In my house we have a doorway that is covered in pencil marks — they measure my daughter’s height in somewhat random increments from the day we moved to San Francisco in summer 2014 to today. We always measure on birthdays and on the first and last day of school, and compare year to year. But, we also take the time to measure whenever we get a sense that she “just seems taller” — and talk about the thing we noticed that made us want to measure.
As a start up CEO, you have to grow incredibly fast— and typically your growth is measured in regular increments — fund raising cycles, annual 360 reviews or board meetings etc — with folks looking for indications of growth like hitting goals, efficiency in the operations of the business, improvements in team culture and e-staff effectiveness, strategic positioning and planning…on and on.
BUT, there are also moments when a CEO does something and you just get a sense that they are stepping up as a leader, growing and evolving in a way that everyone can feel viscerally. These moments often go past without mention. As a partner to the CEO, I try to point out and celebrate the moments of growth that I notice, talk about what changed for them and make sure that they note the difference and appreciate the work they did to get there — and the new ceiling they have just created for their business through personal growth as a leader.
This is top of mind as I just got an email from a CEO that said,
You’ve likely noticed that that growth seems strong, and it is. However, we continue to benefit from organic growth and we remain bad at targeting customers.
This is a muscle we need to develop.
Our healthy, generic adoption has let us get away without improving here for too long.
“Our healthy, generic adoption has let us get away without improving here for too long” shows perspective on how the business operates and identifies a key priority for the organization. The CEO moved from understanding and celebrating the metrics that matter to understanding how much control the team has over these metrics. They have identified that while the company is growing really well today, to achieve it’s full potential, control over growth has to be core to their DNA — and, with plenty of cash in the bank and an incredible team with lots of momentum — as CEO, they are choosing to raise the bar on this part of their operations. Immediately.
This type of CEO growth needs to be highlighted and celebrated. It is these small shifts in the mindset of a leader that lead to massive shifts in outcomes for companies. This personal growth is the core work of a start up CEO, and I don’t think there is anything more important than supporting folks in this journey.
Ep. 372: Latané Conant is the Chief Marketing Officer at 6sense, the company that allows you to achieve predictable revenue growth by identifying accounts looking for your solution, prioritize efforts and then engage the right way. To date, the company has raised $120M in financing from Battery Ventures, Insight, Venrock, Costanoa, Bain Capital, and Salesforce Ventures to name a few. As for Latané, before 6sense she was CMO and sales leader at Appirio where she drove 5X more effective field marketing programs and an increase in inbound leads by 300%. If that was not enough, Latané is also on the Advisory Boards of both Mediafly and Atrium.
In Today’s Episode We Discuss:
* How did Latané make her way into the world of SaaS and come to be the rockstar CMO and ABM thought leader she is today with 6sense?
* What does the preparation process look like pre-sales kick off week? What is involved? Who is involved? What needs to be ready? How does Latané feel about putting comp plans as part of the week?
* How important is a theme to having an engaging week of content? What can teams do to bring their themes to life? How does Latané advise others when it comes to keeping the content fresh and exciting?
* What is the right way to end the week? What are the right follow up steps to take? Where do many people go wrong here?
If you would like to find out more about the show and the guests presented, you can follow us on Twitter here:
Below, we’ve shared the transcript of Harry’s interview with Latané.
We are back on the official SaaStr Podcast, and we spent the last few weeks in the world of sales, and so this week I wanted to turn slightly to the world of marketing also, and discuss the coming together of these two worlds for the discussion on sales kickoff weeks. And there’s no one better to join me for this discussion than Latané Conant, CMO at 6sense. The company that allows you to achieve predictable revenue growth by identifying accounts, looking for your solution, prioritize efforts, and then engage the right way. To date, the company’s raised over $120 million in financing from the likes of Battery Ventures, Insight, Venrock, Costanoa, Bain Capital, and Salesforce Ventures, to name a few. As for Latané, before 6sense she was CMO and sales leader at Appirio where she drove 5X more effective field marketing programs and an increase in inbound leads by 300%. If that wasn’t enough, Latané’s also on the advisory boards of both Media Flight and Atrium.
So now I’m very excited to hand over to Latané Conant, CMO at 6sense.
Latané, it’s so great to have you on the show today. As I’ve said before, I’ve heard so many good things from Brian and the team at Venrock. So thank you so much for joining me today.
Well, Harry, you picked my favorite topics, [crosstalk 00:03:27] so I couldn’t resist.
I do want to start then with a little bit of context. So tell me, how did you make your way into the world of SaaS, come to be the rockstar CMO at 6sense and also that you are today.
Well, it was a little bit accidental. I always talk about being a recovering software salesperson. So I was a first Line seller at Appirio. I started running a region. I was running half the country and I was very opinionated about demand gen and marketing, which I’m sure was annoying to many people, but I was very opinionated about it. And so I started to build some of classic demand gen functions, like BDR team. So an outbound model and field model, cause we didn’t have those at the time. We were mostly a channel based play. And so I’m doing my thing just because I wanted to make sure my salespeople had enough pipeline. And then lo and behold, our CEO came to me and said, “I know you fancy yourself as a sales gal, but can you throw your hat in the ring at marketing?” And I mean, the rest is history, Harry, I never resist a challenge.
So I took it and was the CMO at Appirio and then found my way to 6sense. And that’s an interesting story in itself because I just fell in love with the 6sense technology. I had done an ABM pilot while I was at Appirio and you learn more from your mistakes than your successes. And it was so time consuming and we did everything right in terms of the content, the creative, the level of personalization, just everything. But it was so much work that the ROI, the math just didn’t work. And so when I saw 6sense had the capability to be able to make sure that all of your hard sales and marketing time and money and muscle go towards the right accounts, go towards accounts and market and then could help me orchestrate these campaigns. I was like, this is going to change the game.
