:
Unicorn generation, how does that inform your thinking in terms of types of investments? Pace, valuations, anything? Does it inform your… Does it change your thinking?

Aileen Lee:
Yeah. No, I mean, I think … Look, I was an AEB investor for 12 years and did some growth too and I switched to seed. Partially, I think, for personal reasons. I think it’s a better fit for me and it’s more fun. I’m really passionate about seed investing. And there are lots of really good folks that we partner with at A and B and C and D, who they’re really good at that, and this is the one thing that we want to focus on. We think it’s also a great category for like, you are getting in at the riskiest time where the valuations are lower, but there’s way more upside. It’s also more collaborative as you know.
I had lots of friends in seed who were co-investing with each other and helping each other build companies. Whereas, at A and B and C, you generally, you can be friends with everyone in BC, but you have to beat all of them to win the A or the B. And then you’re carrying the water with the founders for the next decade as a lead board member, and you don’t get a ton of help from other people. So, I love seed and I’m super excited about it.

Jason Lemkin:
So I want to dig into that next, on the next point. But before we leave this slide, do you have any portfolio companies that have benefited from this time that you didn’t expect? Maybe even Zoom, we didn’t fully expect it would be this big. But are there any that folks could learn from they’re like, “Wow, I’m just kind of surprised that one is a COVID beneficiary.”

Aileen Lee:
Not really a surprise. I guess probably one of the more notable companies that we work with is Guild Education. And I think because a lot of the folks that they work with, they basically help hourly workers who work for big companies like Disney and Walmart get high school diplomas or college educations or get vocational training. And I think because there’ve been a lot of layoffs in hourly workers, I think there could be a question about whether that was going to hurt a company like Guild. But it’s turned out that a lot of enterprises who have furloughed workers are suggesting that people who are furloughed use the time to actually get an education.
It’s also being used as an off-boarding benefit. So like, “We’re really sorry, we have to let you go. But we’re going to help you get on a career path, so you can get this benefit of trying to figure out where you’re going to get your next job.” So there’s been a bunch of things that actually have helped accelerate Guild that I think could have been a question. And obviously just the fact that they built this incredible infrastructure for remote learning is great.

Jason Lemkin:
Yeah. It’s an interesting one because on the one hand, it’s remote learning, right?

Aileen Lee:
Mm-hmm (affirmative).

Jason Lemkin:
And very powerful. On the other hand, it’s a benefit, right?

Aileen Lee:
Yeah.

Jason Lemkin:
You know the company much better than I do. But it’s a benefit, that’s where the budget comes from. That’s why it’s done well. But it’s a benefit, and as soon as folks cut at traditional companies and cut people, you would think the benefits … We’ve seen many folks in the benefits space be exactly linearly impacted.

Aileen Lee:
Totally.

Jason Lemkin:
Linearly impacted with layoffs and it’s natural. Right? It’s like cutting back on rent. We’ll cut back on benefits.

Aileen Lee:
Totally. Totally. So that was the one, it was like, “Uh-Oh.” But so far it’s going great.

Jason Lemkin:
That is interesting. What’s your gut? What percent of startups you think are COVID beneficiaries? Have you looked at it? Do you have a sense? What do you think?

Aileen Lee:
I think, unfortunately, it’s a pretty small, it’s a small percentage.

Jason Lemkin:
Yeah. [crosstalk] percent are benefiting.

Aileen Lee:
I’d say 10 to 15. I don’t think it’s …

Jason Lemkin:
10 to 15?

Aileen Lee:
Yeah. What do you think?

Jason Lemkin:
I made up a number just based on a very limited data set. I think it’s, in SaaS, in cloud, if you define it that way, I think it’s about 15 to 20%.

Aileen Lee:
Yeah.

Jason Lemkin:
And it’s more of the folks on the left than we would have thought, which maybe there’s some learning from that. We missed it. We knew Slack would benefit, but actually Atlassian’s benefited much more than Slack. Did we know bill.com would benefit as much as Zoom? I don’t know. If you didn’t analyze its business model, you would think that intuitively. Right?

Aileen Lee:
Yeah.

Jason Lemkin:
But I feel the question, and let’s maybe transition to that. Let’s assume it’s 10 or 15 or 15 or 20, it’s a big delta. But you’re not saying it’s single digits, right?

Aileen Lee:
No.

Jason Lemkin:
For the rest of the year, or at least for the next quarter too, would you only invest in COVID beneficiaries or would you invest in folks in heavily impacted industries? Like how you thinking about that?

Aileen Lee:
It’s a spectrum. I don’t think I’m going to be going to try and find a lot of travel startups right now. But I do think … we’re investors in a company called Homebase that basically sells SaaS for small-medium size businesses to do hourly work management. Like scheduling shifts, paying folks, giving them cash advances, communicating with the manager. Obviously, the majority of the people who they were managing the shifts and the payments for who were working in February, they were not working in March or in April.
But when businesses reopen, I think they are going to rely on technology more than ever before. Some of the older businesses that were a little hesitant about technology, they may not reopen. And the people who start businesses in the next generation are going to be like, “I need a full stack of modern software to run my business, so it’s flexible and it’s nimble and I have good transparency and I can do it from anywhere.” And so they will adopt things like Homebase at a faster rate than businesses that have been around for 30 years. And so I think if you time it right, I mean, you can basically ride the wave of all these businesses reopening.

Jason Lemkin:
For your existing portfolio and new investments, can you model that? I mean, you have to have at least have a position, right?

Aileen Lee:
Yeah.

Jason Lemkin:
Is it six months? 12 months? They just announced today, Disney World’s going to start to reopen.

Aileen Lee:
Wow.

Jason Lemkin:
When will Homebase get back-

Aileen Lee:
When is it going to reopen? Is it going to be like six feet apart and every other? Like on the rollercoaster.

Jason Lemkin:
July. Yeah. They’re going to adopt the Shanghai processes. Attendance will be half. You can’t hug a prince or a princess and you have to get reservations.

Aileen Lee:
Is the price going to be double?

Jason Lemkin:
Well, that’s a question for a lot of things down the road. If the price doesn’t double, I mean, that’s a restaurant question too, right?

Aileen Lee:
Yeah.

Jason Lemkin:
I mean, if prices double, it all works. And obviously Disney can carry a business for a little while. Those are some of the scarier questions for our economy. Is can we adapt to things? Can we adapt to Coachella when we’re 20 feet apart? I mean, I don’t know. I don’t know if Coachella $4,000 a ticket works, does it?

Aileen Lee:
No, but also it was funny. I was in San Mateo County. I think they had a rule that some camps can open, but they have to, you have to sign up for four weeks at a time because they don’t want kids in and out. But it’s like that really disadvantages people who cannot afford four weeks of camp.

Jason Lemkin:
Oh yeah.

Aileen Lee:
It’s not good. Yeah. There’s a lot of challenges.

Jason Lemkin:
A lot of challenges. A lot. And I think a lot of, probably beyond the scope of what can we get into today, but a lot of these flattening things you might… and we can talk about it in deal flow. You might think some flattening helps less advantaged, but I don’t know. Do you think pitching over Zoom helps outsiders more? Do you think it helps the founder that didn’t go to Stanford and didn’t go to YC? Or is it maybe not help as much as you think pitching?

Aileen Lee:
I am hopeful. I mean, I think there’s two things, there’s the pitching, but there’s also, where’s the company going to be based? That’s all up in the air now. So before, I mean, look, when I was at Kleiner, I spent a year spending a lot of time in New York, there was a lot of stuff going on in New York. And when I came back and I was like, “Hey, I found all these cool companies like Mongo and Warby and Stack Overflow.”
And some partners were like, “Why are you wasting your time? No big companies are ever going to be built outside the Bay Area. We clearly didn’t teach you well.” And same thing with HomeAway actually, it was the same thing. It’s like, “Why are you wasting your time?” And so things have changed a lot in the past 10 years, but I am hopeful that I was just on the phone with one of the CEOs we work with today, who is in New York and they’re moving to Denver. I think over the summer, people are going to be moving all over the place and trying to figure out how to run remote or partially distributed or clustered companies. And I think that will advantage founders who are in different places and are not on the coast.

Jason Lemkin:
I think it started like last week.

Aileen Lee:
You think so.

Jason Lemkin:
I think that folks that live in San Francisco, founders and executives that live a crummy lifestyle in San Francisco, in gross parts of the city that have sacrificed that maybe even have families, that have sacrificed a lot, are looking around. Like several conversations I’ve had with looking around, like, “What is the point of being in San Francisco today? I cannot visit Salesforce. I can not visit Twilio. I cannot visit a customer. And I have a baby and a husband or a wife or significant of living in not just a small apartment, but a gross part. I’ve traded off so much.” And I three people I know packed up the minivan and left.

Aileen Lee:
Totally. I agree. Like we had another CEO that we worked with, they packed up their car and they rented an apartment, or a house on a Lake in South Carolina. They had never been there before. They’d never been to the town and they just drove there and they lived there for the past month and a half. And he’s been so much more productive and so much happier. There’s a whole nother thing we won’t get into around mental health and all. Especially if you’re by yourself in a small apartment, it’s not happy making.

Jason Lemkin:
Yep. And how do you think, like, let’s just, maybe this is a, not a good example, but when you invested in Guild, they were based in Denver, right?

Aileen Lee:
No they’re based in Palo Alto.

Jason Lemkin:
Oh, I thought it was based in Denver.

Aileen Lee:
They moved to Denver. It’s funny because Rachel came to us and said like, :Hey, I know we just had a meeting and we discussed, we need to hire a VP of engineering and a VP of product and a VP of marketing. But we also want to move the company in Denver.”
And we were like, “What? How are we going to find those people in Denver?”
And she was like, “Trust me. There are some really good companies there. And some tech like Facebook and Gusto are opening offices. It’s a great place to live. I think I can get people from the east coast and the West coast to move to Denver. Because if you want to have family or if you want to buy a house, you want to send your kids to public school. It’s a great place. And I want to build a company where people can have a family and have a good home life and have a great job.”
And I’m so glad that we were like, “Okay, do it.” Because it was a really smart move in probably three or four years ahead of her time.

Jason Lemkin:
Yeah, it was. So she’s built a unicorn now. And let’s compare today. I mean, you had no choice, but did you have reservations? Did you try to talk her out of it?

Aileen Lee:
Oh, definitely. I didn’t try to talk. But I was like, “Are you sure?” But I mean, I think it gets a lot of the stuff on a slide. Which is we are seed, I would say half the time that we invest, they haven’t built a product yet. There’s no technology, they need money to actually build software. And then half the time they’ve built like some MVP we do about, we’re probably 75% enterprise, 25% consumer, we’re generalists. We usually invest between 500 K to one and a half million. We like to co-leader co-anchor seed rounds and we almost always co-invest with other folks, angels and institutional seed folks like yourself.
And so at Guild, they had basically had an idea for kind of reboot your career boot camps. And they came up with a three hour bootcamp and they posted it on Craigslist. And they rented strip mall, vacant space and they were holding these free three-hour boot camps. And then they were texting the people afterwards asking for. And then they charged 40 bucks and then 80 bucks. But that’s basically what they had when we invested. And so it doesn’t have to be perfect at seed.

Jason Lemkin:
And so I want to make sure we hit the bullets on this slide, but so today let’s fast forward today. So, four years ago when Rachel said, “We’re moving to Denver to build my management.” And now that I understand kind of how raw the vision was in the beginning, I get it. Because it wasn’t technology heavy in the beginning, that’s for sure. So I get it. But today, how are you feeling about not just New York or Denver, how are you feeling about Baton Rouge or Sioux Falls or Tampa? How does that strike you today for new deals? And what would you advise founders that are thinking about leaving the Bay area now?

Aileen Lee:
Yeah. I mean, it’s a better time than ever to both, to start a company in a different part of the United States. People are going to have to be way more purposeful around culture building and about communication. Because it’s still been a rarity to build a really successful scaled company without having formative team members live and work in the same place and be next to each other. A lot of times we recommend for portfolio companies that are opening up second or third office, it’s like you have people all in the headquarters and then you send out people who really understand the culture and how to have a lot of internal credibility and they start the new offices.
In some cases, I’m really curious as like, founders may start companies they’ve never been in the same office when they start the company. When we hear pitches this fall, we’re probably going to hear people who have not seen each other. But SVT Robotics is a company that is based in Virginia, Virginia Beach, actually. And it’s kind of like MuleSoft for warehouse robotics for integrating. If you’ve got a third party robotic arm and you want to integrate it with your conveyor belt or your WMS, you’ll use SVT instead of writing custom code. The founders know warehouses and they know warehouse automation really well. And they’ve lived in Ohio and Pennsylvania and Virginia, and all the places where warehouses are. And we’re super psyched to be investors in that company. And we’d love to find more like them.

Jason Lemkin:
Those are all really interesting examples. Today if you met with a startup and you’re doing seed, so it’s early, but it’s the kind of company that clearly could benefit in a year or two from some Salesforce alums or Box alums or Twilio alums. They’re doing a classic playbook and they want to move to Arkansas or Ohio or Bismarck, is that a no in this flattened world, in this distributed world? Do you think you can get VPs to join a company, Bay Area style VPs, to join nonbearing companies in 2020? Do you think that’ll change?

Aileen Lee:
I think we can do it. It’s funny at Textio, another company that I work with, which is based in Seattle, we tried hard to make the whole team Seattle-based and when we were doing our head of revenue search, we said like, “Maybe we should open it up and look at people who are not based in Seattle.” And we found a great person who’s based in the Bay area. I mean, at the time we had a deal where he was going to spend a week or two in Seattle, a month and then a week or two at home or on the road.
And so we’re fortunate that we had that time together before we wanted to go into shelter in place, but it works. And he’s a huge part of the team and they’re making it work. So I think we’re all learning fortunately or we have been learning over the past couple of years how to make kind of commuter style jobs work and distributed team work which is a good warmup for the next three years we’re about to live through.

Jason Lemkin:
Yeah. Yeah. I think especially for B2B in the next couple of months to watch is can we flatten management teams? Not just the Gitlabs and the Zapier’s, but can bury a type executive, whether they’re based in the Bay area literally or in New York. But folks that come out of the traditional folks where we poach… I mean, once you scale, you want to hire someone to set up [inaudible 00:31:06]. You really do. I mean, everyone that runs Salesforce today came from Oracle and everyone that runs Twilio came from Salesforce. There’s a reason. And if folks in Virginia Beach or wherever it is can hire these folks now is easily, it changes everything. Doesn’t it?

Aileen Lee:
Well, I mean, like internally at Cowboy every other week, we have scenario planning time where we just kind of think about like, “Okay, what if this is 24 months? What if this is 36 months? What if nobody can get on a plane until summer of 2021 the earliest?” From a sales perspective, how is that going to change sales? How’s that going to change marketing? The fact that a lot of our portfolio comes in enterprise, they got a lot of sales done or relationship building done around conferences whether it’s-

Jason Lemkin:
Up in 40%, it turns out yeah. Like 40%.

Aileen Lee:
Like HR Tech Yukon, whatever it is. You may not have been spending a lot of money getting a booth, but like you were hosting dinners, you were meeting up with people and when that doesn’t happen, how is that going to change sales?
I think maybe that’s going to be better for startups because having a lot of money to buy people expensive dinners is not going to be as important and it sounds like COVID has for at least in the folks that we’ve been talking to the past couple of weeks, it’s now a common bond. You make small talk over Zoom for five or 10 minutes about like what’s been hard or how the family time’s been good or whatever, then you get right into the sale process. And the customer on the other end is like, “This sounds really good. I need this. Let’s do it.” And so in some ways, it’s like more efficient, but we’re staying really close to it.

Jason Lemkin:
Yeah. For what it’s worth. And I want to talk about how you’re sourcing deals now. But my personal view just for the conversation is I actually think this selling over Zoom at least for now, is substantially benefiting folks with brands because if I don’t know you yet, and I can actually meet the CEO and I’m meeting [inaudible 00:33:08] over Zoom, don’t get me wrong, but we’re all taking more vendor risks. We’re taking more investment risks. More risks just has to be taken in the shelter world. And it’s comforting to know it’s BOXX. It’s comforting to know that well it’s a unicorn now.
Maybe Gild isn’t as great as Schmild or whatever. I don’t know, but if there’s risks during discovery, maybe I don’t want to take risk today. Now if you’re the only vendor in the space, it’s different, if you’re the notion or tandem, but I wonder if one of the reasons these cloud stocks are going to keep growing is because, “I’ll just stick with JIRA.”

Aileen Lee:
I kind of worry a little bit about whether we’ll move into this like nobody ever got fired for buying IBM for buying certain brands. And I do think like if you are a seed stage founder who is listening to this right now, or you’re pre-seed, or if you’re not a brand, it’s going to be hard to make new sales I think in the next two or three quarters at a minimum.
So being willing to give your product away for free or like changing the packaging so that it’s virtually free for the next six months, and then people pay for it, but getting people to use it and showing that it’s super valuable. And so that when people have budgets again, they’ll buy it. They’ll pay for it and that’s referenceable. I think for a lot of seed stage companies that’s the thing to do because it’s really hard to get new budget, even if you’re an existing brand, but as a new brand, it’s even harder.

Jason Lemkin:
It is harder. Yeah. It is a fun topic we could dig into, but we can if you want. But tell me on this. First, I want to talk about how you find deals and how founders can pitch you. But just the micro topic, say in today’s world, I know you’re slowing down a little bit to learn, but how you’re feeling about being pitched on Zoom? What’s your personal view of not meeting in real life? What’s your [inaudible 00:35:00] one to 10?

Aileen Lee:
I think it’s a bummer on both sides, right? I mean, the benefit is things have been so hot that the velocity of decision making and relationship building was I think untenable. Founders were optimizing for getting it done fast. And I think in many cases, they weren’t really getting to know the people that they were getting married to and who were… Because once you get people on your cap table, you can not get them off.

Jason Lemkin:
Never.

Aileen Lee:
So I was really bummed about how fast the process was happening, where we weren’t really having a chance to get to know people, and they weren’t really getting to know who they were taking out to their cab table. So I think this will actually be better in terms of giving people…
Then we were thinking about, when we moved in shelter in place, “Okay, how are we going to get to know people?” We already had a diligence process, but in marketing, in old fashion marketing, I don’t know if you remember the four P’s? There was price, place, promotion, and product.

Jason Lemkin:
Mm-hmm (affirmative).

Aileen Lee:
Right? So I was thinking about, “Okay, we have our own four P’s that we generally try and figure out.” So our four P’s are people, product, potential, and plan.

Jason Lemkin:
Okay.

Aileen Lee:
So we’ll say to someone, if we kind of have a first meeting and we think it’s interesting and they like us, we’ll be like, “Okay, we have this thing, we’re not going to probably get to meet face to face. So we want to get to know you over a course of meetings and maybe some of them will be dinners,” or something like that. Where we’re like, “We want to get to know the people, where you came from, what you’ve done before, what you’ve learned, what you think of your strengths and weaknesses, your self awareness, where you want to be complimented, what kind of a team you want to build.”
Then on the product, obviously really understanding both, what’s their vision for the product? Competitive landscape, differentiation, how much better it is, the potential. What could this become? Right? Both how big is the market? And if we’re really successful, what are we building? Then the plan.
How much do you want to raise? Valuation range, what are we going to get done during the seed period? Who do you need to hire? All that stuff. So basically just going through those four things is our way of getting to know each other. I think that that’s probably going to be the way we do it first of the year.

Jason Lemkin:
So more time can balance out the lack of the ability to schmooze in person?

Aileen Lee:
Yeah. I think it might, in a way, be better. I mean, obviously in person’s better, but I think a slowing, and I’m also think the velocity and optimizing for speed and just low overhead check… I think there are plenty of founders who will tell other founders that that was a mistake. I think this downturn is hopefully going to give people pause around a lot of… There’s going to be a lot of shitty ups and downs. I want to be careful about who’s going to be helpful to me in a time of a lot of uncertainty.

Jason Lemkin:
Yeah. This morning, the first speaker, I don’t know if you know, Krzysztof Jans from Point Nine Capital?

Aileen Lee:
Hold on one second. Sorry. I just told the kids to go to the other room.

Jason Lemkin:
Oh no, we’re in the lunch session. I don’t know if you know Krzysztof Jans from Point Nine?

Aileen Lee:
I don’t.

Jason Lemkin:
He’s great. His first angel investment, he was the first angel into Zendesk, after he was a CEO. Then he started doing SAS really in the beginning, and we kind of became SAS content buddies before we co-invested.
He’s done half his investments remote since then, because he’s in Berlin. So he couldn’t always get on a plane and pop up for an angel or seed deal. His advice, he had a great… Because he is a veteran, although none of us foresaw shelter, but his point was it’s like anything in sales, but make it easier. So his point was, have the best diligence together, have the references built, do a video, have the best email pitch, if you weren’t going to build the deal room, build the deal room. If folks need more time, bake it in, and just turbocharge the amount of disclosure and transparency you would have to make up for the kind of informal type decisions people are making in those high velocity advice.

Aileen Lee:
Yep. Good. I like it.

Jason Lemkin:
Okay. On this, so just to folks that understand, how do you find… Just some insider stuff to help folks learn. How do you find deals and how do founders pitch you?

Aileen Lee:
Yep.

Jason Lemkin:
Maybe a few case studies from some last deals. How did they find you? How do you discover [crosstalk 00:39:35].

Aileen Lee:
Yep. We get a ton of referrals from angels, from co-investors who we want to work with, from founders, from folks that we know. I think Ted and I, I’ve been doing this for 20 years. Ted’s been in tech for 20 years too.

Jason Lemkin:
Yes.

Aileen Lee:
So we like to say, “Hopefully when you work with us, you’re going to get really experienced, thoughtful, patient, supportive advice, with a huge Rolodex.”

Jason Lemkin:
Yep.

Aileen Lee:
So we get a lot. But also, you and I are both super passionate about using our privilege to try and make tech more equitable and less bro-tastic. So, I’ve been told that the need for the warm intro really disadvantages a lot of people. So we read all of our inbounds. So you can email hello@cowboy.vc. Someone will read it and if it’s a potentially a fit, we will get back to you. You don’t have to get referred to pitch us.

Jason Lemkin:
So let’s break that down for just a second. So if you had a pie chart, number one source of deals, you do is [crosstalk 00:40:39].

Aileen Lee:
Referrals.

Jason Lemkin:
Warm referrals, right?

Aileen Lee:
Yep.

Jason Lemkin:
For better, mostly for better, but for better or worse. Right? They do have some bias and issues associated with them. But the inbound. So the inbound is… Sorry, it’s hello@cowboyventures.com?

Aileen Lee:
Hello@cowboy.vc.

Jason Lemkin:
cowboy.vc.

Aileen Lee:
Yep.

Jason Lemkin:
I got to get this one right, folks.

Aileen Lee:
Yep.

Jason Lemkin:
We’ll layer it on top of the YouTube.

Aileen Lee:
Thank you.

Jason Lemkin:
Hello… Well, it’s probably on the website too. Right?

Aileen Lee:
It is. hello@cowboy.vc.

Jason Lemkin:
If that email is good, if it’s good… If it’s, “Dear cowboy, we’re the team that built the top product at Square. We’re pre-revenue, but we have 10 beta customers. All of them said we’re changing the way finance works. Here’s where we come from. Here’s who we know, here’s our friends.” What are the odds that email gets read and how seriously… I’m just making my…

Aileen Lee:
Well, it’s 100% going to get read.

Jason Lemkin:
100. So let’s [crosstalk 00:41:34].

Aileen Lee:
100% going to get read. Yes.

Jason Lemkin:
Right? I can’t find you. I can’t track you down. I met you at a conference, but that email is going to… This is things founders don’t get, that great email is going to get read isn’t it?

Aileen Lee:
Even a crappy email is going to get read.

Jason Lemkin:
Even a crappy email is going to get read.

Aileen Lee:
Even, “Dear Sir,” gets read.

Jason Lemkin:
Okay. But the good one, if you liked what I just wrote, right? What are the odds someone’s going to read a deck that’s attached? And what are the odds I’m going to get at least a Zoom?

Aileen Lee:
I mean, that email you described is probably a 100% going to get read.

Jason Lemkin:
100% getting read. Yep.

Aileen Lee:
And 95% going to get a, “Hey, let’s have a meeting,” or, “Let’s set up a call.”

Jason Lemkin:
Yeah.

Aileen Lee:
Yeah.

Jason Lemkin:
What percent of emails that come to hello@cowboy.vc are great like that? What percent of these emails are great?

Aileen Lee:
Not that many. I would say we only invest in the US.

Jason Lemkin:
Yeah.

Aileen Lee:
We get some from different countries, and unfortunately we just don’t invest outside the US. But when I was at Kleiner, this is before email was really how we got most pitches, people would mail business plans and pitch decks and the EAs would put them in folders and just put them into giant L.L. Bean bags and just drop them off at my office and I would go home every night and basically order Chinese food and read business plans every night.

Jason Lemkin:
You were like a script reader.

Aileen Lee:
I was single and my girlfriends were making fun. They were like, “Should we buy you cats nor or later?” Because basically my life was just reading business plans. But the business plan for Bloom Energy was a cold inbound from a professor of space technologies at University of Arizona and at the time we had heard about fuel cells and we knew that there was different kinds of fuel cells and we were kind of getting interested in alternative energy and green, and he seemed interesting and so I wrote him and I was like, “Hey, I got your business plan. Do you want to do a call?” Bloom is a public company now and it was a cold inbound.

Jason Lemkin:
Cold inbound. Let’s just finish this because I think this is … It’s not perfect but it does flatten a bit. These emails are going to get read [crosstalk 00:43:44] and you don’t need-

Aileen Lee:
Are you really surprised by this? You sound surprised.

Jason Lemkin:
No, no, no. I’m not surprised. I think founders are surprised and I want to talk about how to hack it because so much of the advice you get on the internet … The fact that warm referrals are your number one source and that a great cold email will get read just seems inconsistent to people, right? I’m happy to share some personal stories. I even published two cold emails that I funded, one of which crossed 100X last… It’s the best made. It’s 100X on a double digit ownership, cold email, and it was an outsider.
There are advantages to being an outsider. You don’t know. You don’t do as much diligence. You don’t have to have gone to Stanford and have done the perfect thing, but I think founders are surprised that investors are so busy. They’ll see you on social media, they’ll see you traveling, they’ll see that you have 20 portfolio companies, and they’ll be like, “How could I get Cowboy’s attention?”
But the reality is there’s only so many great deals a year, and it’s sales for founders and it’s sales for VCs and if the pitch is amazing, the cold email works. Email is profound, and yet people don’t spend enough time on it. They ask you for coffee. “I saw your [crosstalk 00:45:01] on stage. Can we get together some time and talk?” What are the odds you’re going to get coffee?

Aileen Lee:
Right. Yeah, too much coffee.

Jason Lemkin:
Too much coffee, right?

Aileen Lee:
Yeah, or can I pick your brain? That’s one of my-

Jason Lemkin:
Can I pick your brain?”

Aileen Lee:
I do not like that.

Jason Lemkin:
“I have an idea. Can I pick your brain?” Right?

Aileen Lee:
Yeah.

Jason Lemkin:
I think the best founders figure that out but the earlier stage it is, the less they figure it out, right? The less they know, and I think if you write the world’s best email, and it has to be real … It can’t be imaginary but if you even have some hints of excellence, it’s going to get read, isn’t it?

Aileen Lee:
Yeah, yeah. But I do think for years I was kind of fighting the “will read everything” just because I felt like it was the mark of a good founder that knows how to hustle and is a relationship builder and is a talent magnet, that a good founder knows how to somehow get it started. Cold email someone, you, and be like, “Hey Jason, I really admire you. I like this thing that you wrote. I’d love to talk to you about this thing,” and then they didn’t know you but also now you know them and then you introduce them to someone and they introduce you, and then before you know it, the person’s kind of kick started a network of relationships that can be helpful to her or him. And I do think that’s a really valuable skill.
So for years I was like, “Well, if a founder can’t figure out how to get some credible person with some venture capital universe, some founder cred, someone who’s the VP of engineering at a decent company or someone who’s a product manager at a decent company who knows a venture capitalist, maybe it’s going to be harder for them to recruit people or sell customers.” But I’ve kind of let go of that because I think a seed is a really raw stage and I’ve seen founders change over the course of 10 years from where they start to hopefully being a unicorn founder that’s managing thousands of people, and people change.

Jason Lemkin:
Yeah, I used to think that. I used to think… I came up with a simple bar which is a founder that was better than me with more going for them can build a unicorn. And so I felt like if you couldn’t penetrate, if you couldn’t be that aggressive founder that found their way through the door literally by email, physically showing up to Cowboy, whatever it is, if you weren’t that person, you weren’t aggressive enough to build something big. And what I’ve still done, anyone that wants to talk to me, if they want to talk to me about community or SaaStr in general, there’s a million ways to reach me. If they want to reach me about investing, I used to always say, “Well, find my email.” “If you can’t find my email somewhere …” “Then what’s your email, Jason?” “No. How are you going to sell Procter & Gamble or Google if you can’t figure out a prospect’s email?”

Aileen Lee:
Yeah, and it’s also in a way… If you’re in a consumer space, you can be an introvert and just an awesome product person especially if your product has network affects. You can not be able to talk and you can build a huge company. In the enterprise space, I think it’s a little more important that you can talk.

Jason Lemkin:
I think it is. I will say, for what it’s worth, I don’t… Like you said you read more of the emails today. I realize that while that is … It’s too tight a noose. It’s too much of a forcing function. There are other ways to build traction. You can build an incredibly developer-centric product and [crosstalk 00:48:13].

Aileen Lee:
Totally. Exactly, yeah, yes.

Jason Lemkin:
Even if you’re not good at things. And so if you require that almost alpha-esque, put your boot through the door, there’s a lot of privilege and other issues, but you’re also going to miss people, I think [crosstalk 00:48:26].

Aileen Lee:
Totally. I think that’s totally true. I have so many lessons learned about companies that I’ve passed on that I shouldn’t have, but I’ve learned that early on in the process I have to figure out … Or just ask the person if they are more of an extrovert or an introvert.

Jason Lemkin:
It’s a good question, right?

Aileen Lee:
And if they’re an introvert we have a different conversation.

Jason Lemkin:
Yep. All right, we’re going to run out of time [crosstalk 00:48:48].

Aileen Lee:
I know, we have so many questions and we could chat for a long time.

Jason Lemkin:
No, I know. We can do them later if you have the energy but let me just pick a couple because some are tactical. This one’s super tactical but I think it is actually helpful. One attendee asked, “Who would you look for for references?” Talk just a minute about references. What if you don’t have great references? Is that a gating item for folks that come out of nowhere? How important are… especially if yours are funky?

Aileen Lee:
I think it’s important, especially now, like you said. That it’s people that you’ve worked with or worked for, people who’ve worked for you, people who’ve been your boss. We recently did diligence on a company and the founder gave us references and gave us their friends. That was not helpful.

Jason Lemkin:
I used to think that was a no. A close to a no, like such a fail, but I don’t know today.

Aileen Lee:
We’re very … I think as a person, like an immigrant person who has in many ways been underestimated in many different ways in different situations, I have a lot of empathy for being underestimated for giving people chances. And at series B, you got to know this shit. But like at seed, if you never raised money before, sometimes there’s stuff that someone tells you and then you were like, “Oh duh. Yeah, I get it.” And then they move on. So it’s not a no for me, but yeah. I was like, “Hey, don’t give me your friends. I don’t really want to know what your friends think of you. I want to know what you’re like to work with.”

Jason Lemkin:
Yeah. This one’s interesting because it’s not necessarily obvious. This says when you invest seed or pre-seed, what do you expect MRR will be in three to six months? It’s actually not a silly question because you’re not the only VC. You’re betting that someone in the next 12 to 24 months is going to write a check at two to five times the price you did. So what does that have to mean in terms of the window in which you can invest in terms of growth?

Aileen Lee:
Especially right now, that is a really tricky one, right? Because let’s say if you’re going to… We’re basically recommending, in March, we recommend to all of our portfolio companies to basically plan. Come up with a bunch of plans, so that ideally you have money to get you into ’22. 2022.
So either raise money right away, or you’re going to do some cuts because assume that Q2, Q3, Q4 are going to be really hard for new sales and that maybe things will pick up in Q1, but maybe not. Maybe they won’t pick up until Q3 next year. And so you’re going to be going out to raise your A if your seed unpotentially not a lot of revenue growth, especially if you have to go out in the first half of 2021.
And so I think depending on what the product is that you’re selling and what business you’re in, are there other metrics that you can show around customer engagement and customer use or value or, because otherwise you’re going to be competing against people who are starting from scratch in March or in June who are like, “I have no traction, but I just started this thing.”

Jason Lemkin:
That’s a tough thing, right?

Aileen Lee:
Yeah.

Jason Lemkin:
It’s like folks graduating from college this year. It may be a lost generation compared to next year.

Aileen Lee:
Well, I hope not.

Jason Lemkin:
What?

Aileen Lee:
I hope not.

Jason Lemkin:
Well I know, but this may be a year where they don’t get to go through traditional recruiting processes and are impacted. And you’re like, “Well, there’s next year.” But by next year, there’s another-

Aileen Lee:
Yeah. They’re going to be-

Jason Lemkin:
… 50,000 seniors graduating from great colleges and you’re in this weird phase.

Aileen Lee:
Yeah. And the other thing we didn’t get to, I know it was one of your questions was just, there’s so many funds and this is, and that there are multi-stage funds, right? When you look at venture capital, there’s a whole thing going on about how many funds are and how many seed funds there are.
But the other thing that we, I feel like we don’t talk about enough is how many gigantic funds there are and how much of the money is in multi-stage funds that each fund is bigger than $500 million. And so how that changes the ecosystem in terms of when you put someone on your cap table, like we co-invest with multi-stage funds all the time and we partner with them all the time, but you have to be really savvy about when you do take one of those folks on or multiples of them onto your cap table and onto your board it’s a different ball game in terms of their incentives and their portfolios and the size checks they want to write and versus like us simple seed people.

Jason Lemkin:
Yeah. I think for each big fund on the cap table, you need to create $1 to $2 billion in exit value. So once you have four or five of those big names, you’re con is committing to a decacorn.

Aileen Lee:
Yeah, exactly. And that reality is like, I mean, Thomas Jeung has published a thing recently about, I think you’re 26 times more likely to be acquired than to go public, and so the reality is I mean, people can joke about how many unicorns there are, but it’s still extremely hard to build a billion dollar company.

Jason Lemkin:
It is. I keep waiting for your tech crunch article number three.

Aileen Lee:
Are you there?

Jason Lemkin:
I don’t think you put the third one, did you?

Aileen Lee:
I haven’t no. Actually it’s funny because I have, now that we have a little bit more time at home, I’ve gotten back to it actually to kind of get up to speed on the new set and to try and learn where they came from and all that stuff and how it’s different than the original set.

Jason Lemkin:
I think it’s time. I mean, I think-

Aileen Lee:
Oh, thank you. I’m working on it. I’m a really slow writer.

Jason Lemkin:
The first one was like… This is probably the last thing we’ll have to chat about, so maybe it’s a little off topic, but I think it’s helpful. I think the first one was one of the best pieces of venture content marketing ever, right? Which was probably part of the goal. Right?

Aileen Lee:
No, it was completely an accident.

Jason Lemkin:
It was an accident?

Aileen Lee:
Totally. I did not think anyone was going to read it at all.

Jason Lemkin:
Really?

Aileen Lee:
Oh my God.

Jason Lemkin:
Oh, wow.

Aileen Lee:
I worked on it for months just for myself just because I had this new fund-

Jason Lemkin:
Months? Months?

Aileen Lee:
Months. Because I-

Jason Lemkin:
No one had ever assembled that type of data, but now there’s analysts and everyone’s firm does it, but no one had ever seen that whenever the first one was, 2014 or something like that.

Aileen Lee:
2013. Yeah. I did it for myself just because I had this new fund and I was like, “What should I invest in?” If I had to do an analysis of the most successful companies of the past decade, what would they have in common, so I could try and look for those for the next set. And then there was all this stuff that came out of it. I was like, “Oh, actually I think this would be useful for founders and for investors for a bunch of different reasons.”
And so I published it, but I gave it to some friends to read it. I actually was on the way back from the lobby conference and I gave it to a couple of people on the plane to read it. I was like, “Hey, I’m thinking about publishing this blog post, what do you think?”
And they were like, “It’s okay.” Nobody even said like, “Wow, this is really great.” Or like, “This is going to become a thing.” And so it was a big surprise.

Jason Lemkin:
Yeah, the second one was great because it had even more data.

Aileen Lee:
Actually to bring it full circle, when I published it, I was at Disney World, I was at Disneyland with my family, the day that it went up, the Saturday morning it went up and so I’m on line for rides and I was like, “Jason,” my husband’s name is Jason. I was like, “Oh my God, people are liking this and sharing this. This is so crazy.” And he’s like, “Hey, we’re at Disneyland. Focus.” And I’m like, “You don’t understand. People are actually reading this thing.”

Jason Lemkin:
It’s funny, speak from… I mean, it’s the great lesson of all writing, speak for what you’re passionate about. You’re passionate about it because you had to learn how to deploy the fund. So this was your homework and you forced yourself to distill all that work into an article because it was your investment thesis. This was your investment thesis. A piece of it, right?

Aileen Lee:
And also, I mean our industry is huge, right? It manages almost like $500 billion and there was so little data or analysis on our industry. No transparency of… I mean, there’s not even… In universities, there’s no professor on the history of technology who studies the history of the technology business and all the forks in the road of companies, like if you did A instead of B, what happened to the company? I just think it’s fascinating.

Jason Lemkin:
It is. All right. We’re out of time. I’d like to do all these questions.

Aileen Lee:
I know. Sorry.

Jason Lemkin:
Maybe if you’re bored someday, let me know. We’ll do it again on Zoom and answer them together.

Aileen Lee:
Okay. That’d be fine.

Jason Lemkin:
I have time. But I’m looking forward to-

Aileen Lee:
But I always really enjoy chatting with you.

Jason Lemkin:
… the third piece.

Aileen Lee:
Okay.

Jason Lemkin:
I want the third article on TechCrunch. It’s okay if it takes a while. I’ve been waiting for a few years so that’s-

Aileen Lee:
Oh, you’re so nice. Thank you.

Jason Lemkin:
All right. Aileen, thank you for doing this. This was great and we’ll talk to you soon.

Aileen Lee:
Thanks everybody.

The post Seed Investing Today: What’s Changed, What Hasn’t with Aileen Lee and Jason Lemkin (Video + Transcript) appeared first on SaaStr.

Seed Investing Today: What’s Changed, What Hasn’t with Aileen Lee and Jason Lemkin (Video + Transcript)


This post is by Team SaaStr from SaaStr

What Nobody Tells You About Seed Investing with SaaStr CEO Jason Lemkin and Cowboy Ventures Founder and Partner Aileen Lee

Aileen Lee | Founder @ Cowboy Ventures

Jason Lemkin | Founder @ SaaStr

 

Jason Lemkin:
… founders what, how things really work, what it’s really like. And not only is Aileen one of the investors that many of us all look up to-

Aileen Lee:
Oh, God.

Jason Lemkin:
… but she also… What’s that?

Aileen Lee:
Oh, God.

Jason Lemkin:
Well, we admire, but also she’s very early in the micro VC trend. We won’t talk about it too much today, but we will talk about a little bit. When Aileen founded Cowboy Ventures in 2012…

Aileen Lee:
12, yep.

Jason Lemkin:
2012. Now you open up TechCrunch or StrictlyVC or anything, you’ll see a dozen firms a week literally sometimes. Five or 600 since then, but back then, you could probably count the seed firms on one hand or two hands.

Aileen Lee:
Yep. And I was not the earliest. We can talk about that.

Jason Lemkin:
But you were in the… Let’s call you Gen 1, even though… At this new wave. I think it gives us a perspective that maybe we don’t get in some other places, in addition to many great investments over the years. I thought we could talk about really what’s changed, what hasn’t. And it’s funny, just to kick it off, I’ll tell you we’ve heard two… First of all, two things. We’ll have some time. I know I’m not always great at it. But put your questions in the Q&A and we’ll answer as many as we can, right in the Zoom, put them in.
But what I want to do… Oh, I had forgot about this slide. Oh, hold on. Just one take pause. Sorry, I’ll come back to this. I don’t want to go out of order, but I did want to highlight one thank you and whatnot. We’ve been doing these SaaStr events since 2015, the SaaStr Annual. This is just a funny story. You can learn a lot from people on how they act and treat people backstage. You can learn a lot from the COs that bail the last two weeks and how they quit. They say that they have other issues. Then, you see them heli skiing on Instagram. There’s one like that. Those are the unicorns that always bail.
You can learn what founders think of VCs. I will tell you how many COs I’ve talked to that say, “I’ll come to SaaStr, but I don’t want my series B or series C VC interviewing me,” which is sort of interesting. And then you can learn about the people that are for you and this is maybe too nuanced for some of the folks here, and I want Aileen to do most of the talking, but we had to reschedule SaaStr Annual this year right during COVID-19. It was terrible.
The last speaker I was talking to was Aileen and she was like, “I’m coming. I’m here.” We were going through these slides, and not that many people are troopers and supportive. It sounds minor or technical, but if you want to due diligence on a human being, I get to do it a few 100 times a year. And to see someone that is supportive… Even if it’s something that seems minor, most people don’t do it. Most people don’t don’t go the extra yard, so that meant a lot to me. It’s another reason just to take their money as an aside [crosstalk 00:02:58].

Aileen Lee:
Both of our money, actually. Not just mine. Jason’s, too.

Jason Lemkin:
But it meant a lot to me. I want to talk about this slide. I used it in kind of my breakfast pre warm-up, the crazy times we’re in. But before we even get there, we had two talks today. I sat in on all of them and I heard different opinions. From Satya from Homebrew, we just heard that seed’s at an all time high. People have to deploy money. Deals are getting done left and right. They’ve done four or five deals since March and valuations are down a bit and the bar’s gone up, but seed investors know they only get one bite of the apple.
They can’t do the A or the B if they miss the seed. We heard, in a way, like an 11, right? And then I asked Keith Rabois this morning how it’s doing. He said, “Seed is at 10% of what it was.” So, we’re [inaudible 00:03:48]. If you had to summarize, then I want to talk about this slide, just where are we? On either a scale of 1 to 10 or a percentage basis, where is seed investment?