I mean, 6sense has changed the game in many ways. I’m sorry, when you were speaking there, I was just thinking there’s two burning questions and I expected to go off schedule, from our previous chats, pretty quickly, but didn’t expect to this early, but let’s roll with it anyway. Question for you. I was having this debate with a portfolio company founder today and he was saying, “Harry, my marketing team is telling my AEs, ‘Hey, you can help as well on demand gen. It’s not just our job. It’s everyone’s job. Don’t just expect us to feed you all the time.’” Question for you. Should AE’s get involved in demand gen and filling pipe as well a little bit? Or do you think that kind of highly segmented, highly specialized is very important to know your lane.
As a recovering software salesperson? I don’t know what has happened. I feel like salespeople have, I don’t want to say gotten soft, that’s not nice. But you get paid the big bucks to own your business, to own your business model. And so I don’t understand this notion of not taking a role in that. Now you can push marketing and you can partner with marketing to make sure that you’re using the latest and greatest techniques and technology. And if I were a salesperson today, I would definitely be asking in the interview process, how is demand gen set up? Do you use intent data? Do you use predictive analytics? Knowing that I’m going to be five times more successful if you have those capabilities. But at the end of the day, salespeople get to go to clubs. Salespeople get paid the big bucks because it’s a hard job. And I think you’re still expected to prospect.
Yeah, no listen, I agree with you in terms of really owning that function. The second was, you mentioned there about kind of allocating resources to the accounts that deserve attention. And obviously all accounts deserve attention, but just kind of allocating resources effectively on an account basis. I have a lot of people that say, “What’s the right level for ABM, Harry?” It doesn’t make sense at 10K. Does it make sense at 50K or does it have to be 100K? How do you think about the amount that it has to be to justify ABM and that much higher touch?
Here’s the thing. If you have a true B2B sale, meaning multiple personas involved, longer sales cycle, I believe ABM is the most effective way to generate demand. And I think that unfortunately ABM has become equated with spending a lot of time, money and energy on one or two accounts and almost overspending on those. And that is not how I define ABM. I define ABM as using data, using analytics to make sure that you are doing the right things at the right time to accounts most likely to buy. And it sounds like, okay, what are you really talking about? So let me just take the Appirio example, ABM. I’m going to pick a few accounts. I’m in a certain industries where we’ve sold to before, we sold to this type of account. So let’s do it with accounts that look like that.
And I’m going to talk to sales and we’re going to come up with a list of accounts. And for this list of accounts, we’re going to send champagne. We’re going to have a landing page for them. We’re going to have dedicated BDRs just for them. That to me is old school. And that’s where you get underwater from an ROI perspective. So what I do is I run 100% ABM. And what that means is knowing who to sell to and knowing who not to sell to.
So for example, let’s apply that to an inbound model, Harry. So if I have an inbound model and I want to apply ABM, what that means is an account is going to come inbound and I’m automatically going to start to apply an account score. So I’m not just going to look at the one person who came inbound. I’m going to look at the buying team. I’m going to look at how they’re engaging. I’m going to look at the amount they’re engaging. And that’s going to determine, does sales followup, does marketing continue to nurture, what we do with that? Because I don’t want people wasting their time until an account is really ready. So that’s applying ABM at an account, like, inbound level. And then when it comes to an outbound motion, they’re not going to go and work accounts that aren’t showing any sign of intent, meaning they’re not doing research on keywords that matter. They’re not maybe coming to my website. I’m going to make sure that I’m pointing that valuable resource at the best accounts most likely to buy.
Totally get you in terms of that kind of much more targeted there, it makes sense. I do want to dive in, as I said on the schedule itself, because otherwise I could chat for days, in terms of your favorite week of the year. And I love this when you said this before, and as you said that your favorite week of a year is the week of sales kickoff. And you’ve said before, in terms of driving marketing and sales alignment, there’s nothing like it. So I do kind of want to start from the beginning because if we think about kind of what it takes to make it successful, the first is preparation. And you said before, do not underestimate the preparation required. So I’d love to start on that. And what did you mean by this and what have been some of your biggest learnings around it? What does it take from a preparation standpoint to be successful in sales kickoff?
I think a lot of people make the mistake of thinking that they can waste their team’s time, meaning they don’t have to be prepared for internal meetings, in general. I take a lot of umbrage to that. So just like for me, I would coach my team or an AE that it’s for every hour that you’re in a meeting, you should assume two hours of prep. And so you think about something like a field kickoff or a sales kickoff where you’re literally bringing these super highly valuable resources together for a day, two days, a week, whatever it is. Why would you not do the preparation to make sure every second counts? And you really thought through making sure it’s just a phenomenal experience. And I think too often people think, oh, it’s an internal meeting. So I don’t have to have a tight agenda. I can let people run over. Not every session needs to be phenomenal. Whereas when I think about internal events, I tend to put the same amount of rigor on an internal event as I would on an external event because my team’s time is valuable.
Can I ask, when you have your sales kickoffs, how long before do you start prepping for it? And what does that process look like for you.
So it’s about six months before. And then obviously it gets more frequent and intense leading up to it. I think you also have to, Harry, be stage appropriate, right? So if you’re a Series A company, you’re not going to hire a live band or something for your sales kickoff and maybe your sales kickoff is only two days. Sales kickoff doesn’t necessarily have to be expensive or quote unquote overdone. I just think you should think of it as more than just a meeting and really, really think through, what am I trying to get across to the team this year? And so what I like to do, typically, is I like to actually make sure that the leadership team, the executive leadership team, has done a strategy session. So logistics and stuff get locked like six months in advance because typically when we were traveling, right, you got to rent a place and book things.
But before we actually come up with the theme of sales kickoff, what I like to do is bring all of the executives together and figure out the theme for the year as a company. So what are we trying to do as a company? What’s our vision? I use a strategic planning tool called V2MOM. What are our key methods as a company? And then now how does that trickle down to what we need to do from a go to market perspective across sales, marketing, and customer success? Because that’s a pretty big input into field kickoff and getting the team pumped to go and execute.
Can I ask, cause it’s really interesting hearing you speak about kind of, especially the V2MOM process there and kind of strategizing around it because you said something else about kind of the prep stage. And it’s like the worst thing that you can do is come with a plan. And so I think you’re on an odd stand in terms of kind of preparation and not coming with a plan. And how do you think about that in particular?
So let me unpack that. When I say don’t come with a plan or a bunch of grandiose plans, come with actual things. What I mean is I’ve seen it where marketing presents, well, we are going to help you with battle cards. Our plan is that we’re going to launch better battle cards. Okay. I’m saying don’t come with the plan to launch better battle cards. If that is a key thing, show up to sales kickoff and say, we’ve launched better battle cards, check the portal. They’re live right now. And let me explain to you how you’re going to use these battle cards. That’s a big difference. So what I want is I want all of my sales and marketing and customer success teams to leave kickoff with all of the resources that they need done to be successful, not plans about things I might develop. Hey, we’re going to be creating a lot of case studies this year. How about we have five done, they’re right here ready for you to use.
Why don’t you think people do that? Is it because they’re waiting for a confirmation from leadership and then nervous about assuming a strategy without confirmation before starting? So it’s like, we’re going to do a lot of battle cards, wait for the response and then pursue it if it’s well received? Do you think that’s why? Cause I agree with you in terms of that action orientation.
Maybe It’s just an urgency thing. So one of my best and worst qualities is impatience. And so I tend to have a lot of urgency and I have a saying, never waste a deadline. And so to me, field kickoff is the culmination of a lot of deadlines. And people know that. People know, no we’re not going to talk about the new website. The new website needs to be done or at least part one done, right? So it’s a forcing function to deliver because if you think about it, sales automatically has a forcing function every quarter with quotas. Marketing and sales ops, and a lot of the supporting functions don’t have the same implicit deadlines. And so to me, I need to use things like sales kickoff, or it’s funny, we have a mini sales kickoff in a week to make sure that–things can just linger, Harry, and it’s annoying. I don’t like that.
I totally get you. Especially with the lingering elements. That’s the most annoying thing. And we share the impatience. So it’s a good trait to have, I continuously tell myself, though I think others around me would disagree. I do want to ask, though, cause once we have that kind of content and we’ve got the prep in place, you obviously have to go through some form of review process. What do you think the review process should look like? And when should it be done and how does that take shape?
It has to take place with the head of sales, honestly. I will help, but I have found people love to wait till the last minute to get their shit together. So you have to have an executive, maybe even the CEO, who’s checking and the content is due to them, not the marketing team. Because otherwise people will rock in and they will not have practiced, they’ll run over, their slides will look like shit. And we just can’t have that, Harry. That’s not the kind of shop we’re running. So we try to have content review sessions scheduled, call it two weeks before. And I also always have a designer right up through sales kickoff because you’re going to have stragglers and their stuff’s going to look like crap. And they’re going to be presenting on Tuesday, and Monday there’s going to have to be some designer making sure it doesn’t look terrible.
Yeah, no listen I love the directness to be honest, Latané. It’s not something that I always get doing the show, honestly. So it’s like truly refreshing for me as an interviewer. [inaudible 00:15:15] and presenting on Tuesday and the design is last minute on Monday. And bluntly, when you’re in these presentations and events, sometimes, I mean, we both know, God, they can drag on and keeping them fresh and lively, it’s hard. You said before in terms of really keeping that enthusiasm energy, you have to rotate presenters, not people. Loved it and thought it was a great book title, actually. What did you mean by this? And what have been some learnings on how to keep it really fresh and high tempo when sometimes it can be stale four or five hours in.
Yeah. So you’re actually unpacking two questions. So let’s take the rotating presenters, not people. That is actually a solve for a different challenge. And the different challenge is if you do break outs, people will all of a sudden linger and they won’t come back, maybe, or they’ll take a phone call or this or that. And there’s too much flex for people to get lost behind. Because you’re trying to move, like if you think about it, if I’ve got 10 breakout rooms of 20 people, that’s a lot of cats to herd. So typically what I like to do is say, no, you are a breakout track, the people stay. The presenters, if I have 10 breakouts, it’s only 10 people that I have to herd each transition. Does that make sense?
Totally does, it’s very different.
So that’s what I mean by that. And again, I made a big investment to make sure that we prepped and everything was amazing. Now you owe me being present here and not slipping off to do other things.
Yeah, I think that’s definitely hard for you, it’s the mutual respect. On the content itself. So now we’ve covered that. What have been some learnings on keeping it really exciting?
I mean, I think we talked about like dropping things so that they’re the first to see it. So like dropping a product release that no one else has seen. That’s cool. I want to be part of that. There’s fun things you can do. I’m all about stingers. So the theme is super important and you want to reinforce the theme throughout the program. And so a stinger is just a hilarious play on the theme. Like you take a movie clip or something like that. And it just keeps people laughing and energized.
And so you kind of want to infuse stingers and things like that. Have people dress up. Like we had our head of customer success. Our theme was around the 6 sensei saying, which is if you know everything, you can do anything. And so we created a character of a 6 sensei who knows and does everything. And so we dressed our head of customer success up like a 6 sensei, no one expected him to come in. He came into the room, all dressed up, we played music. Cheesy actually works. So keep it cheesy. That’s all right. Fun. Any type of guessing games or contests throughout, people love to get prizes, even if it’s something very minimal, they’ll do crazy things just for minimal things.
Can I dive in and ask, you mentioned the word theme there and I’m interested what makes a good theme and what makes a bad theme?
Yeah. So to be honest, I probably go a little too crazy on picking the theme because what I found is what you pick matters less than how invested you get in it. Meaning there’s no real bad theme. The key is that what you pick you really, really reinforce to make it fun and interesting. So what do I mean? We had a theme that was rise above the clouds. The reason we picked that is we wanted people to not just sell software. We wanted them to lead with strategy and take a more strategic approach and sell bigger deals. And so we had this whole theme. And so then we anchored that in airplanes.