Aileen Lee:
I would say… I don’t know if I can put a number on it, but also, thank you for having me, Jason.

Jason Lemkin:
Thank you for coming.

Aileen Lee:
And hi, everyone. Thanks so much for coming to hang out with us. When shelter in place started, the conversation we’ve had internally on our team is we have to think of ourselves as Navy SEALs, where we’re at base camp right now, and we’re going to train and we’re going to work on our playbooks and do our research. Obviously, our first priority was working with our portfolio companies, but if you’ve got your investing engine on and you’re rearing to go, it didn’t feel like in February or March or April or May was really the time to deploy. I have that feeling we will get super deployed probably maybe end of summer, this fall, and the winter, because I think a lot of the people who are raising right now are still raising on ideas and plans that were pre-COVID.
And I think we need to give people time to adjust their plans and their mentalities, and also, we also need to give folks time, folks who’ve been laid off who have a little time to decompress, and then they think about an idea and they spend the summer working on it and they’re planning it out. Maybe they’ll come out and raise the fall, but if you look at historical recessions, at least in tech, those are just one of the best times to be an investor and the best times to start a company that people are scrappier, they’re really on a mission, they’re clearly not going to get rich quick, and they attract really great hardworking people who are on the mission with them.
I think that’s going to be an awesome time to invest, but I don’t think we’re quite there yet. Personally, our team has been holding back a little bit. We’re taking a ton of meetings, but I think in terms of quality, the best time will probably be… It hasn’t really started yet.

Jason Lemkin:
Let’s just-

Aileen Lee:
I don’t know. What do you think about that?

Jason Lemkin:
Well, I don’t know the answer. My view… I want to depack your term deploy, because it’s an insider term and I want to explain it to founders and [inaudible 00:06:00] what deploy means, because it’s not obvious. I want to hear more views. My views… First of all, March 15th, today has been utterly exhausting on many levels. The rate of change, right? I think whether it’s doing portfolio triage or learning to take pitches over Zoom or whatever people are doing, it’s hard as human beings. We can only process so much change, and I feel like we’ve been through three worlds since early March. I think everyone needs some stability, whether it’s good, bad, or ugly or in the middle to survive.
So, I’m just trying to learn. What I personally have seen in my little portfolio and the founders I work with is what I call the COVID beneficiaries. The ones that have accelerated since March. I mean, it’s what you see on the BBP cloud on the left. They’re on fire. They are on fire, the ones that have grown faster and I’ve seen, and I want to get your views on this. I’ve seen the folks that are the ones that are even growing a little bit less fast where you would think a VC should take a bet.
Look, okay, let’s say half your business sells to eCommerce, but 20% sells to live events. Okay. Well, do the math in your head. You should still be growing, but growing more slowly. I see those folks struggling, which maybe isn’t totally logical, but if you’re a COVID beneficiary, it’s like the money is there at least from someone you’ve met. At least from someone you’ve met, the money’s there.

Aileen Lee:
But these are also super… I mean, you were talking about growth stage companies where they’ve got strong product market fit.

Jason Lemkin:
Anyone post-revenue.

Aileen Lee:
Yeah, and they’ve got referenceable customers, they’ve got pipeline, they’ve got funnels. Seed is just a totally different game, right?

Jason Lemkin:
Yes.

Aileen Lee:
But I think, yeah, for … I mean, the cloud index is not even post-revenue. That’s way post-revenue.

Jason Lemkin:
Yes.

Aileen Lee:
And so, they’re just way easier due diligence, I think.

Jason Lemkin:
I want to get your thoughts on this slide on the best of times and the worst of times, but when you say deploying capital, let’s just [inaudible 00:08:00] for a minute. How big is your… I was going to tease on this in a later slide, but how big is your current fund?

Aileen Lee:
95 million.

Jason Lemkin:
Okay, 95 million. And you have two GPs, right?

Aileen Lee:
Mm-hmm (affirmative).

Jason Lemkin:
[crosstalk 00:08:11]. You have two partners and one or two other investing?

Aileen Lee:
Yeah. We’ve got two awesome other people on our team, Amanda and [Jamara 00:08:18]. [crosstalk 00:08:19].

Jason Lemkin:
Okay, but roughly that means you and Ted each have 50 million. It could vary, but it doesn’t really matter. 50 million. How long before COVID were you planning to take to deploy that 50 million? Because, that’s what this deploy means. It means over a timeframe. Right?

Aileen Lee:
Yeah, it’s … I mean, my version of deploys is kind of deploy capital, but kind of deploy yourself as an investor. [crosstalk 00:08:40] So, when you think about there are … Sometimes, on work it’s super intense and then you have a little … You have to take advantage of the lulls, because sometimes it gets super intense, whether you’re an operator or you’re an investor.
Sometimes, when it rains it pours, right? There’s just, you’ve got five really interesting companies in diligence and parallel and you think they’re all potentially things that you could invest in and founders you really want to work with, and there’s times that you’re not really seeing things that you think are going to get there on the other side.
And so, I think probably it will be really intense this fall and in the winter in terms of great ideas, new waves. Now, the one thing we don’t have that’s new is … Some of the waves have been because there have been new platform shifts, because of mobile or because of cloud or because of security or because of a bunch of other stuff. We don’t…
That’s not clear what the next big tech platform shift opportunity is, so I think that will dampen the intensity a little bit, but I think in terms of some investors feel anxious, like “I need to be writing checks all the time” or “I need to be making investments all the time”, I don’t think that’s true.
You got to … Sometimes it’s slow and let it be slow, and then sometimes it’s really fast and really intense and you’ve got a lot going on, and that’s when you make your investments and sign up to work with new folks.

Jason Lemkin:
So, traditionally in normal and good times, there is a sort of very slow-paced pressure as a VC, which is to do X deals a year. There’s many types of pressure. As time goes on, it’s how many unicorns, what’s your multiple, what’s your DPI, but in the earliest it’s just if you don’t do enough investments, you just can’t make money, right?

Aileen Lee:
Yes.

Jason Lemkin:
If you do no investments, you’re toast. So, and if you’re … How many investments do you and Ted each do a year, roughly? What’s the target?

Aileen Lee:
It’s a wide range. We might do six to 12 a year.

Jason Lemkin:
Together as a team, right?

Aileen Lee:
Yeah. Mm-hmm (affirmative).

Jason Lemkin:
So, each of you will do three to six.

Aileen Lee:
Yeah.

Jason Lemkin:
Okay, that’s a classic seed portfolio. And then as you get [crosstalk 00:10:37].

Aileen Lee:
It’s probably actually a slower pace than I think. We’re probably on a three, three and a half year fund cycle where we’ll make our initial investments. Whereas, other funds are maybe on two years.

Jason Lemkin:
Got it. So, that’s why you were less, right?

Aileen Lee:
Yeah. Yeah.

Jason Lemkin:
And then later-

Aileen Lee:
We’re definitely more [crosstalk 00:10:51]-

Jason Lemkin:
… it’s one to two.

Aileen Lee:
… hopefully a quality, not quantity kind of a thing.

Jason Lemkin:
And so, usually what happens… Let’s say I’m working at Cowboy and I’m supposed to do three or four a year. We’re coming up on June and I’ve done none. I start to feel pressure, don’t I?

Aileen Lee:
Yeah.

Jason Lemkin:
Even if no one says it.

Aileen Lee:
Totally.

Jason Lemkin:
Do you think that pressure is going to come back at the end of the year and therefore … When you talk about deployment, do you think folks will want to do a lot of deals in the back half of the year because they’ll feel the pressure to hit their quota?

Aileen Lee:
It’s very possible.

Jason Lemkin:
Okay, so let’s talk about this slide for a minute. And you have a broad exposure. You have exposure to segments that are, I call COVID beneficiaries. You have exposure to segments that probably are heavily impacted, right?
How do I … How you get your arms around the fact that cloud stocks on the left are at an all time high and we almost, and California is one of the worst economies in the Western world? How do I … How are you thinking about this?

Aileen Lee:
I mean, the multiples that folks are trading at right now on the left hand, I don’t totally understand it. I think it’ll be interesting to see, because also the numbers, we don’t have Q2 numbers yet. When Q2 numbers come out, for some folks they may be softer because budgets were not really locked up for most of Q1.
And so, I mean, I think if you are Zoom, obviously, or maybe an infrastructure, you probably won’t see a lot of the budget freezes and the layoffs and your sponsor being laid off. But I think for a lot of vertical SAS, they’ll see impacts when the Q2 numbers come out. And so that may change what this chart looks like maybe in July or August.

Jason Lemkin:
Yep. When you look at Main Street versus the cloud index, what are you excited about today? Are you more excited about eCommerce? I mean, what especially non-obvious things are you more excited about?

Aileen Lee:
Yeah. I mean, I think in a bunch of categories like healthcare and distance learning and infrastructure, this recession, which super sucks for a lot of people, it is going to be an accelerator for tech, because businesses are going to rely on technology and are also going to adopt technology faster.
So, it’s like in healthcare, one of my friends who’s a doctor says she feels like she fell asleep in 2020 and woke up in 2030 in terms of …

Jason Lemkin:
Yeah, I bet.

Aileen Lee:
… the industry’s willingness to adopt technology. Because it’s been a fight and it needs to be adopting technology across the board. And so, but now they have to.

Jason Lemkin:
Yes.

Aileen Lee:
And so, I think for a lot of states and regulatory agencies and businesses that have been pushing back to enable remote work, they’re going to have to change a lot of stuff and that’s going to take … A lot of investment’s going to happen in software. It’s not going to be like …
If the question would be like, “Do you feel like we have too many unicorns?”, we are going to have more unicorns. There’s no question in my mind there’s going to be more in the US and more in China, and then an increasing number in Latin America and in India and other markets that are really huge because this is… We’re in a good sector, tech is only going to get more important and more valuable.

Jason Lemkin:
So even if you feel that multiples on the left are a little aggressive, if you’re bullish on unicorns, having coined the term. If you’re bullish on unicorns, what does that mean overall for seed investing and venture investing? If folks feel good about unicorns, does that mean it should still be easier? There’s room for many, many more startups. What does that mean for a founder?

Aileen Lee:
Wait, hold on a second. I have kids in the background.

Jason Lemkin:
Bring them on.

Aileen Lee:
Thanks.

Jason Lemkin:
Lunch time?

Aileen Lee:
Yeah, exactly. It’s lunch break at school. Wait. What was the question?

Jason Lemkin:
What does it mean… So we’re in these weird times, the cloud shares are at an all time high, NASDAQ’s closed, this crazy recession we’re in, but you’re bullish about unicorns. Right?

Aileen Lee:
Yeah.

Jason Lemkin:
Unicorn generation, how does that inform your thinking in terms of types of investments? Pace, valuations, anything? Does it inform your… Does it change your thinking?

Aileen Lee:
Yeah. No, I mean, I think … Look, I was an AEB investor for 12 years and did some growth too and I switched to seed. Partially, I think, for personal reasons. I think it’s a better fit for me and it’s more fun. I’m really passionate about seed investing. And there are lots of really good folks that we partner with at A and B and C and D, who they’re really good at that, and this is the one thing that we want to focus on. We think it’s also a great category for like, you are getting in at the riskiest time where the valuations are lower, but there’s way more upside. It’s also more collaborative as you know.
I had lots of friends in seed who were co-investing with each other and helping each other build companies. Whereas, at A and B and C, you generally, you can be friends with everyone in BC, but you have to beat all of them to win the A or the B. And then you’re carrying the water with the founders for the next decade as a lead board member, and you don’t get a ton of help from other people. So, I love seed and I’m super excited about it.

Jason Lemkin:
So I want to dig into that next, on the next point. But before we leave this slide, do you have any portfolio companies that have benefited from this time that you didn’t expect? Maybe even Zoom, we didn’t fully expect it would be this big. But are there any that folks could learn from they’re like, “Wow, I’m just kind of surprised that one is a COVID beneficiary.”

Aileen Lee:
Not really a surprise. I guess probably one of the more notable companies that we work with is Guild Education. And I think because a lot of the folks that they work with, they basically help hourly workers who work for big companies like Disney and Walmart get high school diplomas or college educations or get vocational training. And I think because there’ve been a lot of layoffs in hourly workers, I think there could be a question about whether that was going to hurt a company like Guild. But it’s turned out that a lot of enterprises who have furloughed workers are suggesting that people who are furloughed use the time to actually get an education.
It’s also being used as an off-boarding benefit. So like, “We’re really sorry, we have to let you go. But we’re going to help you get on a career path, so you can get this benefit of trying to figure out where you’re going to get your next job.” So there’s been a bunch of things that actually have helped accelerate Guild that I think could have been a question. And obviously just the fact that they built this incredible infrastructure for remote learning is great.

Jason Lemkin:
Yeah. It’s an interesting one because on the one hand, it’s remote learning, right?

Aileen Lee:
Mm-hmm (affirmative).

Jason Lemkin:
And very powerful. On the other hand, it’s a benefit, right?

Aileen Lee:
Yeah.

Jason Lemkin:
You know the company much better than I do. But it’s a benefit, that’s where the budget comes from. That’s why it’s done well. But it’s a benefit, and as soon as folks cut at traditional companies and cut people, you would think the benefits … We’ve seen many folks in the benefits space be exactly linearly impacted.

Aileen Lee:
Totally.

Jason Lemkin:
Linearly impacted with layoffs and it’s natural. Right? It’s like cutting back on rent. We’ll cut back on benefits.

Aileen Lee:
Totally. Totally. So that was the one, it was like, “Uh-Oh.” But so far it’s going great.

Jason Lemkin:
That is interesting. What’s your gut? What percent of startups you think are COVID beneficiaries? Have you looked at it? Do you have a sense? What do you think?

Aileen Lee:
I think, unfortunately, it’s a pretty small, it’s a small percentage.

Jason Lemkin:
Yeah. [crosstalk] percent are benefiting.

Aileen Lee:
I’d say 10 to 15. I don’t think it’s …

Jason Lemkin:
10 to 15?

Aileen Lee:
Yeah. What do you think?

Jason Lemkin:
I made up a number just based on a very limited data set. I think it’s, in SaaS, in cloud, if you define it that way, I think it’s about 15 to 20%.

Aileen Lee:
Yeah.

Jason Lemkin:
And it’s more of the folks on the left than we would have thought, which maybe there’s some learning from that. We missed it. We knew Slack would benefit, but actually Atlassian’s benefited much more than Slack. Did we know bill.com would benefit as much as Zoom? I don’t know. If you didn’t analyze its business model, you would think that intuitively. Right?

Aileen Lee:
Yeah.

Jason Lemkin:
But I feel the question, and let’s maybe transition to that. Let’s assume it’s 10 or 15 or 15 or 20, it’s a big delta. But you’re not saying it’s single digits, right?

Aileen Lee:
No.

Jason Lemkin:
For the rest of the year, or at least for the next quarter too, would you only invest in COVID beneficiaries or would you invest in folks in heavily impacted industries? Like how you thinking about that?

Aileen Lee:
It’s a spectrum. I don’t think I’m going to be going to try and find a lot of travel startups right now. But I do think … we’re investors in a company called Homebase that basically sells SaaS for small-medium size businesses to do hourly work management. Like scheduling shifts, paying folks, giving them cash advances, communicating with the manager. Obviously, the majority of the people who they were managing the shifts and the payments for who were working in February, they were not working in March or in April.
But when businesses reopen, I think they are going to rely on technology more than ever before. Some of the older businesses that were a little hesitant about technology, they may not reopen. And the people who start businesses in the next generation are going to be like, “I need a full stack of modern software to run my business, so it’s flexible and it’s nimble and I have good transparency and I can do it from anywhere.” And so they will adopt things like Homebase at a faster rate than businesses that have been around for 30 years. And so I think if you time it right, I mean, you can basically ride the wave of all these businesses reopening.

Jason Lemkin:
For your existing portfolio and new investments, can you model that? I mean, you have to have at least have a position, right?

Aileen Lee:
Yeah.

Jason Lemkin:
Is it six months? 12 months? They just announced today, Disney World’s going to start to reopen.

Aileen Lee:
Wow.

Jason Lemkin:
When will Homebase get back-

Aileen Lee:
When is it going to reopen? Is it going to be like six feet apart and every other? Like on the rollercoaster.

Jason Lemkin:
July. Yeah. They’re going to adopt the Shanghai processes. Attendance will be half. You can’t hug a prince or a princess and you have to get reservations.

Aileen Lee:
Is the price going to be double?

Jason Lemkin:
Well, that’s a question for a lot of things down the road. If the price doesn’t double, I mean, that’s a restaurant question too, right?

Aileen Lee:
Yeah.

Jason Lemkin:
I mean, if prices double, it all works. And obviously Disney can carry a business for a little while. Those are some of the scarier questions for our economy. Is can we adapt to things? Can we adapt to Coachella when we’re 20 feet apart? I mean, I don’t know. I don’t know if Coachella $4,000 a ticket works, does it?

Aileen Lee:
No, but also it was funny. I was in San Mateo County. I think they had a rule that some camps can open, but they have to, you have to sign up for four weeks at a time because they don’t want kids in and out. But it’s like that really disadvantages people who cannot afford four weeks of camp.

Jason Lemkin:
Oh yeah.

Aileen Lee:
It’s not good. Yeah. There’s a lot of challenges.

Jason Lemkin:
A lot of challenges. A lot. And I think a lot of, probably beyond the scope of what can we get into today, but a lot of these flattening things you might… and we can talk about it in deal flow. You might think some flattening helps less advantaged, but I don’t know. Do you think pitching over Zoom helps outsiders more? Do you think it helps the founder that didn’t go to Stanford and didn’t go to YC? Or is it maybe not help as much as you think pitching?

Aileen Lee:
I am hopeful. I mean, I think there’s two things, there’s the pitching, but there’s also, where’s the company going to be based? That’s all up in the air now. So before, I mean, look, when I was at Kleiner, I spent a year spending a lot of time in New York, there was a lot of stuff going on in New York. And when I came back and I was like, “Hey, I found all these cool companies like Mongo and Warby and Stack Overflow.”
And some partners were like, “Why are you wasting your time? No big companies are ever going to be built outside the Bay Area. We clearly didn’t teach you well.” And same thing with HomeAway actually, it was the same thing. It’s like, “Why are you wasting your time?” And so things have changed a lot in the past 10 years, but I am hopeful that I was just on the phone with one of the CEOs we work with today, who is in New York and they’re moving to Denver. I think over the summer, people are going to be moving all over the place and trying to figure out how to run remote or partially distributed or clustered companies. And I think that will advantage founders who are in different places and are not on the coast.

Jason Lemkin:
I think it started like last week.

Aileen Lee:
You think so.

Jason Lemkin:
I think that folks that live in San Francisco, founders and executives that live a crummy lifestyle in San Francisco, in gross parts of the city that have sacrificed that maybe even have families, that have sacrificed a lot, are looking around. Like several conversations I’ve had with looking around, like, “What is the point of being in San Francisco today? I cannot visit Salesforce. I can not visit Twilio. I cannot visit a customer. And I have a baby and a husband or a wife or significant of living in not just a small apartment, but a gross part. I’ve traded off so much.” And I three people I know packed up the minivan and left.

Aileen Lee:
Totally. I agree. Like we had another CEO that we worked with, they packed up their car and they rented an apartment, or a house on a Lake in South Carolina. They had never been there before. They’d never been to the town and they just drove there and they lived there for the past month and a half. And he’s been so much more productive and so much happier. There’s a whole nother thing we won’t get into around mental health and all. Especially if you’re by yourself in a small apartment, it’s not happy making.

Jason Lemkin:
Yep. And how do you think, like, let’s just, maybe this is a, not a good example, but when you invested in Guild, they were based in Denver, right?

Aileen Lee:
No they’re based in Palo Alto.

Jason Lemkin:
Oh, I thought it was based in Denver.

Aileen Lee:
They moved to Denver. It’s funny because Rachel came to us and said like, :Hey, I know we just had a meeting and we discussed, we need to hire a VP of engineering and a VP of product and a VP of marketing. But we also want to move the company in Denver.”
And we were like, “What? How are we going to find those people in Denver?”
And she was like, “Trust me. There are some really good companies there. And some tech like Facebook and Gusto are opening offices. It’s a great place to live. I think I can get people from the east coast and the West coast to move to Denver. Because if you want to have family or if you want to buy a house, you want to send your kids to public school. It’s a great place. And I want to build a company where people can have a family and have a good home life and have a great job.”
And I’m so glad that we were like, “Okay, do it.” Because it was a really smart move in probably three or four years ahead of her time.

Jason Lemkin:
Yeah, it was. So she’s built a unicorn now. And let’s compare today. I mean, you had no choice, but did you have reservations? Did you try to talk her out of it?

Aileen Lee:
Oh, definitely. I didn’t try to talk. But I was like, “Are you sure?” But I mean, I think it gets a lot of the stuff on a slide. Which is we are seed, I would say half the time that we invest, they haven’t built a product yet. There’s no technology, they need money to actually build software. And then half the time they’ve built like some MVP we do about, we’re probably 75% enterprise, 25% consumer, we’re generalists. We usually invest between 500 K to one and a half million. We like to co-leader co-anchor seed rounds and we almost always co-invest with other folks, angels and institutional seed folks like yourself.
And so at Guild, they had basically had an idea for kind of reboot your career boot camps. And they came up with a three hour bootcamp and they posted it on Craigslist. And they rented strip mall, vacant space and they were holding these free three-hour boot camps. And then they were texting the people afterwards asking for. And then they charged 40 bucks and then 80 bucks. But that’s basically what they had when we invested. And so it doesn’t have to be perfect at seed.

Jason Lemkin:
And so I want to make sure we hit the bullets on this slide, but so today let’s fast forward today. So, four years ago when Rachel said, “We’re moving to Denver to build my management.” And now that I understand kind of how raw the vision was in the beginning, I get it. Because it wasn’t technology heavy in the beginning, that’s for sure. So I get it. But today, how are you feeling about not just New York or Denver, how are you feeling about Baton Rouge or Sioux Falls or Tampa? How does that strike you today for new deals? And what would you advise founders that are thinking about leaving the Bay area now?

Aileen Lee:
Yeah. I mean, it’s a better time than ever to both, to start a company in a different part of the United States. People are going to have to be way more purposeful around culture building and about communication. Because it’s still been a rarity to build a really successful scaled company without having formative team members live and work in the same place and be next to each other. A lot of times we recommend for portfolio companies that are opening up second or third office, it’s like you have people all in the headquarters and then you send out people who really understand the culture and how to have a lot of internal credibility and they start the new offices.
In some cases, I’m really curious as like, founders may start companies they’ve never been in the same office when they start the company. When we hear pitches this fall, we’re probably going to hear people who have not seen each other. But SVT Robotics is a company that is based in Virginia, Virginia Beach, actually. And it’s kind of like MuleSoft for warehouse robotics for integrating. If you’ve got a third party robotic arm and you want to integrate it with your conveyor belt or your WMS, you’ll use SVT instead of writing custom code. The founders know warehouses and they know warehouse automation really well. And they’ve lived in Ohio and Pennsylvania and Virginia, and all the places where warehouses are. And we’re super psyched to be investors in that company. And we’d love to find more like them.

Jason Lemkin:
Those are all really interesting examples. Today if you met with a startup and you’re doing seed, so it’s early, but it’s the kind of company that clearly could benefit in a year or two from some Salesforce alums or Box alums or Twilio alums. They’re doing a classic playbook and they want to move to Arkansas or Ohio or Bismarck, is that a no in this flattened world, in this distributed world? Do you think you can get VPs to join a company, Bay Area style VPs, to join nonbearing companies in 2020? Do you think that’ll change?

Aileen Lee:
I think we can do it. It’s funny at Textio, another company that I work with, which is based in Seattle, we tried hard to make the whole team Seattle-based and when we were doing our head of revenue search, we said like, “Maybe we should open it up and look at people who are not based in Seattle.” And we found a great person who’s based in the Bay area. I mean, at the time we had a deal where he was going to spend a week or two in Seattle, a month and then a week or two at home or on the road.
And so we’re fortunate that we had that time together before we wanted to go into shelter in place, but it works. And he’s a huge part of the team and they’re making it work. So I think we’re all learning fortunately or we have been learning over the past couple of years how to make kind of commuter style jobs work and distributed team work which is a good warmup for the next three years we’re about to live through.

Jason Lemkin:
Yeah. Yeah. I think especially for B2B in the next couple of months to watch is can we flatten management teams? Not just the Gitlabs and the Zapier’s, but can bury a type executive, whether they’re based in the Bay area literally or in New York. But folks that come out of the traditional folks where we poach… I mean, once you scale, you want to hire someone to set up [inaudible 00:31:06]. You really do. I mean, everyone that runs Salesforce today came from Oracle and everyone that runs Twilio came from Salesforce. There’s a reason. And if folks in Virginia Beach or wherever it is can hire these folks now is easily, it changes everything. Doesn’t it?

Aileen Lee:
Well, I mean, like internally at Cowboy every other week, we have scenario planning time where we just kind of think about like, “Okay, what if this is 24 months? What if this is 36 months? What if nobody can get on a plane until summer of 2021 the earliest?” From a sales perspective, how is that going to change sales? How’s that going to change marketing? The fact that a lot of our portfolio comes in enterprise, they got a lot of sales done or relationship building done around conferences whether it’s-

Jason Lemkin:
Up in 40%, it turns out yeah. Like 40%.

Aileen Lee:
Like HR Tech Yukon, whatever it is. You may not have been spending a lot of money getting a booth, but like you were hosting dinners, you were meeting up with people and when that doesn’t happen, how is that going to change sales?
I think maybe that’s going to be better for startups because having a lot of money to buy people expensive dinners is not going to be as important and it sounds like COVID has for at least in the folks that we’ve been talking to the past couple of weeks, it’s now a common bond. You make small talk over Zoom for five or 10 minutes about like what’s been hard or how the family time’s been good or whatever, then you get right into the sale process. And the customer on the other end is like, “This sounds really good. I need this. Let’s do it.” And so in some ways, it’s like more efficient, but we’re staying really close to it.

Jason Lemkin:
Yeah. For what it’s worth. And I want to talk about how you’re sourcing deals now. But my personal view just for the conversation is I actually think this selling over Zoom at least for now, is substantially benefiting folks with brands because if I don’t know you yet, and I can actually meet the CEO and I’m meeting [inaudible 00:33:08] over Zoom, don’t get me wrong, but we’re all taking more vendor risks. We’re taking more investment risks. More risks just has to be taken in the shelter world. And it’s comforting to know it’s BOXX. It’s comforting to know that well it’s a unicorn now.
Maybe Gild isn’t as great as Schmild or whatever. I don’t know, but if there’s risks during discovery, maybe I don’t want to take risk today. Now if you’re the only vendor in the space, it’s different, if you’re the notion or tandem, but I wonder if one of the reasons these cloud stocks are going to keep growing is because, “I’ll just stick with JIRA.”

Aileen Lee:
I kind of worry a little bit about whether we’ll move into this like nobody ever got fired for buying IBM for buying certain brands. And I do think like if you are a seed stage founder who is listening to this right now, or you’re pre-seed, or if you’re not a brand, it’s going to be hard to make new sales I think in the next two or three quarters at a minimum.
So being willing to give your product away for free or like changing the packaging so that it’s virtually free for the next six months, and then people pay for it, but getting people to use it and showing that it’s super valuable. And so that when people have budgets again, they’ll buy it. They’ll pay for it and that’s referenceable. I think for a lot of seed stage companies that’s the thing to do because it’s really hard to get new budget, even if you’re an existing brand, but as a new brand, it’s even harder.

Jason Lemkin:
It is harder. Yeah. It is a fun topic we could dig into, but we can if you want. But tell me on this. First, I want to talk about how you find deals and how founders can pitch you. But just the micro topic, say in today’s world, I know you’re slowing down a little bit to learn, but how you’re feeling about being pitched on Zoom? What’s your personal view of not meeting in real life? What’s your [inaudible 00:35:00] one to 10?

Aileen Lee:
I think it’s a bummer on both sides, right? I mean, the benefit is things have been so hot that the velocity of decision making and relationship building was I think untenable. Founders were optimizing for getting it done fast. And I think in many cases, they weren’t really getting to know the people that they were getting married to and who were… Because once you get people on your cap table, you can not get them off.

Jason Lemkin:
Never.

Aileen Lee:
So I was really bummed about how fast the process was happening, where we weren’t really having a chance to get to know people, and they weren’t really getting to know who they were taking out to their cab table. So I think this will actually be better in terms of giving people…
Then we were thinking about, when we moved in shelter in place, “Okay, how are we going to get to know people?” We already had a diligence process, but in marketing, in old fashion marketing, I don’t know if you remember the four P’s? There was price, place, promotion, and product.

Jason Lemkin:
Mm-hmm (affirmative).

Aileen Lee:
Right? So I was thinking about, “Okay, we have our own four P’s that we generally try and figure out.” So our four P’s are people, product, potential, and plan.

Jason Lemkin:
Okay.

Aileen Lee:
So we’ll say to someone, if we kind of have a first meeting and we think it’s interesting and they like us, we’ll be like, “Okay, we have this thing, we’re not going to probably get to meet face to face. So we want to get to know you over a course of meetings and maybe some of them will be dinners,” or something like that. Where we’re like, “We want to get to know the people, where you came from, what you’ve done before, what you’ve learned, what you think of your strengths and weaknesses, your self awareness, where you want to be complimented, what kind of a team you want to build.”
Then on the product, obviously really understanding both, what’s their vision for the product? Competitive landscape, differentiation, how much better it is, the potential. What could this become? Right? Both how big is the market? And if we’re really successful, what are we building? Then the plan.
How much do you want to raise? Valuation range, what are we going to get done during the seed period? Who do you need to hire? All that stuff. So basically just going through those four things is our way of getting to know each other. I think that that’s probably going to be the way we do it first of the year.

Jason Lemkin:
So more time can balance out the lack of the ability to schmooze in person?

Aileen Lee:
Yeah. I think it might, in a way, be better. I mean, obviously in person’s better, but I think a slowing, and I’m also think the velocity and optimizing for speed and just low overhead check… I think there are plenty of founders who will tell other founders that that was a mistake. I think this downturn is hopefully going to give people pause around a lot of… There’s going to be a lot of shitty ups and downs. I want to be careful about who’s going to be helpful to me in a time of a lot of uncertainty.

Jason Lemkin:
Yeah. This morning, the first speaker, I don’t know if you know, Krzysztof Jans from Point Nine Capital?

Aileen Lee:
Hold on one second. Sorry. I just told the kids to go to the other room.

Jason Lemkin:
Oh no, we’re in the lunch session. I don’t know if you know Krzysztof Jans from Point Nine?

Aileen Lee:
I don’t.

Jason Lemkin:
He’s great. His first angel investment, he was the first angel into Zendesk, after he was a CEO. Then he started doing SAS really in the beginning, and we kind of became SAS content buddies before we co-invested.
He’s done half his investments remote since then, because he’s in Berlin. So he couldn’t always get on a plane and pop up for an angel or seed deal. His advice, he had a great… Because he is a veteran, although none of us foresaw shelter, but his point was it’s like anything in sales, but make it easier. So his point was, have the best diligence together, have the references built, do a video, have the best email pitch, if you weren’t going to build the deal room, build the deal room. If folks need more time, bake it in, and just turbocharge the amount of disclosure and transparency you would have to make up for the kind of informal type decisions people are making in those high velocity advice.

Aileen Lee:
Yep. Good. I like it.

Jason Lemkin:
Okay. On this, so just to folks that understand, how do you find… Just some insider stuff to help folks learn. How do you find deals and how do founders pitch you?

Aileen Lee:
Yep.

Jason Lemkin:
Maybe a few case studies from some last deals. How did they find you? How do you discover [crosstalk 00:39:35].

Aileen Lee:
Yep. We get a ton of referrals from angels, from co-investors who we want to work with, from founders, from folks that we know. I think Ted and I, I’ve been doing this for 20 years. Ted’s been in tech for 20 years too.

Jason Lemkin:
Yes.

Aileen Lee:
So we like to say, “Hopefully when you work with us, you’re going to get really experienced, thoughtful, patient, supportive advice, with a huge Rolodex.”

Jason Lemkin:
Yep.

Aileen Lee:
So we get a lot. But also, you and I are both super passionate about using our privilege to try and make tech more equitable and less bro-tastic. So, I’ve been told that the need for the warm intro really disadvantages a lot of people. So we read all of our inbounds. So you can email hello@cowboy.vc. Someone will read it and if it’s a potentially a fit, we will get back to you. You don’t have to get referred to pitch us.

Jason Lemkin:
So let’s break that down for just a second. So if you had a pie chart, number one source of deals, you do is [crosstalk 00:40:39].

Aileen Lee:
Referrals.

Jason Lemkin:
Warm referrals, right?

Aileen Lee:
Yep.

Jason Lemkin:
For better, mostly for better, but for better or worse. Right? They do have some bias and issues associated with them. But the inbound. So the inbound is… Sorry, it’s hello@cowboyventures.com?

Aileen Lee:
Hello@cowboy.vc.

Jason Lemkin:
cowboy.vc.

Aileen Lee:
Yep.

Jason Lemkin:
I got to get this one right, folks.

Aileen Lee:
Yep.

Jason Lemkin:
We’ll layer it on top of the YouTube.

Aileen Lee:
Thank you.

Jason Lemkin:
Hello… Well, it’s probably on the website too. Right?

Aileen Lee:
It is. hello@cowboy.vc.

Jason Lemkin:
If that email is good, if it’s good… If it’s, “Dear cowboy, we’re the team that built the top product at Square. We’re pre-revenue, but we have 10 beta customers. All of them said we’re changing the way finance works. Here’s where we come from. Here’s who we know, here’s our friends.” What are the odds that email gets read and how seriously… I’m just making my…

Aileen Lee:
Well, it’s 100% going to get read.

Jason Lemkin:
100. So let’s [crosstalk 00:41:34].

Aileen Lee:
100% going to get read. Yes.

Jason Lemkin:
Right? I can’t find you. I can’t track you down. I met you at a conference, but that email is going to… This is things founders don’t get, that great email is going to get read isn’t it?

Aileen Lee:
Even a crappy email is going to get read.

Jason Lemkin:
Even a crappy email is going to get read.

Aileen Lee:
Even, “Dear Sir,” gets read.

Jason Lemkin:
Okay. But the good one, if you liked what I just wrote, right? What are the odds someone’s going to read a deck that’s attached? And what are the odds I’m going to get at least a Zoom?

Aileen Lee:
I mean, that email you described is probably a 100% going to get read.

Jason Lemkin:
100% getting read. Yep.

Aileen Lee:
And 95% going to get a, “Hey, let’s have a meeting,” or, “Let’s set up a call.”

Jason Lemkin:
Yeah.

Aileen Lee:
Yeah.

Jason Lemkin:
What percent of emails that come to hello@cowboy.vc are great like that? What percent of these emails are great?

Aileen Lee:
Not that many. I would say we only invest in the US.

Jason Lemkin:
Yeah.

Aileen Lee:
We get some from different countries, and unfortunately we just don’t invest outside the US. But when I was at Kleiner, this is before email was really how we got most pitches, people would mail business plans and pitch decks and the EAs would put them in folders and just put them into giant L.L. Bean bags and just drop them off at my office and I would go home every night and basically order Chinese food and read business plans every night.

Jason Lemkin:
You were like a script reader.

Aileen Lee:
I was single and my girlfriends were making fun. They were like, “Should we buy you cats nor or later?” Because basically my life was just reading business plans. But the business plan for Bloom Energy was a cold inbound from a professor of space technologies at University of Arizona and at the time we had heard about fuel cells and we knew that there was different kinds of fuel cells and we were kind of getting interested in alternative energy and green, and he seemed interesting and so I wrote him and I was like, “Hey, I got your business plan. Do you want to do a call?” Bloom is a public company now and it was a cold inbound.

Jason Lemkin:
Cold inbound. Let’s just finish this because I think this is … It’s not perfect but it does flatten a bit. These emails are going to get read [crosstalk 00:43:44] and you don’t need-

Aileen Lee:
Are you really surprised by this? You sound surprised.

Jason Lemkin:
No, no, no. I’m not surprised. I think founders are surprised and I want to talk about how to hack it because so much of the advice you get on the internet … The fact that warm referrals are your number one source and that a great cold email will get read just seems inconsistent to people, right? I’m happy to share some personal stories. I even published two cold emails that I funded, one of which crossed 100X last… It’s the best made. It’s 100X on a double digit ownership, cold email, and it was an outsider.
There are advantages to being an outsider. You don’t know. You don’t do as much diligence. You don’t have to have gone to Stanford and have done the perfect thing, but I think founders are surprised that investors are so busy. They’ll see you on social media, they’ll see you traveling, they’ll see that you have 20 portfolio companies, and they’ll be like, “How could I get Cowboy’s attention?”
But the reality is there’s only so many great deals a year, and it’s sales for founders and it’s sales for VCs and if the pitch is amazing, the cold email works. Email is profound, and yet people don’t spend enough time on it. They ask you for coffee. “I saw your [crosstalk 00:45:01] on stage. Can we get together some time and talk?” What are the odds you’re going to get coffee?

Aileen Lee:
Right. Yeah, too much coffee.

Jason Lemkin:
Too much coffee, right?

Aileen Lee:
Yeah, or can I pick your brain? That’s one of my-

Jason Lemkin:
Can I pick your brain?”

Aileen Lee:
I do not like that.

Jason Lemkin:
“I have an idea. Can I pick your brain?” Right?

Aileen Lee:
Yeah.

Jason Lemkin:
I think the best founders figure that out but the earlier stage it is, the less they figure it out, right? The less they know, and I think if you write the world’s best email, and it has to be real … It can’t be imaginary but if you even have some hints of excellence, it’s going to get read, isn’t it?

Aileen Lee:
Yeah, yeah. But I do think for years I was kind of fighting the “will read everything” just because I felt like it was the mark of a good founder that knows how to hustle and is a relationship builder and is a talent magnet, that a good founder knows how to somehow get it started. Cold email someone, you, and be like, “Hey Jason, I really admire you. I like this thing that you wrote. I’d love to talk to you about this thing,” and then they didn’t know you but also now you know them and then you introduce them to someone and they introduce you, and then before you know it, the person’s kind of kick started a network of relationships that can be helpful to her or him. And I do think that’s a really valuable skill.
So for years I was like, “Well, if a founder can’t figure out how to get some credible person with some venture capital universe, some founder cred, someone who’s the VP of engineering at a decent company or someone who’s a product manager at a decent company who knows a venture capitalist, maybe it’s going to be harder for them to recruit people or sell customers.” But I’ve kind of let go of that because I think a seed is a really raw stage and I’ve seen founders change over the course of 10 years from where they start to hopefully being a unicorn founder that’s managing thousands of people, and people change.

Jason Lemkin:
Yeah, I used to think that. I used to think… I came up with a simple bar which is a founder that was better than me with more going for them can build a unicorn. And so I felt like if you couldn’t penetrate, if you couldn’t be that aggressive founder that found their way through the door literally by email, physically showing up to Cowboy, whatever it is, if you weren’t that person, you weren’t aggressive enough to build something big. And what I’ve still done, anyone that wants to talk to me, if they want to talk to me about community or SaaStr in general, there’s a million ways to reach me. If they want to reach me about investing, I used to always say, “Well, find my email.” “If you can’t find my email somewhere …” “Then what’s your email, Jason?” “No. How are you going to sell Procter & Gamble or Google if you can’t figure out a prospect’s email?”

Aileen Lee:
Yeah, and it’s also in a way… If you’re in a consumer space, you can be an introvert and just an awesome product person especially if your product has network affects. You can not be able to talk and you can build a huge company. In the enterprise space, I think it’s a little more important that you can talk.

Jason Lemkin:
I think it is. I will say, for what it’s worth, I don’t… Like you said you read more of the emails today. I realize that while that is … It’s too tight a noose. It’s too much of a forcing function. There are other ways to build traction. You can build an incredibly developer-centric product and [crosstalk 00:48:13].

Aileen Lee:
Totally. Exactly, yeah, yes.

Jason Lemkin:
Even if you’re not good at things. And so if you require that almost alpha-esque, put your boot through the door, there’s a lot of privilege and other issues, but you’re also going to miss people, I think [crosstalk 00:48:26].

Aileen Lee:
Totally. I think that’s totally true. I have so many lessons learned about companies that I’ve passed on that I shouldn’t have, but I’ve learned that early on in the process I have to figure out … Or just ask the person if they are more of an extrovert or an introvert.

Jason Lemkin:
It’s a good question, right?

Aileen Lee:
And if they’re an introvert we have a different conversation.

Jason Lemkin:
Yep. All right, we’re going to run out of time [crosstalk 00:48:48].

Aileen Lee:
I know, we have so many questions and we could chat for a long time.

Jason Lemkin:
No, I know. We can do them later if you have the energy but let me just pick a couple because some are tactical. This one’s super tactical but I think it is actually helpful. One attendee asked, “Who would you look for for references?” Talk just a minute about references. What if you don’t have great references? Is that a gating item for folks that come out of nowhere? How important are… especially if yours are funky?

Aileen Lee:
I think it’s important, especially now, like you said. That it’s people that you’ve worked with or worked for, people who’ve worked for you, people who’ve been your boss. We recently did diligence on a company and the founder gave us references and gave us their friends. That was not helpful.

Jason Lemkin:
I used to think that was a no. A close to a no, like such a fail, but I don’t know today.

Aileen Lee:
We’re very … I think as a person, like an immigrant person who has in many ways been underestimated in many different ways in different situations, I have a lot of empathy for being underestimated for giving people chances. And at series B, you got to know this shit. But like at seed, if you never raised money before, sometimes there’s stuff that someone tells you and then you were like, “Oh duh. Yeah, I get it.” And then they move on. So it’s not a no for me, but yeah. I was like, “Hey, don’t give me your friends. I don’t really want to know what your friends think of you. I want to know what you’re like to work with.”