So when they got there, they got a boarding pass. So the agenda looks like a boarding pass. We had presenters pretending to be flight attendants. We had a whole fasten your seatbelts spoof stinger. Each breakout–like one team was called the blue angels. One team was… and you get my point. It’s like you have team names that match the themes. You have content that match the themes. And as you’re doing the content review, you challenge people to infuse the theme. So instead of doing a deal planning session, can we call it a flight plan session? For example.
Yeah, I love that. I think it’s super cool to have the [inaudible 00:18:48] theme, especially when it’s like the boarding passes and the seatbelts and everything.
Even brought a drink cart. We had an airline drink cart made and brought that into breakouts. So, just like have fun with it.
I hope someone got to keep all of this memorabilia. Can I ask, in terms of the content itself. So the content progresses. And then the thing that I find kind of interesting, it’s like, as we get to an end, sometimes that can be a bit of an anticlimax. And you said before, hold a final general session. What does this general session look like? And what do you want to achieve out of it? Most importantly, I guess.
So basically from an agenda perspective, what you want is you want a really high energy kickoff with everybody together, right? So it’s like the high energy, everyone’s together, then go into break outs, however you’re doing those. And then what I mean is I’ve had agendas that end on a breakout. So people just kind of peter off. And so even if it’s a 20 or 30 minute closing session, you want to get people back together, recast the day, people love collages of themselves doing stuff. Just reinforce everything they’ve learned and kind of go through highlights of the week or the couple days.
Yeah, no, I get you bringing them all back together. Can I ask you, do at some point quota and plans for quota be attached to these sessions or does that kind of remove the fun from the room so to speak?
Oh my God. Well, our worst one was the last session was that rolling out the comp plan, which was just a terrible idea. And plus then they’re all together and everyone’s moaning and not good. And this is kind of the never waste a deadline. I think comp plans and territories need to be rolled out before sales. The process needs to be done, questions answered, everyone understands their comp plan. So that whole thing is behind you coming into kickoff.
Yeah no listen I totally agree. I think it’s a daunting way to end it. Can I ask that post the ending, it’s the start not the end, really in many respects. And when you think about like postmortems and the right way to follow up, what does good follow up look like post a sales kickoff? How do you like to kick the that really into action?
Yeah, so we have a solution called Mediafly that has like a sales readiness component. And so we try to have as much as the content as we can video-based or somehow transitioned into our learning platform, right? Because unfortunately not everyone will start at kickoff and so many great assets come out of it. And then the more the theme can sort of live on. So live on in your forecast calls or live on in future QPRs and things like that. It just sort of keeps the energy up and going.
Totally, I was thinking it would be strange for me to come into work as a pilot for the next year, but now I know it’s absolutely fine. If you’re hiring at 6sense, please let me know. But I do want to dive into my favorite then, Latané, which is a quick fire round. So I say a short statement and then you give me your immediate thoughts. So you ready to rock and roll?
Oh God. Yes.
It’ll be fine. Trust me. You can always trust a Brit. So tell me what is the biggest challenge of your role with 6sense?
In terms of expectations of the people around you?
Yeah I mean, so you have to understand when I came to 6sense and it’s way different now, cause I’m two years in. But I would say when I got to 6sense, I had been at a company that was global, big scale, large team. I mean we ran 500 field events a year, all around the world. And so then when I got to 6sense, it was me and one other person to start. So I had to temper my own enthusiasm and break down what we needed to do and kind of be okay that Rome wasn’t built in a day. So I think that’s something I’m always working on.
Sometimes you have to go slow to go fast, I’ve been told. It’s not easy. I agree. Tell me, who should be invited to that sales kickoff week? That’s a tough one.
This is hard. I have no answers here. I struggle with this. I hate having people not able to come. I mean, one thing now, Harry, is now that we’re virtual, I’m going to have to think about how this formula applies in a virtual world. A lot more people could perhaps come, which will be nice because I think that’s the hardest part of planning an amazing sales kickoff is, I would love to have everybody come.
But you can have everyone there if it’s virtual. I mean, there’s no cost increase in terms of adding an extra person.
There actually is if you do a good virtual event, you’re sending swag packs and there’s always an element. Like we just did a virtual event and we had a live performer, but we sent everyone the cocktail kit in advance and then we showed them how to make the cocktail. So, but you’re right with virtual, I would say there’s no reason why we wouldn’t want to expand the guest list for sure.
Yeah, no, totally. Tell me what’s the biggest surprise for you internally since COVID began. It could be in terms of pipeline movement. It could be in terms of team morale, but what’s been the biggest surprise internally since COVID began?
We haven’t missed a lot of beats and I’m surprised and proud of that. I think what’s interesting is Appirio, the team was pretty much 100% remote. So once you get to kind of a big global company, no one’s ever going to be in the same office, right? People are in Japan, they’re in EMEA, blah, blah, blah, blah, blah. And I haven’t gone into an office in 17 years. So sort of had this like remote thing already. And so it’s been interesting to see the team just kind of plow through. I think that the sad part about it is we’re still getting a ton of work done, but it’s not as fun. So that’s what I have to work on is the fun factor.
Now this is the incredibly unfair one of me to ask, but at what moment in your life has maybe changed the way you think the most?
I don’t know if it’s a moment, but certainly a career stop. And I mentioned Appirio a few times and our CEO was so into culture. He was so, so, so proactive about culture and creating amazing culture. And for him that was like always a high, high, top priority. And I just had never worked at a company like that. And that taught me so much about really what it takes to win, what it takes to retain people, how important culture is to a brand and how important it is to customer experience. And our thing at Appirio was you can’t deliver a great customer experience unless you’ve really invested in a great workforce experience. The rest is history. I believe that that shapes everything I do.
Yeah, no. And listen, I totally agree with you and it’s a supremely valuable lesson to learn. The final one there, and it’s a tough one, it’s, what do you know now that you wish you’d known when you join 6sense?
Honestly, I didn’t know shit when I joined 6sense and maybe that was good. Sometimes the less you know, the more willing you are to learn and try. And so I would say, I don’t think there’s anything I wish that I’d known. I’m glad that I sort of went in with eyes wide open about everything I didn’t know. Because I didn’t assume I knew anything and just got to learning.
Latané, as I said at the middle, I think it was, not many people are as open and honest as you, the transparency is awesome. And honestly, I so appreciate you taking the time. So thank you so much for joining me today.
Sure. Thanks Harry. Fun to be on your show.
Absolutely loved having Latané on the show there and such exciting times ahead for her and for 6sense. As I’ve said, great to have such a transparent and direct conversation and I absolutely loved it. And if you’d like to see more from us behind the scenes, you can on Instagram at hstebbings1996 with two Bs.
As always. I so appreciate all your support and I cannot wait to bring an incredible episode next week with the CEO at HashiCorp.
Perhaps the single most important thing you can ever do in SaaS, at least after $1m in ARR or so, is hire the best VPs you can. We’ve talked a lot over the years about how not to hire a wrong VP of Sales — 70%+ of the first VPs of Sales don’t make it even 10 months.
But there’s a related, larger issue for basically all your first VPs of Every Area. You’re probably going to hire 1-2 VPs that themselves are smart, driven and successful — but that can’t themselves hire great people under them.
This is something you have to be hyper-aware of. Because sometimes, these VPs That Can’t Hire are super smart, super engaging, and super competent. You may really like these candidates. Up-and-comers are a powerful force to tap into. You need to hire up-and-comers.
But you have to do more diligence to believe it’s not a stretch too far. Don’t just check who they managed at their last company. Check who they hired. Not inherited as a manager. But hired themselves. And make sure they hired at least 2 good folks. And ask to talk to both of those 2 great hires. And figure out if they really are great:
For your prospective VP of Sales, did her top 2 hires at least crush it and blow out their quotas? If they didn’t …
For your prospective VP of Product, did her top 2 hires ship amazing software? Can they explain every facet of how their best, and worst, features came into the world? If they can’t …
For your prospective VP of Engineering, were her top 2 hires just jaw droppingly good? You or your CTO can figure this out. Talk to them. Not over Slack, not over email. Talk.
For your prospective VP of Marketing, did her top 2 hires deliver leads? For real? How many? Did they grow month-over-month? Find out. For real.
For your prospective VP of Customer Success, did her top 2 hires generate net negative churn? Drive up NPS and CSAT? Drive down absolute churn? Get on jets? Get at least 2 badges (more on that here)? Which badges? What was the top customer they saved, and the top customer they lost? What’s the story here? Do you feel like you’d be lucky to have these 2 work at your company?
Most founders don’t go the extra yard here in talking to their prospective VPs’ two best hires. And you end up with hires that can’t recruit great people. Not because they aren’t smart, or weren’t great Individual Contributors, or even great team leads. But because they’ve never truly recruited someone great before. 95 times out of 100, that’s not a risk you should take.
This is job #1 for all your VPs. Recruiting.
You’ll feel the pain fastest with a VP of Sales that can’t hire, because they’ll miss their number quickly. The impact for a VP of Product that can’t hire will be more delayed, it may take 6+ months, and several releases, to fully manifest itself. A VP of Marketing that can’t hire will hire terrible people — but it may take you a while to see it if they aren’t judged quantitatively. So the tangible effects of a VP That Can’t Hire may take you from 45-180 days to see, based on position.
But it will wreck you as you scale. Yes, maybe you can backfill a few hires. But not all of them.
So my first piece of advice is go the extra yard in recruiting. Talk not just to the VP’s references, but to the top 2 direct reports that they hired. Did they really hire at least 2 great reports? Oftentimes, they didn’t. And if they did — are they really great? If they can’t find you 2 great ones to talk to — that’s a huge flag
My second piece of advice is top (i.e., hire above) these VPs That Can’t Hire fast if you do end up hiring them. If you ignore the advice, or take it but ignore the results, and do hire a VP That Can’t Hire … so be it. But as soon as you see they are unable to hire even one great report – don’t wait for the 3d failed hire. Top them then and there. That doesn’t mean fire them. But you have to hire a real VP. Who will be their boss.
You’ll need a Real VP that can recruit great people.
Q: How do you deal with bus factor in a startup? We are losing an employee which had a cornerstone role but he was tackling this area alone.
Goodness this is one of the toughest parts of scaling.
I remember Aaron Levie, CEO of Box, and I discussed this at one of the SaaStr Annuals, when he lost his VP of Engineering. He had no back-up and thought that was it for Box, it was over. We’ve all lived it. I still live it myself!
It’s one of the biggest risks not just in the early days, but really just as you scale. Until you get to at least 50 employees, there’s rarely a second layer of management, a Plan B, a back-up for each role.
All I can tell you is this:
First, if you hire great VPs, it partially takes care of itself. Great VPs attract great directors and great ICs. A Great VP almost always hires at least 1 great person under her than can take over. So always listen and learn, and err on the side of promoting the best you have.
Second, the rest of the team rallies — if you have a good team. This isn’t a perfect answer, but if you have a good team, they get it. They know they have to step up. They fill the gap as best they can.
Third, it’s better if the mediocre leave in the end. The best ones tend to stay longer, and it’s the mediocre that leave faster. You may fear the hole in the org chart if someone mediocre leaves. But in the end, you’ll see that it would have been even better if the mediocre had left earlier. It’s time to get on with finding someone great.
The “my top person gets hit by a bus risk” almost never ends until you have a deep bench of management. Maybe not even entirely then.
But the #1 key to solving it is hiring truly Great VPs. They attract the best talent under them. And it’s that talent that mitigates the risk.
If you’re building a business, your most fundamental goal is to create value. Having been involved in many M&A transactions over the years, I’ve come to realize that there is a distinct difference between creating value and optimizing for it. In this post, we’re going to share Georgian’s framework for value creation and outline how we help entrepreneurs turn it into an intentional pursuit that can increase your chances of reaching a successful exit.