Jason Lemkin:
Yeah. This one’s interesting because it’s not necessarily obvious. This says when you invest seed or pre-seed, what do you expect MRR will be in three to six months? It’s actually not a silly question because you’re not the only VC. You’re betting that someone in the next 12 to 24 months is going to write a check at two to five times the price you did. So what does that have to mean in terms of the window in which you can invest in terms of growth?

Aileen Lee:
Especially right now, that is a really tricky one, right? Because let’s say if you’re going to… We’re basically recommending, in March, we recommend to all of our portfolio companies to basically plan. Come up with a bunch of plans, so that ideally you have money to get you into ’22. 2022.
So either raise money right away, or you’re going to do some cuts because assume that Q2, Q3, Q4 are going to be really hard for new sales and that maybe things will pick up in Q1, but maybe not. Maybe they won’t pick up until Q3 next year. And so you’re going to be going out to raise your A if your seed unpotentially not a lot of revenue growth, especially if you have to go out in the first half of 2021.
And so I think depending on what the product is that you’re selling and what business you’re in, are there other metrics that you can show around customer engagement and customer use or value or, because otherwise you’re going to be competing against people who are starting from scratch in March or in June who are like, “I have no traction, but I just started this thing.”

Jason Lemkin:
That’s a tough thing, right?

Aileen Lee:
Yeah.

Jason Lemkin:
It’s like folks graduating from college this year. It may be a lost generation compared to next year.

Aileen Lee:
Well, I hope not.

Jason Lemkin:
What?

Aileen Lee:
I hope not.

Jason Lemkin:
Well I know, but this may be a year where they don’t get to go through traditional recruiting processes and are impacted. And you’re like, “Well, there’s next year.” But by next year, there’s another-

Aileen Lee:
Yeah. They’re going to be-

Jason Lemkin:
… 50,000 seniors graduating from great colleges and you’re in this weird phase.

Aileen Lee:
Yeah. And the other thing we didn’t get to, I know it was one of your questions was just, there’s so many funds and this is, and that there are multi-stage funds, right? When you look at venture capital, there’s a whole thing going on about how many funds are and how many seed funds there are.
But the other thing that we, I feel like we don’t talk about enough is how many gigantic funds there are and how much of the money is in multi-stage funds that each fund is bigger than $500 million. And so how that changes the ecosystem in terms of when you put someone on your cap table, like we co-invest with multi-stage funds all the time and we partner with them all the time, but you have to be really savvy about when you do take one of those folks on or multiples of them onto your cap table and onto your board it’s a different ball game in terms of their incentives and their portfolios and the size checks they want to write and versus like us simple seed people.

Jason Lemkin:
Yeah. I think for each big fund on the cap table, you need to create $1 to $2 billion in exit value. So once you have four or five of those big names, you’re con is committing to a decacorn.

Aileen Lee:
Yeah, exactly. And that reality is like, I mean, Thomas Jeung has published a thing recently about, I think you’re 26 times more likely to be acquired than to go public, and so the reality is I mean, people can joke about how many unicorns there are, but it’s still extremely hard to build a billion dollar company.

Jason Lemkin:
It is. I keep waiting for your tech crunch article number three.

Aileen Lee:
Are you there?

Jason Lemkin:
I don’t think you put the third one, did you?

Aileen Lee:
I haven’t no. Actually it’s funny because I have, now that we have a little bit more time at home, I’ve gotten back to it actually to kind of get up to speed on the new set and to try and learn where they came from and all that stuff and how it’s different than the original set.

Jason Lemkin:
I think it’s time. I mean, I think-

Aileen Lee:
Oh, thank you. I’m working on it. I’m a really slow writer.

Jason Lemkin:
The first one was like… This is probably the last thing we’ll have to chat about, so maybe it’s a little off topic, but I think it’s helpful. I think the first one was one of the best pieces of venture content marketing ever, right? Which was probably part of the goal. Right?

Aileen Lee:
No, it was completely an accident.

Jason Lemkin:
It was an accident?

Aileen Lee:
Totally. I did not think anyone was going to read it at all.

Jason Lemkin:
Really?

Aileen Lee:
Oh my God.

Jason Lemkin:
Oh, wow.

Aileen Lee:
I worked on it for months just for myself just because I had this new fund-

Jason Lemkin:
Months? Months?

Aileen Lee:
Months. Because I-

Jason Lemkin:
No one had ever assembled that type of data, but now there’s analysts and everyone’s firm does it, but no one had ever seen that whenever the first one was, 2014 or something like that.

Aileen Lee:
2013. Yeah. I did it for myself just because I had this new fund and I was like, “What should I invest in?” If I had to do an analysis of the most successful companies of the past decade, what would they have in common, so I could try and look for those for the next set. And then there was all this stuff that came out of it. I was like, “Oh, actually I think this would be useful for founders and for investors for a bunch of different reasons.”
And so I published it, but I gave it to some friends to read it. I actually was on the way back from the lobby conference and I gave it to a couple of people on the plane to read it. I was like, “Hey, I’m thinking about publishing this blog post, what do you think?”
And they were like, “It’s okay.” Nobody even said like, “Wow, this is really great.” Or like, “This is going to become a thing.” And so it was a big surprise.

Jason Lemkin:
Yeah, the second one was great because it had even more data.

Aileen Lee:
Actually to bring it full circle, when I published it, I was at Disney World, I was at Disneyland with my family, the day that it went up, the Saturday morning it went up and so I’m on line for rides and I was like, “Jason,” my husband’s name is Jason. I was like, “Oh my God, people are liking this and sharing this. This is so crazy.” And he’s like, “Hey, we’re at Disneyland. Focus.” And I’m like, “You don’t understand. People are actually reading this thing.”

Jason Lemkin:
It’s funny, speak from… I mean, it’s the great lesson of all writing, speak for what you’re passionate about. You’re passionate about it because you had to learn how to deploy the fund. So this was your homework and you forced yourself to distill all that work into an article because it was your investment thesis. This was your investment thesis. A piece of it, right?

Aileen Lee:
And also, I mean our industry is huge, right? It manages almost like $500 billion and there was so little data or analysis on our industry. No transparency of… I mean, there’s not even… In universities, there’s no professor on the history of technology who studies the history of the technology business and all the forks in the road of companies, like if you did A instead of B, what happened to the company? I just think it’s fascinating.

Jason Lemkin:
It is. All right. We’re out of time. I’d like to do all these questions.

Aileen Lee:
I know. Sorry.

Jason Lemkin:
Maybe if you’re bored someday, let me know. We’ll do it again on Zoom and answer them together.

Aileen Lee:
Okay. That’d be fine.

Jason Lemkin:
I have time. But I’m looking forward to-

Aileen Lee:
But I always really enjoy chatting with you.

Jason Lemkin:
… the third piece.

Aileen Lee:
Okay.

Jason Lemkin:
I want the third article on TechCrunch. It’s okay if it takes a while. I’ve been waiting for a few years so that’s-

Aileen Lee:
Oh, you’re so nice. Thank you.

Jason Lemkin:
All right. Aileen, thank you for doing this. This was great and we’ll talk to you soon.

Aileen Lee:
Thanks everybody.

The post Seed Investing Today: What’s Changed, What Hasn’t with Aileen Lee and Jason Lemkin (Video + Transcript) appeared first on SaaStr.

Sales and GTM in Uncertain Times with Adnan Chaudhry and Matt Garratt (Video + Transcript)


This post is by Team SaaStr from SaaStr

Leveraging survey data from 66+ enterprise SaaS companies, Matt Garratt, Managing Partner of Salesforce Ventures shares the landscape of how businesses are shifting their sales & GTM strategies to react to today’s uncertain times. Adnan Chaudhry, SVP of Sales at Salesforce then provides actionable takeaways on how to refocus your sales teams, engage with customers, adjust your sales comp, and how you can properly forecast in today’s new landscape.

Adnan Chaudhry | SVP of Sales @ Salesforce

Matt Garratt | Managing Partner @ Salesforce Ventures

 

Matt Garratt:
All of our mid-market business and we are going to be talking about how our portfolio companies and how Salesforce ventures, and how Salesforce is shifting our go to market strategies during these very uncertain times and really excited to have Adnan here, one of the best sales leaders I’ve ever had the privilege of working with. And also he works with many of the leading tech companies so he has a really good perspective of what is going on in the market. And he also has the, I don’t know, benefit or dubious distinction, but lived through this before in 2008 and 2009. So a lot of lessons that can be taken from there as well.

Adnan Chaudhry:
Thanks, Matt. Good to be here.

Matt Garratt:
Next slide. Oh, sorry. Adnan, you have feedback. There we go. All right. So everyone is adjusting their go to market strategy. And I think adjusting really is the operative word here. It seems for the first few days, everyone was adjusting day to day. And now it seems more week to week and initial reactions certainly were one of shock, just trying to figure out what’s going on, checking in with their employees, making sure everyone’s safe, making sure everyone’s healthy and checking in with customers and doing the same. And seems we’re headed more into a bit of an adjustment period of trying to stabilize trying to establish a new normal, and so we’re going to talk about what that means in a bit more depth.

Matt Garratt:
Go to the next slide. So we’re going to talk about this in two parts. I’m going to first talk about some of the insights that we’ve gotten from serving Salesforce Ventures portfolio companies, both in terms of what they’re seeing in the market and how bookings and churn and things like that are heading, but then also how they’re adjusting to this on their go to market strategies. And then I’m going to hand it over to Adnan and he is going to go in more depth and provide a framework of how Salesforce is adjusting, and then talk really some of the more detailed specifics about some of the tactics and strategies that we’re employing.

Matt Garratt:
So for those that aren’t familiar with Salesforce Ventures, we are the strategic investment arm for Salesforce. So we have over 260 portfolio companies globally, it’s all enterprise software, predominantly SaaS. Some of the companies you may hear of such as Zoom, a lot of other companies on this list like Anaplan that you might be familiar with and feel like we did, we did some surveys of the portfolio company and given the breadth and scope, feel like it gives a pretty good index of what’s going on in SaaS in the enterprise software landscape.

Matt Garratt:
And so we’ll walk through some of the some of the surveys that we did, you can go to the next slide. So we surveyed a portfolio over a couple of surveys and to set this up, this is largely a company that are Series A Series B, and Series C, 80% of the companies fell in that category. These were kind of small or mid sized companies with employees generally that had 11 to 250 employees, about 90% of the companies fell within that range, and mostly selling mid market and up into enterprise. So think of this as more direct sales, mid market and up kind of earliest to early growth stage companies to sort of think about the survey results.

Matt Garratt:
So if you look at the results themselves, if you look at Q1, not too surprising. Bookings were down, I think silver lining’s but not by too much, 50% of the companies that we survey, whereas 76% of plan or better, which was pretty good. It does tend to separate when you look at it more in companies that had their fiscal quarter ending in March versus April. And certainly, kind of what you’re going to hear coming out of this was that companies were able to really accelerate deals that were at the bottom of the funnel, trying to close things quickly. And as April kind of came on, things started to slow down a bit more.

Matt Garratt:
So as you move forward, and you start to look into Q2, not too surprising, everyone’s expecting Q2 to be much softer. So in this case, only 30% of the companies that we spoke to expect to hit 76% of bookings plan or better. Certainly, some of this is and a lot of this is going to be COVID related. But I think also it’s, and Adnan will get into this too more. I think it’s a bit of a strategy. Companies were very focused on customer success, retaining existing customers just checking in, seeing how customers were doing, assessing the health of the business, assessing the health of their own employees, really focusing on upsell, closing existing deals, and not as much focusing on top of the funnel.

Matt Garratt:
And so if you look at where the pipeline is right now, on the next slide, again pipeline is flat to down. Again, not too surprising, some similar things. And this has come out as we started to really talk to many of our portfolio companies as well. Companies were really reaching out to existing companies and checking in. There was not a lot of outbound sales or marketing. And I really think what we’ve seen internally and externally is that’s starting to change. So last week, really starting to adjust to, I won’t say the new normal, but kind of trying to stabilize businesses and really starting to focus again a lot more on outreach. So we’re going to check in on this in a month or so and it will be interesting to see how this changes over time as companies really start to increase outbound as well. And if you look at churn, so in Q1, starting to see some early signs of churn. 30% of the companies saw some increase in churn.

Matt Garratt:
And then if you can look at this a little bit more on the next slide, if you look at the whole year, we are expecting to see a significant increase in churn. 30% of the companies are expecting to see churn increase by 1% to 5%. Another 36 are expecting to see churn increase by 6% to 10%. I think the silver lining in this though is that only 14% of the companies think that churn will increase by 11%. So I think that is somewhat of a good news in this in that SaaS businesses are sticky. Companies tend to stick around. And so while the churn I don’t want to minimize it, stable base of revenue should be able to maintain that through the year.

Matt Garratt:
So I think that is some good news. If you dig into the churn numbers a little bit more, we’re using some of the data that Gainsight provided and they did a great job, I recommend looking at the survey that they did. They really go into churn and customer success a great deal. And this is highlighting something that we’re really seeing across the board. And that is you’re seeing a bit of a separation in those companies that have really the stickiest, most critical solution. So if you have a renewal rate of around 90% to 95%, churn’s only expected to decrease by an additional 5%. Whereas, if companies have a bit higher attrition and retentions less than 80%, the churn could go up to above 16%.

Matt Garratt:
Go to the next slide. So we are getting a lot of questions around what are best practices, what are companies doing, so on the next slide, I’m going to go through this somewhat briefly, and then Adnan’s going to go into this in a lot more detail. But some of the most commonly cited strategies and tactics from our portfolio companies, again really initially focusing on customer success and retention, from there, focusing on upsell versus targeting market new opportunities. Again, that stunning shift, we’re seeing that shift more in the last week or two to outbound sales. And everyone’s really, really redirecting their efforts on to those industries that are less impacted.

Matt Garratt:
And now the goal is really moving to identifying opportunities regardless of the size, just finding opportunities that have the highest percent of closing, call that the sell what you can, sell a box of doughnuts if you need to, but identify things, I stole that from Adnan. Identify what you can and try and close those deals. Also, there is focus on changing terms to try and close and accelerate deals, reducing time commitment requirements for contracts, pricing minimums to get to a yes more quickly, and then also focusing on cash and cash collections by building more efficiency in that process. And some of our customers are also shifting a little bit more into the enterprise side as well.

Matt Garratt:
You can go the next slide. I will say there are some encouraging signs that we’re seeing in this, and so 70% of companies have been able to identify new revenue opportunities, whether it’s shifting to the public sector or shifting to healthcare, and you’re just seeing just the whole go to market motion in how sales teams are configured to becoming just much more nimble, much more quick, adjusting, experimenting, seeing where there’s opportunities and going for that. And I think one of the other positive things and hard to see this now, but 90% of the companies that we surveyed did say they believe that this will create a tailwind for the companies coming out of COVID-19.

Matt Garratt:
And to dive into that a little bit more, we asked our companies about travel. 31% of the companies that we surveyed said that they’ll see a decrease in sales related to travel by 26% to 50%. And then another 24% said that that will decrease by more than 50%. And this is like coming out of this, this isn’t now. This is going forward. We also asked another question where a portfolio company said that 90% of the companies expect work from home to dramatically increase. And so when you combine that and some of the other things we’re seeing, it’s really going to, we think accelerate the transition to a digital economy, it’s really going to accelerate digital transformation.

Matt Garratt:
And it’s not just going to be we think in things like work from home tools like Zoom or IT solutions like VPN, but it’s really going to transform how business is getting done, whether that’s online education and learning. Right now, learning for companies is only at 10% online. We expect that will increase dramatically. We’re seeing a huge uptake in people wanting more automation, whether that’s RPA or automating their call centers or automating other parts of their businesses as well. And it’s going to impact all industries, whether it’s we’re seeing supply chains shift from manufacturing and companies moving from having a single source for a supplier in one country to multiple countries and needing to be much more agile, much more nimble. So that’s going to require solutions that are cloud based that you can spin up in a matter of days or weeks versus a matter of months or years.

Matt Garratt:
So we do think that what we’re seeing coming out of this, we’ll see a huge acceleration in SaaS related solutions. So that is again, can’t understate how difficult what we’re going through now is but there is somewhat of a silver lining I think coming out of this. So what I want to do now is shift over to Adnan, and oh, just last bit, too. We have all this data online, if you want to see more results from the survey. There’s a link here. You can also go to our medium Salesforce Ventures, and we have a bunch of resources there. So with that though, what I want to do now is shift over to Adnan, and let him talk more specifically about what’s Salesforce doing, how are we reaching out to our customers and talk through some of the frameworks and tactics that we’re using?

Adnan Chaudhry:
Great, Matt, thanks so much. Well, good morning. Good afternoon. I’m going to be talking a bit about a couple of things. One is certainly the approach at Salesforce and some of the things that we’ve been going through, but also kind of a lot of what we’ve been hearing in the market, between Matt’s perspective and 60 plus portfolio companies that he’s working with. I’m responsible for the U.S. commercial business. And so, we’ve got companies that I interact with in all sorts of industries, travel, leisure, hospitality, to some companies that have been really hard hit, others that have been on the other side of this and have really seen a massive uptake in their business.

Adnan Chaudhry:
One of the guiding principles that helped me personally, I was here as Matt mentioned, I was here at Salesforce in 2008, 2009. I was an account executive covering financial services vertical and covering in New York. And so, I remember being in New York and the whole market was melting down. And I think Salesforce has learned a lot since then. And certainly the market has come quite a bit far from that point. Certainly the Safe Harbor, if I’m making any forward looking statements, this is largely meant to be if you’re making any decisions on Salesforce or any product purchases, make them based on current configuration, current functionality. More here, I invite you to read this later.

Adnan Chaudhry:
But if we zoom out a minute, the way that we’re thinking about it I think this is the case across the board in late February, early March, I called Marc Benioff, our CEO had a company all hands shortly after the earnings release, and talked about, “Hey, there’s this thing coming.” And I think everyone kind of looked and was a bit sort of confused to even like, “Hey, is this really a potential crisis coming down?” And here we are 60 days later, or a month and a half later, and we’re in this global crisis.

Adnan Chaudhry:
And at first, I just want to acknowledge that we’re going to talk about the business models of some of our broader customers, some of the things Salesforce is going through. But this is a public health crisis. It’s an economic crisis. It’s a business crisis. And so I empathize with you, your family, your loved ones, your businesses that have been horribly hit heavily.

Adnan Chaudhry:
And in these three key buckets, the crisis hit officially. I live in California. And so even though we were working from home and a lot of global travel for us, and even domestic travel at Salesforce came to halt in early March, at least California, it was really mid March when the shelter in place directives and certainly the country followed throughout. And when you look here, I think we’re still here. When I talk to customers, they’re in some version of this crisis management, if you’re like me a parent with three different schools running upstairs, as long as those kids aren’t even back to work, you’re still in crisis management.

Adnan Chaudhry:
But I think as a business though, we’ve teetered back into stabilization. And then the third component when all this comes back, and what that new normal looks like, and we go into acceleration. And so this is the framework I’m going to walk through today. And all of this blends and also weave in and out. And I think for us, the crisis management tiptoeing into stabilization, where I think we are right now, at least in our business, this could also be considered the phase of back to work, and how do we equip our teams to get back to work and whatever that new normal means.

Adnan Chaudhry:
And so I use that term interchangeably in stabilization. And then kind of acceleration is sort of how we call our business. So this is going to be the framework. And so in the first part of this framework, you’re on crisis management, I just want to share some of the things and lessons learned we had. So three key pillars here. One was really refocusing our team and refocusing your teams and what does that mean, then redirecting your operations, and then how do you engage your customers. So each one of these areas has some lessons learned and I was on a call yesterday with somebody that’s working with clients in the education sector, and they’re still trying to refocus their organizations and their teams. They’re even trying to figure out do we bring higher ed back and what’s the go, no go date for some of the universities. When do we need to make that call and that’s going to be probably for them in late July, at the best if students are showing up on campus, and so they’re still kind of in this early crisis.

Adnan Chaudhry:
[inaudible 00:17:17] having broader relief efforts at Salesforce, we believe our platform is something that’s the greatest platform for change. And so for us we’ve been really active in leveraging our ecosystem. We’ve gotten over 50 million PPE equipment out in the market through just our broad efforts and working with our partners. We’ve got, and by the way, in the back of this deck, I’m going to have a fair amount of links, a lot of the stuff I talked about. So if you’re trying to figure out where to go find information, just know that it’s coming. We’ve reached out and we set up a grant process for a lot of our SMBs to help them financially in whatever way we can.

Adnan Chaudhry:
We made a public pledge, for example, to not have any layoffs for 90 days, and see how that goes forward, but sort of being very open around anything we can do in these relief efforts. And then internally, transparency was a big part. We’ve got to rethink our channels for employee communications and feedback. And I’ll give you an example. We’re having a weekly global all hands call with our executive staff every single week for our 50,000 employees. That was something that was typically at that level done quarterly. Now we’re bringing that in every single week.

Adnan Chaudhry:
We’re doing sales leadership, all hands calls with customer service and support and sales every single week. So that cadence and that feedback loop is really ticked up. And that’s the best practice that I think is across the industry. And then also restating validating your goals. Everyone here, a lot of the companies here are led by values, were led by values. We don’t have the market cornered on that. But really, we’ve had to reevaluate how do we think about that. And our internal annual strategy process is called a V2MOM. It stands for vision, values, methods, obstacles and measures.

Adnan Chaudhry:
We’ve taken that process and put it directly towards what does that mean for COVID-19? And so I’ve got that full V2MOM at the back end of this deck should anybody want to read that, and that talks about how do we treat our customers? How do we go to market? How do we think about events? How do we think in this new era? And we’ve really taken our values and applied it to these new methods.

Adnan Chaudhry:
Through this crisis management, there was also an opportunity to redirect our operations. One is just everyone’s gotten remote, remote connectivity. That’s a lot of challenge. We have teams that are not used to working remote at all. They’re office based. And we have some teams that are purely home office based, they’re closest to the customer. We have employees we’ve hired in the last month that have never been on site, either to a client, have never met a single employee in person at Salesforce. So how do we bring them in? How do we make them feel part of the team and integrate them? And so we really put a lot of work on that.

Adnan Chaudhry:
And then for marketing, we’ve had to just pivot overnight. We’re at a company that’s heavily focused on high touch in person events. I’ll give you an example. Our Sydney World Tour, we had 10,000 registrants. And when everything shut down, we have to pivot overnight. We went from an in-person event with about 10,000 registrants, and we led it virtually and led all the sessions virtually, and we’ve got some best practices we’ve shared around that. And that ended up having 80,000 attendees.

Adnan Chaudhry:
And what we found through those events also is not only is there a great appetite for virtual, but on those virtual events, we ended up getting a lot more higher level C level attendance than we would otherwise. And so really shifting both the marketing and sales engagements to all virtual, and then the organization on our operations. We’ve had to really self organize, and a lot of this was informed by some lessons we learned in 2008. I remember when I was a rep, there was still sort of the agile and the nimble process around credit collections, customer service. Contract modifications were still so decentralized. We learned from that early on. And so in this process really around customer success, developing the financial plan for our customers. And so we’ve learned good best practices to put more tools and more controls in the hands of frontline managers, frontline reps so the back end finance teams, sales ops teams aren’t inundated. And that’s really helped through this message.

Adnan Chaudhry:
And engaging customers, I suspect that’s the common theme for everyone. How do you do it? If you’re like me, I got bombarded just even by so many different vendors and different players in the space about all these emails, and it’s really hard to pull that message back around what that means. And so for us, we’ve been really selective. So cold calling efforts during this phase, we pulled back totally. Any noncritical outbound efforts, especially within industries that were hard hit, we’ve totally pulled those back.

Adnan Chaudhry:
And then the check ins were really about leading with empathy, deep, deep listening. Salesforce, we’ve got the market covered on great ideas, and so a lot of what we’ve learned, we’ve learned through our customers by deeply listening and deeply engaging. And what we found through that was there was a big appetite around understanding what’s happening. And so Leading Through Change is a series we’ve launched. It’s available to everyone bringing in third party speakers, bringing in, we had Mark Cuban couple of weeks ago, we’re having Brene Brown for our SMB business, around empathy, and leading through courage. And so there’s a massive demand around some of this content.

Adnan Chaudhry:
And another is just being there and just telling people you want to help. So Salesforce Care is our package of various solutions across industry, whether it’s healthcare, it’s the government sector, or the public sector. It’s the SMB space. There are specific tools for each of those areas, specific functions. We have customers that are totally isolated in the sense of they have support teams that were used to working side by side at a desk and now they’re working from their home office. So how do you pivot over to ask a question to someone and so we’ve turned on tools and we’ve made a lot of our product bundles free for 90 days.

Adnan Chaudhry:
Those were some of the lessons learned we had during crisis management. I think some of the industry has also sort of taken this to operationalize. I go forward one framework I just wanted to share from pipeline. I get customers ask me a lot about pipeline. We certainly put a lot of focus on that internally. And one area I would just point out here is this is illustrative. This is pretty standard certainly out of Salesforce or most CRMs around pipeline fidelity in the chart. So starting from the left, sort of where the pipeline starts at the beginning of the quarter, across the bottom, various percentage changes, and then certainly where you end. And the green neck activities are areas that create pipeline, create the positive, the red are certainly the degradation. And so for one, I think the create and close is super important. So every one of these slivers, we dive in deeper, so don’t just say, “Hey, what’s the starting pipeline? What’s the ending pipeline?” So create and close, that [inaudible 00:24:05]

Adnan Chaudhry:
Closing out your Q1 now. And so really the create and close effort, what was the motion? And we’ve even found even creating spiffs and incentivize create and close in the current motion in the current month or in the current quarter created a big uptick. And that’s the case across the industry as well. Certainly you have your pre book, you have your pull forward revenue. I think what we tend to see is the more larger enterprise businesses tend to have more ability to pull forward because their pipelines are back end loaded versus I think, in the SMB space, that pull forward has been a little bit harder.

Adnan Chaudhry:
Then you go to the push, and what were the activities, what were the issues for the push, and for us, this has been super, super helpful because projects are either canceled, they’re paused, or they’re just pushed for a little bit of time or maybe they’re sort of thinking what their budgets are, how they want to operationalize, and so really understanding this bucket and segmenting it and sticking with it is super, super important.

Adnan Chaudhry:
And then certainly a lot of value changes, certain things that are getting out in the wind. So for both the mid market, SMB space and the enterprise space, I think are super critical and we find certainly, I think that’s across the industry, the SMB space, mid market space, there’s a lot more create and close and momentum in front end of the year, in the front end of the quarter. And so those have been taking a bigger hit versus the larger enterprise motions. Those tend to be back end loaded, especially with whether it’s the January or December year end, so pulling that step forward has really been helpful. So I would encourage people to really think about pipelining this core fidelity stage and moving to stabilization.

Adnan Chaudhry:
Now this is the next stage, I would say this is the back to work. In some elements, we feel very firmly here. In other parts, we’re still early. In the same construct, what are the opportunities here? One is investing in your team, calibrating your operations and then re-qualifying your customers. And I’ll just hit on a couple of points here that I think might be worthwhile to the audience here. One, the importance of morale and well being, super, super critical, more than ever with the situation where the teams are working from home.

Adnan Chaudhry:
Our sales teams have never been busier. It’s crazy. Nobody’s sitting around watching YouTube or Netflix. There’s real work. And it’s not exactly clear. Sales is wearing many hats. You’re customer support, you’re credit, you’re collections, you’re enablement, you’re a number of different things. So we really have to focus heavily on their well being. We’ve got a daily 9 Pacific 30 minute well being session organization wide. It was around mental health and well being. It’s been super helpful to our team. We actually have now opened up to the whole community, all of our customers, anybody on here. There’s details at the back end of this deck where you can tune in, if there’s any sort of content that’s of interest and we’ve also used this as an opportunity to heavy investment in enablement and reskilling. We have a lot of folks that are based in home offices, closest to the customer. This is not new, whether it’s in sales, I’ve got kids. And I was having conversation with my daughter the other day, and she was talking to one of the teachers who’s just been exceptional on the Zoom exchange [inaudible 00:27:24].

Adnan Chaudhry:
Run it, and now they have to really work on a different skill and vice versa. And so the enablement, there has been really important, we thought about our new call motion, our first call approach, how do we come to bear? So that’s been a heavy investment. The other part that I think is top of mind probably is around stability. I get asked by virtually every customer I talk to, “Hey, what are we doing around giving guidance on job roles and compensation?” I’ll tell you from what I’m seeing across the market, you have some firms that have had to make deep cuts for all the right reasons are certainly important to them. You have some companies that have done nothing. Internally, we’ve decided to give guarantees to certain sales teams. And so that’s been the best way to just sort of pause and say, “Hey, there’s a guarantee. We’ve got you covered through this, just focus on the right motion.”

Adnan Chaudhry:
And so through that, that’s really helped. And then if there’s a specific tool that we think is really helpful to the market or part of our stack that can really, really help, we put spiffed, incentivize that continuity in the emphasis. And so putting spiffs that are very specific and time bound has really helped quite a bit. And then we’ve also have had to really harmonize with new tools and processes. There’s just so much coming at sales, as I mentioned. They’re playing every single role. And so we’ve had to really create pocket guides, and really get them super focused and same thing with marketing.

Adnan Chaudhry:
And then so what are the things we’re measuring? And so this is to calibrate your operations. And so if we’re saying, “Hey, do the right thing for the customer, have the right motion.” So the kinds of things that we’re doing now and this is what also guided us in 2008, we call it AMP. It stands for activities, meetings and pipeline. This is the notion of, “Hey, have the right activities, have the right meetings, the pipeline will come.” And so we’re measuring those inputs, because historically, the output was, “Hey, here’s your number. Here’s your pipeline, go for it.” Now we have to look to a different metric. We have to look at different metric than just quota attainment. Those things will come later.

Adnan Chaudhry:
And then also forecasting, I’ve got a [inaudible 00:29:28] depending on the deal cycle, deals days in the quarter. Now what we’ve said is, “Hey, cut off the COVID noise to the best extent that we can. Take all the COVID impact out, and then confidence and really build that hard edge at 90% confidence.” And so with that, that’s given people a lot of confidence, a little bit more opportunity to sort of, “Hey, this stuff is not going to hit but this is going to hit.”, and then it’s having that first data point, then it creates a map. And then from there, we’ve been able to build on top of that 90% confidence. And I’ve shared that with customers. And I get that that’s been a really good best practice.

Adnan Chaudhry:
And then our marketing strategy continues to evolve. We certainly continue to roll out virtual events. But we really think it’s all about speed and relevance. You’ve got to be fast, and the content’s got to be highly, highly relevant. And so for us, a lot of that has been around smaller, more intimate roundtables, and also with the customers when we talk to customers, and that’s opened up as things have stabilized, speak to power, talk the truth. And in that conversation, I think people understand there’s been a really confirming the project status, is this on? Is this frozen? What’s going on? How can we best help? And through that conversation, we’ve also been able to qualify at a deep, deep level with that 90% threshold, and I think customers have appreciated it because these projects just didn’t show up overnight.

Adnan Chaudhry:
They kind of maybe in some cases got frozen overnight, but they’re open to it. If it’s a project that’s maybe just frozen, there’s actually a lot of get the permission from the customer, “Hey, we’re going to continue to work through this with our teams.” And that’s been super helpful. And it’s also helped our team internally because again, we tend to be heavily on premise, in person with some of the events. So we’ve been the sort of solutions engineering, building the right ROI is the business case, we’ve now taken those to virtual sessions. But with the customer’s permission, we’ve been able to actually go deeper, and through that uncover a lot of near term opportunities that the customers are asking for, they’re begging from the sale.

Adnan Chaudhry:
So that’s some of the high level at the stabilization phase. I did want to take this towards one of the key areas that’s top of mind I suspect for everyone, and that’s around capacity in hiring, and how do we think about AEs. And this is just an illustrative example. It’s a company with right now with 50 AEs. That’s going to grow to 80 AEs. The same model applies whether you have five AEs and you’re going to 80 or you have several hundred AEs and you’re doubling. And this was something that in 2008, Salesforce, I think, maybe stalled hiring a bit. And what we learned was that there was some pretty big trade offs. And so we’re leaning into the market, you’ve seen some of the messaging we put out there, Mark’s been very vocal about hiring. And we’re leading into the hiring.

Adnan Chaudhry:
And so I wanted to just walk through some of the key trade offs in each of these and so in this example, maintain the current course of hiring. [inaudible 00:32:31] Some cuts, in this case, the company with 50 AEs, you drop 20 headcount, and then you’re 30. What’s the impact of that to your business? And so that’s the impact of capacity. Certainly, there’s other levers you can pull around improving productivity, minimizing attrition, promote internally, so maybe onboard faster, and certainly accelerating the ramp time. And so this is a bit of an eye chart. You have to bear with me for a minute. The sales capacity trade off here. In the key hiring space, if you just assume $1 million quota, 60% attainment, again this is just illustrative. Everyone’s going to sort of input their data in here and pull the lever differently.

Adnan Chaudhry:
But in this example, if you go through the seasonal hiring and the example of hiring 10 reps in April, 10 in July, 10 in October, you end the year at 80 reps. Here, we’re also taking a pretty big assumption of a 90 day ramp and you’re seeing the ramp phase internally. At Salesforce, we view our ramp cycle closer to about six months for a typical AE more on the larger enterprise side.

Adnan Chaudhry:
And so here you’d have 88% ramp capacity going into December and a bookings impact of 35 million of the yield. If you see what happens, if you just stall hiring by even just those 10 hires and you push the 10 hires from April into October, you only end up with 75% ramped and about a $5 million, about a $3 million hit on your business. But what’s really interesting is if you make some cuts now, if you drop from 50 reps to 30, you cut those 20 reps out. And then you’ve got to hire those back in the back end of the year and even a big assumption, if you can hire that fast, let alone ramp, so I think they make cuts scenario is a lot, lot more generous than it might be otherwise, where you end up is you have a 50% of your team is only ramped. But the bookings impact is over $10 million. And assuming 150,000 OTE, again you can flex the OTE event, you find that in this example, you get a $10.2 million loss in bookings. But you only pick up $1.5 million gain in cost savings.

Adnan Chaudhry:
So just something to think about on trade offs because I think the market is moving so fast. And I hear customers in some cases are really struggling with, “Hey, I’m going to make some deep cuts now and figure it out later.” And some customers are saying, “Hey, we’re going to stall or in our case, we’re going to go right into it and keep hiring through this downturn because we do think on the other end, having the sales capacity ramped and being closer to the customer is super, super important, valuable.”

Adnan Chaudhry:
So that’s just one framework I wanted to share here. And then to wrap it up on the third phase of acceleration or growth as we come back into work, just some thoughts here that again, we don’t have the market cornered on good ideas, but some of the things that we’re working with, and the feedback we’re also getting. One is, under any scenario, you got to empower your team, you got to have that psychological safety. It’s going to be some form of a rolling reboot, for sure. And so you have to be uber flexible with personal needs.

Adnan Chaudhry:
Whether it’s in the stabilization or now, I do think once things sort of get to that standard, you got to have an expectation of performance. And so we’re expecting every sales team member to have performance goals, and we’re expecting them to perform, and that’s going to be creative. We’re going to be scrappy, and so this is not about, “Hey, we’re going to sit there and wait until Q4, get that one big deal and that’s going to make the year.” No, in this new normal, that’s gone. I don’t care what segment you’re in, everyone’s going to participate, everyone’s going to put a win on the board. I think setting that expectation clearly to the team’s going to be super important, because we’re going to have to have any calibration.

Adnan Chaudhry:
On the operation side, I hear this a lot from a lot of my clients. Some are in retail, some are in hospitality. And this whole notion of re-entering in shifts, you’re going to have maybe a Monday and a Wednesday shift and a Tuesday and Thursday shift. How do we have a rolling reboot into the workspace. If someone gets sick or a team gets sick, you need to quarantine a whole team. So I think this hybrid approach and adapting the operations is going to be something that’s going to be more front and center. And we’re going to try to help lead the way with some of our clients.

Adnan Chaudhry:
And then just the agility and being responsive. And here, it hits every part of our organization. So as I mentioned, with marketing, our goal is speed and relevance. And here, operationally the same thing. There’s going to be a lot of unknowns, whether it’s customer specific or industry or public health directives that continue to come our way. So a lot of the operations, historically, I think we’ve been more quarter to quarter or year to year. Now we can go week to week or month to month, the shorter time span, shorter bursts and having those metrics are going to be super critical.

Adnan Chaudhry:
And then it’s all about elevating our customers. And I think there are some` companies that are well positioned for this, and the digital transformation is paramount. People were trying to get here before. They’re sprinting to get here now, and really having the full, full journey of your customer and everything that you’re doing around digital touchpoints. If you’re in retail alone, for somebody have a shopping experience or a return experience, you’ve got to be fully digital. And here leveraging what’s been successful around the stabilization phase, the remote support, high touch virtual exec events, focusing a lot of the marketing towards industries in heavy need or surging with new opportunities. And again, just doubling down on the [inaudible 00:37:56] around tying yourself to digitization, enabling smarter, more personalized experiences. That’s going to be the new normal. That’s how we all get our customers through digital transformation. So make those investments now, don’t wait would be my advice to you.

Adnan Chaudhry:
Some resources I just want to leave you here with. One, Salesforce Care. Here’s the hyperlink that says all of our key offerings or product bundles, our SMB grants, but I also wanted to give other takeaways as well. Here’s our daily, the next one up Safety and Wellbeing Actions. That’s where we put all of our responses to the market. Our small business grants are on here. As I mentioned, we have a COVID-19 V2MOM. We’re making it public. I encourage you to dig in. Leading Through Change newsletter, again we have a lot of thought leaders and change leaders coming and might be helpful to you or your teams if there’s interest. The Be Well Together is the 30 minutes daily 9 a.m. It’s been incredibly helpful. My wife and I most days chime in together. It’s really brought the content into the house in this new shelter in place world.

Adnan Chaudhry:
[inaudible 00:39:06] You and I hope you, your stakeholders, your team are all safe and doing well. So Matt and team, I think we’re there now. I think we’re opening it up to any questions if there are any.

Deborah:
This is Deborah from the SaaStr team. I can read out a few questions for you guys if you’d like. So we have one that says how should companies think about sales teams right now? Do you look for top talent that might have been unavailable three months ago? How do you identify the lower performers when numbers and targets have completely changed or need to be? Do you make drastic changes or stay the course?

Adnan Chaudhry:
No, I can take that. I think one is just always be hiring. In our case, we haven’t let off. We’re going to continue to invest in talent through this and so certainly, if you’re in the market, we’re looking. Please come find us. I think that the second part of that question, Deborah, I think was around hey, it’s easy to just look good with closing revenue and closing bookings and saying, “Hey, here I am. I’m the superhero.” But I think that’s in some ways the rising tide. When that goes out, it really brings into focus what are the key activities at the top performers. And as I mentioned before, we’re looking at activities, meetings, pipeline, and the underlying motions under all of those are super critical. Are people agile? Are they able to learn a new skill? Are they able to pivot fast and move with agility is something I really look forward to and look to. I didn’t get the last part of your question, just to make sure I had it.

Deborah:
Sorry, I’m just pulling it right back up. Basically, it says after identifying performance when numbers and targets have completely changed or need to be, do you make drastic changes or stay the course was the final part of that.

Adnan Chaudhry:
Yeah, I think for us right now, the drastic changes are really around making sure we’re pivoting our message and our resources to take care of our customers and our teams. The market itself, if you step away from what we’re talking about here, you look at the public equity markets. I mean the smartest minds in the world haven’t even been able to price assets. Asset prices have gone down 20%, 30% and then gone up 20% in a matter of like, two weeks. And so I think drastic changes from that standpoint, I would maybe pause and think about before massive cuts or massive, massive policy changes towards some of these areas. Where we made the changes are really around giving people comfort and security around some guarantees that they’re going to be okay.

Deborah:
So we’re seeing some questions kind of on the flip side of that. How are you mitigating churn? Does it impact business in the future? And another almost similar question, how does expected churn vary by company size?

Adnan Chaudhry:
Matt, do you want to take that maybe with some of the portfolio that you’ve had on the churn side and I can add on?

Matt Garratt:
Yeah, on the varying by company size, I mean I think there’s more of natural, larger companies tend to have a larger base of capital, more stable revenues. And so from that standpoint, larger companies are going to experience a bit less churn. And so I think that’s a bit how company size plays into it, I would say. It really is also going to vary a lot more though by industry and sector that you play in. And then sorry, oh and how are companies addressing churn. I think Adnan hit on this and some of the stuff that Nick and the Gainsight team focused on was really insightful.

Matt Garratt:
But it was really kind of breaking down the barriers between account management and customer success and sales and just really creating really nimble teams to respond quickly and surround those customers, spend a lot of time and then being flexible across the board, whether that’s deferring, and it’s very much a customer by customer case, and that’s whether it’s postponing payments, deferring payments or sometimes it was giving a customer, not making them pay for all the extra features of a product that maybe they’re consuming and just charging them for the base price to keep them on. So it’s just getting really creative in thinking about what are the best ways to retain that customer. And sometimes it’s really, really going to be specific to kind of what their needs are. But flexibility, listening, empathy is really the key thing.

Adnan Chaudhry:
Yeah, and I would add that [inaudible 00:44:02] online sales team to frontline leadership has the best knowledge around how to pivot the solution set to help the customer. Maybe this team has been put on pause by the customer but the solutions are, your offerings can be applied here. And they’re a lot more nimble if you give them that flexibility. And so what might seem like hey, it’s a contract negotiation or a payment issue is really around being agile. But if you make it seem like it’s an operations and finance approval, then you’re kind of stuck in that path.

Deborah:
So moving forward, we’ve got a couple questions about this. Can you give examples of new tools deployed during this crisis, ones that have been helping engage customers better?

Adnan Chaudhry:
Sure. I can give a couple. One of our examples is even with Tableau. Tableau is an acquisition that Salesforce made a year ago or so. That visualization, we’ve just opened up the marketplace. And so the public sector, health clinics are running their dashboards on some of these solutions. And just making these tools available has been super helpful. Other is we’ve got some of the tools around remote call centers or remote service or remote service teams. How do you give them something that’s pre configured, and they can turn on very quickly? So that’s been super helpful. A lot of collaboration tools that are tied into not just for purposes of pure collaboration, but the next level where they’re tied into the data itself. And how do you collaborate on the data? That’s been super helpful. A lot of enablement tools and solutions for example, as we’re enabling the team, even quick videos that we’re attaching versus making people sit through long webinars or the experiential training, just kind of making quick guides, quick pocket guides have also been really helpful.