If you like the framework, we hope you can use and apply it to your own business. The output of this exercise is typically a list of strategic to-do’s that you can prioritize at the leadership level.
Step One: Current and Future State
Before we dive into a value creation exercise with our portfolio companies, we ask CEOs two fundamental questions:
What does your business look like today?
What do you want it to look like in the future?
If we start by documenting the current and desired future state, we can use this framework to help us chart the course between the two and ensure that we are creating the maximum amount of value along the way.
Step Two: Map Your Ecosystem
Most companies know who their core competitors are… but what about the wider ecosystem? Do you know who your future competitors are likely to be? Can you clearly identify what’s likely to drive strategy and demand in your space over the coming years? These are the types of questions that you’ll be able to answer by mapping your ecosystem.
This exercise takes all the information you have about your market, customer behaviors and priorities and consolidates it into a single view.
The output shows:
Who you compete with today
Who is influencing the strategic direction of your sector
Who is likely to enter into your space
What opportunities there may be for future growth in adjacent spaces
Which key customers set the demand dynamics for your space
A unified picture of your ecosystem gives you three clear benefits:
1. Strengthen your competitive moat and narrative
Knowing where your business sits within the broader market provides helpful context and shines a light on your unique positioning. If you find that your business doesn’t have a well-defined niche, you can use this ecosystem map to help refine your overall narrative and strategic focus. For example, you may uncover enhancements you could make to your product to create a more comprehensive solution. Armed with this new market context and understanding, you can work towards creating a stronger competitive moat around your business.
2. Anticipate market trends
Zooming out to a macro view allows you to picture your space from the customer’s perspective. How does your solution map to the wider problem set they are facing? This perspective will help your team anticipate current and future demand, and the potential for consolidation or expansion in your space. For example, you’ll be able to spot where other businesses could enter your space, consolidate competitors or create a new, more attractive offering. Industry experts, analysts, investment bankers and other advisors who are active in your space can provide helpful market insights to shape this view.
3. Identify value-add relationships
Mapping your ecosystem often leads to a brainstormed list of value-add partnerships (technology or go-to-market based), potential targets for acquisition or future exit paths. When considering partners and acquisitions, 1+1 must always equal 3 – more value should be created together than separately. Good partnerships and good acquisition targets will not only advance your penetration in your target customer base but will also bolster your competitive position in the broader ecosystem.
Once you have a clear picture of the opportunities available to you in the broader market, it’s time to look inward and examine your core strengths—we call these value drivers—to see how you can optimize your strategic advantage.
Step Three: Outline Your Value Drivers
Value drivers are the building blocks of value creation in your business. They can be divided into three main groups: core metrics, strategic drivers and premium opportunities.
1. Core metrics
Core financial and business metrics measure the strength and momentum of your company. At Georgian, we encourage our companies to use a metrics framework called the G7, in addition to any metrics that are uniquely indicative of their growth and success. Your core metrics should provide an objective picture of the current state of your business, highlight areas for future improvement, and should be measured regularly to identify trends and changes.
Any future investors, strategic partners or acquirers will measure the strength of your business through these metrics. When sharing them externally, it’s important to consider the audience and have a clear story for each metric – what does it say about your business and why is it a critical measurement?
2. Strategic drivers
As I have evaluated companies for investment and acquisition over the years, I have developed a “buyer’s mindset” and have seen patterns in how buyers and investors think. Once a buyer gets past your core metrics, they will often think these eight key components:
We recommend going through each of the eight sections in the graphic above and answering the following questions:
Is this a strength, weakness, opportunity or threat?
How do we measure success right now? What data points do we have?
Amongst our strengths, what stands out as highly differentiated?
What we’re looking for during this exercise are the elements that make up your company’s secret sauce. If these are the key components of value creation, where do you shine?
By mapping your strategic drivers in this format, you can visualize your strengths to double down on, and weaknesses to address.
3. Premium opportunities
We call high-value growth and expansion opportunities—both the realistic and the moonshots—premium opportunities. These opportunities are the aspirational vision for the future of your business and provide a roadmap for long-term incremental value.
Examples of premium opportunities include:
Building a proprietary data moat
Expanding into new markets/geographies
Enhancing your technology through third-party integrations
Expansion into adjacent use cases
The likelihood that you can achieve these premium opportunities and the scope and scale of those opportunities will be directly tied to your organization’s value.
Step Four: Chart the Course and Refine your Narrative
By this point, you should have a comprehensive macro view of your ecosystem, your company’s strengths and weaknesses, and a list of potential action items. While many CEOs and executives have these details in their heads, we often hear that it is a valuable exercise to zoom out and put all of this into a living, breathing document.
What we’ve done, at a high level, is develop a blueprint for the desired evolution of your business. In our experience, the most successful companies use the value creation framework as the foundation for strategic planning and execution, including:
Developing and measuring strategic business and growth plans
Positioning for future fundraising
Corporate development strategies, including partnerships and potential M&A
Long-term, proactive exit planning
Coming out of a value creation exercise, each key action item should have an assigned owner, with milestones and KPIs, that are communicated and tracked at the executive and board level. Ideally, you can revisit these frameworks and repeat this process every year to help set the strategy for the next fiscal year, with a cadence of quarterly checkpoints.
Interested in running your own value creation exercise? We run guided workshops through the Georgian CoLab – our pre-investment program for growth-stage companies. Apply today.
Join the discussion on how business can be more than just about profit, it’s also about giving back in any and every way they can, especially in these challenging times of Covid-19.
Amy Lesnick | CEO @ Pledge 1%
Yvonne Wassenaar | CEO @ Puppet
Sameer Dholakia | CEO @ SendGrid
Ajay Agarwal | Partner @ Bain Capital
Welcome to Business as a Force for Good: COVID-19 and Beyond. Thank you for joining us. My name is Amy Lesnick and I’m the CEO of Pledge 1%, and I’ll be moderating today’s session. I’m thrilled to be joined today by Sameer Dholakia, CEO of Twilio SendGrid, Yvonne Wassenaar, CEO of Puppet and Ajay Agarwal, partner at Bain Capital Ventures. I find that on these calls, it’s especially helpful to have some structure. So let’s take a quick glimpse of what’s ahead. We’re going to start by talking a little bit about why and how companies are giving back today during COVID and also how they’re setting aside equity so that they have the resources to tackle tough challenges in the future. We’ll be spending most of our time talking about the equity piece. We’ll have two CEO perspectives, one from Twilio SendGrid, and then also from puppet. Then we’ll have the board and investor perspective from Bain Capital Ventures. [inaudible 00:00:55] you a sneak peek of our CEO Playbook with some equity models to really help you get started, and then a quick wrap up with a little bit of Q&A. So let’s dig in.
The challenges and uncertainty that we’re facing today right now in this global health and economic crisis are truly unprecedented. Yet in this time of adversity, we’re reminded of what’s important in life. It’s been inspiring to see so many companies, big and small, late stage, early stage, public and private, really rallying, stepping up, leveraging all of their resources, whether it’s their money, their expertise, their product, their technology, their employee time, their voice, and their network to really make a difference in this time of need. I’ll give a few examples, but there’s many, many more on the Pledge 1% website. So we have flex boards who leverage their expertise and connections to deliver over 166 million units of PPEs, supplies and meals to over 200 cities around the globe. We have Guild education which really catalyzed and connected private spectrum response with their hashtag, Stop The Spread, getting over 1300 leaders to join in.
Likewise, [Canva 00:02:03] leveraged their product, really creating a suite of templates that individuals and businesses in schools could use on social to really promote world health organization facts rather than fear. Okta committed 500,000 and unrestricted rapid response, and also committed $10 million over the next three years to really help nonprofits make the digital transformation. DocuSign, in addition to response funds, has been leveraging their product to accelerate critical agreements that are needed for testing, trials and healthcare needs. It’s clear that we are all coming together to tackle COVID-19 head-on, and that together we are a force for good. As we think about the road ahead, there are numerous models out there that really break things down into three phases or three tracks. I think that many of us are addressing these in parallel. I’m sure all of you have been involved in some sort of scenario planning and mapping out.
I’m going to add a new layer, which is not just the business side, but also the social impact side, and really break these down into three areas. Respond is really about triage. Recover is really about the reopening and re-imagine is really about grow. In the response phase, I’m sure many of us were thinking about first things first, our employee health and safety and communications and infrastructure, scenario planning, our own funding, cost controls. But on the give back side, many companies are really diving right in into COVID response funding, thinking about how to spin up virtual volunteerism programs and employee matches for their employees that really wanted to feel like they were having a sense of purpose in this time of need. And focusing on the most pressing urgent needs like PPEs, food insecurity, education, and of course, health.
Under the recover stage, which many of us are moving into now, it’s really a stage to return to the workplace, new employee policies. And all of us are really looking at how do we refine our value proposition for our customers given their own evolving needs? On the giving back side, on the employee engagement, we’re thinking about, wow, this remote workforce is going to be around for a while. So how are we reinforcing our culture and values in this new altered world and empowering our employees? On the nonprofit side, we’re thinking about the evolving needs beyond those urgent first things in the triage. So it’s thinking about nonprofits and how they can rethink their strategy, their delivery, their fundraising and their planning. And how are we thinking about rescaling and getting people back to work and especially thinking about how we’re supporting the most vulnerable populations. As we move into re-imagine, we’re thinking about what can be done now to really accelerate digital transformation and become faster and more relevant to our customers than even before the crisis. On the nonprofit or social impact side, we’re thinking about how do we build back better and how do we really formalize what we’re doing?
For many companies, it’s really thinking about making the commitment now to set aside equity. So thinking about reinforcing your values to your employees and companies beyond the short term actions, really representing a long-term commitment through equity, where you’re setting aside a piece of your future success. This will also give you the resources in the future to tackle the most pressing issues of our time. I think it’s important to recognize that this is something you can control right now that’s really going to set you up in the long-term. I should also note that this is going on right now, which is why we’re talking about it. Many folks are reaching out to us, but I put an under re-imagine because we’re re-imagining that post COVID, there could be a world where this is just the new normal or the default or the standard. And setting aside equity for philanthropy is as common as setting it aside for your employee pool. It’s just what people do.
So in the last three years, over $250 million in new philanthropy has been ignited through Pledge member IPOs. It might seem like an odd time for us to be talking about equity and IPOs given the state of the economy and the markets right now, but that said, as I mentioned, a lot of CEOs have been reaching out to us. I think it’s because both this incredible need that’s clearly out there, and there’s a recognition that it’s very clear that companies have a very important role to play really in working with government and nonprofits to address the most pressing issues of our time. So this is probably a good moment to just take a moment and explain what Pledge 1% is all about.
We are a global movement to create a new normal where social impact is really embedded into the DNA of companies of all sizes and stages. We exist only to inspire, educate, empower every company to really think about how to leverage their assets to be a force for good. We have over 10,000 companies in 100 countries and we are a global movement. During this period of COVID, we’ve been working and really playing a role as an aggregator, a resource, a convener, and an amplifier of collective impact opportunities. [inaudible 00:06:59] we were most recently, all of our companies came together and they rang the NASDAQ bell on giving Tuesday on May 5th, and really recognize how companies are really coming together to be a force for good.
Back on the equity front, we realized about a year ago that many CEOs want to set aside equity, but there were really no standards on how to do this. So if you imagine what it was like before the NBCA came out with a standard term sheet and how people were trying to invest in start ups back then, kind of what’s going on with people trying to do the equity pledge. It’s like snowflakes. So we’ve been working with CEOs and VCs and attorneys over the last year to really develop some frameworks and templates and moving on to the coming soon side, you’ll see that we are rolling this out.