Matt Garratt:
Yeah, maybe to add one thing I think you’re hitting on is something that’s sort of the secondary effect of being a SaaS company that I think will have long ranging impacts, and that is having collaboration not just the pure pay to play collaboration tools, but the inherent nature of SaaS being collaborative in tying to the data and an example of that as a company in our portfolio Propel PLM, it’s a design tool, product lifecycle management tool and it allows companies as they’re going to release a new design to more easily collaborate with other suppliers and manufacturers, and so it makes sense inherently like having that as a cloud based solution, makes a ton of sense just because all the things that you associate with SaaS solutions.

Matt Garratt:
But having that collaborative component as you’re thinking about, I’m moving my supply chain from a country in Asia to maybe a country in Mexico. And we’ve never met in person, we have to do this in days rather than weeks, you not only have to have that. I mean, there’s no other way to do it but in the cloud, but then also you’re collaborating around that project, and that those tools really need to be intricately linked to the design changes, the quality assurance systems. So it’s something that kind of I always thought was pretty eye opening in terms of that secondary effect of why SaaS solutions are going to be so impactful going forward.

Deborah:
So you both mentioned video at different times, video and being apart during this time, we’re seeing a few questions along these lines. Are you able to close big or rather enterprise deals that most commonly would have needed physical meetings in the past or are they being pushed to the next quarter?

Adnan Chaudhry:
Yeah, I’ve never touched more executives in a 30 to 45 day cycle in my life, the fact that I never jumped on a plane. The whole notion of flying to [inaudible 00:48:14] really need help right now. And so the short answer is yes, I’ll even take it a step further. We’ve had to really rethink our approach because a lot of the, I mentioned briefly earlier, when we do the architect workshops or solutioning, we’ve been able to pivot and one of the ways we’ve done that is we’ve been thoughfully internally. We’ve been running our internal strategy sessions or internal meetings onto ourselves, the fact that we’ve got to be running daily, I’m sorry, weekly, all hands with 50,000 employees, for example, means we’ve got to get the tools set up in place that can sort of take all that content and that feedback and keep working. And so for large scale organizations especially, they’ve been coming to us asking us for guidance. And my experience is they’re buying and they’re interested. And so make your message relevant and move fast.

Deborah:
So it looks like we have time for about one, maybe two more questions. And I kind of want to follow in line with what we were just talking about. This is specific to Adnan, but of course open to both. How is your sales org leaning on ISV partners to generate co-sell revenue, relationships, et cetera? Are you focusing at all on those partnerships as a means of entering new opportunities?

Adnan Chaudhry:
100% yes. I mean, we’ve got a very strong, healthy ISV channel. What’s coming up now are really interesting use cases. Some of our ISV partners are just seeing their businesses boom, and others are trying to figure out how to rethink their message. And so that’s a core, core tenet of our business and how we go to market, whether it’s through the channel or even our sales teams and putting that solution center for our customers and so that’s never been healthier. And I don’t know Matt if you have a different experience on that.

Matt Garratt:
Yeah, I’ve also just been really proud of how many of the ISVs have responded during this time. So whether it’s SIs or software companies just really helping us and help customers, whether it’s standing up solution so that companies could track, healthcare companies could track their healthcare providers could track their employees what their PPE needs are and that way that you could, this was a company that’s doing this in Canada, distribute that throughout Canada, or as I mentioned, Propel leaning in, in the manufacturing space for PPE equipment. Some of these companies have maybe expertise scenarios that we don’t and so as we’re pivoting not only just how can we help, how can we solve these solutions, we’ve really leaned on a lot of our ISVs to just like, how do we solve COVID but then also how do we sell into some of these other market segments in new ways that we have and as new needs are coming up, whether it’s healthcare, education or manufacturing.

Deborah:
So it seems like we’ve actually run out of time. But thank you both so much. We are so inundated with questions, so we’ll be sure to share all the Q&A with the Salesforce team and make sure that you have a chance to answer them.

Matt Garratt:
Right, thanks so much.

Deborah:
Thanks. And see you guys in the next presentation.

Adnan Chaudhry:
You’re welcome. Thanks.

The post Sales and GTM in Uncertain Times with Adnan Chaudhry and Matt Garratt (Video + Transcript) appeared first on SaaStr.

Making Trade-Offs In Marketing with Meagen Eisenberg (Video + Transcript)


This post is by Team SaaStr from SaaStr

The true test of marketers. Are you a revenue driver or a cost center? You cannot afford to be the latter. Marketing leaders must focus their teams on the areas that will drive revenue while they cut costs – the biggest impact for the business. Join TripActions CMO Meagen Eisenberg at SaaStr Summit as she highlights her approach to ensuring Marketing delivers on its mission-critical role even in times of uncertainty or crisis.

Meagan Eisenberg | CMO @ TripActions

For four years at MongoDB. Today we’ll talk a little bit about the marketing trade-offs during Coronavirus, or really any, I would say, crisis type mode and things that we’re all learning to adjust to and really about driving revenue while cutting cost. A little bit more about my background. I’ve advised more than 25 companies, seven of which have been acquired in the last two years and three of which have gone out of business. So I’ve seen both sides of it.

But one thing I know through pattern recognition, there’s a lot of similarities across startups and companies as they go through the different stages. Every company is different. They have different personas, different messaging, but there’s certainly some things that I see that are familiar. And so today I’m looking forward to sharing some of those learnings and what I’ve seen.

I was fortunate enough two years ago to be part of a case study that Stanford GSB did on MongoDB with my current partner here at TripActions, Carlos Delatorre is the CRO here and was the CRO with me at MongoDB. And so today I thought I would put it in a case study format. But this case study occurred in the last five weeks. So very new and fresh for all of us. And the case study of course is going to be on TripActions.

So I think a ten-second background on us and what we do. We are a business travel management and a new model for corporate T&E. We are very much a different model in that we’re one platform where you have your booking travel, your consumer-like interface married to your world class travel agents all in one. And so we’re a great experience for your employees but also for your finance teams who are trying to control costs and save money.

So here we are, the unfortunate truth. Companies have found themselves unprepared in the midst of COVID-19 crisis. It’s unlike anything many of us have faced. And with that, we’ve got a complexity of a health crisis and an economic one. We’re all aware we see declining pipeline in revenue, cost controls are at the high, we’ve got major expense scrutiny. We’re looking at everything we do from software to people.

Our workforce is remote. We’re going through layoffs and furloughs, recession planning and for me as the CMO, facing really massive cuts to marketing budgets and headcount. As you imagine, you’re looking at your costs and what you can really adjust. And what I can say more than ever is there’s a Latin proverb out there that says, if no wind, row. And I’ll tell you that is what we’re doing in this case study and I think across the board.

I’ve talked to many CMOs and even CEOs really looking at the current situation and all of us are rowing right now. And as a business, TripActions, we about five weeks ago had to focus immediately on the core. There were four things that we focused on, our customers. We knew immediately we’re in business travel, our travel managers needed our help. Think about what was happening five weeks ago, we were starting to shut down travel to Asia as a start and trying to figure out what does that mean.

And then it started to spread and it started to spread over to certain countries in Europe, all of Europe, UK, and went on from there. So I’ll talk a little bit about what we did to focus on our customers. Second, product market fit. We knew that this is a new world. This is a very different thing that we need to be ready for. And one thing I’ll say about tech companies is that in a time like this what is going to get us out of this is technology.

We see all over Twitter right now, digital transformation, everyone’s working from home. If you have not set your workforce up to deal with this and you are not online and in the cloud and all the things that we need as employees in a business, you’re making that transformation now. Product market fit matters more than ever and technology is what’s going to get us out of this, the understanding of data and getting the insights and how fast we move in tech.

And then third of course, cash preservation. In the five weeks ago my dad, 74 years old. He’s always been in tech over 30, 40 years. And he saw a lot of the news going on and he sent me a text and in the text it said an old saying from a tech guy who’s been through multiple recessions that said, love cash more than your mother. And I got that text and I kind of smiled. It’s so true.

Of course, in fairness to him my parents are divorced. And so I do love my mother, but I understood what he meant. Cash means a lot to really get through what we’re going through. And then of course your employees. More than ever you need to motivate and help your employees get through this. We launched a podcast this week and really it’s around open for business. But the first topic is on wellbeing.

So these are the four things we focused on as a company. I think all companies need to think about. So let’s think about our customers. Five weeks ago on a Friday, the CEO Ariel pulled a bunch of us execs in a room and said we need to pivot immediately. We need to build immediately. We need to do what we need for our customers. Right now they’re dealing with the duty of care. They’ve got to find their travelers and get them home, but there’s more than that that we’re hearing from our customers.

And he said, “Product and engineering are going to build this weekend. They’re going to build a bunch of things that we need. Meagen, sales. Everyone, customer success. You need to be prepared to launch this. Launch it to our customers, launch it to the sales team, launch it to prospects.” And in my mind I was thinking, well, we’ve always cared about traveler health and safety. We have a map. We know where they are.

We know where future travelers are coming. So what are we building over the weekend? And what we talked about is what they needed right away is information. And they needed to come into the tool so they could make decisions. They needed the data and the insights. And the engineering team built an integration to the CDC that fed in level one, two and three. And at the time he really cared about level three, certainly even level two countries and making sure your travelers didn’t go there.

And could I, as a travel manager, start to find out what countries I need to get people out of and get them home? But then also, what do I need to do to block new travelers and make sure they’re aware? You can’t afford to have only a percentage of your workforce on a platform. You need to know where everyone’s at. So if you found yourself in a situation where it was unmanaged and people had booked on consumer site, you didn’t know where they were, who you needed to get home.

So we built out integration very quickly. And then as a marketer, I had to think a lot about, okay, these things are starting to change and what our travel managers care about in this situation. And the third thing is that they needed to blacklist. First, they needed to blacklist by country and continent, Asia. But then we started thinking, well, actually cities as it hit the US and we started to shut down routes as a travel system, what are the tools you need?

And I think tech is uniquely situated to deal with this issue because one, we were a five year old company born after the iPhone and our ability to pivot and build very quickly and our agility is what allowed us to deliver for our customers and what we need moving forward from a product market fit standpoint. And so we built. And really our approach to our customers and the market had to pivot immediately. And that of course affected everything we were doing in marketing.

So as a CMO, I had to focus my team on driving revenue while cutting costs. Because as you know, we took a hit on head count and we took a hit on a budget. So how could I be a lot smarter about it and focus my team on what we needed? And the three things we needed to focus on were messaging and the narrative and the new world, and what customers needed and prospects needed. Two, we had deals in the cycle.

What did we need for our sales team from an enablement standpoint and our CSMs? Our customer success managers needed to focus on what our customers needed in the moment to protect their employees and travelers and protect them moving forward. And then of course, sales pipeline and the livelihood of our business. And what did we need to do for demand gen? Because demand gen landscape changed dramatically.

As we know, people aren’t traveling, events weren’t happening. So I’m going to go into that. I’m going to start with messaging. So look at this. This is our website a little over five weeks ago. What’s wrong with this picture? This is what’s wrong with this picture. The best experience in business travel. Nobody in the last five weeks has been having a good experience in business travel.

People that were away were trying to get home, whether you were for business or for personal, our travel agents were busy. We went 7X on call volumes and chat volumes in a week. It was immediately. And it started in Asia and it started to spread around the world, everyone needed to get home. And then it turned into a wave of everyone needed to cancel future travel. And we even had CEO’s that use our product that were on vacation that needed to get their families home and they called into the airline, to the hotel and they couldn’t get on the phones. All the phones were busy.

And so they actually called into our travel agents and our travel agents immediately got them flights, got their families home, brought them home. So we were helping our customers, we were helping our customers’ families. It was very busy, but it was not a best experience in business travel. And so as a CMO I realized, oh my goodness, all the work we’d done in the last year, every email, every nurture, everything had to be audited and we needed to rewrite it and we needed to do it very fast because the tone and the environment had changed.

We were going into a mode, the tone was serious and it wasn’t this happy, cool, hip thing. It was this, let’s get people home, let’s be serious. And we pivoted very quickly to the power to manage business travel and expenses. And what you see on the right is what we did in about a year of rewriting content in five days, 15 hour days. I had the team working weekends, late nights. And we went through all of these items.

Right away, we had to pivot the sales deck and shift with what we spoke about and what we highlighted. Many of these things, the product already had. We had duty of care. We had things that helped you with business continuity, but it wasn’t what we led with and what we started with. Because before five weeks ago, you cared about the traveler experience and controlling costs. Now you cared about traveler safety and controlling cost.

And so we started to pivot. The sales team had to be trained, all our MDR and SDR outreach had to be changed. We had outreach sequences, we had over 60 of them. We audited them all. We had to rewrite them. We rewrote our entire website. Screenshots changed, graphics changed, quotes with customers changed. We had over a hundred emails that we were doing in nurture that had to be pulled down, rewritten and then re posted, pausing people through them, social media copy.

All our social handles, think about Twitter, Facebook, they all said the best experience in business travel. We had to redo all of those. And then also a week before this really hit, so about six weeks ago, we had launched a new product called TripActions Liquid. It is a corporate card for expensing. And our tagline was, don’t you wish all business travel was this smooth, and really playing off the liquid side of it.

But really travel wasn’t that smooth, it didn’t make sense. And now it was about spend diligence, it was about people starting to work from home and how you enable them to understand your expenses in real time, not waiting a month or two months when they submitted it. People needed to order monitors at home. So how could you enable them? And so we had to change all our display ads, all our magazine ads, you name it. It was a massive rewrite of work.

And what I will say is if you’re today looking at all your content, you should do an audit and do a lot of this pivot in your messaging so you’re relevant for today. And there was a lot of discussions on the channels around not being tone deaf and making sure you weren’t taking advantage of the situation, but that you were really delivering what your customers and prospects needed. And this is just another example of what we featured and quoted started to change and our customers, we had built all these products and we were getting great feedback and they were more than willing to allow us to talk about it.

And it wasn’t about the amazing booking experience and our world class travel agents, we had that. It was about employee safety, duty of care and controlling costs. So if you think about it, everything, when you pivot your messaging, now my second priority was sales enablement, making sure that we took what we had to pivot and what we were building and get it into the hands of the sales team and make sure they were delivering it appropriately.

And that really starts with your pitch and the value that you provide in times of crisis and for business continuity. And so we spent in a very short amount of time what we needed to do to enable the field around that. And then the third thing really getting into driving sales pipeline and what did we need to do from a demand gen standpoint. And here, if you think about pre COVID times, now and post, if you look about your buyer mindset, really we were all focused on our function.

How do I optimize my function? Even myself, how do I optimize what we need to do in marketing? And if you’re at HR, how do you optimize onboarding? And you’re recruiting, you’re focused on that. And now all of a sudden, you hit this period, the great pause, right? And you’re distracted, things are uncertain, you don’t feel connected, people are working remote. In HR, you’re trying to figure out first safety.

Then second, you’re trying to think about how do I get people that are now a part to come together and to work together? Once you get through this moment and you get set at home, now you need to get your employees back to being productive, because we can’t afford the couple of weeks of slow down and then now not to operate as productive as we were prior to this period. So what do we do to motivate?

And across the board, every buyer that we’re working with, that change, things they focused on. And what I would say the most important thing for us was how do we become a trusted resource in this time? What are we doing to provide value? People are seeking information. They’re watching the news. They’re jumping on Twitter more than ever. I mean, Twitter must be exploding. I know I’m on there. I see a lot of conversations, these little town halls popping up, having conversations.

So things are shifting very quickly and you need to realize and shift with your audience. And so how does that play out? Well, we do what we always have done in marketing. You’ve got to make sure people know who you are and where you’re at and how to connect with you, but then you need to hone in and be very targeted and think about how this impacts your account based marketing, your ABM. And now do this with less money and maybe less people.

And so here we are, how do we market in a world where we have to be six feet apart, work from home and not come across as tone deaf? And all these different things that are distracting our buyers and our folks and what do they care about to get business done? Some of you may remember I did a talk at SaaStr a few years ago about how the hell do you get leads right now and more than ever. That is what we’re thinking as we get through this, how do we build pipeline? How do we bring them in, how do we drive value?

And this was the funnel that I shared. And what this is is the mix of things. On the left, you’re really looking at all the awareness. So that casting the wide net, what are all the tools we have as marketers to bring people in? And what do we do to accelerate the pipeline and then keep them as customers? And I’ve gone through and crossed out a few things. Because as we know, we’re not doing events right now, we’re not doing trade shows. We’ve moved to a virtual world like today.

But those in-person things and the way that we created awareness in a greenfield space was to get out there in person to get them aware of us, but then to bond them to us, to have them become fanatics of our brand, that interaction. Direct mails have changed, right? Nobody’s in the office, you can’t go buy an office list and address and send it to them and surprise and delight them. What’s great is the companies out there like Sendoso have pivoted and given us a way where we can engage with them on email and they can privately update their information.

One of the things I love that I saw was Matt Heinz. He sent an email out to CMOs, a few of us and said, “Hey, I’m starting a book club. I’m going to send you a book if you’re interested. We’ll read it in the next couple of weeks. We can come together online and look at it.” And I gladly gave my personal address and I got the book yesterday. And I think what a great way to reach out to your audience to bring something to value.

It was change and adversity. How do we deal with adversity and marketing around that? So I can see the world pivoting and coming up with creative ideas. And part of leading for your team and in marketing is what got you to respond? What are you seeing that gets your attention? What actually makes you open the email, the line? What do you see on Twitter or on Facebook or on LinkedIn that gets you to read it? And how can you apply that to your own company?

And so these things have changed. Now we have less money to do all of them so we’ve got to be really smart. And I think the trick is creating content and value and what your customers need now. And so here we are, that cast in the wide net, brand awareness. How do we let everyone know we’re here to stay in this new world of marketing? Well, we’re not going to do these things, or at least we’re not going to do them the way we used to.

Maybe we’re going to do virtual events and instead of have some cool experience at the event, we’re going to send Uber Eats to them and send them some coffee. Or maybe we’re going to take them to lunch at home and allow them to order because if we were in a sales cycle, we’d take them to lunch. So let’s find creative ways to surprise and delight the people we need to talk to and reach out. But we’re going to pivot.

And one of the things we’ve done is we’ve really looked at what can we do online with videos and ads to engage with folks that are still online. Now I will tell you, things went dead for definitely two and a half weeks. I didn’t see things start to rebound out there in traffic until about April 8th, April 9th. But I think the world went quiet as we all figured out how to get home, how to deal with the situation, homeschooling. I know I have three kids.

How do we make sure they’re set up and what they’re doing? How do we keep our businesses running? How do we figure out the new world and market and learn? The other thing is on the right, press community and social media. Think about this. About a week and a half into this, after we pivoted all our messaging, we decided, you know what? Everyone has questions. Everyone certainly in the travel industry is trying to figure out Coronavirus, where’s it hitting? What’s the CDC doing? What are [inaudible 00:20:20] are out there.

There’s all these questions coming up for our specific community. So within 48 hours, we figured out how to launch a community. And the systems and tech team, Schwartz on my team went out there and he evaluated what was available that we could… We had to buy it, procure it really quickly, went out on G2. What are the technologies that we could stand out? What could we afford?

We were lucky we found technology called Vanilla for that we knew we could go through the procurement process. We might’ve skipped a few steps to get them to stand them up. I had the content team working on the content calendar. Corporate marketing was working with our influencers, partner marketing was working with our partners. Can we stand a community up? And in 48 hours, we did stand a community up.

We had one topic, it was Coronavirus. We’ve now since expanded it. It was a blue background, it was very bland. But then within a few days, we added a much better interface. We learned how to use the product a little better, we add other topics. And we launched community.tripactions.com and we started to see traffic come in and it sits on our domain. And we were able to interact and start to provide value. Our suppliers came in, our airlines and hotels came in and started contributing content.

And it was a great way, I think, for us to build and provide value to our community in a time of what they were needed and what they were searching for. We also were sitting around feeling sorry for ourselves, I think in travel is sad. Things are grounded and people weren’t traveling. And there was a lot of things not great going on. We were working from home and we were missing our colleagues. And we were brainstorming, what can we do?

And we came up with the idea called PassThePlane. And I’ll go into it a little bit more on the next slide, but it was, what can we do in this moment to reach… We’re separated, but how do we come together when we’re apart? Our mission is all about bringing people together. So this is a very awkward time for TripActions folks that were all about the circles and squares and bringing them together. And so we had to think about what could we do?

And we kicked this off as a company and we started to make paper airplanes and pass it around. And most of us have paper, maybe we even have a bill that we can fold up and throw. And we threw it to our employees and I threw it to a colleague in Seattle, and they threw it to a colleague in Palm Springs. And we started to really feel a connection that way. The other thing we did is we started looking at consumer brands.

I feel like consumer brands really get these types of things. We saw McDonald’s, they started separating their arches and really trying to do public service announcements around social distancing. And we thought, “Oh, what can we do?” Well, we can separate our circles and squares. And we did that. We separated them and we said, “Hey, let’s take a few weeks.” And hashtag social distancing, what are the creative things that we can do from a brand standpoint to support what we need to do in the world and be part of it and resonate with our audience and not be tone deaf in what’s going on in the world out there?

And then of course, you’re always thinking about your customers and as you pivot your messaging and product, you need to have the right customer case studies, the stories that you could put out there that make sense. And then really thinking a lot about our blog content and our SEO strategy, what do we do with not a lot of budget? You need to bring traffic to your site and how do you bring traffic to your site? You write content that people value and come to and share.

And so we continued to build a lot of content that was relevant for what we’re doing today and what’s needed and get it on our blog and share it and work with our influencers. So that’s the brand side of the world. Here’s PassThePlane. So far we’ve reached over 5.6 million. I certainly invite all of you to do it. There’s something, I think, amazing out of the sadness when you do this with your colleagues as one and even your family.

My dad is remote and at home, isolated of course. And I know he loves airplanes and I pinged him. I text him and I was like, “Hey, you love airplanes. Will you make an airplane and throw it?” And he was all over it. He took a video of it, did it, he videoed it and then he sent it and he tagged my nephew that’s down in Albuquerque. And then my nephew did it. And it’s amazingly easy to do and I did it with my kids that day as well. And to see them doing it and having a little bit of joy in times that are not great and how it can bond and bring you together.

And there’s something I know in your company and in your world that would resonate with your audience in ways that can bring you together. And so that’s something that we did and that we launched. So to balance the brand awareness and what are you doing out there with your community is now how do we translate this into demand and identifying our targets and getting them in there and really thinking about the ABM side? Well, we can’t do these things the same way anyway.

We certainly can’t do thought leadership round tables in person, and we can’t do the sporting events. And the direct mail, we can adjust it to the email and trying to personalize it or sending them things like I said about Uber Eats. And one of the things that we did that we’ve seen a lot of success with is thought leadership office hours. We thought, well, people are coming together in the community. We brought our CAB together, our customer advisory board, but we also realized CFOs right now are working double time.

They’re trying to figure out how to preserve cash, how to control costs, how to forecast out, how to run the business and maintain it successfully through this time. They have things they need to talk about. Could we create a webinar to bring them together? And we have run four of these now where we brought CFOs together and seen an amazing response. And it’s not about us talking about our product. This is about letting CFOs and our customer network and our prospects come together to talk about what they’re dealing with and ideas.

Same thing we brought together HR leaders and bringing them together and thinking about procurement leaders and certainly travel managers. And so can you bring communities together? I know I’ve joined several CMO ones that I have found invaluable to be learning from my peers and understanding and working with them. Certainly measuring and tracking. We’re trying to figure out what’s working, what’s not. Our budget more than ever, we need to make the most of it.

There’s a lot of great technologies we’re relying on right now to give us that information. We’re doing much more personalized videos and ads. So we’re only putting ads in front of our target accounts. So we are efficiently spending our money. We’ve been working with Terminus to target our strategic accounts and major accounts and seeing some really good results and partnering with our sales team. We’re building out micro sites for those accounts. So it’s very relevant to what they want.

Our sales team has relationships they’re building as they go through the funnel. And it’s important that when this company comes to the site, they see the things that matter to them specifically. And then of course, our persona messaging. More than ever, there’s a lot of noise out there. And if you have a few different personas and you’re sending them all the same thing, they’re just going to delete it. What does finance care about? What does your CFO care about right now? What does procurement care about? What does the travel manager and HR…

I guarantee they’re all different things and that they need the relevant information. So as I said, we created office hours for the different personas but also just messaging to make sure that we’re on spot. And what I will say, my team has definitely been rowing, right? Really trying to figure out what do we do to keep the moment up and moving forward. And with that, these are some examples, generating demand by becoming a trusted resource. That’s what bonds you to your customers as you’re adding value to them.

This week, as I mentioned, we launched a new podcast. We’d love to have you all go and check it out. It’s called Open for Business, which all of us hopefully will be in the… We are now certainly, but as we come out of this and get everyone back to business in the next couple of weeks, coming months. We launched one this week. We’ve also set up workshops that are specific and we worked with an agency called FESTIVE ROAD that are helping businesses figure out what is the tools, what is the roadmap, what are the policies that they need moving forward?

And we’ve launched something called Route-Based Recovery. It’s the reverse of blacklisting. If you think about it, we started to shut down routes as travel in the world started to be impacted. Now there’s going to be routes that are going to open back up. You may fly SFO to Norida or to EWR or whatever your routes are for your company. And you’re going to want to only open the routes that you find out that are safest for your employees or at least you’re informed.

And so we have that integration with the CDC, how do we help our travel managers figure out where they can start to allow their essential workers to travel? Because executives are going to need to get on the road to talk with customers and prospects. Your top salespeople are going to need to get out there to meet. We know more than ever that end person connection does matter. And when folks and the country and the world is ready to do that, we want to make sure businesses have the tools they need.

So workshops are a great way to help and provide value. I talked about the persona based wiki resource centers. We’ve launched these amazing resource centers by persona that’s not just about us. If you make it about you, they won’t stay for long. It’s got the information they need out in the market to do their job better. We also launched… it’s been a busy week. Thank you marketing team for building. We launched our TripActions Academy. We launched six courses this week.

One thing we know during recessions and depressions is people go back to school and they retool. Community colleges get really busy and all of us need to retool our skillset for where people are hiring, what people need. It’s a competitive marketplace. And so we’re launching this to get people certifications and learning so they can be even better at their job. And also people are at home right now and they may have some time to focus and learn. And what better time than to do online courses in school.

So we’ve launched academy.tripactions.com for our customers and for prospects, and really anyone who wants to better themselves in this time. And then persona based calculators and different ROI tools. Right now in finance, they just canceled a bunch of flights and they need to understand what’s the impact. What’s the financial impact of flights and credits that they have and cancellations and the tools that they need so they can spend wisely and make sure they’re taking care of their businesses?

So all ideas and things that you can do to provide value to your customers and move forward and help them. And I definitely believe more than ever, I’ve always thought a true test for marketers, are you a revenue driver or a cost center? And I thought about that before this, but really now more than ever we can’t afford as marketers not to drive revenue and show our value and to be able to showcase that.

And I believe more than ever you need marketers in this world because we’re understanding the audience, what we need to do and enable our field team to quickly pivot and message. We need to be creative right now. We can’t be tone deaf, we have to add value. There’s just so much that we need to do right now. And really that’s what I have to share with you. Thank you for your time. And I’m open for questions. Let me see. We have a Q&A here. And I might need some help from the SaaStr side. Let’s see here. Clicking on the Q&A, maybe I have to escape out of here for a second. All right. Here we go. I see our chat.

Hey, Meagen. I’m also happy to read you a few questions if that helps.

Yes, if you would. For some reason the Q&A is… There it is, now it’s popping up. So Meagen, I’m interested to know if you’re able to generate any prospects after changing all the messaging, especially in the industry you’re in. Yeah, that’s a great question. We are usage based model. So if people are not booking hotels and travel, we don’t have that revenue coming in. But what is interesting about this time, we had our second largest month in the history of the company in March.

And why? You ask why would that be? What people found is certainly if you were unmanaged, you did not have a platform where you could track or know what your employees had booked, you could not fulfill duty of care. If your employees went and booked on a consumer site, you had no idea where they were. And how do you reach out? How do you protect them? How do you get them home? How do you look at future travel and make sure they cancel those and get that money back for the company?

And so we saw a lot of unmanaged companies go to managed, also enterprise and mid-market that had managed solutions more than ever needed not just the traveler map that we had and the ability to find out future travel, they need to blacklist and they need to get this data and information. So yes, pivoting the messaging and making sure we’re on point definitely brought in prospects and conversations and made us very relevant more than ever. Because there’s certainly employee traveler safety and controlling costs.

The second largest cost for companies is actually T&E for most companies, it’s either second or third. And so this is top of mine. And as I mentioned before, you’ve got a lot of credits you need to manage those. So second question, how big is your team to be able to pivot of your content that fast? How much in house versus outsource? So I did take a hit as we scaled back a little bit, my team is now 32 people. And I did not outsource, actually we cut budget.

So I have a very strong team and we really are builders and created a lot of content. And I have the systems folks in house, I have the content, I have the corporate marketing. We have really good relationships with customers and our partners. And so we were able to pivot and we have strong sales enablement and alignment between marketing and sales to make that pivot. But there were some long hours. I don’t want to necessarily ever go through that experience again. But we were able to do that in house but it was definitely a balance of tough love and motivation for all of us to get through that.

Next thing. It sounds like your team came up with a lot of creative ideas for adapting to the new situation. Can you talk about the ideation process used a bit more as a leader? How did you encourage? So we immediately imagined we’re all remote. I did stand up meetings every day in the morning, and we still do these with my directs, and then did a rap meeting at the end of the day at 4:30, 5:00.

And so at the beginning of the day it was, “These are our top three priorities: messaging, sales enablement and sales pipeline. Where are we on the projects? What do we need to get done? Who’s owning what? What’s the feedback?” It was very like a war room every day in the morning. And I feel like we’re still kind of in war times. And then at the end of the day, it was check in with the entire marketing team, how’s it going? What are we seeing here? Can we follow up with this? What does the sales team need?

So more than ever, you need to come together and communicate. And it is a balance of, like I said, this tough love. You need to motivate everyone but be very clear around the situation that we’re in and what we need to do to get through it. As far as fostering innovation, every meeting I kept a section, an expansive section where it was brainstorm. I need everyone’s ideas, the whole no idea’s dumb and nobody cut it down.

Let’s start riffing on a few ideas and everyone just start… what are you seeing in the market? What have you seen consumer brands do? What can we be doing? And just get those ideas out there and can we build on it? And then also we’re very busy on Slack with ideas and the marketers are creative, right? So I was very proud and impressed by the team. We just kept coming up with ideas. Let’s build a community, can we pass the plane to each other? Can we do something to bring us together?

Can we build an academy and a university? What are we needing? I think this is the fun part about being in marketing. It was horrible but yet fun. The art and science of marketing like what data, what is it telling us, but now how do we get to do the art side of it? So the next one, how do you think about reprioritizing program and ad spend? Specifically would you… It moved. Would you focus… I lost it.

Specifically, would you focus first on capturing high intent bottom of funnel programs or instead focus on lower conversion, lower costs? Oh man. What I kept thinking about was how do I do it most efficiently and what’s converting. Something I saw interesting is certainly in the travel industry, a lot of companies had to make cuts as you can imagine to conserve cash and to go to the core. We saw people stop bidding on our brand terms.

So we didn’t have to spend as much money on brand terms because the smaller players are cash preserving, everyone’s focused on their core business. And so I don’t think it’s a time to pull out of paid search at all, but actually we are able to spend more on different types of terms like business travel management because I think marketing teams got distracted or cut. And so our ability to keep building content that people needed and to keep bringing traffic in.

I don’t necessarily have a good answer. I think you have to look at what you’re seeing in your business, your traffic and what’s converting and what’s not and focus on that. I think it’s going to be a little different for everyone. But I do think paid search and organic is something you should focus on. And content really matters, focus on the right content and tap into your influencers. They’re out there. Everyone’s willing to help.

Our influencers and partners were awesome in this environment. They got it and we were creating content that was necessary and valued and they supported us. It says, if you had to find places to cut social search, where and why? Originally I was thinking we need to pull back in social, but actually I think people need social more than ever because everyone’s on social. We’re separated and isolated and we’re all going online to figure this out.

I’ve spent quite a lot of time looking at Twitter, communicating, exchanging ideas. So I still think you need social, but I think that’s something many people can get involved in. Our CEO’s involved in that, our sales team is on social, has been trained and enabled and your customer success managers and your product… a lot of people you can bring them up to speed if they’re not up on speed.

But I think it’s a worthwhile all hands conversation with your company about what you need from them and how their reach and their networks matter. And it’s, I think, a cost effective way to do it when you don’t have a lot of budget. Let’s see. What should we do with all the physical material we had planned for our previous marketing campaigns? We definitely have the surprise and delight marketing materials. If you’re running social programs and people want to privately opt in for you to send them stuff, there are great programs like Sendoso I mentioned, or Snappy I think.

There’s a couple out there that will allow you to engage with customers and prospects where you could ship directly to them. There is a time that we are going to come back together. So as long as it doesn’t say 2020 on it, we may change our dates on things. I think you can use it or is there a way you can check in with your employees and do things for them? And I think there’s always ways to surprise and delight, or can you donate it to a local organization that could use it? Do you have something of valuable…

There’s lots of organizations trying to help people. I think it’s a time to be creative with that stuff for now. And if it’s branded best experience in business travel, maybe wait a little bit on that stuff. Let’s see. How much time are you investing in creating COVID-19 related content? I would say the first couple of weeks, very much in that. I mean, everything we’re building will help in any really, I think, crisis. But specific to us it’s very relevant in business travel.

There was SARS, there was 911, there’s been many things that have disrupted travel where you need tools to take care of your travelers employees. There’s always going to be times that we need to control costs more than ever. I mean, we should be always thinking about controlling costs, but making sure people have the tools for that. So I think it matters. We don’t know how long things will go, there’s many unknowns. I don’t know. I feel like it was more than worthwhile to focus on what our customers and people needed in that time.

Next question. How do you tailor marketing messaging to reduce churn and increase engagement from current customers? I mean, churn matters right now more than ever and especially in SaaS. Your CFOs are looking at your spend and they’re ranking your software and they’re drawing a line and they’re questioning are these still necessary? If you had to rank your software, what do you need in the future and where are you cutting? They’re negotiating and they’re doing different things.

So more than ever you need to enable your CSMs. Part of the three things I had to focus on, the second one was sales and CSM enablement. Your CSMs need to be connecting with the customers, driving value and making sure one, they know we’re there for them, but that we’re building for them. And if you’re a tech company, which most of you probably are and SaaS, I mean, what’s going to get people’s business back to business is tech.

What we do and what we build and the data we have access to companies need and we can provide value and we can pivot and find product market fit. That’s what startups do, that’s what tech does. And so be communicating with your customers what you’re doing to add value so you reduce churn. And some, you won’t be able to reduce. If you have a lot of SMB and commercial companies and they start to go out of business then that’s out of your control. But what’s in your control is what companies need and what you can build for them and focus on those.

It says, we are a very small team at the company I work at, resources are limited. I’m also entry-level marketer. How do you overcome feeling overwhelmed and help create content in a timely manner? Definitely all of us are feeling that. At least once a week, we did it twice a week in the first couple of weeks, but take your team on a Zoom walk, follow social distancing rules. They can walk around their apartment, their yard, their house.

Keep the distance but there’s nothing like being on Zoom and seeing the blue sky and getting some sunshine. So first of all, if you’re feeling that, get some vitamin D. If you’re in the Bay Area, we got beautiful weather coming. Sit out on your porch, your balcony, your front step and soak up that sun for 10 minutes then come back in, take a deep breath and start building content.

I do think you have to balance your mental health and feelings so that you can be productive. And so do that, take that moment and then come back in and get busy. I’m also a morning person. I do my best work in the morning. I wake up at 4:30, the house is quiet. Like I said, three kids, three dogs. I take that time to recharge, to get ready, to answer follow up and to create and build and write content.

So I think that balance matters, but you do need to build content and put yourself in the shoes of the people you’re writing for and what they need or call up your customers and ask them, what do they need? What’s top of mind, what information did they search for to do their job? And then try and curate it and find it for them. Let’s see, you said you had a large month in March. Yep. Do you think this mainly due to the change of voice from SDRs? How did the process change?

I think it was large because we delivered something that people need and we tapped into what they’re looking for and the value. And I think that it’s your awareness and you’re messaging that you’re putting out there and the content that you’re putting out there, it’s making sure your SDR certainly and your BDRs understand the environment and what needs to happen. It says, how did the process change for sales to be able to close new prospects as the pandemic continues?

Well, I mean, they need to focus on their target accounts, what those target accounts need. One of the things we’re certainly seeing as we deliver T&E, so travel and expenses, is our CFOs need to know right away what people are expensing. You can’t afford someone to maybe leave your company and turn in three months of expenses, $40000 worth of expenses you didn’t even know that was coming. So what you do need is to know in real time.

So what are we delivering in real time for CFOs? Well, we have something called TripActions Liquid that shows you what they’re expensing in real time and you can set the policies and you know and you’re not caught off guard. It’s making sure you’re showing what your persona and audience needs right now. So what I would say is moving forward, we’re making sure our sales team is talking to what our audience needs right now and the engineering team is building. We are building what they need, and then we are quickly making sure we understand and deliver that to market and we have the right messaging.

What about the customers asking for a discount in the interim period, likelihood for churn? I mean, that’s the natural state of things. Some of your customers are going to need to do that. They’re like all of us trying to figure out how we do it. And some cases, if they’re in dire straits, you’re going to figure out how to support them and do what they need in the time. Maybe you’re going to give them some reprieve for a month or two months, or maybe you’re going to, okay, full due at the end of the year.

I don’t know. You’ll figure out that creative thing that you need to do so you can keep your customers and understand their situation. Certainly I ask for those customers that are doing well and on the other side of this cut some slack to your vendors. But it’s a partnership and I do believe we’ll get through this, we’ll figure out what that is and we’ll have the conversations. This is not the first time companies have gone through recessions or negotiations during tough times. And so we’ll figure out what that looks like.

Did you use platforms like G2 and Capterra? If so, did you see any increase in lead flow from these channels? Yeah. So I’m a huge fan of G2 for some obvious reasons. But yes, I mean, we use G2, we look to our customers, they’ve got a great quarterly report that they put out there that shows that we use as enablement for our sales team. They just did a great report for all of us, the top SaaS companies, the top tech companies, the most loved companies.

So they’re doing a great job to help all of the tech companies and SaaS companies out there to surface the voice of their customers. And that’s what we should look to. We should look to people’s customers and what value they’re getting out of the software and have the voice of them. And so, yeah, we’re definitely to answer that question, leveraging G2. Let’s see. With the different marketing streams discussed, what is your rough allocation of each?

Well, five or six weeks ago? I would say budget, we probably did 40% towards events and pipeline and acceleration and person stuff. So when I took a budget cut, I whacked that. And that’s probably the right thing to do. Now when I look at it, people right now are focused on building content. It’s the software we need to take stuff to market. I would say it’s paid search. And it’s content syndication, it’s working with our vendors.

Skift and BTN are out there creating amazing content for travel managers so we’re working with them to make sure we can provide value as well. So I would say it’s content syndication, it’s paid search, those types of things, direct mail through creative means. How are you to manage to be a revenue generator and how did you calculate that? Well, part of being a revenue generator is being able to prove that you drove the revenue.

And we’re fortunate that we do have a pretty, I would say, sexy text deck. We added over 20 martech in the last year that allows us not only to optimize our website, but to understand and really look at our funnel. We have things for sourcing and attribution like Visible, we use Full Circle CRM. We’ve got obviously Salesforce, we’ve got LeanData. We have a bunch of tools that are allowing us to monitor everything that comes in and then see what’s sourced converted and prove it’s not just about MQLs, I follow serious decisions.

It’s not just about qualified leads. It’s actually, did you help build and source pipeline? And then what close did it come from marketing or not? And can you trace that back? So you definitely need the systems to prove that you drove the revenue. And then influence. I would say there’s not many things that get closed in business that you didn’t influence somehow from a marketing standpoint.

Somehow they found out about you. Prior to this thing they found out about you through word of mouth, they found out about you through an event, through something on display, through conversations, a lot from your customers, through paid search. But then they came to your website, which if you’re in marketing or running your website and optimizing and capturing the people that are there, they came through content networks and syndication. And then you had to provide proof.

There’s hurdles they went through to buy your product. Did they want to find out if you were secure? Yeah, they did. Did they want to find out if you’re going to be around for a while? Yes you are and this is the proof. Your sales team can tell you what hurdles they’re facing and what enablement content they need to do that. So all the content you create, you should be tracking. We create campaigns in Salesforce for every piece of content. And whether it’s sources it or influences it, we can tell every person that has touched this content and we track that and look at it and then all the ways they come in through the channel.

Has your organization TripActions seen the uptick in webinar attendance? Yes. Our office hours are awesome. I’m really impressed to see the number of CFOs right now, VPs of finance that are attending our webinars and that are engaging with us after. We don’t sell in the webinars, we’re bringing them a community together. But they come to us and they ask us. They hear about something that we’re doing because our customers are there and they’re talking about some of the tools that they get from us to solve problems and then they’re coming to us.

So yes, our webinars, I call those webinars, they are there. They’re Zoom, they’re office hours. So yes, we’re seeing really good success with that. I mean, and look at right now here we’re on SaaStr summit. And the number of people that I have registered and attend is high because we’re all trying to get information to figure out how to build and run our businesses. How much budget should be spent by startup for their ads currently via ed techs? Okay, for ed tech.

I mean, it depends. If your audiences are there and you’re seeing you’re getting in front of them. I mean Terminus, we use, is a great way to get in front of exactly the audience we want. They can do it by the company. And we use Bombora as well just to understand which companies are in market now. So that combination is a great combination. And so I think it depends what’s working for you and where your audience does that.

So I’d ask your customers, what are they looking at? And then go put your content there because they represent your future customers for the most part, unless you only have five. But if you have at least 20 to 100 customers, they know. So let’s see. So would direct outreach be a good strategy in the current situation? Direct outreach, yes, is a great strategy if you have something compelling for them.

So if you have a message that resonates and you’ve enabled your SDR team with the exact messaging or your sales team. Because you get 14 seconds, right? We all have, I always heard, the attention span of a goldfish is so many seconds. So you need to be able to give value immediately before you get hung up on. And so are you saying exactly what that person needs to figure out at that time? So yes, outreach works if you have the right messaging when you make that call and your field team’s enabled.

Any advice or plans on how to reduce customer churn in this recovery period? Provide value. We launched our academy to better them, to make sure they’re learning and they come out of this with even better information and we’re helping them control their costs and save money in this environment and what they need. So, yes, if you want to reduce churn, provide value, deliver what they need, pivot the product if it’s necessary, make sure your CSMs have everything you need.

And bond with your customers, be creative. If you’re on virtual conferencing or Zoom, create clever backgrounds when you come in. We’re all playing with it. But what if you find out your customer loves The Warriors, can you put like The Warriors on the background of your Zoom and just surprise them? Or they’re from Texas and they like a Texas team, can you do something with Texas in the background or what’s their alma mater?

I don’t know, find something to bond with your customers and surprise and delight them in the environment that we’re in now and be there for them. What do you think about doing virtual events? Would we see the same ROI? I don’t know. We did a big conference traverse. We saw a ton of money from our customers bonding with us and signing up and enterprise and all of that stuff.

What I meant to say was we spent a lot of money on it to bond with our customers and we were going to do it again. And now we need to figure out are we going to do a virtual event? And we probably will, we’re probably going to test it, but it’s going to be different. And we’re going to have to find ways to bond with them and we’re going to have to do it in a cost effective way. And we’ll see, I think it’s going to be a big test for a lot of us.

Part of being in marketing is that you’re testing and more than ever, we have a new environment we’re testing. And if we do ours in September or October, I’ll let you know. Or I bet SaaStr will have a good case study on this for all of us after this week. But we’ve got to find a way to bond. And if people that’s how they’re digesting information, then that might be the way to go. Let’s see. What type of demand gen campaigns are you running during the pandemic?

Well, we’re talking a lot about business travel continuity and the business travel continuity checklist. So we’re creating things that people will need to deal with the situation, ROI calculators I talked about, all of those are things that are value that people are willing to exchange their information for. And so those are things that are relevant that are customers’ need. And we’re seeing a lot of inbound around these types of checklists, ROI calculators, stuff like that.

When you launched TripActions Academy, was it targeted to the unemployed that would learn skills to get a job? No it was not. Actually it’s for our customers out of the gate. We invited our customers. We enabled our CSMs to talk about it. This is like version one phase zero, whatever you want to call it, the six core courses. And we have 20 under works that we’re going to launch. And it’s open to anyone, but we will invite others to join.

And I think if you do them really well, even when we are hiring and onboarding in the future, our own employees will take this. It’s teaching them about the industry, the business, it teaches about best practices and managing travel, what our customers care about. So I think it’s a really great investment almost for any company right now. So no, it wasn’t built for the unemployed, it was built for our customers. It was built for our future customers from that standpoint.

Two questions. On which social media platform are you seeing most traction and how much of a conversion? So I mean, when I talk about social media it’s more about engagement. Over a month ago, I would’ve said Facebook. I still think a ton of people are on Facebook, but Twitter, like I mentioned, I think is blowing up. People are having conversations on Twitter. That’s a really fast way to get information. It’s kind of fun.

Some parts are sad, there’s a lot out there, but it does kind of keep you top of mind and in marketing on what people care about in the moment, what they’re thinking about. So I would say Twitter is a big one. Instagram, we used to be out there in the world taking all these cool pictures of what’s happening in the world, now we’re all taking pictures of our backyards and spraying and things. But people are still on Instagram and that converts over to Facebook. And your really deep networks are on Facebook so I think it’s a great way to connect with your deeper networks.

And then certainly LinkedIn. A lot of people are in LinkedIn right now, whether it’s talking about the value they can bring to customers or looking for kind of their next thing. So I think those are kind of the top four. Let’s see. With the gas lighting and major saturation of COVID related content, how are you keeping a finger on the pulse, the psychology of our consumer, blogs, writers sources to keep an eye on? I think your customers are the light of it.

You yourself, as a human, think about how you’re feeling as a human and what you want to see and hear and what turns you off and what makes you curious. So for me, I mean, I wake up early and I get on and I look and I start to exchange with my colleagues that are all either in Europe or the East coast, they’re on talking. My team that’s in London, Katie and team are sending me stuff and things that they’re seeing.

So I think part of keeping out a pulse is you need to be out there. If you’re in marketing or you’re a CEO of a company, you should be there engaging and talking. And that’s how you kind of stay up on it. And your marketing team, I mean, we have a marketing channel and folks are engaging and dropping topics and generating ideas of what they’re seeing and what they think and create that environment where you’re team feels comfortable doing that.

Let’s see. What do you think about renewals? People don’t have cash flows. I’m not sure I understand that question. What do you think about renewals? People don’t have cash flows. I mean, I think if you’re saying, should we be concerned about renewals as a SaaS tech company? Yes, focus on your customers, they’re going to be picking where they’re going to spend their money and what’s going to help their companies the most and what they need. Come up with creative ways to support your customers and add value.

Let’s see. Most travel tech companies are usage based, do you think we will start seeing more subscription-based? You know what I think is interesting about that? Is if I’m buying software, if I’m not using it, I don’t want to pay for it. So if you’re subscription based and I’m not using you and I’m paying you, I think that model actually in this time is not great. If I am using you, then I should pay for what I use. So while it sucks right now because nobody’s traveling, I actually think usage based is an advantage.

When you use us, you’ll pay for what you’re using. So I think as we come out of this we’ll be attractive to those that are controlling costs. What are the metrics you’re looking at as leading indicators to measure the return to normal? Well, we have a ton of data on people booking. I will say people are starting to book. So we are definitely getting excited to see and to look at kind of how far out they’re booking, where they’re going. So definitely seen that tick towards the future.

Our leading indicators are people booking. That tells us they have a place to go, they’ve got some essential travel, things might come back to normal in the next month or two. But let’s see, right? We’re going to follow the government and follow the CDC and do what’s right for the world. How do you engage with customers and prospects to keep your company top of mind? Add value, making sure you’re delivering. What is the one thing you would recommend marketers not do?

Well, we had a situation ourselves where a competitor actually put out in the market that we’d gone out of business. And they did it in a way, they pinged our customer that they had lost to us at the beginning of the year. And they said, “Hey, well, what are you going to do now that TA’s out of business?” And our customers forwarded that to us. And it was such a sad moment and time to see a competitor take advantage of a really horrible situation and to lie and to put false information out there. That is something, if you are enabling your BDRs, your SDRs, now is not a time to lie about your competitors or put forward any of that stuff that’s not true.

And so how did we react? I mean, we created a blog. We wrote, we reached out to our customers, let them know, “Nope, we’re here. We’re in Europe, we’re in Asia, we’re all around the world.” We had to do what was smart for our business. We had to preserve the core. So we are here for our customers now, tomorrow, in the future. And we know we did what’s right for the business and we had to address it. But that is something I would not be doing as a marketer, have some integrity as companies and don’t do kind of stuff.

You said, when marketing budget profit fall down a company, in this situation what should we do? I think what you’re saying, if budgets are cut what should we be doing? I mean, what I did is I focus on what I think matters the most. I prioritized, I had my team align around three very… now’s the time to focus and execute and track results. So that’s what I would do. And I think content is the way. You can build content and get it out there and it drives organic and it drives value and that’s what you should do.

Can you talk a little bit more about PassThePlane challenge success metrics, goals? Yeah, I mean, we didn’t set up success metrics for PassThePlane. That was something we needed to do as a company, we needed to do as human beings. We certainly were excited when we saw it take off, when we saw partners get engaged, when we saw our employees all around the world pass things, when we saw people we didn’t even know, when we saw families and a glimpse into family’s lives and their kids.

That I think was the great part that came out of it. We did not have goals. Normally, you would set up these brand campaigns and you would say, “This is what we want to see. These are how many reach,” and all that. We moved very fast. We didn’t set those up. And it was something that we did initially with the company and we saw it and we started to put it out there and we built a landing page to educate people on it.

We didn’t brand it with our colors. We invited our competitors to get involved. We really just want it to be something for the travel industry, which as many of you know is really taking such a big hit. And so that was what we did it for. But certainly excited to see over 5 million folks be part of that. Is it that a manual thing to track your marketing in Salesforce or what tools help you to do that to track campaigns?

We use the campaigns module in Salesforce, allows you to track members or leads and it spans across the leads’ and contacts’ databases to track all the way through the funnel. And so as you create campaigns as leads come in, they need to be tagged. So when you go web to lead or web to Salesforce, you need to have it set up on your forms to assign it and track it to the campaign, to put it all the way through.

So have you restructured your team during this crisis? Like I said, I shored up on content. My field team shrank and started to focus on webinars and online events. I pivoted some folks that were focused on some of the social side really heavy on digital and social. And let’s see. As far as scaling back on my original 2020 plan, I mean, events went out the window so that was a big scale back. We had plans to do more out of home advertising obviously. Not many people are going out of home right now and billboards and stuff. So that got put on hold.

Advice for early stage travel SaaS startups, figure out your market. Product market fit matters. So really any startup focused on those first five customers, the next five, get to 10, get to 20. It’s really more about solving a problem for the customers right now and partnering with them to solve that problem and then figuring out what sticks and find the product that many people will need so you can scale.

How do you validate your ideas and choose from a bunch? I mean, as you start to run it, it gets validated, the people engage and it turns into it or not. If you have a bunch of ideas, I mean, I think that’s part of being a leader is figuring out what you’re going to go test. You’re listening to your team, you’re thinking about you got a gut feeling, you’re pulling your customers and you’re bringing all of that data together to make a decision and you hope you make the right decision. And you have to give people the ability to fail, right?

Not every idea is going to work. And I think if you don’t allow some ideas to fail, you’re not going to get good ideas and the crazy ideas, right? It’s the crazy ideas that sometimes win that you’re not expecting, because that’s what breaks through the noise. So that’s my thoughts on… you don’t really know until you test it, you have some gut feeling but go for it. And if it doesn’t work, stop it. Try something new.

I mean, goodness knows we’ve tried a bunch of things in the last five or six weeks and learned pretty quickly and engaged with the market. And if we got information back that said, “Hey, no, that’s not working.” Then we stopped it and then we tried something new.

Hey, Meagen. It’s Webber from SaaStr. Just giving you a quick update. You have about time for one or two more questions.

Thank you. I know we’ve gone long and I appreciate those that have stayed on. It says, could you summarize the vendors you mentioned on this talk that helped you all? So let’s see here. Vanilla forums helped us get our community kicked off. TalentLMS open source, way to stand up your academy. We had to procure software really quickly, it had to be affordable and in our budget and something we could put together and learn very quickly.

Sendoso helped us from a direct mail standpoint. Snappy, a lot like FESTIVE ROAD, is an awesome partner of ours that we’ve been working with. BTN, if you’re in the travel space and Skift. Terminus, another vendor that’s done awesome work with us to get our targeted ads out there and quickly learn and go through stuff. I’m sure I’m missing… Podcasts, we’ve worked with some podcast stuff I don’t know off the top on that.

Let’s see. What tools are you creating for your calculators? I’m not going to remember the name of the calculator. I might have to post that later. But we do have one that we’re working with. Did you guys cut budget? Yes, we cut budget by half, 50%. So yes, we definitely cut budget. That’s the way to become efficient and productive and really help your team prioritize. Lose your budget or half your budget to nothing like focus and I guarantee you gravitate to the stuff that’s going to work when you do that.

Let’s see. How do you set yourself apart from other big TMCs providing tools, et cetera, these tools are still out there? Well out of the gate, there’s a reason we have 4000 customers using us. We are a very different… you need to tell your value prop. We are differentiated because we are one platform. We are amazing tech, that is the booking side of it. We’re a consumer like thing with travel agents. We have a service and support. We have live travel agents all in one platform.

The Legacy providers were built before the iPhone over a decade, if not 20 some years ago. And they are not able to pivot and iterate like a startup can, they’re not agile like we are. And by not having it on one platform, guess what happens if you booked in one tool and now you’re traveling and your agents another tool? You could not quickly figure it out how do you go and get stuff canceled and wait in long hours to get your call back?

I mean, our agents, our SLAs are under 60 seconds because we use a technology we built ourselves called Travel Zen that has everything about you personalized. We know who you are immediately when you call us or chat us. We know what trip you’re on, we know where you are in the world. We know your preferences, your loyalty and the problem you’re facing. And so we can respond very quickly because of that. Our product and our service differentiate us out of the gate.

And if you were out there and had to call in, what I was saying is our SLAs are under a minute, usually 27 seconds. Now our volume went up 700%. We still kept our answering and response under six minutes those two weeks of terror for everyone. We had everyone online, trained, ready to go to support. Our agents were amazing. And that is because we leverage tech. That is because we are a modern platform, we have access to data and we were built in modern times. So that’s how we set ourselves apart from the Legacy TMCs. What percentage of…

One more I guess, because we need to end this. Have you tried word of mouth through your employees, influencers, any advocacy tools? Yes. Definitely. We use GaggleAMP for that. I use community tools like Influitive. Advocacy is a great way and your employees have great networks and can get the word out there. And so yes, we do use word of mouth and we enable our customers as well to shout from the rooftops their experience with us. Thank you everyone. I know I’ve gone way over, appreciate your time. And Earth Day 2020, 50 years celebration, an interesting time to be on the planet.

Thanks so much, Meagen. And thank you everyone else. We’ll see you in the next session

The post Making Trade-Offs In Marketing with Meagen Eisenberg (Video + Transcript) appeared first on SaaStr.

The SaaS Trust Crisis with Godard Abel (Video + Transcript)


This post is by Team SaaStr from SaaStr

It’s 2020 and SaaS buyers are more skeptical and suspicious, more disbelieving, more unconvinced than they were in 2019. Or 2018. Or 2017. The situation is getting worse. The SaaS Trust Crisis is making it harder to market and sell software and services than ever before.

Godard Abel | Co-Founder and CEO @ G2

FULL TRANSCRIPT BELOW

Thanks to Jason Lemkin and the SaaStr Team for putting on this event in a very tough time. And what I’d like to talk to you about today is the SaaS Trust crisis we’re seeing. Both, how did we get here today? And more importantly for us in the SaaS community, how do we get beyond it? How do we win back the trust of our customers? Today, I’m going to start by telling you a little bit more about me. My background as a SaaS entrepreneur, and then share the big trends we’re seeing in the world of SaaS, both what we’re seeing over the next few years and then also zeroing in on what has changed in the last few weeks in the middle of this COVID crisis. Then I’m going to talk about the crisis of Trust that we’re facing at SaaS industry, and how can we, as SaaS entrepreneurs, SaaS marketers, Saas salespeople, how can we win back buyer trust, so we can grow together with our customers.

A little bit about me. I’ve been building SaaS companies now, since 1999. So for over 20 years. The first company I built was Big Machines. We started way back in 1999 in the midst of the dot-com era. And that’s actually … shortly thereafter, I lived through my first crisis, the bust, the dot-com bust. And big machines, though, ultimately did have a lot of success. We partnered with Salesforce and with Oracle and the company was ultimately acquired by Oracle after a dozen years. Then we went on to build another company called SteelBrick, another SaaS configure price quoting solution. And that company grew very quickly. And after just two years, we were acquired by Salesforce. And then I spent a year at Salesforce working on Marc Benioff’s extended leadership team, and really had a chance to learn how important trust can be, and also really learn from Salesforce, from Mark, how do you really build a global SaaS leader at scale?

And today, I’m very excited to be the co-founder and CEO of G2 where we’re building the world’s leading marketplace for SaaS software. And what I’m very excited about at G2, is we’ve been growing very rapidly. Just last month, we had over five million SaaS and software buyers, coming to G2, to find trusted SaaS solutions, and what those software buyers are looking at on G2, are trusted peer reviews. We have over a million of them on G2, and we validate every review on G2, both with LinkedIn profiles to make sure that these are real professionals that can be trusted, and we have a research team that vets all the reviews to make sure it’s very high quality content for satisfiers. And we’re also pleased, now to have almost a hundred thousand different SaaS products listed there, and being backed by a hundred million dollars from LinkedIn and some great investors that do allow us to keep investing in this marketplace.

And in this time of COVID, we’re also pleased we are able to give back. So we’re supporting charities like Girls Who Code, New Story charity, the American Cancer Society with our G2 Gives initiatives. And G2 Gives, we partner with philanthropies, we partner with some of our customers like AWS and Google Cloud, who can then make donations for every review, to thank their customers. They can make donations for those charities. And just in the last year, we’re pleased to have donated over $300,000, and we’re doubling down on those efforts this year to help where we can. And we’re also very excited, at G2, we did just announce our best-of awards. And please check those out, but it includes many great SaaS vendors starting with companies like Dropbox, SurveyMonkey, Atlassian that, based on amazing customer reviews, we’ve recognized as some of the best software products for 2020.

And now what are the big trends we’re seeing in global SaaS, and how is that affecting software buyers and trust? And I was very inspired when we were starting G2 back in 2012, by this quote from Mark Andreessen, most of you know him, but he was the founder, originally, of Netscape, Mozilla, and really started the whole internet revolution with the browser. And now, he’s an investor, but in 2012, he coined this very famous quote that, “Software is eating the world.” And I think by that, he meant that every business process in every industry is going to be automated by software. And this does create that tremendous opportunity for our SaaStr community, to help companies use that software to automate their whole business. And since Mark shared that quote in 2012, he was very impressioned the software industry is really booming. It’s growing tremendously quickly. And when we started G2 in 2012, software, globally was about a $295 billion industry, already a massive industry. But what’s amazing today, the industry is almost doubled at 546 billion in total revenue.

And what’s really exciting for our SaaStr community, and for me, and for all of us as SaaS entrepreneurs, is this industry’s just going to keep growing. And this is data from Battery Ventures, but you can see that in the next eight years, we’re expecting industry to double, to be a trillion dollar global industry. And even that’s really just the beginning. This was a 30 year mega trend into the future. And you can see by 2050, this industry will be 10 times bigger. And so all of that is what’s leading to the growth of the SaaStr community because businesses need this software, they need to automate their business more than ever. And what is also exciting is that SaaS customers are buying more and more software. And this is true across segments. On the left, you can see data on small and midsize companies, how much software are they buying?

And we have a product that G2 we call G2 Track, where with G2 Track, we’re tracking SaaS spend for almost 2000 companies now, and what’s been exciting over the last three years, we’ve really seen the number of applications they’re using grow. So we’re now seeing small, mid-sized companies using about 90 different SaaS apps. And what’s also exciting is that it keeps growing 20% a year, as there are more and more great SaaS apps out there. And in the large enterprise, there’s an interesting study by Netskope, that they published, but that the average large enterprise now, is running 1,295 different cloud apps and services. And that’s also growing 10% a year. So the average enterprise is adding about a hundred SaaS apps per year. And you can see marketing is the number one user of software, probably no surprise, many of you are marketers. There’s the MarTech 5000.

On G2 alone, we have about 10,000 different forms of marketing software because marketers are really going a hundred percent digital. They’re buying more and more software, but it’s really every team, not a company. You can see HRs is running a hundred apps. There are 87 different collaboration apps in most companies. And so really, for every business now, in every industry, software is becoming more and more essential. And on G2.com, where we’re building, deleting software marketplace, we’re also seeing software booming. Where now, we have 90,000 different SaaS and software products listed on G2. It’s more than doubling year over year, and it is in 1700 different categories. As software does keep getting more niche, new categories are popping up all the time, and you can see on the right, the biggest kind of areas, I mentioned marketing software, the MarTech stack keeps growing, also ERP financial software, office and collaboration software, HR software.

But again, I think this is very exciting for us SaaS entrepreneurs. There is, you know, tons of innovation, tons of new categories being created every year. And we’re seeing this as a global trend. And last year at G2, we took our company global. So we opened offices in Bangalore and Singapore, for Asia, and we also opened an office in London. So now we’re getting data really, globally on how is the software industry growing? And what is really exciting is that, especially in Asia, and, in January, I was in Chennai, where they have a SaaSBooMi conference now, which is kind of the SaaStr of India, I would say. And there were thousands of Indian SaaS entrepreneurs there. But what they’re really seeing is, in Asia and India, SaaS is really growing explosively, as it is globally. But we saw just in Asia, 127% growth last year in software buyers. Europe also growing 120% last year. And of course, it does keep growing here in the US but now SaaS is a global phenomenon and software buyers everywhere in the world are looking for better products.

And what’s changed more recently in the last few weeks? Now, I think we’ve all seen it, felt it. Hopefully, you’re all keeping healthy, but we’ve seen a tremendous impact on the economy, you know, as we’re all now forced to work from home. And so we did do a survey and we’ve been doing research to see how is the COVID-19 economy, how’s that changing the state of software buying. And so I’d like to share a few insights. And what’s interesting, we just did a survey of 676 different companies on how is COVID impacting their business, how’s it changing how they’re buying software. And no surprise, 88% of businesses, this was an unexpected shift that we had to go all remote. And so, a lot of businesses weren’t really ready. And I think those of us that are in the SaaS community, we’re likely already using zoom.

We’re using tools like Slack to collaborate, so I think all of us, whether we were totally remote or Part remote, I think we all had the digital tools, but the reality is in most industries, most companies weren’t ready at all. And so this has led to now a sudden increase in businesses looking for online collaboration tools and software. And specifically, here’s the kinds of software that companies are now looking for based on our G2 survey. But, no surprise virtual meetings, Zoom, we’re on a Zoom, but I think apps like that, I think every business now, if you didn’t already have them, they need them, or they need better ones. Messaging apps, certainly apps like Slack so that people can collaborate virtually across the world, remote desktop tools, screen-sharing, webinars, and time tracking, so companies can better track their employees work when they’re remote, as well as collaborative whiteboards.

And so no surprise here that now every business, all of a sudden needs collaboration software. And we’ve also seen that on G2, where we really had kind of a nonlinear spike in web traffic in March, and just in March, web traffic was up 49%. So almost 50% month over month. And as we’re seeing more and more companies, businesses around the world shopping for software to help them get digital faster.

And what categories particular are software buyers looking for, and businesses are looking for. And we’re on a webinar right now, but I think everyone now wants to do webinars because that’s the best way to connect with people at scale. People are looking for virtual classrooms, both for learning. And I know my three kids, they’re in Palo Alto, our home, learning remotely right now. So virtual learning, but also in the business environment. I know we’re taking all of our training, all of our enablement online and so, online learning platforms are really growing, video conferencing, remote desktop, whiteboards. And there’s literally, I think, almost a hundred categories we’ve seen on G2 really surging. And so this does create some exciting opportunities if you’re SaaS entrepreneur in one of these categories. And what’s also interesting, most businesses that we surveyed and most of the buyers on G2, they’re saying they’re going to keep this technology.

So this will not just be a one-time event, but this will truly be a shift where I think companies, a lot of them are enjoying and seeing the potential now of remote work. I know I am. In some ways, you can be a lot more productive. And so a lot of businesses are saying … 76% of them, 76% of businesses are saying they’re going to keep this new technology in their business. And I think most companies, as you can see here, is that these new technologies, 33% of companies are saying the new processes, the new technologies, they’re going to stick beyond this crisis. And so, I think we will see a permanent shift towards more SaaS, towards more online collaboration. And that is an exciting opportunity for our industry. And companies in general, are also right now, investing more in software and digital.

And you can see here, 66% of the companies, so almost two-thirds of the companies we surveyed are actually going to buy at least one new product to help them manage in this new environment. And 25% of companies are even saying they’re going to buy five or more apps to really help them get through this crisis and be more productive. Of course, on the flip side, you know, we all know that there are major economic challenges. I know it’s also challenging for G2. We mainly serve software marketers, and a lot of software marketers are cutting back. And so we’re feeling pain like a lot of companies. And it’s also been the news, a lot of companies are cutting back, a lot of companies are doing layoffs. So the reality is also a lot of companies are decreasing spend. It was, you know, 12% in our survey, that are decreasing spend.

So it does create some challenges for us as a SaaStr community. And what we’re seeing is that businesses are really scrutinizing their existing technology stack. They’re scrutinizing their existing status and cloud spend more than ever. And they are all trying to find immediate savings as well as there’s a heightened concern about privacy. And I think we’ve seen that with Zoom where now everyone’s using Zoom and it’s an amazing technology, but it also does lead to some bad actors trying to find security holes, Zoombomb, et cetera. And so businesses are also very concerned to make sure that their tech stack, that their software is secure and it’s private. And from G2 track, we’ve gotten some interesting data where we’re tracking SaaS usage and spend for about 2000 companies. And from G2 track, we’re seeing that 30% of software licenses are not used and, probably no surprise, but just a combination of one team will buy an app, maybe the person leaves, they stop using it, or in some cases, companies have bought too many licenses, and so … but this is something companies are really going to be scrutinizing.

And I think as a SaaS vendor, it’s more important than ever to make sure that you’re also secure, that your privacy’s up to date because companies are going to be looking at that. And we’ve seen, from our G2 track research, that companies are estimating about $7.9 million would be the cost if they have a breach. And so I think this does put heightened pressure on us, as SaaS vendors, to make sure our customers are adopting our technology and to make sure that it’s secure and compliant.

And here’s some interesting data also, on the challenge for SaaS vendors, for all of us, that we will, a lot … most of us will see increased churn. I know we’re seeing that at G2 where, you know, some marketers are cutting back and a lot of them are saying, “Hey, we love G2, but we’re not going to come back as a paying customer until we get through this crisis.” And I imagine a lot of you are seeing similar things. And here’s an interesting study from Nick Mehta, the CEO of Gainsight, and Gainsight is a customer success company that helps companies manage churn, but they were also studying, in a recent survey, how are SaaS vendors expected to be impacted by this? And you can see here across the board, companies, SaaS companies are expected increased churn. It’s most severe in the SMB world.

And I think it was small companies, are having the hardest time in this crisis. We’re also seeing that, but I think, estimated here, that churn in small ECB contracts, typically small business customers, the churn is expected to go up 15.8%. So quite significantly. And the good news is that, in the enterprise world, it’s a little bit less, but really across the board, companies are looking to save money. And so we will have additional churn challenges across SaaS.

And this really brings me to the crisis of trust. And I think, especially in this economy now, I think winning the trust of our customers is more important than ever. And this challenge, for us as an industry, is exacerbated by what’s going on in the world. And there truly is a crisis of trust. I think people in general are no longer trusting tech giants like Facebook and, yeah, there have been all the news about concerns, data risks with the large tech platforms like Facebook. Also government, it is right now in this time, hard to know who to trust. Do you trust your County representative, do you trust the mayor, do you trust the governor, do you trust the president? Especially when they’re all saying different things. And so, it’s very hard to trust government. And as a society, we’ve just had the MeToo crisis, which continues.

So I think, you know, all power is being rightfully questioned, and this does also make it harder for us, as a SaaS industry, to win that trust of customers. And so at G2, we also studied specifically in SaaS, do customers trust us? And the reality is most of them don’t, most of our customers and prospects don’t trust us, especially those of us in sales. And as an entrepreneur, I do consider myself in sales and I believe sales is a noble profession. But the reality is 94% of SaaS buyers that we surveyed don’t trust us. They don’t trust our sales pitches, and if you’re in marketing, you can’t feel too much better because 93% of software buyers don’t trust marketing either. And you know, we all make these beautiful videos, beautiful slides, beautiful websites, but the reality is the customer … so much noise and so much beautiful marketing, that I think the customers also tend to filter it all out.

And as a result, when we did this survey last year, most of you in marketing and in sales are finding it harder to get a prospect’s attention. 75% are saying it’s getting more difficult. And 65% of SaaS sales and marketing people have said, it’s getting harder to do your jobs because the buyers tend not to trust you.

And so who do people trust? And Brian Halligan, the founder and CEO of HubSpot, really has an excellent perspective on this. Where, what he says is, “Who do we trust? Well, we really only trust people we know, we trust our peers.” And that’s who we go to for advice in life. We go to our friends, we go to trusted friends, and in the work setting, it’s really going to our trusted peers, either inside or outside our company. And we asked him, “Hey, what do you really think? Does this app really work for you?” Or if we’re recruiting someone, “Do you know this person, will they do great work?” And so, it is really becoming all amongst … trust is really only a gained through peers. And so, I think that really also changes how we assess vendors can go to market.

And what we’ve seen on the G2 platform, when we surveyed over a thousand buyers of software, top of the funnel, what kind of information do SaaS buyers want when they’re first making their short list? When they’re doing their top of funnel research? And no surprise, vendor websites are a very useful source. And most of you probably already have great websites, but the other top sources are peers and colleagues. So people will go on LinkedIn, they’ll ask their fellow marketers, “Hey, what marketing automation do you run? What are you using for ABM?” And so, this is happening all the time. People are asking peers and colleagues in terms of which vendors to consider. And also it is interesting, for us, sites like G2 are being increasingly used, where it’s now one of the top three sources also, of building short lists, building the top of funnel.

And also exciting for me is it’s now ahead of the traditional analysts. Now where that’s kind of down to 30%. And obviously, so we believe at G2, is that people want real time insight from peers. And that’s what our data is showing. That’s what people do at the top of the funnel. And also when you get to the bottom of the funnel and you’re about to make a buying decision, this is becoming even more prevalent where the number one source that B2B buyers are saying they’re using, at the bottom of the funnel to confirm their decision, are review sites. And the beauty of sites like G2, you can obviously see the reviews, but you can also, through LinkedIn, reach out to those people and say, “Hey, what do you really think?” I think the same shift is happening in recruiting.

Now, I know when I’m about to hire somebody, if I don’t know them already, I’ll go to LinkedIn, go to my first degree, connections, see who knows them. And now, with platforms like G2, software buyers can do the same thing, find out which of their peers are running the app and ask them what they really think. And so really top and bottom of the funnel, this trusted buyer voice, customer voice is more important than ever. And so now, how do we, as a community, how do you, as a SaaS entrepreneur, a SAS marketer, or a sales person, how do you win that trust of the buyers? And how do you do that in this, you know, more challenging environment than ever.

And here, I’m also very inspired by Marc Benioff. As I mentioned, Salesforce acquired my company, SteelBrick, and I had a chance to be on Marc’s extended leadership team at Salesforce. And how Marc really built Salesforce from the beginning was on top of trust. It’s always been Salesforce’s number one value. And I think he has a great quote here that, especially in this world today … “If trust isn’t your highest value, something bad is going to happen to you.” And so it really has to be the foundation for almost any company that wants to serve and win customers, and have success. And for Salesforce, this is not just a mantra now for Marc and the CEO, but also Stephanie Buscemi, the CMO of Salesforce, has also made it central to how they do marketing. And I think traditional SaaS marketing was all about, “Hey, how do I just generate some leads?”

And I think what Stephanie says today, “You first have to earn the trust of your customers, of the market, of your prospects. And only once you have your trust, can you engage them.” And I think this is also where companies like HubSpot, who I mentioned earlier, do a great job rather than just trying to put lead forms in front of you, they want to engage you with compelling content, with compelling advice. And only then do you get to leads, you get the customer, and you get to growth? And so I think it’s really changing how we marked it as an industry. And the B2B playbook specifically, how do we see it evolving? And I think there is a shift from vendor generated content, whether or … and I remember when I started my career, it was all about white papers, it was all by your own website, and doing very fancy customer studio videos, having amazing testimonials, and then pinging your prospect by email or by phone.

But I think today, we’re in a different world where software buyers, they no longer trust that because there is so much noise and everyone has beautiful marketing. So yes, it’s table stakes, but to really differentiate, what software buyers are looking for are third party, trusted sources of information. They’re looking for content that really helps them learn how to be better at their job. And they’re looking for peer insights from professionals they already know and trust. And I think also the shift in marketing, I think rather than just emailing or cold calling thousands of people, I think that the modern way to do it is to really go where the buyers are and the buyers are on social networks or on LinkedIn, they’re on Twitter. And if in context, you can share insights, you can help them learn. Then that’s proving to be the best way to engage in this new world, to engage them with trusted content at just the right time when they’re shopping.

And one great example of a company that is really built on trust is Zoom. And I had the privilege of interviewing Zoom founder, Eric Yuan, also their CEO, at our G2 REACH conference last year. And Eric talked about how everything at Zoom is about delivering happiness to customers, as well as delivering happiness to the team. And so, Eric wants all his employees thinking about that all the time. And he’s also been very forward thinking in taking all forms of customer feedback, including platforms like G2, and he does see as a great way to get his team to be more customer focused. And what’s also interesting about Eric, some SaaS entrepreneurs I meet, they get very concerned when they get a negative review and they say, “Hey, Godard, can you take down that one star review?” And Eric really looks at it the opposite way. Most of his reviews are five star.

Most customers love them, but when he gets to negative feedback, he sees it as an opportunity. He reads all the one star reviews, all the negative feedback personally, and then immediately turns in a better product. And I think we’ve just seen that, where Zoom has had some also challenging publicity around security and they immediately responded, where Zoombombing, they immediately coded waiting rooms, they’ve usually delivered solutions for their customers. And I think it is that customer obsession, that focus on delivering happiness, that has made them such an amazing company. And what we are seeing, thanks to companies like Zoom being so focused on customer success, and just last week, they were also pointing people to G2 to write more reviews, but we are seeing our traffic keep growing. More and more software buyers are coming to G2 to see who can they trust. And just last week, we’re up to one of the top 1000 websites in America. Because more and more software buyers are seeking that trusted information. And-

Hey, Goddard, I’m so sorry to cut you off. We’ve actually run out of time, but we will be saving all of this Q&A so that we can answer some of these questions that people have asked in the next few weeks, and we’ll be sharing them of course, with your team.

Okay. And could I just … I’ll just go to my last slide, if I may?

Mm-hmm (affirmative).

And to summarize this, I think for those of you in the SaaStr community, we have also created a playbook on how do you market in this time of COVID crisis. A step-by-step playbook, how do you amplify this trust? How do you engage buyers in this modern world? And so, please come check it out and hopefully it can help some of you both survive and thrive in this crisis, and win the trust of all of your customers. Thank you.

The post The SaaS Trust Crisis with Godard Abel (Video + Transcript) appeared first on SaaStr.

Funding in the Time of Coronavirus with Mark Suster (Video + Transcript)


This post is curated by Keith Teare. It was written by Team SaaStr. The original is [linked here]

It all begins with an idea. Maybe you want to launch a business. Maybe you want to turn a hobby into something more. Or maybe you have a creative project to share with the world. Whatever it is, the way you tell your story online can make all the difference.

Mark Suster | Managing Partner @ Upfront Ventures

FULL TRANSCRIPT BELOW

We woke up February 2020 with a shock to the system and no idea what it would mean for our business. I just plotted a graph of the Dow Jones industrial average. If you look on the left hand side of the slide, by December 12th, we started to seek cases in Wuhan China. In January 13th, the first cases were detected outside of China. And as you’ll notice, all the way from middle of January to middle of February, the markets didn’t seem to notice. February 22nd, all of that changed and the markets plummeted. So we had a shock to the system with no idea what it actually meant. On March 27th, so about a month later, the US government passed the CARES Act, which probably you know, stands for the Coronavirus Aid Relief and Economic Security Act, which is now at three trillion dollars.

That has created a market bottom for now. So I plotted out for you. If you look at March the 23rd, the Dow Jones bottomed. At least for now at about 18,600. That’s the week that the CARES Act was signed into law and created some market stability that drove the Dow Jones back up. I thought it was worth putting three trillion into perspective for you so you could get some sense of scale. The starting point is how big was the last economic collapse and how big was our response to that? Well, the 2008 economic insecurity, we passed the $700 billion stimulus called TARP. Compared to what we just did in 30 days from the onset of a crisis, we’ve passed 4.3 times the total amount in three trillion dollars. And of course, we’re not done with this stimulus. I thought it’s also worth giving you some sense of scale for how much the US government takes in in revenue every year.

In revenue, the US government takes in 3.5 trillion. So the amount that we’ve handed out just in money going out of the US government is equal to 86% of the total revenue we take in in a year. What we see is the amount that’s actually being handed out by the government, but there’s actually a greater amount that’s injected into the economy. The Fed stimulus into the economy is projected by Morgan Stanley. It’s hard to calculate, but projected at eight trillion dollars. So several orders of magnitude bigger than you’re probably even aware. That’s 15 times larger than during the Great Recession. And we’re just, as I said, 30 to 60 days into this program, so there’s 11 trillion of stimulus.

Trying to put the impact on the economy, I think most of you know this, but in four weeks, in four weeks, 22 million people have filed for unemployment. If you look at this graph, it simply plots out how many people filed in the weeks before 2016, 2017, 2018, 2019, 2020. You can see very few unemployment filings and in four weeks, 22 million. So let’s put 22 million into perspective. First of all, in the last four weeks, more jobs have been lost in our country than exists in total in California or Texas. California employees about 17 million people, Texas about 15 million. If you take the 20 smallest States combined, the entire workforce of the 20 smallest States is about 12 million in 20 States. And if you look at the peak of unemployment during the last economic recession, you will notice there were 8.7 million people, total unemployed. We’re at 22 and counting, the figures come out every Thursday. So we’ll know tomorrow, the extent to which that goes up.

The thing that is, I think, less understood by people is the extent to which demand has completely evaporated and supply, global supply of products that are being produced now greatly exceeds demand. Anyone who studied economics will know when supply greatly exceeds demand, prices drop. This is an example just of the oil market compared just from April 2019 to April 2020. S&P over that period of time is down 3% the standard [inaudible 00:05:12] stock index. Whereas the oil markets are down 66%. That’s what happens when demand goes down so precipitously. And don’t think this is a constraint of oil. This is going to happen for many assets that are over produced now in markets where demand isn’t as strong. Many of you may have noticed this past week, actually oil future prices went negative. That means that people were actually paying you to take oil. If you want to know what happened there, the actual storage facilities are now completely full in the United States. So the ability for people to store oil doesn’t exist. So people were paying people to take their futures contracts.

So what outlook for VC funding and the backdrop of that economic news? Why is financing hard right now? I think you probably know, you read the headlines. It’s very difficult to get financed. So the market hates uncertainty. They hate when they don’t know what the future looks like. When the future is predictable, people like to invest. When it’s not predictable, they like to wait and see what happens. The second thing is the markets generally hate deflation. Deflation is when prices are dropping, that could be prices of real estate. I’ll give you an example in your personal life. If you think about buying a house and let’s say your price is $500,000 or a million dollars, let’s say it’s a million dollars. Then three months later, prices in your neighborhood dropped to 800,000 and you think, wow, that’s a great deal. Maybe we should buy.

But you wait 30 days and you notice that prices dropped to 720,000 and you think, wow, what a great deal? Let’s wait 30 days. The more they continue to drop, the more buyers actually pull out of the market because they see deflation. They see asset prices going down and people don’t like to buy in a period where asset prices are going down. Obviously, eventually you find market equilibrium and prices stabilize, but investors generally, don’t like deflation. To give it to you as a startup for example, let’s say that the markets were paying 10 times trailing multiples for revenues. So a company doing four million in trailing ARR, let’s say could get a 10X multiple and people would pay $40 million for that. Well, if the market changes how it values companies, the exact same company doing four million in revenue, the market may start paying five times trailing.

This happens like this in public markets. So public market investors are very used to what’s called valuation and compression. They see it where SaaS companies might trade at 13 times, 15 times, 17 times trailing. And then one day the whole market resets to the seven times. The problem in private markets is private markets don’t adjust their pricing because it takes time until financing’s actually happen. So that kind of price discovery makes financing very difficult. The other term you may hear for this is called reversion to the mean, which is where values go up and then values come back down in terms of other values. Nobody actually knows what’s going to happen with COVID-19. I should tell you, this week the CDC warmed this week that winter could be worse than today. I don’t think by now that’ll surprise any of you. I put this chart together in February, where people weren’t talking about this quite as much, but this is the Spanish flu mortality rates in the UK.

Several markets saw this, where they saw an initial wave of mortality. They thought they were through things as things heated up. Then you had a wave that was bigger. What the CDC and the US is worried about is that the flu, the normal flu, comes out at the same time as COVID-19 makes the resurgence in the winter and that overwhelms our healthcare system. Social distancing, it’s now a term that everybody talks about and is widely understood. Again, I put this together in February saying that I thought like chain restaurants, domestic air hotels were going to be impacted. I think this impacted is too light a word. These industries have been devastated, but there’s other factors at work. We were warning startups to expect a degree of uncertainty in the year ahead anyway.

We have the elections coming up this year. In election years, there’s always more investor uncertainty about not only who’s going to win, but the degree to which the [inaudible 00:09:50] will happen in the country. In an election year, other than in a crisis, it’s very hard to get bipartisan support for anything. De-globalization, I think is real. The challenges of global supply chains and the global competition for resources, particularly the US, China, but this is really a trend happening everywhere. Brexit being another example. I think the other thing on uncertainty that we shouldn’t downplay is worldwide populism from the right and left. Now, I usually give people a good book to read, which is Genghis Kahn and the Making of the Modern World. It talks about how the global economic system was set up under the Genghis Kahn regime globally, and the building of the Silk Road and why the bubonic plague actually led to a decline of global trade. That led to a decline of global order that led to the dark ages, which lasted hundreds of years.

And really it came from the same forces at work from what we see on populism on the left and the right, and I’m not trying to be alarmist, but it is something to be aware of in terms of planning for uncertainty. When I put my slides together, I said, VCs are possibly going to start focusing on triage. They’re definitely focusing on triage. Triage means it’s a term that comes from [inaudible 00:11:15] where you have an acute thing that happens all at once and you have to decide which patients are going to die and therefore don’t warrant the limited resources we have. Which patients are fine, and we’ll get to them later, and which patients, if we step in and make a difference right now, we can save.

That happens in venture capital, and that’s happening right now. Every venture capitalist is stress testing his or her own portfolio. That means they spend less time looking at new stuff and they’re trying to shore up and protect their existing investments. When you get through that period, then people start looking at new stuff. It’s much easier to look at bright eyed and bushy tailed new investments. It’s much harder to look at companies maybe that were overvalued six, nine, 12 months ago, and are trying to raise at lower prices today because investors generally don’t like to invest at cheaper prices. They don’t want to piss off the existing investors who don’t generally like taking markdowns. They don’t want to piss off management teams that face dilution from down rounds. So it becomes easier to fund newer companies. I’m not saying it doesn’t happen, but it becomes easier.

For people asking questions, I see the Q&A coming in. I promise I will bring this home with enough time to answer some questions. But I’m going to keep with my flow for a bit. In a tougher funding environment, I like to say it becomes a bit like constipation, nothing gets through. That’s just what happens. Like it’s funding, funding, funding everything’s going on and then all of a sudden everything shuts down and it shuts down immediately and almost entirely. So financings are happening, but the pace of financing happening is so low. I think you could say we’re generally on pause. When uncertainty passes, VC funds have plenty of dry capital to put to work. This is the US Venture Capital Market. This is how much money has been raised year by year by US venture capitalists. And you can see they’ve been raising, we’ve been raising billions of dollars over the last decade.

So your job really is just to stay funded past this period of uncertainty. It could be, when I call uncertainty, it could be three months of uncertainty, it could be 18 months of uncertainty. I don’t think we really know how bad things can be. I don’t think we know if we’re through the worst. I suggest we probably aren’t. I teed up this slide where revenue in the future might continue on some trajectory where you’re up into the right. But honestly, there might be a quantum where everybody’s revenue is brought down. So far in the Q1 reporting in the public markets, public companies are forecasting that Q2 is going to be down pretty dramatically. And estimates are that full year earnings will be down 15% year over year. That should give you some indication of what may happen in private markets.

I think the VC backed tech market will likely see its worst moments next year. I think this is something a lot of people aren’t talking about. So I want to make sure you’re aware of it before other people are. If you think about what’s going on today, you take when people first found out about the news and tried to react in March. We’re in April now, but in March they had nine to 18 months’ cash because that’s how much most venture back startup companies have. So in Q1 and Q2, this is the period with which this cash is going to be depleted. It doesn’t mean these companies are yet out of cash, but they’re getting pretty close. So I suspect you’re going to see increased bankruptcies and where maybe five years ago, or three years ago, or three months ago, maybe investors would have stepped in and helped bridge some of these companies. I think there’s going to be a lot more ruthless focus on who makes sense to finance and who doesn’t make sense.

You’re going to see a lot more recaps, which are recapitalization, which is refinancing a company and pay to plays. The reason is, if you have four or five large investors and two of them are willing to step up and write a big check in your company, they’re not going to do it if three of them aren’t. So either that forces the company into bankruptcy, which sometimes happens if two people step up and three people don’t, or those investors say fine, we’ll step up. But we want to wipe out investors who aren’t stepping up to save a company that otherwise would be bankrupt. This is the reality of tough markets. I don’t know if we’ll get there. I mean, sorry, we’re already there, but I don’t know if it’ll be there on mass or if this is just a small trend, it’ll depend on how bad the market gets.

You’ll see a lot more asset purchases. And what I mean is, healthy, mid sized, private companies buying for nearly nothing, let’s say in the past we’d call them acqui-hires. In some cases they don’t even want to acqui-hire. They just want to asset-hire. I think you’ll see a lot more of these in early next year. So what can you expect for SaaS businesses next year? Well, in a booming market, executives are paid to innovate. Executives at companies are told, engage with startups, launch new initiatives, be first to market. Why aren’t you using RFID? Why aren’t you launching collaborative this or that? You are almost under pressure as a corporate executive to show that you can innovate, but [inaudible 00:17:03] markets, people are not paid to innovate. They’re paid to consolidate and cut costs. So they’re going to take nine vendors who all roughly do similar things and say, let’s get that down to two. That means specifically they’re going to cancel contracts. And that means they’re going to renegotiate prices for tools that they deem essential.

I think most SaaS startups haven’t seen the full effects of what you’re going to see. The reason for that is most people have annual contracts and they haven’t come up for renewal yet. So you might have some companies that are in travel or transportation or hospitality that have literally called you and say, I can’t pay my bills. I know that’s happened to you. But for the most part, people haven’t seen it across their entire customer base. When renewals come up the next 12 months, I think you will see pretty big increases in churn even for good software companies. But the thing that I would really focus on is price reduction and harder term negotiations. Because it’s coming and you need to have a plan for it now.

Intransigent is not a strategy. You’re saying, well, we’re just going to hold the line. That’s no strategy. So if you can hold the line because you’re essential, obviously be my guest. But if holding the line increases your churn, I wonder if you’re winning or you’re losing. I’ve been advising some of our companies, when your bigger accounts are asking you for lower prices. Can we go in and say, listen, we’re willing to lower price in exchange for a longer contract? Can you lock in some degree of more security over the long haul? If you’re going to lower your revenue forecast, perhaps you need to be cutting your OPEX aggressively now in anticipation of some of this lost revenue. I think you should have conversations with your investors early.

What businesses will resonate with buyers and with investors? What I’ve been encouraging people to think about is, can you take your existing businesses and slightly alter your value prop or at least change your positioning to the market? On the one hand you have cost takeout. So can your product be used to reduce other software expenditure or help clients reduce OPEX costs? In the past, you may talk about productivity gains, but honestly, productivity gains are so last year. It’s, how do I help drive my bottom line by cutting out costs? And are there any COVID or post COVID use cases that are relevant for you? So can your product improve operations given the changes in how businesses will operate? That’s things like monitoring people or assets remotely, improving how we work in a distributed operation, ensuring compliance with government or with internal policy, you name whatever how the world is changing. I think it’s time to start thinking about how you talk about that with clients, even if it’s soft marketing, this is something that’s really going to resonate with people.

Some sectors are obviously well positioned for the future and they will attract capital and customers even in this market. One example is food production and distribution. We’ve realized how difficult our food supply chains are and how vital they are. So anyone involved in that sector right now is experiencing more demand than they can handle and probably a lot of inbound investor requests. Obviously remote training and distance learning will get a lot of heat going forward, distributed collaboration, anyone who’s doing tools that will get teams working in different ways. The opposite to this is I think a lot of people are looking at canceling their real estate. They’ve realized, Hey, we can work effectively as a distributed team. So you may see teams of 25 or 30 decide they don’t want or need offices going forward. You may see bigger companies decide that they’re willing to allow more work from home.

Biotech and diagnostics is an area that you’re seeing a lot of focus on right now, remote medicine, telemedicine. Right now, if you have a three month old, you’re not dying to take your baby into a pediatrician. And frankly, the pediatrician is not dying to come into his or her office to treat your three month old. So remote medicine is getting a lot more heat. And any application that, as I said, senses things with people, not just temperature, but just the movement of people around spaces is an area that’s become vital because we need to ensure social distancing norms are maintained. There are some silver linings, I’m going to cover this quickly so that I can save time for Q&A.

I like to remind people that good businesses are built in good markets and bad markets. Google and Salesforce were built in the Dot-Com crash. Uber and Instagram were built in the last economic crisis. In a way, you have an advantage. If you have an amazing product that truly is differentiated IP, that solves real problems, it’s much harder for all the posers to raise their poser money and go to market and make it harder for you to charge for your product or service. As one of my mentors used to say, in a strong market, even turkeys can fly. In a downmarket, you really find out who the great companies are. Also startup funding has been up massively for the past 15 years and VC funds, as I pointed out earlier, have raised a ton of capital. That capital is not going to evaporate. It’s going to be invested.

There are more billion dollar valued private companies now than ever, which is a sign that economic value has shifted from public markets to private markets. So part of this is the over-funding of the market, but part of it is just that companies stay private longer and that capital will likely stay in the private markets. The public markets have become more reliant, not less reliant on tech successes in the past decade. These are obviously FANG the major success stories. A good deal of the economic gain in the public markets over the last decade has been these companies and maybe a handful of others. I don’t think that’s going away. I don’t think investors are going to suddenly say, let’s put all of our money in industrials. I think tech will continue to be important.

If you look to the Dot-Com crash, this is no Dot.Com crash coming. Our story is much more pervasive now. In 1999, there were a hundred million internet users in the US, it’s approaching 300 million. There were 250 million in the world, we”re approaching now five billion out of whatever we’re at now, seven and a half billion in the world. Connection speeds and the Dot.com era were 50K, it’s now 96 Meg. So the ability to transform how we do business is significantly different than it was 20 years ago. Everybody of course, has a computer in their pocket now, and we’re all socially connected. So when ideas work, they spread much faster than they have in human history.

I think one of the things that’s often overlooked is that we’re all now connected financially. It’s single click to purchase just about anything. That purchase friction slowed down a lot of online commerce in the past and has accelerated it today. When we talk about connections, 5G really will be a game changer. It means on a mobile basis, you’ll have the ability to transfer data at incredibly high speeds that will change the way many businesses actually operate. And we think will lead to a lot of disruption. One thing that isn’t widely understood is that the world is aging and birth rates are declining. So if you look at this on the left are women that exists in the world, are distributed based on age group. If you look at it in the right, it’s men, and this is all high income countries, excluding the United States. The United States is an anomaly in that we have a very young population, and this is why immigration is actually a good thing, not a bad thing.

Our president has it completely backwards. But a young population isx base to pay for the things what creates the ta that we need. Within an inverted birth rate like this, as you can see, what it means is people are getting older and you’ll have fewer people paying into the tax base and fewer people productively working. But I think this is a good story for technology because it’s going to drive us to be more reliant on productivity, not less reliant. So I think the narrative of being worried about AI and robots is a bit misguided. The things we fear, drones, robots, automation, AI are actually going to be strategic imperatives to feed the world. Marc Andreessen famously wrote this week that we need to build, build more things. And he’s exactly right about that.

The way to feed the world, the way to secure the world, the way the generate wealth, the way to fight disease, they’re all driven by the things that the people on this [inaudible 00:27:24] and that’s not going to change. So we do have to get through a period of transition. You need to preserve cash during this time, but as startups, we will solve bigger problems in the world. Hopefully, we’ll see a lot more people focused on things like agriculture, biotech, remote medicine, remote training, group collaboration, remote education, and the things I’ve talked about.

I’m going to go just to the Q&A and see how I can do this in real time. Am I still actively investing as my focus shift towards follow up investments versus new investments? That is an anonymous attendee. So yes, we’re actively investing. In the last week alone, week and a half, the last 10 days we’ve approved two deals. So I should say it’s probably easier for us to fund early stage companies for reasons I already articulated earlier. Both of these are seed rounds. They’re both like four million dollar checks. We’re thrilled. What we’re looking to fund is people who want to build things for the next 10 years. So we can look beyond the instability of the next six months and say, what do we build for for 10 years?

How do I believe the VC industry will change and evolve post COVID-19 if at all? That’s from Irene Atkins. Well, one thing I think will happen is I think the number of firms will dramatically decrease. There’s a reason for that. Listen, LPs that people who invest in VC funds, they’re no different than any investor asset class, which is they’re under threat from their own asset ownership. And there’s going to be a lot more pressure for them to cut back investments. I think if you don’t have a stable LP base that you’ve had over many funds, so if you’re on fund one or fund two and you’re a smaller fund than a single GP, some of those are going to do fine, but I think it’s going to be harder. I think you’ll see a little bit of a consolidation.

Kyle Genki says, “Well, corporate VC arms differ from traditional VC and how they react. What should we expect if a deal’s in progress?” Listen, it’s much harder for corporate VCs. I’m sorry to say that, but it just is. And not all corporate VCs are the same. Someone like Salesforce has been very prolific and active and may continue to do so. But in general, corporates who this is not their traditional day job, they enter the market very late in the economic cycle and they’re usually the first people to pull out because this isn’t their core business or their core jobs. So I do think you’ll see corporate VC dry up more than you would expect.

What are my thoughts on the type of models and sectors that will likely emerge as the COVID winners? I’m not going to answer that because I answered it during the presentation. I assume you actually asked it before I answered it. How is Upfront supporting its portfolio companies in the current uncertain times? Well, I’ll tell you what we’re doing. We set up first of all, a WhatsApp group. So we were very active in trying to give real time feedback to people. Also CEO to CEO, we’re doing weekly calls on Zoom, where we’re bringing CEO to CEO around topics. We’re actually facilitating discussions between people, we’re putting out thought pieces.

If you didn’t see on my blog, Both Sides of the Table, I gave advice on the PPP program. Separate to that blog post, we wrote a very comprehensive deck that we sent out to our teams. We’re trying to help them think through cost cutting. I’m trying to help them think through on the SaaS space. Like what’s actually coming end of year? We’re actually working with them on their marketing and positioning and even product placement. Like, how do their product offerings need to change given how the world has changed? This is not a V-shaped incident. This is not like the market went down. It goes right back up when we go back to being normal. So we’re really trying hard to get our companies to take this seriously long-term.

How do I see deal up that disappeared? How do I see deals being due diligence in a remote only world? Will that speed up the investment process? No, I think it’ll slow down. Chris Calvert asked that. I think it’ll slow down the investment process. Listen, I think investors have got to change their own mentality of being willing to underwrite investments, where they perhaps haven’t met the team. Again, earlier stage, you’re running a smaller check. You perhaps can persuade yourself through Zoom. I will tell you culturally I’ve changed. Whereas before I wouldn’t have a Zoom call with CEO catching up, I’d either call him or her on my drive home and just do a voice call or I’d wait until we had in person. I’m doing a lot more one-on-one updates and I’m loving it. I’m doing a lot more pitches one-on-one that I’m doing remotely that I wouldn’t have done in the past. I feel like I can build rapport remotely, but I think the industry culture will need to change. So series seed, it might be possible later stage if someone’s writing a big check, I think it’s going to be pretty tough.

One investor said to me, “I can establish rapport one-on-one over Zoom. What I can’t get is watching the interaction between teams and how they interact with each other.” And that’s an important part of the investment decision. What sectors do I think are likely to gain more prominence doing this new normal? I already answered that. What is that one point we need to focus on while making our pitch decks post COVID? Okay. So in your pitch deck right now, you’ve got to show, first of all, that you’re solving a problem that can get through this difficult period of time. I think you need to show that you have real value for buyers because we know buyers are not going to spend money unless they’re getting real value.

If you can align your value prop with the new world and show that it’s aligned, I think you’ll have an easier time getting money, but it’s not required. I think show that you have a low burn rate and that with a little bit of money, you can achieve a lot. But my advice for fundraising is the same as it always would be, which is you have to show really differentiated intellectual property technology. You’ve got to show that you know and understand a market better than other people actually do. And you’ve got to persuade investors that you’re capable of building something incredibly large.

Monique [Metta 00:33:53] says, “So Mark, is it a good idea to connect with more VCs right now to build relationships? Most VCs will give you the advice that you should wait a month or two and come back and meet people later. I’m not most VCs. I actually think that’s wrong advice. This is the best time to reach out to VCs. Because there’s a bunch of people like me sitting at home in my hoodie all day and I got all the time in the world to do quick calls and quick pitches. My life is a little bit less chaotic in some ways than it used to be. Probably you know, but I’m both sides of the table, which is my blog.

I wrote a post that became famous over the years called Lines and Not Dots. I would suggest you go read that if you haven’t read it before, but it’s my metaphor for why you need to build relationships early. Because ultimately, investors are buying trust and they’re buying rapport and a belief that you’re going to do something big. It’s just really hard to do that in a single meeting or two. So the earlier you start building rapport, the better.

What do I think will happen in emerging VC markets like Africa, Africa peak last year at one billion? I gotta be honest with you. I’m a little bit despondent for emerging market investments. I hate to say it, but if you want to know what I actually think will happen. I think emerging markets will struggle more and they’ll struggle more for a few predictable reasons. One is, in a contraction, people focus their dollars, their money on markets that are more core in their history strategy. But there’s another reason and it’s really unfair. But when you think about it, 70% of the global trade in the world is denominated in US dollars. I think 20-ish percent is in euros.

If I talk about the US, we have the ability to print money, we have the ability to solve our problem and still be the world’s currency. That may not last forever. I’m not saying so, but we have an unfair advantage in that most people want to trade in dollars and have access to our market. So there’s a little more resiliency in both Europe and US. I think that it’s going to become harder in those markets. I wish it weren’t so, but that’s actually what I think will happen.

What metrics are we looking for pre-seed funding, B2B, AI product? That’s [inaudible 00:36:14], I’m looking for great teams pre-seed. I’m looking for people who, as I said, understand a market, understand the technology, know something that other people don’t know. And that’s what I want to fund. Both of the companies we agreed to fund in the last 10 days, neither of them have revenue. One of a monster product, but it’s an early launch of the product. We just thought they were exceptional teams that we wanted to work with that had knowledge that we hadn’t seen in other places.

Quick question around how I think the economy will bounce back from this. Do you imagine a world in which supply will actually decrease to meet a new lower demand where people go back to their consumption levels? That’s a good question. It’s going to be asset type by asset type. Let’s start with some obvious ones. Oil is not going to immediately come back because people aren’t going to go back to immediately jumping on airplanes. Even when we lift restrictions, they’re not going to go to the same level of travel and driving that they were before. And as we’re not producing products, the by-product of oil going into production is going to go down. But already there’s been signs that we’re going to cut supply. Saudi being a large producer and Russia being a large producer, have already talked about cutting supply. So I think you’ll see supply cuts.

But in other categories, I just don’t think demand is going to come back. I try to point this out to people. Consumers have not yet realized the extent to what it looks like when 20 million or 30 million or 40 million, we don’t know how big it’ll go, have not had income for six months. It’s one thing I lost my job, but I went and I bought a new computer and I bought a Netflix account because I’m at home and I’ve got to keep everyone productive and my kids have to go to school remotely so I spent the money. Six months from now, you’ve been out of the job for six months, I think consumer spending is going to take a pretty big hit for a long period of time. And I think the same is true in the corporate world.

What kind of food companies do you see doing well in a post COVID-19 world? Well, I’ll give you some examples. Think about your own consumption patterns. I now eat Daily Harvest every single day. I love the company, I love the product. It’s a really high nutrition product stored in your freezer that lasts a long period of time. I also absolutely love Ramen Hero, which is another thing that I store in the freezer. I used to live in Japan. I developed a love for Ramen and it’s the highest quality Ramen I’ve ever experienced that you can prepare at home. But also companies like Apeel Sciences that we’re a big investor in, they take the molecules from the waste product and stem of plants and they use it to allow the plant to last an additional 30 days with no refrigeration, no herbicides, no pesticides. So there’s huge demand for this product now as consumers who are hoarding grocery products and then they’re spoiling. So technologies like this, I think, will do really well.

Startups that can actually maintain revenues for the next 12 to 15 months but without any growth, why would these be valued lower? Listen, historically people have valued growth and they valued growth over any other metric, but that may change. They may value stability knowing that you have stable contracts, they may value that you’re not burning a lot of money. Obviously, if you can show that growth, that’s great, but I just wouldn’t grow at all costs. I would get through this period of time. And growth matters. It matters in every company, but for the foreseeable future, I would say stability to me matters more than growth.

What do I think of Southeast Asia from Singapore? I remain bullish on Southeast Asia. I remain incredibly bullish on Singapore. It’s an important region. Innovation will continue to be driven in that area. What am I hearing from LPs? How skittish are they? Anyone concerned with their willingness to honor capital calls? That’s from Steve Weisner. There’s a term, it’s called default where LPs just don’t meet the payment when it becomes due. I don’t think that’s going to happen because the consequences of defaults are too high and they’re secondary markets. what they’re worried about is something called unfunded liabilities, which is the future capital calls that they’re going to have to give to VC funds. So they’d rather sell in a secondary at a loss to get rid of unfunded liabilities. But if you defaulted, you’ll never get back into venture capital, you’ll be blocked out. What I think is going to happen is just cutting back. Like if you had 18 managers last year, you might cut back to 12 or 11 managers.

Jordan has asked, what are my thoughts on current SaaS companies, public market valuations, how much will start up costs and shut down? Listen, I believe SaaS valuations and public markets have gone up too much. I think people are anticipating too much future success. That’s my own personal view. And I think that once you see the price pressure on big software companies to reduce costs and once churn rates go down, I think those valuations are going to come back down to reality. I think investors are trying to shift their dollars and try to figure out what the growth areas are. That’s why Zoom is booming and Peloton is booming. Blue Apron is booming. I think SaaS is benefiting from that. But I think it’s going to come back down to earth. I think private companies that are not yet as robust and don’t have the install base, it’s going to be even tougher.

What options does the VC have when they feel one of their companies is no longer viable post COVID? Well, if the company truly doesn’t have a future, can they shut down current operations and use existing cash to launch a new business? Can they sell their assets to a company that actually does have a more productive future? These are the kinds of conversations that are happening everywhere. Give me one second, I’m just making sure I’m not running over on time, two minutes to go.

So for current productivity platforms, how do we not be considered last year on drive the bottom line for consumers? That’s from Julian. Look, if you’re focused on productivity, you can continue to focus on productivity. I would just start to alter your messages and show ways that actually are driving costs controls. You can still do productivity, but your message is not going to be, your workers are going to be 23% more productive than last year. I just don’t think that’s going to resonate. So you can talk about remote productivity and teams working more productive remotely. Because that’s at the moment. Are we still open to investing in Europe? What are key considerations? Yes. In fact, we do a lot of cross border, particularly France in the US, but we’ll invest anywhere in Europe. Probably slightly later stage than a seed round. It’s probably more like a late A or an early B. We have a gentleman named Julian based in Paris. So we actually have feet on the street. For current productivity platforms, how… That one I already answered.

I’m just going to answer one more. Is the stable LP base most from corporates? If so, then LPs will pull out [inaudible 00:43:45] pull out? No, corporates is probably the least stable LP base. I’d say, people have been investing in VC for 30 years, so public pensions, endowments, people like incredibly large family offices, a fund of funds, I think will be stable at least for the next year, year and a half. Just like corporates who invest in VCs are going to say, if this isn’t core to what we do, let’s preserve our cash for our own business.

Thank you so much to everyone who turned up. I’m super grateful that you gave me your time today. I hope I answered enough. I would stay and answer another hour of question, but maybe Jason can invite me back and come answer more of your questions. But thank you so much and good luck in all of your businesses. I’m certainly not rooting against anybody. I hope my words of caution are more challenging you to be more prudent in your businesses rather than seen as negative. Thank you.

Thanks again to Mark. We’ll send you guys the presentation and recording soon. Okay.

Wonderful. Thank you.

The post Funding in the Time of Coronavirus with Mark Suster (Video + Transcript) appeared first on SaaStr.

Funding in the Time of Coronavirus with Mark Suster (Video + Transcript)


This post is by Team SaaStr from SaaStr

It all begins with an idea. Maybe you want to launch a business. Maybe you want to turn a hobby into something more. Or maybe you have a creative project to share with the world. Whatever it is, the way you tell your story online can make all the difference.

Mark Suster | Managing Partner @ Upfront Ventures

FULL TRANSCRIPT BELOW

We woke up February 2020 with a shock to the system and no idea what it would mean for our business. I just plotted a graph of the Dow Jones industrial average. If you look on the left hand side of the slide, by December 12th, we started to seek cases in Wuhan China. In January 13th, the first cases were detected outside of China. And as you’ll notice, all the way from middle of January to middle of February, the markets didn’t seem to notice. February 22nd, all of that changed and the markets plummeted. So we had a shock to the system with no idea what it actually meant. On March 27th, so about a month later, the US government passed the CARES Act, which probably you know, stands for the Coronavirus Aid Relief and Economic Security Act, which is now at three trillion dollars.

That has created a market bottom for now. So I plotted out for you. If you look at March the 23rd, the Dow Jones bottomed. At least for now at about 18,600. That’s the week that the CARES Act was signed into law and created some market stability that drove the Dow Jones back up. I thought it was worth putting three trillion into perspective for you so you could get some sense of scale. The starting point is how big was the last economic collapse and how big was our response to that? Well, the 2008 economic insecurity, we passed the $700 billion stimulus called TARP. Compared to what we just did in 30 days from the onset of a crisis, we’ve passed 4.3 times the total amount in three trillion dollars. And of course, we’re not done with this stimulus. I thought it’s also worth giving you some sense of scale for how much the US government takes in in revenue every year.

In revenue, the US government takes in 3.5 trillion. So the amount that we’ve handed out just in money going out of the US government is equal to 86% of the total revenue we take in in a year. What we see is the amount that’s actually being handed out by the government, but there’s actually a greater amount that’s injected into the economy. The Fed stimulus into the economy is projected by Morgan Stanley. It’s hard to calculate, but projected at eight trillion dollars. So several orders of magnitude bigger than you’re probably even aware. That’s 15 times larger than during the Great Recession. And we’re just, as I said, 30 to 60 days into this program, so there’s 11 trillion of stimulus.

Trying to put the impact on the economy, I think most of you know this, but in four weeks, in four weeks, 22 million people have filed for unemployment. If you look at this graph, it simply plots out how many people filed in the weeks before 2016, 2017, 2018, 2019, 2020. You can see very few unemployment filings and in four weeks, 22 million. So let’s put 22 million into perspective. First of all, in the last four weeks, more jobs have been lost in our country than exists in total in California or Texas. California employees about 17 million people, Texas about 15 million. If you take the 20 smallest States combined, the entire workforce of the 20 smallest States is about 12 million in 20 States. And if you look at the peak of unemployment during the last economic recession, you will notice there were 8.7 million people, total unemployed. We’re at 22 and counting, the figures come out every Thursday. So we’ll know tomorrow, the extent to which that goes up.

The thing that is, I think, less understood by people is the extent to which demand has completely evaporated and supply, global supply of products that are being produced now greatly exceeds demand. Anyone who studied economics will know when supply greatly exceeds demand, prices drop. This is an example just of the oil market compared just from April 2019 to April 2020. S&P over that period of time is down 3% the standard [inaudible 00:05:12] stock index. Whereas the oil markets are down 66%. That’s what happens when demand goes down so precipitously. And don’t think this is a constraint of oil. This is going to happen for many assets that are over produced now in markets where demand isn’t as strong. Many of you may have noticed this past week, actually oil future prices went negative. That means that people were actually paying you to take oil. If you want to know what happened there, the actual storage facilities are now completely full in the United States. So the ability for people to store oil doesn’t exist. So people were paying people to take their futures contracts.

So what outlook for VC funding and the backdrop of that economic news? Why is financing hard right now? I think you probably know, you read the headlines. It’s very difficult to get financed. So the market hates uncertainty. They hate when they don’t know what the future looks like. When the future is predictable, people like to invest. When it’s not predictable, they like to wait and see what happens. The second thing is the markets generally hate deflation. Deflation is when prices are dropping, that could be prices of real estate. I’ll give you an example in your personal life. If you think about buying a house and let’s say your price is $500,000 or a million dollars, let’s say it’s a million dollars. Then three months later, prices in your neighborhood dropped to 800,000 and you think, wow, that’s a great deal. Maybe we should buy.

But you wait 30 days and you notice that prices dropped to 720,000 and you think, wow, what a great deal? Let’s wait 30 days. The more they continue to drop, the more buyers actually pull out of the market because they see deflation. They see asset prices going down and people don’t like to buy in a period where asset prices are going down. Obviously, eventually you find market equilibrium and prices stabilize, but investors generally, don’t like deflation. To give it to you as a startup for example, let’s say that the markets were paying 10 times trailing multiples for revenues. So a company doing four million in trailing ARR, let’s say could get a 10X multiple and people would pay $40 million for that. Well, if the market changes how it values companies, the exact same company doing four million in revenue, the market may start paying five times trailing.

This happens like this in public markets. So public market investors are very used to what’s called valuation and compression. They see it where SaaS companies might trade at 13 times, 15 times, 17 times trailing. And then one day the whole market resets to the seven times. The problem in private markets is private markets don’t adjust their pricing because it takes time until financing’s actually happen. So that kind of price discovery makes financing very difficult. The other term you may hear for this is called reversion to the mean, which is where values go up and then values come back down in terms of other values. Nobody actually knows what’s going to happen with COVID-19. I should tell you, this week the CDC warmed this week that winter could be worse than today. I don’t think by now that’ll surprise any of you. I put this chart together in February, where people weren’t talking about this quite as much, but this is the Spanish flu mortality rates in the UK.

Several markets saw this, where they saw an initial wave of mortality. They thought they were through things as things heated up. Then you had a wave that was bigger. What the CDC and the US is worried about is that the flu, the normal flu, comes out at the same time as COVID-19 makes the resurgence in the winter and that overwhelms our healthcare system. Social distancing, it’s now a term that everybody talks about and is widely understood. Again, I put this together in February saying that I thought like chain restaurants, domestic air hotels were going to be impacted. I think this impacted is too light a word. These industries have been devastated, but there’s other factors at work. We were warning startups to expect a degree of uncertainty in the year ahead anyway.

We have the elections coming up this year. In election years, there’s always more investor uncertainty about not only who’s going to win, but the degree to which the [inaudible 00:09:50] will happen in the country. In an election year, other than in a crisis, it’s very hard to get bipartisan support for anything. De-globalization, I think is real. The challenges of global supply chains and the global competition for resources, particularly the US, China, but this is really a trend happening everywhere. Brexit being another example. I think the other thing on uncertainty that we shouldn’t downplay is worldwide populism from the right and left. Now, I usually give people a good book to read, which is Genghis Kahn and the Making of the Modern World. It talks about how the global economic system was set up under the Genghis Kahn regime globally, and the building of the Silk Road and why the bubonic plague actually led to a decline of global trade. That led to a decline of global order that led to the dark ages, which lasted hundreds of years.

And really it came from the same forces at work from what we see on populism on the left and the right, and I’m not trying to be alarmist, but it is something to be aware of in terms of planning for uncertainty. When I put my slides together, I said, VCs are possibly going to start focusing on triage. They’re definitely focusing on triage. Triage means it’s a term that comes from [inaudible 00:11:15] where you have an acute thing that happens all at once and you have to decide which patients are going to die and therefore don’t warrant the limited resources we have. Which patients are fine, and we’ll get to them later, and which patients, if we step in and make a difference right now, we can save.

That happens in venture capital, and that’s happening right now. Every venture capitalist is stress testing his or her own portfolio. That means they spend less time looking at new stuff and they’re trying to shore up and protect their existing investments. When you get through that period, then people start looking at new stuff. It’s much easier to look at bright eyed and bushy tailed new investments. It’s much harder to look at companies maybe that were overvalued six, nine, 12 months ago, and are trying to raise at lower prices today because investors generally don’t like to invest at cheaper prices. They don’t want to piss off the existing investors who don’t generally like taking markdowns. They don’t want to piss off management teams that face dilution from down rounds. So it becomes easier to fund newer companies. I’m not saying it doesn’t happen, but it becomes easier.

For people asking questions, I see the Q&A coming in. I promise I will bring this home with enough time to answer some questions. But I’m going to keep with my flow for a bit. In a tougher funding environment, I like to say it becomes a bit like constipation, nothing gets through. That’s just what happens. Like it’s funding, funding, funding everything’s going on and then all of a sudden everything shuts down and it shuts down immediately and almost entirely. So financings are happening, but the pace of financing happening is so low. I think you could say we’re generally on pause. When uncertainty passes, VC funds have plenty of dry capital to put to work. This is the US Venture Capital Market. This is how much money has been raised year by year by US venture capitalists. And you can see they’ve been raising, we’ve been raising billions of dollars over the last decade.

So your job really is just to stay funded past this period of uncertainty. It could be, when I call uncertainty, it could be three months of uncertainty, it could be 18 months of uncertainty. I don’t think we really know how bad things can be. I don’t think we know if we’re through the worst. I suggest we probably aren’t. I teed up this slide where revenue in the future might continue on some trajectory where you’re up into the right. But honestly, there might be a quantum where everybody’s revenue is brought down. So far in the Q1 reporting in the public markets, public companies are forecasting that Q2 is going to be down pretty dramatically. And estimates are that full year earnings will be down 15% year over year. That should give you some indication of what may happen in private markets.

I think the VC backed tech market will likely see its worst moments next year. I think this is something a lot of people aren’t talking about. So I want to make sure you’re aware of it before other people are. If you think about what’s going on today, you take when people first found out about the news and tried to react in March. We’re in April now, but in March they had nine to 18 months’ cash because that’s how much most venture back startup companies have. So in Q1 and Q2, this is the period with which this cash is going to be depleted. It doesn’t mean these companies are yet out of cash, but they’re getting pretty close. So I suspect you’re going to see increased bankruptcies and where maybe five years ago, or three years ago, or three months ago, maybe investors would have stepped in and helped bridge some of these companies. I think there’s going to be a lot more ruthless focus on who makes sense to finance and who doesn’t make sense.

You’re going to see a lot more recaps, which are recapitalization, which is refinancing a company and pay to plays. The reason is, if you have four or five large investors and two of them are willing to step up and write a big check in your company, they’re not going to do it if three of them aren’t. So either that forces the company into bankruptcy, which sometimes happens if two people step up and three people don’t, or those investors say fine, we’ll step up. But we want to wipe out investors who aren’t stepping up to save a company that otherwise would be bankrupt. This is the reality of tough markets. I don’t know if we’ll get there. I mean, sorry, we’re already there, but I don’t know if it’ll be there on mass or if this is just a small trend, it’ll depend on how bad the market gets.

You’ll see a lot more asset purchases. And what I mean is, healthy, mid sized, private companies buying for nearly nothing, let’s say in the past we’d call them acqui-hires. In some cases they don’t even want to acqui-hire. They just want to asset-hire. I think you’ll see a lot more of these in early next year. So what can you expect for SaaS businesses next year? Well, in a booming market, executives are paid to innovate. Executives at companies are told, engage with startups, launch new initiatives, be first to market. Why aren’t you using RFID? Why aren’t you launching collaborative this or that? You are almost under pressure as a corporate executive to show that you can innovate, but [inaudible 00:17:03] markets, people are not paid to innovate. They’re paid to consolidate and cut costs. So they’re going to take nine vendors who all roughly do similar things and say, let’s get that down to two. That means specifically they’re going to cancel contracts. And that means they’re going to renegotiate prices for tools that they deem essential.

I think most SaaS startups haven’t seen the full effects of what you’re going to see. The reason for that is most people have annual contracts and they haven’t come up for renewal yet. So you might have some companies that are in travel or transportation or hospitality that have literally called you and say, I can’t pay my bills. I know that’s happened to you. But for the most part, people haven’t seen it across their entire customer base. When renewals come up the next 12 months, I think you will see pretty big increases in churn even for good software companies. But the thing that I would really focus on is price reduction and harder term negotiations. Because it’s coming and you need to have a plan for it now.

Intransigent is not a strategy. You’re saying, well, we’re just going to hold the line. That’s no strategy. So if you can hold the line because you’re essential, obviously be my guest. But if holding the line increases your churn, I wonder if you’re winning or you’re losing. I’ve been advising some of our companies, when your bigger accounts are asking you for lower prices. Can we go in and say, listen, we’re willing to lower price in exchange for a longer contract? Can you lock in some degree of more security over the long haul? If you’re going to lower your revenue forecast, perhaps you need to be cutting your OPEX aggressively now in anticipation of some of this lost revenue. I think you should have conversations with your investors early.

What businesses will resonate with buyers and with investors? What I’ve been encouraging people to think about is, can you take your existing businesses and slightly alter your value prop or at least change your positioning to the market? On the one hand you have cost takeout. So can your product be used to reduce other software expenditure or help clients reduce OPEX costs? In the past, you may talk about productivity gains, but honestly, productivity gains are so last year. It’s, how do I help drive my bottom line by cutting out costs? And are there any COVID or post COVID use cases that are relevant for you? So can your product improve operations given the changes in how businesses will operate? That’s things like monitoring people or assets remotely, improving how we work in a distributed operation, ensuring compliance with government or with internal policy, you name whatever how the world is changing. I think it’s time to start thinking about how you talk about that with clients, even if it’s soft marketing, this is something that’s really going to resonate with people.

Some sectors are obviously well positioned for the future and they will attract capital and customers even in this market. One example is food production and distribution. We’ve realized how difficult our food supply chains are and how vital they are. So anyone involved in that sector right now is experiencing more demand than they can handle and probably a lot of inbound investor requests. Obviously remote training and distance learning will get a lot of heat going forward, distributed collaboration, anyone who’s doing tools that will get teams working in different ways. The opposite to this is I think a lot of people are looking at canceling their real estate. They’ve realized, Hey, we can work effectively as a distributed team. So you may see teams of 25 or 30 decide they don’t want or need offices going forward. You may see bigger companies decide that they’re willing to allow more work from home.

Biotech and diagnostics is an area that you’re seeing a lot of focus on right now, remote medicine, telemedicine. Right now, if you have a three month old, you’re not dying to take your baby into a pediatrician. And frankly, the pediatrician is not dying to come into his or her office to treat your three month old. So remote medicine is getting a lot more heat. And any application that, as I said, senses things with people, not just temperature, but just the movement of people around spaces is an area that’s become vital because we need to ensure social distancing norms are maintained. There are some silver linings, I’m going to cover this quickly so that I can save time for Q&A.

I like to remind people that good businesses are built in good markets and bad markets. Google and Salesforce were built in the Dot-Com crash. Uber and Instagram were built in the last economic crisis. In a way, you have an advantage. If you have an amazing product that truly is differentiated IP, that solves real problems, it’s much harder for all the posers to raise their poser money and go to market and make it harder for you to charge for your product or service. As one of my mentors used to say, in a strong market, even turkeys can fly. In a downmarket, you really find out who the great companies are. Also startup funding has been up massively for the past 15 years and VC funds, as I pointed out earlier, have raised a ton of capital. That capital is not going to evaporate. It’s going to be invested.

There are more billion dollar valued private companies now than ever, which is a sign that economic value has shifted from public markets to private markets. So part of this is the over-funding of the market, but part of it is just that companies stay private longer and that capital will likely stay in the private markets. The public markets have become more reliant, not less reliant on tech successes in the past decade. These are obviously FANG the major success stories. A good deal of the economic gain in the public markets over the last decade has been these companies and maybe a handful of others. I don’t think that’s going away. I don’t think investors are going to suddenly say, let’s put all of our money in industrials. I think tech will continue to be important.

If you look to the Dot-Com crash, this is no Dot.Com crash coming. Our story is much more pervasive now. In 1999, there were a hundred million internet users in the US, it’s approaching 300 million. There were 250 million in the world, we”re approaching now five billion out of whatever we’re at now, seven and a half billion in the world. Connection speeds and the Dot.com era were 50K, it’s now 96 Meg. So the ability to transform how we do business is significantly different than it was 20 years ago. Everybody of course, has a computer in their pocket now, and we’re all socially connected. So when ideas work, they spread much faster than they have in human history.

I think one of the things that’s often overlooked is that we’re all now connected financially. It’s single click to purchase just about anything. That purchase friction slowed down a lot of online commerce in the past and has accelerated it today. When we talk about connections, 5G really will be a game changer. It means on a mobile basis, you’ll have the ability to transfer data at incredibly high speeds that will change the way many businesses actually operate. And we think will lead to a lot of disruption. One thing that isn’t widely understood is that the world is aging and birth rates are declining. So if you look at this on the left are women that exists in the world, are distributed based on age group. If you look at it in the right, it’s men, and this is all high income countries, excluding the United States. The United States is an anomaly in that we have a very young population, and this is why immigration is actually a good thing, not a bad thing.

Our president has it completely backwards. But a young population isx base to pay for the things what creates the ta that we need. Within an inverted birth rate like this, as you can see, what it means is people are getting older and you’ll have fewer people paying into the tax base and fewer people productively working. But I think this is a good story for technology because it’s going to drive us to be more reliant on productivity, not less reliant. So I think the narrative of being worried about AI and robots is a bit misguided. The things we fear, drones, robots, automation, AI are actually going to be strategic imperatives to feed the world. Marc Andreessen famously wrote this week that we need to build, build more things. And he’s exactly right about that.

The way to feed the world, the way to secure the world, the way the generate wealth, the way to fight disease, they’re all driven by the things that the people on this [inaudible 00:27:24] and that’s not going to change. So we do have to get through a period of transition. You need to preserve cash during this time, but as startups, we will solve bigger problems in the world. Hopefully, we’ll see a lot more people focused on things like agriculture, biotech, remote medicine, remote training, group collaboration, remote education, and the things I’ve talked about.

I’m going to go just to the Q&A and see how I can do this in real time. Am I still actively investing as my focus shift towards follow up investments versus new investments? That is an anonymous attendee. So yes, we’re actively investing. In the last week alone, week and a half, the last 10 days we’ve approved two deals. So I should say it’s probably easier for us to fund early stage companies for reasons I already articulated earlier. Both of these are seed rounds. They’re both like four million dollar checks. We’re thrilled. What we’re looking to fund is people who want to build things for the next 10 years. So we can look beyond the instability of the next six months and say, what do we build for for 10 years?

How do I believe the VC industry will change and evolve post COVID-19 if at all? That’s from Irene Atkins. Well, one thing I think will happen is I think the number of firms will dramatically decrease. There’s a reason for that. Listen, LPs that people who invest in VC funds, they’re no different than any investor asset class, which is they’re under threat from their own asset ownership. And there’s going to be a lot more pressure for them to cut back investments. I think if you don’t have a stable LP base that you’ve had over many funds, so if you’re on fund one or fund two and you’re a smaller fund than a single GP, some of those are going to do fine, but I think it’s going to be harder. I think you’ll see a little bit of a consolidation.

Kyle Genki says, “Well, corporate VC arms differ from traditional VC and how they react. What should we expect if a deal’s in progress?” Listen, it’s much harder for corporate VCs. I’m sorry to say that, but it just is. And not all corporate VCs are the same. Someone like Salesforce has been very prolific and active and may continue to do so. But in general, corporates who this is not their traditional day job, they enter the market very late in the economic cycle and they’re usually the first people to pull out because this isn’t their core business or their core jobs. So I do think you’ll see corporate VC dry up more than you would expect.

What are my thoughts on the type of models and sectors that will likely emerge as the COVID winners? I’m not going to answer that because I answered it during the presentation. I assume you actually asked it before I answered it. How is Upfront supporting its portfolio companies in the current uncertain times? Well, I’ll tell you what we’re doing. We set up first of all, a WhatsApp group. So we were very active in trying to give real time feedback to people. Also CEO to CEO, we’re doing weekly calls on Zoom, where we’re bringing CEO to CEO around topics. We’re actually facilitating discussions between people, we’re putting out thought pieces.

If you didn’t see on my blog, Both Sides of the Table, I gave advice on the PPP program. Separate to that blog post, we wrote a very comprehensive deck that we sent out to our teams. We’re trying to help them think through cost cutting. I’m trying to help them think through on the SaaS space. Like what’s actually coming end of year? We’re actually working with them on their marketing and positioning and even product placement. Like, how do their product offerings need to change given how the world has changed? This is not a V-shaped incident. This is not like the market went down. It goes right back up when we go back to being normal. So we’re really trying hard to get our companies to take this seriously long-term.

How do I see deal up that disappeared? How do I see deals being due diligence in a remote only world? Will that speed up the investment process? No, I think it’ll slow down. Chris Calvert asked that. I think it’ll slow down the investment process. Listen, I think investors have got to change their own mentality of being willing to underwrite investments, where they perhaps haven’t met the team. Again, earlier stage, you’re running a smaller check. You perhaps can persuade yourself through Zoom. I will tell you culturally I’ve changed. Whereas before I wouldn’t have a Zoom call with CEO catching up, I’d either call him or her on my drive home and just do a voice call or I’d wait until we had in person. I’m doing a lot more one-on-one updates and I’m loving it. I’m doing a lot more pitches one-on-one that I’m doing remotely that I wouldn’t have done in the past. I feel like I can build rapport remotely, but I think the industry culture will need to change. So series seed, it might be possible later stage if someone’s writing a big check, I think it’s going to be pretty tough.

One investor said to me, “I can establish rapport one-on-one over Zoom. What I can’t get is watching the interaction between teams and how they interact with each other.” And that’s an important part of the investment decision. What sectors do I think are likely to gain more prominence doing this new normal? I already answered that. What is that one point we need to focus on while making our pitch decks post COVID? Okay. So in your pitch deck right now, you’ve got to show, first of all, that you’re solving a problem that can get through this difficult period of time. I think you need to show that you have real value for buyers because we know buyers are not going to spend money unless they’re getting real value.

If you can align your value prop with the new world and show that it’s aligned, I think you’ll have an easier time getting money, but it’s not required. I think show that you have a low burn rate and that with a little bit of money, you can achieve a lot. But my advice for fundraising is the same as it always would be, which is you have to show really differentiated intellectual property technology. You’ve got to show that you know and understand a market better than other people actually do. And you’ve got to persuade investors that you’re capable of building something incredibly large.

Monique [Metta 00:33:53] says, “So Mark, is it a good idea to connect with more VCs right now to build relationships? Most VCs will give you the advice that you should wait a month or two and come back and meet people later. I’m not most VCs. I actually think that’s wrong advice. This is the best time to reach out to VCs. Because there’s a bunch of people like me sitting at home in my hoodie all day and I got all the time in the world to do quick calls and quick pitches. My life is a little bit less chaotic in some ways than it used to be. Probably you know, but I’m both sides of the table, which is my blog.

I wrote a post that became famous over the years called Lines and Not Dots. I would suggest you go read that if you haven’t read it before, but it’s my metaphor for why you need to build relationships early. Because ultimately, investors are buying trust and they’re buying rapport and a belief that you’re going to do something big. It’s just really hard to do that in a single meeting or two. So the earlier you start building rapport, the better.

What do I think will happen in emerging VC markets like Africa, Africa peak last year at one billion? I gotta be honest with you. I’m a little bit despondent for emerging market investments. I hate to say it, but if you want to know what I actually think will happen. I think emerging markets will struggle more and they’ll struggle more for a few predictable reasons. One is, in a contraction, people focus their dollars, their money on markets that are more core in their history strategy. But there’s another reason and it’s really unfair. But when you think about it, 70% of the global trade in the world is denominated in US dollars. I think 20-ish percent is in euros.

If I talk about the US, we have the ability to print money, we have the ability to solve our problem and still be the world’s currency. That may not last forever. I’m not saying so, but we have an unfair advantage in that most people want to trade in dollars and have access to our market. So there’s a little more resiliency in both Europe and US. I think that it’s going to become harder in those markets. I wish it weren’t so, but that’s actually what I think will happen.

What metrics are we looking for pre-seed funding, B2B, AI product? That’s [inaudible 00:36:14], I’m looking for great teams pre-seed. I’m looking for people who, as I said, understand a market, understand the technology, know something that other people don’t know. And that’s what I want to fund. Both of the companies we agreed to fund in the last 10 days, neither of them have revenue. One of a monster product, but it’s an early launch of the product. We just thought they were exceptional teams that we wanted to work with that had knowledge that we hadn’t seen in other places.

Quick question around how I think the economy will bounce back from this. Do you imagine a world in which supply will actually decrease to meet a new lower demand where people go back to their consumption levels? That’s a good question. It’s going to be asset type by asset type. Let’s start with some obvious ones. Oil is not going to immediately come back because people aren’t going to go back to immediately jumping on airplanes. Even when we lift restrictions, they’re not going to go to the same level of travel and driving that they were before. And as we’re not producing products, the by-product of oil going into production is going to go down. But already there’s been signs that we’re going to cut supply. Saudi being a large producer and Russia being a large producer, have already talked about cutting supply. So I think you’ll see supply cuts.

But in other categories, I just don’t think demand is going to come back. I try to point this out to people. Consumers have not yet realized the extent to what it looks like when 20 million or 30 million or 40 million, we don’t know how big it’ll go, have not had income for six months. It’s one thing I lost my job, but I went and I bought a new computer and I bought a Netflix account because I’m at home and I’ve got to keep everyone productive and my kids have to go to school remotely so I spent the money. Six months from now, you’ve been out of the job for six months, I think consumer spending is going to take a pretty big hit for a long period of time. And I think the same is true in the corporate world.

What kind of food companies do you see doing well in a post COVID-19 world? Well, I’ll give you some examples. Think about your own consumption patterns. I now eat Daily Harvest every single day. I love the company, I love the product. It’s a really high nutrition product stored in your freezer that lasts a long period of time. I also absolutely love Ramen Hero, which is another thing that I store in the freezer. I used to live in Japan. I developed a love for Ramen and it’s the highest quality Ramen I’ve ever experienced that you can prepare at home. But also companies like Apeel Sciences that we’re a big investor in, they take the molecules from the waste product and stem of plants and they use it to allow the plant to last an additional 30 days with no refrigeration, no herbicides, no pesticides. So there’s huge demand for this product now as consumers who are hoarding grocery products and then they’re spoiling. So technologies like this, I think, will do really well.

Startups that can actually maintain revenues for the next 12 to 15 months but without any growth, why would these be valued lower? Listen, historically people have valued growth and they valued growth over any other metric, but that may change. They may value stability knowing that you have stable contracts, they may value that you’re not burning a lot of money. Obviously, if you can show that growth, that’s great, but I just wouldn’t grow at all costs. I would get through this period of time. And growth matters. It matters in every company, but for the foreseeable future, I would say stability to me matters more than growth.

What do I think of Southeast Asia from Singapore? I remain bullish on Southeast Asia. I remain incredibly bullish on Singapore. It’s an important region. Innovation will continue to be driven in that area. What am I hearing from LPs? How skittish are they? Anyone concerned with their willingness to honor capital calls? That’s from Steve Weisner. There’s a term, it’s called default where LPs just don’t meet the payment when it becomes due. I don’t think that’s going to happen because the consequences of defaults are too high and they’re secondary markets. what they’re worried about is something called unfunded liabilities, which is the future capital calls that they’re going to have to give to VC funds. So they’d rather sell in a secondary at a loss to get rid of unfunded liabilities. But if you defaulted, you’ll never get back into venture capital, you’ll be blocked out. What I think is going to happen is just cutting back. Like if you had 18 managers last year, you might cut back to 12 or 11 managers.

Jordan has asked, what are my thoughts on current SaaS companies, public market valuations, how much will start up costs and shut down? Listen, I believe SaaS valuations and public markets have gone up too much. I think people are anticipating too much future success. That’s my own personal view. And I think that once you see the price pressure on big software companies to reduce costs and once churn rates go down, I think those valuations are going to come back down to reality. I think investors are trying to shift their dollars and try to figure out what the growth areas are. That’s why Zoom is booming and Peloton is booming. Blue Apron is booming. I think SaaS is benefiting from that. But I think it’s going to come back down to earth. I think private companies that are not yet as robust and don’t have the install base, it’s going to be even tougher.

What options does the VC have when they feel one of their companies is no longer viable post COVID? Well, if the company truly doesn’t have a future, can they shut down current operations and use existing cash to launch a new business? Can they sell their assets to a company that actually does have a more productive future? These are the kinds of conversations that are happening everywhere. Give me one second, I’m just making sure I’m not running over on time, two minutes to go.

So for current productivity platforms, how do we not be considered last year on drive the bottom line for consumers? That’s from Julian. Look, if you’re focused on productivity, you can continue to focus on productivity. I would just start to alter your messages and show ways that actually are driving costs controls. You can still do productivity, but your message is not going to be, your workers are going to be 23% more productive than last year. I just don’t think that’s going to resonate. So you can talk about remote productivity and teams working more productive remotely. Because that’s at the moment. Are we still open to investing in Europe? What are key considerations? Yes. In fact, we do a lot of cross border, particularly France in the US, but we’ll invest anywhere in Europe. Probably slightly later stage than a seed round. It’s probably more like a late A or an early B. We have a gentleman named Julian based in Paris. So we actually have feet on the street. For current productivity platforms, how… That one I already answered.

I’m just going to answer one more. Is the stable LP base most from corporates? If so, then LPs will pull out [inaudible 00:43:45] pull out? No, corporates is probably the least stable LP base. I’d say, people have been investing in VC for 30 years, so public pensions, endowments, people like incredibly large family offices, a fund of funds, I think will be stable at least for the next year, year and a half. Just like corporates who invest in VCs are going to say, if this isn’t core to what we do, let’s preserve our cash for our own business.

Thank you so much to everyone who turned up. I’m super grateful that you gave me your time today. I hope I answered enough. I would stay and answer another hour of question, but maybe Jason can invite me back and come answer more of your questions. But thank you so much and good luck in all of your businesses. I’m certainly not rooting against anybody. I hope my words of caution are more challenging you to be more prudent in your businesses rather than seen as negative. Thank you.

Thanks again to Mark. We’ll send you guys the presentation and recording soon. Okay.

Wonderful. Thank you.

The post Funding in the Time of Coronavirus with Mark Suster (Video + Transcript) appeared first on SaaStr.

400+ VCs Are Coming to New New in Venture!


This post is by Deborah Findling from SaaStr

SaaStr’s New New in Venture Virtual Summit is coming up May 27th and here’s why you should join.

  • Register now! It’s FREE!
  • We have 400 VCs+ and 500+ Founder/CEOs looking to connect. We’ll be using a networking tool to help make those connections but be sure to register soon as we do have limited capacity.
  • The great content! Check out our current line up on everything from what’s really going on right now to how to fundraise.

In addition, this time we’re adding priority networking so the top founders can meet with the top VCs before and during the event.  Priority Networking Passes are Only $299, and you’ll be included VIP in the VC-Founder networking app and processes.

Check out this list of just a few of the firms in attendance:

  • UBS
  • Sapient Capital
  • Creandum
  • Atomico
  • Hyde Park Ventures
  • Salesforce Ventures
  • Openview
  • Bonfire Ventures
  • HSBC
  • Samsung Ventures
  • NextGen Venture Partners
  • LUMA Partners
  • Frontline Ventures
  • Aflac Ventures
  • Kapor Capital
  • Allianz
  • 500 Startups
  • Softbank
  • Bain Capital Ventures
  • Hearst Ventures
  • Innova Capital
  • Goldman Sachs Growth Equity
  • Vista Equity
  • Lux Capital
  • Mighty Capital
  • ICONIQ
  • Accel
  • Angellist
  • Cisco

 

The post 400+ VCs Are Coming to New New in Venture! appeared first on SaaStr.

The startup cash countdown begins


This post is by Alex Wilhelm from Fundings & Exits – TechCrunch

Hello and welcome back to our regular morning look at private companies, public markets and the gray space in between.

As global startup markets enter a slowdown — more on that shortly — we’re starting to get notes on when growth-oriented firms are going to run short of cash. Of course, startups around the world are cutting staff and trying to limit costs as macro uncertainty reins, but their efforts won’t save everyone.

This morning, let’s dig into what venture’s impending investment pace may look like over the next year or two, courtesy of Upfront VenturesMark Suster. Then we’ll parse cash runway data from UK and Belgian startups. The resulting picture is one detailing falling cash accounts for a number of startups that could reach zero before venture trends are expected to recover.

Downturn

SaaS Spend is Here to Stay: How Sellers Can Survive the Shift to Remote Selling by Looking to Their Buyers


This post is by Team SaaStr from SaaStr

By Kara Kennedy, G2 Director of Market Research

88% of businesses have shifted to remote work due to the COVID-19 pandemic, leading us all into uncharted territory.

G2’s research team wanted to better understand how the pandemic is impacting software spend and usage, so we conducted a survey to find out. We found that as customers grapple with how to support their teams and keep the lights on, they’re turning to new software tools to maintain their competitive edge.

In addition, we’ve recently seen massive spikes in traffic around many of the types of software that support distributed workforces. The main increases surround tools that facilitate collaboration, communication, process, and productivity.

This data shows us the shift to remote work does not result in an end to SaaS spending. It simply means SaaS sellers need to adapt to selling remotely. While some reps are used to selling over the phone or via video conferencing from the comfort of their company headquarters, the new twist in this time is that everyone you are selling to is also remote.

Don’t be thrown off by this change. Embrace it. There was a time where sales reps had to wrestle with the idea of forgoing the face-to-face meeting and instead conduct business via email or phone. But it became the new norm and business is better for it. The sales process is constantly evolving. It always has, and always will. What we are living through right now is just another point on the timeline of sales evolution.

With resources thin and demands high, it can feel daunting to consider pivoting your strategy in ways that may not be applicable later on. Let me reassure you: Remote selling is not a temporary trend. Just as the economic downturn of 2008 led to the cloud-based SaaS boom that became the new norm for digitally modern businesses, remote work will become ingrained in the core of the new “business as usual” following this pandemic.

Our State of Deals 2020 Report with PandaDoc, which was set to launch at SaaStr in March, digs into exclusive data about what buyers expect from sellers. We all know how dramatically the world has shifted since then, but the core principles we uncovered about what buyers want, and how sellers can best help them, ring truer now than ever.

To shift to remote selling is not to throw everything you used to do out the window; it is to focus on the core needs and wants of your buyers as you always (should) have, and at the same time understand that deals today are going to be more dynamic, faster evolving, and potentially more complicated than you’re used to.

In our research, we found certain characteristics that the highest performers demonstrate that help them conquer dynamic deals, such as personalizing documents, building trust with prospects, and turning deals around quickly.

Technology-driven processes and dynamic tools are the underlying foundation that allows these high performers to keep up with the rapid evolution of a deal that’s even further exacerbated in a remote environment. These elite sales teams, or teams that implement elite behaviors, are the ones equipped to best adapt to the needs of their customers during the current situation we’re facing, and the “new normal” beyond.

The post SaaS Spend is Here to Stay: How Sellers Can Survive the Shift to Remote Selling by Looking to Their Buyers appeared first on SaaStr.

The Playbook to Running Growth Experiments at Scale with Growth Ex Machina Founder Guillaume Cabane (Video + Transcript)


This post is by Louise Lee from SaaStr

Founder Guillaume Cabane provides information on when and how to run a growth team and provides multiple examples of growth models. Use these tools to determine how to run growth experiments at your organization.

Want to see more content like this? Join us at SaaStr Annual 2020.

 

Guillaume Cabane | Founder @ Growth Ex Machina

FULL TRANSCRIPT BELOW

I’m Guillaume Cabane and today I’m going to talk about The Playbook To Running Growth Experiments At Scale. The first thing that I want to put out immediately for growth people and for founders is that I want to trash out all the KPIs and we’re going to focus just on revenue. That seems obvious because, see most companies don’t do that. But before I go into the dough here, who am I, what have I done, very quickly, I worked at a few of those recognizable companies, most notably lately in the Bay Area Segment and Drift where I’ve driven significant growth. And If you wonder what significant means, I’ve been at those companies while we grew in about 18 months from 50 to 200 and 300 people in 18 months.

My focus is SaaS and my job is to create a defensible go-to market moat, right? My focus is only revenue. When we talk of hypergrowth and I go back to Drift and Segment to give you an idea of how fast and how much growth there is, we did 3X revenue at Segment in 18 months and we made 5X revenue at Drift in 18 months. And you wonder like, “That sounds good, but how good is it?” Right? Well, if you look at the KeyBanc Capital 2018 distribution of growth, so you get all companies here that are surveyed for their growth over one year, right? What you see is that Segment is up here and Drift is off the charts in terms of year over year growth. And these days I do advisory. We don’t care about that. That’s fine. So the first question that you should ask yourself is how do you compete? Okay. And the thing is most of you have founders here.

Can we have a show of hands here? Who’s a founder? Cool. Most of you have founders. Okay. Within those founders who is a product technical founder? Okay. And who is a more like marketing or business founder? Okay. The more technical and product people kind of make sense. The issue is most I’d say technical product driven founders, is that they don’t see the value. They don’t value marketing as much as they value the product, which means they under invest in marketing. They don’t see marketing as a way to compete. And I’m going to show you what the difference and how that works. But first I want to focus on how I compete, right? And I compete by doing insane innovation on the marketing side, investing as much on marketing through engineering as you can invest on your product.

Okay? And through creating an insanely good user experience at the very first step at the top of the funnel. Okay. But if we go into details, what that means is that when I build growth teams, I always get the commitment from the founders to get engineers on the team, right? Because that is how you’re going to be able to create a differentiable marketing. How you can compete differently. Okay, that team’s going to be independent and I’m going to talk in a few minutes of growth team structures. Okay. I split out traditional marketing, so events, branding, that’s great. That’s just not measurable on the revenue scale. So I split it out completely, which trash KPIs for marketing, we keep only revenue. And then we have a high pace experiment framework. And I’m going to cover those elements. Okay. But first, why growth team? We talk of competing, we talk of being better than others, and then we say, “Well we’ve got to have a growth team.”

But why? What’s the benefit of having a growth team? What do they do differently than product? What do they do differently than marketing for example? Well, if you want to compare growth and product for example, is that if you think of product, product has to succeed every time. Okay? If you’re a founder and you have a product leader, a head of product or a PM and that person fails two launches or three launches successfully, that person is out. That person is fired, right? Because that person failed at doing that job, which is launching product successfully. That’s not growth. The difference is that growth is like a VC model. Okay? We’re not trying to be smarter, we’re just trying to say we don’t know what’s going to work so we need to experiment, we need to throw a lot of things at the wall.

If you know what’s going to work, then do it. Don’t experiment, don’t try. Do, okay? The principle of growth is that you don’t know what’s going to work and you want to find stuff that your competitors haven’t looked at, okay? So you’ve got to come with that new paradigm and that paradigm is that just like a VC, you’re going to have nine out of 10 experiments fail, okay? And so the only way that you can win is by testing a lot, by lowering the cost of testing and by being really good at measuring what’s happening. And if you look at the typical I’d say hype cycle, this is the typical curve of hype cycle. As a founder, your company is going to do like that. You are going to launch a product or a company and you’re going to have some early success, okay? And you can think everything’s going great, and then you’re going to reach the maxima of that first, let’s say a strategy or channel or target market, and then the conversion rates are going to plummet.

The CAC is going to go up, and then you’re going to be in this valley of fear here in the middle, right? And that’s going to repeat over and over and over again. All right? And so if you think of when do I need a growth team? This is when you need a growth team, okay? When you’re going up, you have no product market fit, okay? And you’re starting to find that product market fit. Once you have the product market fit and you’ve reached the maxima of the easy to close customers, then you can hire a growth team, okay?

Let’s go into innovation. We talked of doing insane innovation, but who wins when we don’t innovate? I’m going to tell you who wins. Who wins is the big brand advertising networks. That’s Google and that’s Facebook. They drive around 70% of all the Ad Spend. So what that means is that you are transferring your hard, let’s say acquired VC money, directly into their pockets, right? That is not innovation. That is not what your VC wants. Okay? You’re not building anything sustainable if you’re just competing on Facebook, on CAC. That is not a good strategy. That is not what your VC wants. And when you look at I’d say the challenge that we have here is that the CAC has grown, year after year both on B2B and B2C, right? We’re now at 70% higher CAC then we were five years ago. And that trend is not on a slowing down path.

It’s not going to stop, right? Which means that if you think of the ACV in the market, how much you sell is more at stable. Your CAC is going up. What that means is you’re going to hit the kind of sound barrier where you’re going to crash, right? Because you’re just not making profit from those leads anymore, okay? Cool. So the smart CEO’s, what are they doing? The smart CEOs, they are transferring their budgets to technology. So if we look at this slide here, what we have is that all the CMOs are transferring their budget from Martech, from agencies to technology. Even labor is going down. What I wanted to explain is that the budgets I have a graph on Gartner here. I’m going to explain the graph. Okay. So bear with me. So what you see is that there’s all these categories of spend, okay?

And the spend a budget is going down in all verticals for the top 100 CMOs, but Martech. Martech is the only one going up. What that means that the smart CMOs have understood that to compete, advertising is not a good solution, hiring more people is not a good solution. Being smaller through MarTech is a solution, okay? And what that comes with is actually engineering. All right? You can do stuff by hiring engineers in your team, in your marketing demanding and growth, however you want to call it, right? By having engineers to build products like stuff, you can do stuff that you can’t I’d say just with marketers. One thing that you’ve got to think is we got to calm down or egos, right? That’s what really what you need. When you think about it, you’re trying to compete with… Most of you have competitors. Who has a direct competitor here on the product?

Okay? So for those of you who have a direct competitor, even those who have an indirect competitor, think about it. If your marketing team has Marketo and then does ads on Facebook, how are you going to win versus your competitors? You think you’re just going to have better branding, you’re going to have better ads, you’re just going to have better marketers? That is a weak proposal. It’s very weak, okay? There’s only two things. One, you can rely on product. So that means that your marketing isn’t doing a lot and so either rely on your product exclusively. But that means your marketing team isn’t driving a lot of value, okay? If you want them to drive value, it means they should be able to sell a product that is no better than your competitor. That is a good marketing team. That’s how you should evaluate them, okay?

And the thing is that no growth strategies, growth tactics diminish over time. Which means whatever we talk about today has a shelf life of if not a couple months, at least a year. All right? Because your first Saastr strategy, your first Saastr channel, eventually if that works, everyone goes to that channel, that strategy. And the benefit, the conversion rate up with what you had to actually goes down. To give you one example, you look at that Ad banner at the bottom right here. That Ad banner is the very first Ad banner that ever existed, okay? That is 1994 for HotWired. That banner Ad had a conversion rate of 74%, that’s 74%. I’ve been doing marketing for the past 15 years. I’ve never seen something click for 74% ever, right? And so yeah, that was a first-mover strategy that worked well. And the same thing is true for video. Right now that we’re having emails.

So all the videos and stuff like that, it works really well. Eventually that’s going to diminish and also SOrevert to the mean. So we talked to why you want to create a growth team, innovation. When do you want to build it? Easy, after product market fit. Okay. Once we have enough engineers that we can I’d say afford to have engineering dedicated to building demand generation. Okay. And when the initial growth stalls. For the other founders in the room here that are wondering how should I structure the growth team? Who should they report to? I got a couple of examples for you. So the first model is the cross- functional model. Okay. And so that model has I’d say a growth team that is kind of peppered around your organization, all right? And as you can imagine, it doesn’t work that well to create innovation.

It works really well to I’d say minimize the rifts and conflicts because there’s basically no growth team, right? But because the product and the engineering are incentivized to minimize risk, you don’t have a team who is incentivized to take risk, so there’s little innovation. The second model is the independent model. The one from Facebook, okay. That one has a dedicated growth team with Growth Pod that is completely separate. That creates really good innovation, fantastic innovation. It has the opposite problem, lots of cultural faction and rifts and conflicts. Why? Because you’ve got people in product engineering and design and marketing owning basically your entire business. And I have a team that is going to say, “Hey, we’re going to work on that one thing, right? And we’re going to own it and we’re going to hack with it. And then once we’ve finished playing, whomever owned it before can get it back.”

Obviously, I did that. I took the signup from the marketing and engineering team and said, “Hey, we’re going to kill the conversions. We’re going to be much better.” When you do that, you are humiliating whoever owned that part of the product by taking it, by saying that they did a poor job. And then there’s only two outcomes, either you succeed so you humiliate them a second time, right? By showing that you are right and they actually did a poor job or you fail and they’re going to point the finger and say, “You see these folks in growth, they thought that they were really smart. They’re not.” Right? Sothat doesn’t go well. That can work if you have a really clear charter throughout the organization that the growth team is here to experiment, fail and help find stuff that is unique.

Okay. If you don’t empower the team through that very strong charter, you are setting them up for culture of failure. This model, the embedded model, is a very common one and unfortunately we don’t have the animation here. But basically what happens with this model, which I don’t recommend, is that it’s a power war where the growth org is going to move from product to engineering to marketing depending on which exec has the most power with the founders at a given time. And you can see those teams, they’re just moving back and forth, which means their KPIs, their incentives, their strategy is basically aligned with who, which org they belong to and not the entire organization. Which means an aspect I really like, the one I’ve been implementing is this one. So this one was created by my friend Sean calls it Atlassian. It has this kind of mixed model. We have the engineers and the designers reporting into their guilds, right?

And a few core functions are going to growth. This optimizes for both and the real good reason why I like it, think I need engineers in my team. Am I an engineer? No. Can I help an engineer grow in their career? Can I help engineer debug code? No, I can’t. Which means that person needs help from the broader engineering team, from the broader product team and same for designers. Which means they need to be embedded in some way in those teams. Okay. So this model works really well. So we talked of when, we talked of how, let’s talk of how do I fail? Because my ability to fail defines me better than my ability to succeed.

And to be honest, it’s actually easy to reproduce failures if you don’t look at how other people have failed. It’s really hard to reproduce successes because they’re really unique. So when you think of in your role and when I consult these days and I help CEOs, my first question is like, “What does the boss want?” Okay. So boss is CEO and so the boss wants good KPIs, okay. And a good roadmap and basically not breaking their culture and being reliable. To be honest, I’ve failed at all of those four, sometimes multiple of those. Okay. When you think of growth teams, most growth teams fail at being able to communicate what they’re doing, why they’re doing, and what impact they have on the bottom line. So let’s start with KPIs. Okay. And KPIs, when you think of KPIs, it means like, well growth teams is here to build demand generation.

So does marketing and it ends up with something where you have sales versus marketing is that it doesn’t end well. Okay. So if you think of sales, sales are incentivized to do a good job because they have a clawback clause. A clawback clause for those who don’t know it’s basically that if you oversell to a customer and that customer churns within a given amount of time, three months, six months, the commission is lost. Who in marketing has a clawback clause? No one, which means we can push hardly bad leads on the funnel and have no consequence, right? And that’s why we have a riff and conflict with sales. We’re not incentivized to long-term quality. We’re not incentivized to LTV, right? We as marketers, as demand people as growth people, we should be financially incentivized to long-term customer success. Okay.

The same is true for forecasting. When you look at how growth teams work, this is one example. This is a growth team tool to have all of your projects and your ideas and lists which ones you’re going to work on and why. There’s a couple of issues here. The first one is that it’s a laundry list of ideas. The second one is there’s no revenue, right? And so when the boss says, “Hey G, what are you working on?” And say, “I’m going to work on that project because it has a 6.7.” What does that mean? It means nothing. What are you committing on? Nothing really. And look at the other tools, the same thing. I ask a lot of my friends which tool they use. It’s the same problem over and over again, there’s no revenue, there’s no commitment. You’re not committed to revenue.

You’re not aligned with the sales team, okay? I tried implementing that ICE, Impact Confidence and Ease that I score three times, I failed three times both with my team and with my CEOs. And the last thing is visibility and forecasting. Okay. Because you don’t know what’s going to work, okay? You can’t give that visibility, you can’t give the forecast. And so you have the problem of not being able to forecast what you’re going to do and what impact it’s going to have. The new model I want to implement is trashing all KPIs, trashing the systems that are laundry lists of ideas and moving to revenue. And if you want to move to revenue, this is how you do it. Okay. This is fromfounder Christoph, so they are a VC firm in Germany and he has proposed this model.

Where your entire funnel is just revenue and revenue flows from stage to stage, just as in sales, it’s true in marketing. It means the maximum value you will get from your prospect is at the beginning. Each stage after that you just destroy revenue by losing people, by not being at the most efficient that you could be. And so the revenue flows from one stage either to the next stage or to close last. And so you start having that mindset that you could use the revenue as a metric for marketing, even the very early stages. And so you convert all of those KPIs such as New Visitors and Returning Visitor into revenue metrics. You divide how much revenue has gone through that stage by the number of people you get a revenue per unit object. And now you say, “Well this is how much I have at each stage.” And you can start having those metrics.

Okay. I’m going to show you now how I have my actual dashboard. This is my dashboard for one of my companies. Okay. And that dashboard has the future value. Okay. That’s added to stock, weighted by the quality. So what you have here is that the top at say left most number here, which obviously is blurred out, it tells me how much I’m adding to my pipeline, okay? And you got to think of this like your shop. Okay. Just like a shop, we have revenue that comes in, revenue that is in stock and revenue that goes out. Either close won or close lost. And each of those bubbles shows one of the stages. How much I’m adding, how much I have, how much I have closed, how much I have lost. And that is a marketing dashboard. And so you can run your growth team just like that.

If you want to think of your sales team best metric, which is sales velocity, which is the Number of leads time the Average contract value times Conversion rate divided by Time to conversion. The sales velocity is how you measure your sales team efficiency to add revenue over time. You can do the same for growth, which is how much revenue or potential revenue your growth team is adding over a period of time, right? Then you can do that at all stages of the funnel. Let’s look at how we do it. You take the metrics, as I said, you convert visitors into revenue, right? And so you track all your conversion points. You now have, let’s say visitors. It’s like each visitor is worth $10 and then you have a new metric which is qualified visitors, and you’re going to have qualified and so on and so on. Then you have all of your projects, all of your ideas like this.

Now you have all of the revenue, okay. The total per column, and you’re going to have all of the ideas. And you can say at each stage of the funnel, I know exactly how much potential revenue I have. So here we have in the gray area, impact approved. You have the total value of all ideas at that stage. I know also how much time I’m going to take to work those ideas. Okay? And so I can say, “Well, if it’s going to take us five days to drive 100k, I know my value per day. And that’s how we prioritize all the ideas. It’s revenue per day. Now, one interesting thing is that of course we track week by week, okay? And so we know the performance of the team on a revenue basis, right? And you can start having stuff such as when the boss asks, “What project are we doing next?”

Well I know exactly. Why? Because those rank as the highest grossing per day of work. What impact are we going to have? I can commit on $270,000 out of 5.5 days of work, okay? And that is highly predictive because it’s based on past historical data. Okay. So now just to nail the points, the questions we can answer is like, “What are you working on? How do you prioritize? How do you forecast?” If we want to think about it, it means that I’m just like a sales team. I have a number of people and those people bring revenue from the top to the bottom, some of which will be closed won some which will be closed lost. It is marketing, but the organization is the same and that’s super important. Okay. Because all CEOs that I have met understand basically two things really well.

Revenue and sales team organization. Okay. The rest is like marketing wise, it’s muddy. And so instead of trying to change the mindsets, I’m changing how I structure my team at how we report. By having marketers commit on future revenue, by having marketers actually structure the team as sales teams you have amazing results. And one thing I want to say is I actually I did that at Drift. We had engineers who had bonuses based on revenue per day achievements. Okay. It’s very important on the Marketing Demand Gen side, okay? Just like sales people. Why do I do that and how does it work? Well, it’s very easy. As I said, I have the VC model. I don’t know what’s going to work. My only impact is moving experiments faster through my pipeline, okay? Moving faster means that I want to be able to have my engineers actually code faster and ship expands faster.

I don’t care if the code isn’t great. So I’m trying to incentivize them to go faster and money is a great way. They don’t really care about the money. They care about winning, right? And so I have engineers winning with money to move things faster. And so that’s what we have in the end. What we have a process aligned on I’d say on the sales structure, we have predictable output and we have a commitment on impact and that’s it.

Thank you. I think we have a couple minutes for questions.

QUESTION 1: So the question is what was the tool?

So the tool is built on Airtable. There’s actually a template of that Airtable that was shared by my friend Darius Contractor. The link I believe is bit.ly/airtable-evelyn. If you search on Google Airtable EVELYN, you’re going to find it. It means Experiment Velocity Engine. Yes.

QUESTION 2: For the revenue projections for each step. How are you determining that? For example, the …, reduce the friction it was assigned maybe 5 figures.

Yeah. How do I forecast the value?

Yeah.

So unfortunately we had the wrong slide back here, but basically I use a tool called MadKudu. So they’re all like an AI machine learning company based in Mountain View and they do advanced regressions based on past data to predict the value, F, let’s say leads at each stage of the funnel. And so I leverage their insights into my model. Okay. And so it’s pretty reliable.

Other questions? Yes, we have questions back there.

QUESTION 3: What are some examples for typical SaaS company that maybe engineers might create in order to help with growth?

That’s a good question. If you look on the internet, you’ll find a couple of videos of me on tactics and strategies. Mostly what I try to do is to try and build products for acquisition that are tangent to your core product. Okay. That would push people to register low friction drive value. You see my goal is to deliver as much value as possible to people with as little friction as possible. So a couple of examples, if people need to sign up to get the value, the question is, “Well, can you pre-create all the accounts, screenshot the value and send it into an outbound email to prove the value to the future customer?” I’ve done that once. It works really, really well. I worked at a company called Mention doing news aggregation. And so we thought, well news aggregation is really good for people who are just launching a product. Okay. But they don’t have the time to sign up and set up the tool when the launching of the product on Product Hunt on day one, right?

So how can we help with that? Well, we pulled the API feed from Product Hunt, we created the news aggregation accounts for each of those launches everyday and then we outbounded an email with a screenshot and a link with a token to claim your account. Okay. Which means as a future customer, you have in an email the proof of the value, very little friction. It’s click here and claim your accounts and the data is already there. That obviously requires engineering, but it really helps I’d say the customer on the right path. That’s one example. I’ve done stuff at Drift for example. Drift is a LiveChat bot and so the principle of LiveChat bots is to get yourselves to move faster, people to engage with you faster. And so we did a tool as an acquisition that was meant to measure the response time of your sales team.

So there was a website which is now down, but there was a website called getmyresponsetime.com where VP of sales and sales leaders could go, sign up with the domain or the email and we would have contractors go and automatically request a demo with a generated email and it would measure the time between the demo requests and the demo followup in hours. And we then measure that against the industry standards to tell them how long they took and how much conversion they’re losing. And then the VP of sales is like, “Damn we’re losing opportunities. We’re not converting as high as we should.” And the obvious followup is like, “Maybe you need a LiveChat.” But it’s tangents, right? So a lot of those things require some level of engineering and it’s much more than just building a landing page, right? It usually requires some level of backend engineering and stuff like that, but it creates value. I’m trying to use engineers to push value up the funnel. That I think is the core strategy is push value up the funnel. Cool.

QUESTION 4: I was wondering if you could quickly elaborate on how you compensate the engineer’s for hitting the certain growth targets.

How I compensate?

Yeah. Is it like a commission or a flat rate? Just what’s worked for you?

Yeah, so basically the target is to have them produce at least a thousand dollars per day worth of experiments. The $1000 dollar mark is there because it’s more or less what they costs in San Francisco? No, 220 days of work, 150-180 case cost plus bonus and whatnot, they more or less the same. And so can they add $1,000 per day worth of value to a pipeline? Okay. And if they do that, they get bonuses. Now, if you think what’s going to happen? Okay, so basically they want to win. There’s this laundry list of ideas that are rated on a scale by experiment value per day, projections of how valuable is that idea?

Obviously they all want the one at the top. Okay, so how do they compete for the best experiment idea? Well someone’s going to say, “Well, I can do this project in five days.” And the other one can say, “I can do it in three days.” And I’m going to say, “Commit.” Right? And so now they’re committing to going faster and it’s forcing them to make some shortcuts and to work extra hard, which is exactly what I want because I don’t care about the code quality at that stage of the process. I care about having the answer really fast, right? Because remember we’re trashing 9 out of 10 ideas. So we can take care of code quality later, okay? So that’s how how we do it.

QUESTION 5: Smaller stage companies. Sorry, I couldn’t quite see the slide there, but it sounded like you were saying dedicated people for this kind of experimental team. Smaller stage companies, they can’t really dedicate a four person team across these different gilts and then a followup to that, how do you think about reporting and who’s driving that? Who’s who’s typically in that seat?

Yeah. That’s a good question. So at a small stage it might not make sense. You might not need a growth team as a separate function. You probably don’t actually, right? Because the question is have you hit product market fit and have you exhausted the obvious channels? If you haven’t exhausted the obvious channels through obvious marketing strategies, you don’t need to experiment. You should just execute on those first channels, okay. The need for growth team comes when you have exhausted the obvious things and you’re getting trouble continuing on the same growth I’d say path, in terms of month over month growth and your CAC is going up, now you need to experiment. That’s the first thing.

The second thing is for me, if you really want growth as an experimentation engine to figure out stuff that is not obvious, you need two things. One need a very clear charter throughout the organization that this team is taking risks and they’re going to fail often. And two, that team needs to report to the CEO, okay? Because stuff’s going to break and stuff’s going to fail and they need our cover, right? Otherwise, that team’s not going to survive longer.

Cool. Thank you very much.

The post The Playbook to Running Growth Experiments at Scale with Growth Ex Machina Founder Guillaume Cabane (Video + Transcript) appeared first on SaaStr.

How do you build strong relationships with customers?


This post is by Jason Lemkin from SaaStr

Q: How do you build strong relationships with customers?

A few simple ideas:

View original question on quora

The post How do you build strong relationships with customers? appeared first on SaaStr.

The Playbook to Recruiting Your Sales Team with Brex Chief Sales Officer Sam Blond (Video + Transcript)


This post is by Louise Lee from SaaStr

Nothing matters but recruiting and using your personal network. Sam Blond, CSO at Brex explains why recruiting, networking and employee happiness is the key to this playbook on recruiting your sales team.

Want to see more content like this? Join us at SaaStr Annual 2020.

 

Sam Blond | Chief Sales Officer @ Brex

FULL TRANSCRIPT BELOW

My name’s Sam Blond. I’m doing The Playbook To Recruiting Your Sales Team.

Before I start, what an awesome event. I attend these types of events periodically and these SaaStr events are just always a cut above. Once again, amazing job to the SaaStr team. I’m really honored to share this stage with some really bad ass speakers. Several of my former bosses, Kathy Lord that was just up here actually started at Intacct right out of college. She was my first VP of Sales. Hi there. Brendan Cassidy, second VP of Sales at EchoSign. Jason was the CEO at EchoSign, so pretty cool. I’m doing The Playbook To Recruiting Your Sales Team. Jason had emailed me a few months ago asking if I wanted to participate and unlike other events where sometimes I have to really think about what I want to present on, this came really quickly to me and it’s because he prefaced it with, “We’re doing The Playbook too and then you got to figure out what you want to talk about.”

And for me, I’ve learned throughout my career that I can and probably do suck at just about everything else, but if I’m okay at recruiting the sales team, everything’s going to be okay. Recruiting is the only thing that matters. We’ll start off … This is a picture of our sales organization or some of our sales organization. This is why we are successful as a sales org. It’s all about the people. I wish that I could say I had some silver bullet with regard to strategy or something like that that has really taken the company out from a growth perspective. It’s the people, that’s it. And so when I started putting this deck together, I wanted to see if my experience around people in recruiting being the most important thing was something that resonated with others, so I was just Googling recruiting quotes and just about every major leader of a large business had something.

And so I found a couple that I took out. The first one is, “Acquiring the right talent is the most important key to growth. Hiring was and still is the most important thing we do.” That was Marc Benioff. The second one is, “The secret to my success is that we’ve gone to exceptional lengths to hire the best people in the world,” and that was Steve Jobs. And I just picked these two but I could’ve done 10 or 12 and just done a slide deck on quotes, but that would’ve been a little boring. And then

I was putting this deck together, it was actually last week. I think it was three weeks after the due date for the final draft, so sorry, team SaaStr. And then Jason posted this on Twitter and it says, “NMBR, after $2 million in ARR, so nothing matters about recruiting.” So lots of social proof people that I really look up to that have had this experience around recruiting being by far the most important thing that you can do to build a successful business.

For today, I’m going to start pretty high level just with a few recruiting principles and then get really tactical around the evolution, who to hire, when to hire, introduce strategy and some things that you can do to make recruiting easier. But starting with the recruiting principles, the first one is hiring the right people is the most important thing you can do to build a successful business. This really hits home for me personally. When I look at joining a company, the primary reason that I join is the people and really the leadership team. I remember when I joined Zenefits a number of years ago, I met with Parker who’s the CEO and I left that meeting just thinking he’s going to build a really massive business and that’s why I joined. The same was true when I was meeting with Pedro and Enrique and our CFO, Michael at Brex.

It didn’t really matter what the company did. It was just like these people are going to build a massive business and that’s why I want to join. I think that transcends throughout the entire organization where even individual contributor sales reps and SDRs, they’re joining the business in large part because of who that leader is. Hiring the right people is the most important thing you can do to build a successful business and you’ve sort of seen that is a recurring theme through the Steve Jobs and Mark Benioff quote.

The next one is make recruiting part of everyone’s job. We don’t pay referral bonuses when somebody at the company refers somebody that we ended up hiring. Oftentimes we’ll get asked the question, do you pay for referrals on hires? And the answer is actually yes, it’s your salary because it’s part of everyone’s job at the company to refer candidates and to recruit and so that’s the second principle. Recruiting is part of everybody’s job. It’s one of two things that we hammer home on a consistent basis around making recruiting part of everyone’s job. The other one is customer focus. That’s a different presentation for another day.

And then the last one is hiring is all about mitigating risk. And so what I mean by this is what you’re really trying to solve for is this risk reward ratio where it’s really a low risk and high upside in the types of hires that you’re making. There’s a lot of things that you can do to find these types of people, so we’ll talk about some of those.

Again, now we’re moving to the tactical stuff. What I’m going to talk about is when you want to hire people on the sales team and then who you want to hire, so the profiles of those different people. In the early days, what you really want as a CEO is to actually be the first sales rep, so you want to find some sort of product market fit. You really want to bring on several non friends and family customers. And part of why you want to do this is you want to learn the type of profile that you will be looking for in your future sales rep. How long does it take to close these deals? How much can we sell the product for? And then you can use the information that you have learned by educating yourself on selling the product and you can design a profile of who you then want to hire. Once you’ve done that, you are ready to hire your first salespeople.

Here I have, after a handful of customers hire your first couple AEs. Emphasis on the couple and we’ll talk about that in just a minute, but we’re going to spend a fair amount of time on use your network. If there’s a second major takeaway that you take home from this presentation, the first being nothing matters about recruiting, the second being use your network. This ties back to the mitigating risk. When you use your network, a lot of different things happen. You know from prior experience, from working with this person, if it’s an in-network hire that you’ve actually worked with, what their performance historically has been like. You don’t take their word for it in an interview setting. You know that they were a top performer. You know their strengths, you know their weaknesses, you know their probability of success very differently from when you hire an unknown quantity that was sourced from a recruiter or from an applicant on your website.

There’s also this dynamic that exists when you hire somebody that’s a referral where they feel a personal responsibility to do everything that they can to be successful, because it’s a reflection on the person that made that referral. When Jason introduced me to a Parker at Zenefits, I felt this personal obligation to just really work my ass off and do everything that I could to be successful because I knew that Parker and Jason were in constant communication and my performance was actually a reflection on Jason. I had this sense of moral obligation to perform. The same is true at the rep level. If you have a referral from one of your top performing reps, the referral wants to come in and perform because they know that their performance is a reflection on the person that made that referral. You also have the dynamic where the person that made the referral wants that person to be successful, so they’re going out of their way to try and help the hire be successful in ways that somebody that sourced from an external recruiter or somebody that applies on your website, that doesn’t happen.

And then the last thing is this concept of mitigating risk. It exists both ways. The same way that the company wants to mitigate risk on the hires that they’re making, the top performers want to mitigate their own risk on the companies that they are joining. And so what I mean by that is, if you’re a top performer at a business, you’ve earned this reputation, you know that the leaders within the company think that you are really great. You don’t want to go start at a new company where you’re an unknown quantity. So oftentimes you will follow the best leader or you will get a recommendation to join a company, rather than doing something like applying on the website, because you’re not taking advantage of your past success if you become this unknown quantity within a company. I can’t overemphasize the importance of using your network and really forcing that indefinitely.

We have about 60 people in the sales org at Brex today. Every single one of them has been sourced internally, so we haven’t used any external recruiters. We haven’t used internal recruiters for sourcing. They are all in-network hires and we’ve missed once, out of all the hires that we’ve made. The next one is hire more than one AE. The reason that you want to do this, if you just hire one AE, you don’t know if they are good, which is why the product you’re really selling and the product is taking off. If they’re not successful, you don’t know if it’s product market fit. If you hire two people, they’re able to leverage one another. They’re able to play off of each other and see what’s working, what’s not working, and then you also can see if the product is selling because they are successful.

We’ll talk about a few scenarios. If both of them are really successful, you know you’ve got something and you want to continue scaling the team. If one’s successful, one’s not successful, you know that one of them is probably pretty good and you may have missed on the other hire. If both of the hires that you make are not successful, this is systemic and you know that it’s a problem with your product market fit and you probably want to slow down and fix things and make it easier to sell. You don’t get any of those insights by hiring one person, which is why when you make your first sales rep hire you want to hire two.

And then lastly on this slide, some things that you want to solve for and then one that you don’t, so solving for the stage of the company. You want somebody that understands what it’s like to work in a startup. You want somebody that knows the only constant is change. You want somebody that doesn’t need a four to eight-week training program that tells them how to sell that you may receive it a large company. You want them to know what to expect at an early stage startup.

The next one is around deal size and cycle time. If you’re selling a hyper transactional product, you don’t want to hire somebody that has done big data field sales to Fortune 500 organizations. You want somebody that has seen what hyper transactional sales look like and you want somebody that has seen what a deal size in your deal size range looks like. And then lastly, there’s no better indicator of future performance than prior success. And so if you’re hiring somebody that has been a top performer at a company historically, and you’ve confirmed that, their probability of being a top performer at your company is super high.

You want to solve for people that have been at the top of the leaderboard in companies that they’ve previously worked at. And then lastly, one thing you don’t want to solve for is domain. Oftentimes, judgment can be clouded if somebody understands the space pretty well. The reality is it’s pretty easy to pick things up. I’ve sold electronic signature HR software, QA. We’re doing credit cards now. It’s just easy to learn this stuff. And so when you solve for domain, oftentimes you miss on what’s really important and it’s not a sacrifice that is ultimately worthwhile. Oftentimes people that go and join their competitors, the top performers at fast growing startups, they don’t want to leave and join the competitor. It doesn’t really happen.

Okay. So scaling the team after a couple of reps are successful, it’s time to hire your first sales leader. First bullet point, again, recurring theme, use your network. I’ve been a sales leader now at a few different companies. Jason’s introduced me to two of them. The third one YC introduced me to Brex. And so same dynamics exist with leaders as they do with AEs. You really want to use your network and hire somebody with all of the things that I talked about when we had this bullet point on the previous slide. The next one is you want somebody who has seen what great looks like at an early stage. Don’t hire the Salesforce director that inherited a team and you want to bring them into your startup because Salesforce is this really amazing company and so they probably really understand how to sell. It’s just so totally different.

You want somebody that has been part of a really fast growing business at similar stages. They’re likely not going to be the person that ran sales for the hottest company, but they might be somebody that was like a manager that progressed into director and now they’re ready for their own shot. The probability of that person being successful in an early stage startup organization is so much greater than somebody that has seen this large enterprise scale sales, because they’re just totally different, again, mitigating risk.

And then the first thing you want to solve for and almost the only thing you want to solve for is around recruiting. I talked about, I probably suck at everything else, but we’ve built a really good team and because of that we’ve been able to be successful in sales. If you go in with that mindset where recruiting is the most important thing when you hire a leader, you’ll want to ask them things like who are you bringing with you? And be specific, show me those people and why will they be successful here? How did they perform at your previous company? Specifics, names. When are they coming with you? Are they ready to come? Maybe even talk to those people, see why they want to follow that leader. And if all of those signals are positive, almost nothing else matters.

And so you come in, you have this sales leader, the first thing that they’re going to want to solve for is prioritizing recruiting. At this point, I probably spend 60% of my time on recruiting. I now do that naturally because I understand the importance of it. If you’re a new sales leader, you probably want to block off time because nothing is more important. Just spend a bunch of your time recruiting, finding people, talking to top performing reps within the company. If you join and there are two sales reps there, one of them is crushing it. Spend a bunch of time with that person that’s crushing it, asking them for referrals. Make recruiting part of their job. Again, that dynamic, if you refer your friend, you’re going to be bought into their success in ways that an unknown quantity or random person that you bring in that doesn’t know anybody. Again, you’re trying to solve for probabilities of success here and mitigating risk.

And then lastly on this slide, when you hire a sales leader, their skillset likely doesn’t transcend. If they’re really good at recruiting and motivating the team, their skillset likely doesn’t transcend into things like sales operations. This is systems. This is analyzing data. What you’ll want to do is you’ll want to backfill in there. They’re going to need that support and allow your sales leader to focus on, again, the most important thing and that’s recruiting.

I’ll fly through these next couple slides. I’m showing 30 minutes, but actually think I came on at 2:30, so maybe I have a little bit more time. On interviewing, you want the candidates to be themselves. A lot of people try and do these high pressure interviews where you ask questions and try and throw people off and see how they react. I really don’t like that style and it’s because when somebody is ramped and they may be talking on the phone, if it’s an AE, they may be talking to candidates. If they’re a leader, they’re going to be comfortable in those scenarios because they will have learned the product. And so by throwing them off and seeing how they react in uncomfortable situations, that’s not really applicable to how they’re going to perform once they’re within the company.

And so you want to start making them comfortable, just shooting the breeze for a little bit, talking about things that they’re very comfortable with. And then you really want to spend a bunch of time talking about them. You want the interview to be about selling themselves and asking them questions to find out about their strengths. Where do they need support? If you ask a question about where they may need some backfill or some support and they give you a real fluffy answer that’s nonspecific, I think that’s a red flag. You want people that are self aware enough that know where they need help and you want them to identify that early on. You want to talk about goals, you want to talk about historical performance, all things that these people should be really comfortable talking about.

And then the example that you probably don’t want to do, or at least my experiences that I don’t want to do is the tell me about a time when questions that really see how people think on their toes. Oftentimes people will make up shit when you ask this question. What you might solve for is somebody that is a good interviewer and not somebody that is a really good performer. A few interview questions that I really like. What does success look like for you personally in this role or some variation of what are your personal goals if we were to hire you here? I think that generic answer there is I want to hit my quota. For me, success looks like I’m going to come in here and I’m going to hit my quota for you. And the problem with that is 90% of sales reps at Brex today hit their quota. And so what you’re really saying when you answer the question that way is you’re going to be in the top 90%, which isn’t that good.

And so what I’m looking for and I’d say like the better answer for this question is I’m going to come in and I’m going to figure out what everybody on the team is doing really well. I’m going to learn from the top performers and I’m going to be number one on the team. Because unlike when you say I’m going to hit my quota and you’re saying I’m going to be in the top 90% of people on the team, there’s only one number one. And so you’re looking for somebody that wants to be the best. Another question is what do you do different from your peers that makes you a top performer? The reason I really like this question is there are answers that are more applicable for a certain sale types and what I mean by that is if you have a hyper transactional sale where success is determined by at bats and somebody answers the question. They say like, “I grind harder than anybody else in the team today. I’m the first one in the office. I’m the last one to leave and I will work harder for you than anybody else.”

Great for like a transactional high volume sale, a lot of cold calling. If you have a really complex product that requires a deep understanding of how to sell it and somebody answers the question to what do you do differently, it’s like I go really deep on understanding our product and understanding the pain points within the customers that I’m selling to and I provide them solutions. Perfect answer for like a complex product. And so you asked this question and you’re looking for answers that are applicable to your sale type, so I like the question.

All right. There are few things that you can do to make recruiting easier. The first one is draw during the ramp. We don’t actually give a full draw and to define draw what I mean is sales reps will get a base compensation and a variable compensation. A draw is you just give them their full-on target while they’re ramping. What we do is we actually set ramping targets for the first few months. They’re pretty attainable. Nobody ever really misses them and if you hit the ramping targets or the milestones that you’re supposed to be hitting during your ramp, we will pay you your full-on target. We won’t pay you more. But the thing is sales reps oftentimes and specifically with junior sales reps, joining a new company can be really stressful from a financial perspective because oftentimes they’re using their commissions to live. And so you want to create an environment where it’s a lot less stressful and makes it easier for them to join and they’re not worried about financial obligations they may have during the first three months at the company and instead they’re worried about performing.

The next one, maybe no surprise, sales reps care about compensation, so pay top of market. This is just a pretty easy thing to do. Oftentimes you pay for what you get. I really like to create a reputation within the companies that I work at for paying top of market and when you do that people want to work there. 70 plus percent of the team over quota. People talk about really high on targets and if only 20% of the team is hitting the OTE, it doesn’t really matter what it is. And so what I do and I’m interviewing sales reps is I actually show them without showing the names, commission checks from the previous months, what people are actually making. On targets are largely irrelevant. What actually matters is take home. We want to show that if you think that you will be in the top 70% of people on this team, and of course everybody thinks they will be, the baseline for what you can expect to make is the on target that we’re talking about here. It’s very different in a lot of other organizations where maybe 50% or 30% of the team is hitting their quota, so you actually want to pay what you promised to pay.

The next one is promote from within. In addition to compensation, salespeople really care about progressing their careers. And so when you can, you should try to promote your first line management team from individual contributors that have been really successful. There are two things that I do to determine if I can promote from within. The first one is I ask myself, would I like reporting to this person? I’ve made the mistake before where I’ve promoted people that I actually wouldn’t like to report to and it’s been a nightmare, so ask yourself that question. If the answer is yes, that’s good signaling. And then the second thing that you can do is you want to promote out of want and not out of need. And what I mean by that is if somebody has really killed it as an individual contributor and you want to put them in a more strategic position within the company because they’re going to have a bigger impact, that’s really good signaling to promote that person. If you are growing at a rate and you need to promote somebody into a management position and somebody is the least bad option, that’s not going to work out and so you may want to look externally if you’re promoting out of a need and not out of want.

Okay. The next one is set attainable company revenue targets to develop a culture of winning. We launched at Brex about 15 months ago. This month will be our 15th month in a row of just crushing revenue targets and what that creates is an environment where we have 90% of the reps that are hitting their personal targets. We’ve never missed a company revenue target and winning just becomes the expectation. Losing is not acceptable within our company. And so that becomes a really positive environment to work in and leads to the last bullet point here that is obsess over employee happiness. People are happier when they’re in an environment where they’re successful, where the company is successful and you can create that environment by setting targets that are challenging, but you will hit them and you want to solve for this culture of winning, because losing becomes acceptable as soon as it is repeated.

I think just a few recap on the takeaways. The first one is, as Jason said it best in MBR, nothing matters but recruiting. The one that it would be sort of the second one that I think is really important is use your personal network. I can’t emphasize that enough because the probability of success with an in-network hire is just exponentially greater than somebody out of network. And then this last one around, obsessing over employee happiness. When you create an environment where people can be successful and people want to be in the office, good things just sort of happen. It looks like I have four minutes left. I did do a slide for Q&A. I don’t know if anybody has any questions we can spend … Yeah, there’s somebody over in the back.

QUESTION 1: And what guidelines do you use to set the targets earlier?

Yeah, so the question is what guidelines do you use to set the targets? At inception what you want to do is you want to create very conservative revenue targets because the possible outcomes are you crush that target, which is a good problem to have or you meet the target and you just sort of continue pacing. What you don’t want to do is set these unrealistically high targets and miss them because that then becomes ingrained in the culture where you missing targets. I think you want to be conservative upfront and I mean the real answer is you kind of figure it out like that. Then over time you set the targets through data. You have some historical performance in previous months that you use to set targets. One thing that we still today are really setting targets and this is company level targets on a quarterly basis, we have an idea of what we want to do at the beginning of this year. We kind of knew directionally where we wanted to finish this year. Same thing is true going into next year, but we’re really setting the company level targets as we go quarter over quarter because we have the most recent data available that we can use to decide what that sort of dynamic of not easy but sort of challenging, but something that we’re going to hit. Yep.

QUESTION 2: One question I want to ask you is, I know at EchoSign you were an AE and then you came out of college, you moved up at the beginning. At Brex, what’s the percentage of college kids you hire for the inside sales and moving them up to be closers or versus hiring people who’ve done SaaS sales?

Yeah, it’s a really good question. Just to repeat, it was around … I was fortunate enough to have the opportunity. I started the EchoSign as an SDR and then sort of worked my way up and was in an environment where those opportunities were given to me to move into more strategic positions. At Brex, how much are we hiring at in early stage and then promoting from within compared to just hiring senior leaders externally. We’ve only really been around at this point for 15 or 16 months when we really started scaling the team. We had two sales reps 16 months ago. I think there needs to be some period of time that people remain in roles for them to really learn the role and be prepared for success in the next level. That period of time at an early stage startup can be as little as six months, but more likely it’s probably 9 to 12 and so we’re just now reaching that milestone where people internally have been in their roles long enough that we are ready to promote them.

But going back to the concept of hiring is all about mitigating risk, that couldn’t be more true when you are promoting somebody that has been successful within your company, selling your product into a more strategic role compared to an external hire. And, again, we talked about there’s no better indication of future success than past performance. The top performers that you’re creating in this funnel system, their probability of success is just super high, so the top performing SDRs that become AEs, we’re now starting to have those. They’re going to crush it. All first line managers within our company right now and I think there’s maybe six of them were promoted from within and they all passed this test of would I like working for them and are we promoting them out of want and not out of need. No. Yeah.

QUESTION 3: Thank you. Apart from network or referrals, what sources or sites of hiring have you used?

The question is, outside of using in-network hires, what are other sources of hiring that you’ve used? I feel really strongly about this. I think it’s possible for people to just rely on personal network and people to apply on the website or sourcing candidates from LinkedIn. You’re just really risking the probability of success there. And so I think if you really prioritize recruiting and force yourself to use your personal network. If it’s not somebody that you have worked directly with before, talk to somebody that you really respect, talk to a bunch of people that you really respect, get referrals from them. Just try and stay as close to in network as you possibly can because each layer you sort of move out, I think the more risk you insert into the process. That isn’t an answer to the question because we don’t really use anything besides personal networks.

Thanks so much for having me. This was a blast. Really appreciate everybody attending and hope it was good.

The post The Playbook to Recruiting Your Sales Team with Brex Chief Sales Officer Sam Blond (Video + Transcript) appeared first on SaaStr.

The Playbook to Building a Customer Reference Program with Talkdesk SVP of Client Services Gillian Heltai (Video + Transcript)


This post is by Louise Lee from SaaStr

Learn from Talkdesk SVP of Client Services how to build a Customer Reference Program. How to create boundaries and norms with the sales team, how to find customer advocates, how to build and scale your program, as well as the difference between incentivized vs. reward program. Without considerations and principles Customer Reference Programs can falter.

Want to see more content like this? Join us at SaaStr Annual 2020.

Gillian Heltai | SVP, Client Services @ Talkdesk

FULL TRANSCRIPT BELOW

Hi, everyone. My name is Gillian Heltai. I’m the senior vice president of client services at Talkdesk. At Talkdesk today, the client services organization is 90 people strong and we are responsible for making sure that our customers both in the pre-sale and the post-sale process are able to design and then achieve their desired outcomes. I’ve been at Talkdesk for a little over two and a half years. In that time, we became the first ever or the youngest company ever to enter the Gartner Magic Quadrant, the Gardner CCaaS Magic Quadrant. We raised $100 million. We became a unicorn. Really importantly for the purposes of today’s topic, our average deal size increased by three 3.5X over that two and a half years.

Customer reference program went from something that was nice to have and important to absolutely critical to our new business sales cycle. That’s what I’m going to talk about today. I also entered the customer reference program space totally cold. I came from a company where I worked for 10 years. It was very well-established. It was a category leader. We had really high saturation of the market. We didn’t really have to do customer reference programs. I remember in my first week or two at Talkdesk I had one of the sales leaders come up to me and say, “Hey, we’re going to need a reference for this customer that we’re trying to close to help us help sell the deal.”

Frankly my honest reaction was like, “Wait, isn’t it the sales team’s responsibility to be closing this customer? Why do I have to go ask one of my customers that I’m trying to protect and focus on kind of core Talkdesk product advocacy or product adoption. Why do they need to be involved in that process?” I don’t know if any of you have ever experienced that, but me coming in to Talkdesk, I wasn’t familiar with this. A lot of what I’m going to talk about today is my learning experience and how we went from a relatively small customer reference program to what we have today, which is really kind of a humming machine.

If you’re anything like me, you may have entered a situation at some point saying, “Do I really have to do this. Do we have to do these customer references? Is there another way? Do we really want to be introducing this motion to our customer team?” The answer is probably. There are very few situations in which customer reference programs aren’t going to be really, really critical to your new business sale cycle. You’re probably going to have to be doing customer references unless there’s very small contract value, right, where there’s not a ton of pressure in making the right decision on the part of the prospective buyer. Another reason you may not have to do references is very flexible contract terms or maybe your company’s already huge, right?

Like you are very well established and you don’t necessarily need to run this program. My guess is that if you guys chose to attend today’s session, these do not apply to you, so I’ll just kind of move forward into think about how you actually build a customer reference program. I’ll come back to some of these buts a few minutes later. You’re going to create a customer reference program, but there needs to be some criteria boundaries in order to supply customer references. We’ll talk a little bit about how you create those boundaries and norms with the sales team. Then you should also really be striving to amplify your advocate’s voice through 1:many activities.

Those one-to-one customer reference calls are really critical, but there are so much more that you can do to amplify their voices to create 1:many opportunities for them to share their voice with multiple perspective customers. I wanted to start by talking a little bit about the Talkdesk evolution. I joined kind of at the second stage. At the very beginning, you’re in your earliest days as a company. You’re excited to be closing your first customers. It’s often really rocky, but if you’re in this stage, and you probably already know this, it is so, so, so critical that you do everything to keep these customers happy. Years from now they’re going to be your absolute best references. Today at Talkdesk, we had a lot of our kind of big momentum starting in 2014-2015.

Those customers are some of our most powerful references because we get to bring them in and they tell the story not only of what it’s been like to work with Talkdesk over many years, but they also get to tell our innovation story for us. So much of what Talkdesk sells on is innovation and trust. To be able to have a customer who’s been with you for years and even from the early days to come in and tell that story with you is, is really helpful. Now, I joined Talkdesk kind of in the second stage, which is, hooray, you’ve got enough customers that you’re able to do references potentially at scale. It’s really nothing a little bit of elbow grease can’t solve. At that point, often you’re using your customer success team, your AE team to really kind of manually manage this process there.

It probably looks something like this. AE has a deal that is getting close to closing. The customer that they’re trying to close says, “Hey, I’d like to talk to some of your customers.” Maybe they send out a message on Slack, maybe they send you a text message and they say, “Hey, do we have anyone who in Talkdesk could probably be say like of a certain size, with certain number of integrations, maybe in this regional vicinity or in this country?” Maybe you send out an email to a bunch of folks and like, “Hey, do we have any customers like this?” That’s kind of how the process runs and that was what it was like when I joined Talkdesk. That was okay for six to nine months and then we started hiring really aggressively on sales. We started investing a tremendous amount on the enterprise side.

This is where that growth into kind of mid market and enterprise really kicks in as I referenced that 3.5X deal size growth. We hire all these new enterprise account executives. Now they’re coming to my team not with a, “Hey, could we get a customer reference,” it’s, “Hey, I need three customer reference calls, I need an onsite visit, and I need all of that done within the next 48 hours.” Some of the emojis that I had built in this slide are missing, but it’s like that big yellow face with the big eyes and the red cheeks. I think it’s called bashful. That was the emoji that I had on this slide because it’s literally like, “Oh my God, how are we going to accomplish this?” That was a very short window for us because that is the point at which you need to hire specialists.

That is the point where your regional vice president, your managers of customer success, your vice presidents of client services can no longer manage this on their own. You really need to start building a machine. That’s the point at which we hired a customer marketing team and they helped us to refine the reference program and focus on this notion of scale again. How do you start to amplify those voices and get from a 1:1 customer call to a 1:many customer advocacy program? How do customers become advocates? There are a couple of things that we need to consider in thinking about like, okay, I’m now in a position where I know I need to invest, essentially I’m hiring customer marketing. What are the things that I need to be thinking about in building an advocacy program?

I need to know how do customers become advocates, right, so that I can try to harness that. Then we’re going to need to talk about how do I find them, what are the tactics that I can use to identify who my advocates are. Then once you’ve started to identify like what is the composition look and feel size of my advocacy pool, then we’re going to talk about what do you actually do to start building that program out. In terms of answering the question, how do customers become advocates, we can probably all relate to this emotionally, right, because we’re all buyers of one service or another. The number one reason is going to be love for your product. This is something that when I joined Talkdesk I was so fortunate. Engagement with our product was already so high.

Our net retention rate was over 130%, so we have this really great pool of customers that all we needed to do was kind of find them. One great way is to figure out who your advocates are or who are the people that love your product. We’ll talk in a couple minutes about how do you actually find those people. Another great opportunity is improvement versus the prior provider. Many times your customers maybe choosing your service because of some sort of pain that they had in the past. If you’re able to identify the customers who had really explicit pain with their prior provider that drove them to choose your solution, these are going to be really great customers to enlist as advocates as well.

This also ties, by the way, into a really good presale process around documentation of new business opportunities. What’s the pain point? Why are they going to choose Talkdesk over another provider? What are we trying to solve for? Making sure that all of that is documented on the new sale opportunity allows us to very quickly mine that to identify who may be an advocate for us. Another way that customers become advocates is a personal relationship with the account team. They’re going to develop a really close relationship with a sales representative. Hopefully you’ve got a good client services team, a customer success or support organization that’s building one-to-one relationships. You can seek to find customers that that talk about those relationships as well.

Great support experience. Then finally, one that I love and we spent a lot of time talking about a Talkdesk is this notion of overcoming a challenge together. I think often we think about the customers that have experienced pain with our company as customers that we need to kind of tip toe around or that may be unlikely to want to be an advocate for us. But honestly, it’s generally the exact opposite. When you are able to overcome a challenge, and sometimes it’s even Talkdesk’s fault, right? Let’s say we messed something up in the implementation. We thought we were going to be able to do something in a week and it takes 10 days or 14 days.

You may think like, oh, that customer is going to be angry, but actually if you manage that communication really properly and then you end up succeeding in the implementation, that’s someone who gets to join you in telling kind of the story of overcoming a challenge together and coming out stronger on the other end. These are really, really great customers to look at as potential advocates. Then you’ve got a profile of the types of experiences that advocates have. How are you actually going to find those people? There are a lot of really great tactics that you can use for this. The first one are your support CSAT surveys. I imagine if you’re not, you should be. After completion of a support related case, there should be some sort of a CSAT collection for those users.

People who you find that are repetitively thanking your support team, they’ve got an emotional connection to your organization, these are great people to target as advocates. NPS surveys. We run a NPS survey right within Talkdesk. We get a couple thousand responses every single month. We look at those in real time. We’ve got a Slack bot set up and we see every NPS survey that comes through one by one. Those are great people for us to engage with to be advocates. This is for references, but also the broader advocacy program. Targeted customer feedback surveys. This is actually something that we’ve only just started. We’re identifying what we consider to be our primary contacts for our customer relationship, technical users, business users, budget decision makers, primary administrators of the product.

We’re sending them surveys that help us collect key information for the marketing team, the product team, but also general feedback on the services organization. Positive sentiment around that and willingness to fill that survey out, these are going to be people who are willing to be your advocates. The way we normally do this as companies is really this fourth bullet, but there’s so much else that we could be considering, but let’s not forget the one-to-one relationship. CSM, account manager, AE, whoever is kind of running point as the quarterback of the relationship, they can also just ask. They can ask formally in a QBR setting. You could create some slide where that says, “Talkdesk customer advocacy program. Here are the benefits to you. Here are the benefits to us. Are you willing to sign up?”

Right? We have to be brave enough to just kind of throw it out there and ask the question bluntly. We can also ask informally during a catch-up call, a site visit, personal email out to a ballgame, would you be willing to be an advocate for Talkdesk? Then a third thing that you can do is incorporate it into the contract. Either in a new business deal or in a renewal engagement, there’s always that negotiation that’s happening. What am I going to give? What am I going to get? One of the things Talkdesk likes to think about at that contractual phase is, okay, so a customer may be asking for discount or customer may be asking for like specific payment terms that we don’t offer, whatever it is, we can say, “Okay, well, if we’re willing to give this few, might you be willing to be an advocate for us?”

That’s another point in time where you can start to engage around that topic. Then finally, local event attendance. Talkdesk has invested a lot in the last year in local event attendance for both customers and prospects. This is a really great way to find your advocates because generally speaking, the customers who sign up and come out to the happy hour or the luncheon or whatever it is, they like you. They’re good folks to talk to, to engage with in your advocacy program. Now, we’ve talked about who your advocates are and how you can find them. Now, we need to start thinking about, I’m ready to build and scale my advocacy program, what are the things that I need to be thinking about? What are the decisions that I need to make as I build that program out?

 

What are the considerations? I want to spend a couple of minutes on each of these because I’ve debated them and we’ve also changed our tactics a little bit overtime at Talkdesk. The first one that we go back and forth with a lot and it is a basically philosophical decision is, is this going to be an incentivized program or is it going to be a rewarded program? An incentivized program, you often use a software solution, one that’s very popular as Influitive, that you encourage people to join this program, and they know that if they do whatever it is, the customer reference call, the case study, the live presentation, the webinar, the onsite visit, that they’re going to get something, right? It’s almost like a point system where if you do this, then you get Y. That is an incentivized program.

It works really, really well in some industries. It tends to work really well also with more junior folks. If you are in an industry where what you’re trying to do is kind of engage maybe at the kind of independent contributor or supervisor level, this may work really well for you. It tends to work not as well for kind of VP plus budget holders because they are less interested in participating in a sort of an incentivization program. The other way you could do it is through ad hoc rewards. Rather than saying to the customer, “If you do this reference call, then you will get X,” you ask the customer for the reference call. You ask the customer to do the webinar and then you thank them with a reward. It isn’t something that is always consistent.

The reward doesn’t always happen, but it is a generous thank you approach for rewarding people for signing up for being your advocate. Again, this is a big decision that you have to make. There’s big cost decision with this. In one situation, you probably need some sort of a software solution. In the other, you could probably manage it in a Google sheet. That’s one big decision you need to make. The next is who is going to ask. I have seen companies totally fall apart over this because if you don’t define who is going to ask, then either everyone is going to ask or no one is going to ask. It’s critical that you figure out who is going to be the voice of Talkdesk or the voice of your customer in making the decision to, A, who are we going ask to do this advocacy event and how are we going to ask them.

The worst thing that can happen is no one makes the ask and then the second worst thing can happen is that customer gets an email from three different folks from Talkdesk making the same ask. That makes us look very disorganized and it’s not something that we would want our customers to experience. The third consideration is do you want this to be a wide program or a deep program? What I mean there is Talkdesk has 1,800 customers. We need to make the decision, do we want our advocacy program to tap into all of the happy people within that 1,800 customer base, or do we want to identify maybe a hundred of those customers that are going to be like our identified advocates and they’re going to do higher volume of activity?

Again, this is a really important decision to make because it’s going to frame how you hire, how you structure, and how you incentivize. If you’re doing a very deep program, what you might do is kind of engage with a large organization and say, “Hey, we want you to be part of our advocacy program. Here are the handful of things that we’re going to ask you to do on a monthly basis, and this is how we’re going to reward you or thank you or incentivize you for this.” If you’re doing a very wide program, you need to rethink that because there’s going to be higher volume, higher velocity.

You’re going to have to manage business decision maker turnover, but you’re strengthening your capabilities by widening the pool of folks that you can talk to, and it means that you can do better matching of advocacy program needs. Then finally, and this is where I’m spending a lot of my time right now, is what are our effective alternatives to one-to-one references? A lot of times the ask from the sales team is going to be, can you get someone on a call with my prospect to help them tell the story of what it’s like to be a Talkdesk customer? But as we get bigger and bigger and our sales team gets larger and larger and our pipeline gets bigger and bigger, this just becomes harder, right? It’s like we’re having a hard time fulfilling those in a timely manner.

It’s a lot to ask of our customers. Now we’re starting to spend a lot of time thinking about what are the things that we can do to amplify our advocate’s voices so that we don’t have to do so much of that one to one matching. Great examples of this are webinars, particularly vertically-based webinars, customer video testimonials, case studies, reference letters, local events, either social or kind of more targeted in nature. These are all really great ways that you can create content and experiences that deflect the need for a one-to-one customer reference.

I’ll come to this in a minute, but you need to start coaching the sales team on how to introduce those opportunities or that content earlier in the sales process because that helps to, again, kind of deflect the need for a customer reference call. I’ll talk about that in just one minute. Then the principles. The principles that you need to be thinking about as you’re building and scaling your customer reference program. First of all, it needs to be 100% measured. This is something that I am really dogmatic about. You do not want to be doing dozens or hundreds of customer reference engagements in a given month or a given period and not have all of that measured. Because whether or not it’s rewarded or incentivized, do not forget to thank your advocate.

If you do not have this measured, you are going to forget to thank someone and then you have turned an advocate into someone who is never going to do that again for you because there’s no worse feeling than doing something for a partner and then like not even getting a thank you for it. If you’re not measuring it, you’re not going to thank them, and you’re not going to be able to move into measured outcomes, which I’ll talk about now. The third principle that I have here is that boundaries must be defined. You do not want your advocacy program to be a free for all. At Talkdesk, we define boundaries based on what stage the deal is at, certain criteria that the AE must meet for us to be able to engage in a one to one customer reference.

If you’re not measuring, then you’re not going to be able to use a measured outcome approach to define what that stage is. What I mean there is, let’s say you start with everything. We’re only going to be able to do customer references. If a customer or a prospective deal is at a certain stage, let’s say in verbal stage, if you’re not measuring the outcome of that and whether or not those are actually converting, you can’t decide whether or not that stage requirement is too early or too late. Again, that’s why the measurement is so critical and why defining those boundaries is informed by that measurement process. Then finally, protect your customers. I think there is so often this habit of focusing on the new business deals, right?

This advocacy program, the purpose of it, of course, is to help Talkdesk grow on the new business side, but our customers, frankly, they matter more. They already made the decision to join Talkdesk. They’re staying with us. They’re working with us. They’re growing with us. It’s really important that sales leadership is aligned with that value of making sure that customer is the number one priority.

They said to leave a couple minutes again for Q and A. I don’t know if there are anyone with a mic, but I’ll just reiterate your question. Yeah.

QUESTION 1: What are some examples of local events you mentioned you folks do?

Yeah. The question was what are some examples of local events that we do. We invested a lot in a local event marketing team. We’ve got events that go on all over the U.S. and in Europe as well, but these are going to be like… One of the kind of themes that we do is cocktails and conversations where we’ll give a CX related topic that’s going to be the primary point of the conversation or the primary point of the event, and then we provide it to prospects and customers who attend like kind of in a happy hour setting. We’ve done these CX tours where, again, the intention is, in this case, a little bit more around thought leadership, but we do half day events where we seek to get… In those happy hours, it’s looking more for like 30 to 50 people.

For these tour events, we’re looking more like a hundred or 200 attendees to engage in a little bit more structured learning exercises around CX. Then just kind of general meetups on topics that our customer success or sales team here is about that we think will lure people into attendance. Yeah. Yeah.

QUESTION 2: Can you tell us the strategy a little bit around your G2 Crown and Capterra reviews? Specifically, how do you incentivize customers who have a corporate policy that they can’t accept a gift?

Yeah. Okay. So good question. The question is talk a little bit about Talkdesk’s online reviews strategies, specifically G2 and Capterra, and then separately, how do you reward customers that aren’t allowed to be rewarded by their own company policy? One the first one, online reviews is a huge area of focus for our customer marketing team. They leverage, I mentioned on the how do you find them, support CSAT and NPS. Those are our highest volume opportunities to identify advocates. We’ve built a process, it’s actually so manual, we don’t have any automations around it, where a human reaches out to them and ask them to go say something nice about us online. Generally speaking, these people are primed to give us good feedback.

They love our product, they love our services team, whatever it is, and they’re willing to go do that. We see a pretty high response rate on that. Then related to your second question about what do you do when people can’t get incentivize, you have to ask before you give them something, right? If it’s something that’s online like a gift card or something, they have to press accept. If it’s something that we’re going to mail them, we have to ask them for their mailing address anyway. We usually uncover in that moment like, “Hey, actually, don’t send me anything. It’s against policy,” and then we just note it on the account level so we don’t make that mistake accidentally. Yeah?

QUESTION 3: How are you able to measure how much of video, like the one you just showed us, has reviews that need for one-on-one references?

Oh, I wish I could say yes to that. We haven’t worked on actually measuring the impact of that. We’ve invested a lot in our video content over the last year or so. One of the things I’m actually still working with the AE team on is can we insert into the general flow that they send these sorts of content ahead of time so that we can see if that helps to kind of self-manage deflection. We’re not quite there yet, but I’m hopeful that it does serve that because it’s so powerful, right?

It’s like if you got a bunch of this content ahead of time and you’re making a buying decision, you see all these people, they’ve got like the right title, they look friendly and knowledgeable, you can look them up on LinkedIn, so maybe we don’t need to kind of go through the whole rigmarole of the one-to-one reference. But I don’t have data on that yet. Yeah?

QUESTION 4: Does your CSM teams, do they own renewals and upsells and if you can talk briefly about the comp plan that you follow?

Yeah. CSMs do own upsell and renewal. We have a bonus program. It’s not commissionable, but we’ve got a percentage-based bonus that is entirely focused on retention, so what’s the logo retention and the revenue retention. Yeah?

QUESTION 5: At what point in time did you implement reference program in terms of the size of the company and revenue or employees?

I joined in April 2017 and we already had… We’re already doing references, but we weren’t calling it a reference program yet, right? It was literally what I talked about, like someone sends a Slack or an email or a text and we just kind of shoot an email out. We weren’t measuring it. We also weren’t really thanking our customers, which was a problem. We would implicitly, but we didn’t have any gifting strategy. We really started to invest in customer marketing at the end of 2017 and that’s when we started to look at software options. We gave a dedicated headcount to all of our customer marketing activities. That’s now a five person team, so we’ve seen the benefit of that investment. But that was when we started their nesting.

I would say I feel like we’ve really started to get good probably like middle of 2018. It takes some time.

QUESTION 6: At what stage were you are or what percentage of the employee population did that make up?

We hired customer marketing when we were about I’m going to say 400-500 employees.

Okay.

Yeah.

That’s helpful. Thank you.

Yeah. Yeah?

QUESTION 7: We’ve talked about the net retention and the local retention. Do you guys set goals for net retention and logo retention and has it changed over time?

Yeah. We set goals for net retention and logo retention. I talked about our enterprise segment being really high growth. Our logo retention target on enterprise side is 100%. We work really, really hard to retain those customers. Our net retention targets are probably between 120 and 130% with some benefit to the customer success manager if they’re able to exceed that. Yeah?

QUESTION 8: Who really should be making the ask, is it sales or marketing?

Or customer success.

Okay. It really depends on who owns the relationship, right? Ideally you get to the point where customer marketing is able to make that ask, right? But they can’t go in cold, right? If you’ve got an AE that owns this relationship and they talk to that customer let’s say a couple of times a month, like some random customer marketing person making that ask is going to have a lower yes rate than the AE. What you have to do is like invest in that team, start getting them into the mix on customer engagement. It’s like maybe they’re attending conferences with your customers, they’re doing a customer advisory board, they’re building trust somehow. Maybe they’re sending out the customer newsletter so it becomes a name that they get used to, then they can start kind of being empowered to make that ask. Yeah?

QUESTION 9: How does that relationship work?

We have customer success managers and we have account executives. We don’t have an account management function. I was more meaning… My point there was like whoever owns the relationship is often the one who starts to promote the advocacy program. Yeah? Okay.

QUESTION 10: You were talking about the references and getting them ready, but let’s say if an AE has all the accounts, does it often happen that the AE actually bypasses you guys and reaches out to their accounts directly?

The question is do the AE sometimes bypass the program and make the ask directly? The answer to that is yes. That’s why the measurement piece is so important. What we try to instill with the account executives is trust, which is okay, I know that sometimes you’re not going to want to follow our process. That’s okay. At the end of the day, what we want is to connect the customer to the prospect, but you have to tell us. Where all of this falls apart is if you don’t tell us, then you get reprimanded, right? Otherwise, as long as you’re being honest with us, we’ll be okay.

Okay. All right.

Thanks, everyone.

The post The Playbook to Building a Customer Reference Program with Talkdesk SVP of Client Services Gillian Heltai (Video + Transcript) appeared first on SaaStr.

We Automated SaaStr’s Instagram for 6 Months, Here’s What We Learned.


This post is by Deborah Findling from SaaStr

It’s no secret that SaaStr is a small unit, we’re made up of less than 10 full-time employees. Sometimes having a lean team means that many of us temporarily wear several hats (sometimes all at once).

We haven’t ever truly had a dedicated social media manager on our Instagram. We’ve had some help on Twitter, Facebook, and LinkedIn with a few times where we had one individual spanning all four platforms but with so much to do, Instagram, our weakest social platform, fell by the wayside. Around September of this year, we stopped having inhouse help on our social media, specifically Instagram so it went quiet temporarily. We decided to take things into our hands and after one night of about 2-3 hours of scheduling, I automated the posts from September through March, the date of our Annual event.

Here is how our experiment turned out…

Here’s what we did before:

  • Posts would go out once every 7 days or even 2 weeks. There was no true consistency in our posting times or dates.
  • We had the platform Later.com but generally ended up manually updating Instagram with individual posts
  • The content didn’t exactly align with our community’s interests or knowledge. We were very close but maybe slightly off. The small difference in posting that you could “win a round of funding” which implied winning VC funding and perhaps in return giving some equity to that VC or investor versus posting “win a cash prize!” during a pitch competition Continue reading “We Automated SaaStr’s Instagram for 6 Months, Here’s What We Learned.”

Why now is the best time to start a SaaS company


This post is by Alex Wilhelm from Fundings & Exits – TechCrunch

With the markets in turmoil and fear running rampant through the global economy, you might not think it’s the right moment to start a company. According to at least one well-known venture capitalist, however, it’s a great time to start up.

TechCrunch recently caught up with former founder and active venture capitalist Jason Lemkin to chat about the world of software-as-service companies, better known as “SaaS.” Lemkin swung by TC HQ in San Francisco to spend some time with the Equity crew to discuss all things SaaS, markets and startups.

Long-time listeners of our Equity podcast will recall that this is not the first or even second time that we’ve had Lemkin on. He was, after all, our first guest, as well as a repeat guest for Episode 100. But as it’s Equity’s third birthday, and the SaaStr conference was just around the corner (now postponed), we had Lemkin back to dig deep into one of our favorite startup categories. So let’s get nerdy about SaaS. 

Hit the clip if you’ve had a long, hard week and want some optimism:

In the full interview after the jump, hear about Jason’s current venture fund, investing cadence, vertical SaaS, his advice for the middle class of SaaS, how to think about venture debt, SaaS consolidation, software in India, and the Slack versus Microsoft scrap. It’s a lot of fun, so let’s get into it.