A CEO version as well as an extended version, which gets into the nitty gritty down to S-1 language and board resolutions coming up this summer. But we have a special exclusive for [SaaStr 00:07:54] attendees, for all of you. You’re going to get preview access to the CEO Playbook, which really digs into how to get board support and case studies and recommendations from other CEOs. We’re going to be spotlighting some of that during our session today, but you’ll also have access to this to download. So make sure you stick around for the end where we’ll show you the link of how to get that.
With that, let’s dive in. For each of our speakers, I’m going to introduce you and throw out a few questions up front. You’ll then have some uninterrupted time to really share your valuable insights. Starting off with you Sameer, as CEO of SendGrid, you’ve helped SendGrid set aside equity on the road to IPO, and you’ve had experience really understanding the value of that and the impact of that equity, both on SendGrid, as well as Twilio. Additionally, you’ve been on our global visionary council and really part of a core group of CEOs and VCs. They’ve been developing these standards.
Sameer, why are you so passionate about this? Specifically setting aside equity and why do you think it’s both the right thing and the smart thing to do? I’m hoping you’ll also share your story at SendGrid and maybe get into a little bit of the nitty gritty of when and why you decided to do this and what model you used and why. Also, if you could share any recommendations you have for CEOs on the call for how to get board support. I know that’s always a tough topic. Then specifically with regard to COVID, maybe share how Twilio’s commitment is really enabling you now to have the funds and resources to respond, and any final thoughts you have for CEOs who are considering this. With that, I’ll turn it over to you, Sameer. Thanks. I think you’re on mute, Sameer.
Well, let me unmute, there we go. Thank you, Amy. And thank you for everyone who is listening in today on this very important topic at this very important time. Let me start off with the first question. Why so passionate about this? For three reasons. I would say number one, first is, I have conviction, as Amy mentioned earlier, that businesses have a larger role to play in our society than simply being about generating growth and profits. We all want to create value for our shareholders to be sure, but there are other stakeholders, our customers, our employees, our suppliers, our communities. I think we’re all re-conceptualizing the impact and the role that business can play, and you see it today and this COVID pandemic more than ever.
The second reason is just, I would say the industry value creation that has occurred in technology that I have been so privileged to be a part of in my 25 year career and the moral obligation, frankly, that I feel that comes with that. My personal story, at the ripe age of 17, I just happened by dumb luck to choose to go to a college, Stanford that was based in the heart of Silicon Valley in the mid nineties. So I just happened to show up at this particular moment in time at that particular geography that was at the epicenter of tech and software, which was still in the early innings of its influence. I looked back in 1995, Apple had nine billion in revenue, had a four billion dollar market cap relative to a trillion today. Microsoft was enormous at four billion in revenue and a $50 billion market cap, a long way from a trillion in revenue.
The largest companies in the world back then were GE and Exxon and Coca Cola. And truly in the past 25 years, I’d bet our industry has created more value, literally trillions of dollars than any other industry in the history of technology. The top five most valued companies today are all in technology. Microsoft, Apple, Amazon, Alphabet Google, and Alibaba are the top five. In fact, number six is Facebook and number seven is Tencent. This industry has created trillions, and many of us on this call are privileged to work in this extraordinary sector of the economy at this extraordinary moment in time. But we all also know that this value creation and access to this industry has not been shared evenly or equally across all groups or demographics in society. So I just feel, and I hope you all will share a deep moral obligation for us to take a small fraction. Indeed, when I say a small fraction, I mean just 1%. It’s in the name, 1%. 99% goes back to the rest 1% to give back to the communities in which we work, people that need it most who don’t have access to this industry.
Then finally, I would say at a personal level, the reason I love spending so much time helping other CEOs and boards take this pledge is because I believe it’s one of the highest leverage philanthropic activities that I can do if. I can help convince or enable just one company to take the pledge that makes it to IPO, that’s likely 10 or even tens of millions of charitable dollars that are now activated. I would take me a lot of bake sales at my local school at my kids’ schools to create that much philanthropic activity. So I just feel like the Pledge 1% Org that Amy leads is a massive force multiplier for good and I’m so privileged to be a part of it.
Amy mentioned this question about why doing this is not just the right thing to do, which it is unquestionably, but it’s also the smart thing to do from a business perspective. I would say to all those listening, thinking about how you’re going to justify, how do I do this? First off, understand that in this day and age, in a war for talent which exists, the best talent today more than ever cares that their company has a soul, that it serves a greater purpose than simply generating growth or profit. These are the kinds of companies that employees want to work for and where they stay connected, where they stay retained. Our most recent engagement survey at Twilio when we asked employees, are you proud to work at Twilio, the overwhelming 90 plus percent response was an emphatic yes. And they often specifically cited in the free form response, the philanthropic activities of our twilio.org, which was enabled by our Pledge 1% pledge years ago and the generosity of our CEO, Jeff Lawson is reasons why they’re so proud to work at Twilio.
You, if you take this pledge, will see this in your business, you will see it in lower attrition rates as we have at Twilio, we have five to 10 point better than average. You’ll see it in your engagement scores, which will be better than average as we have. You’ll see it in your ability to hire and attract great talent. But it’s not just employees that care about this. Customers want to do business with companies that they like and respect. I can tell you at our Twilio Signal Conference, which is our annual user conference, the highest rated session every single time, every single year is when we ask a nonprofit that is empowered by twilio.org and our technology to come up and tell their story of how they’re using our platform to go do good in the world. Customers care. I’ve seen it happen. I’ve seen them become more committed to our company as a result. I can go on and on, but the point that I hope you take away is that you should take this pledge because it’s good business in addition to just being good.
Now, I’ll be honest, two years, I guess two and a half years ago, I thought that I had missed the boat. I thought we had missed the window of taking the pledge ourselves, with just SendGrid. And I just happened to have had a serendipitous lunch with Jeff Lawson a year before our IPO seeking advice on the process from another CEO that was in SaaS, a dev API focused company and we’d had this great discussion. At the end of the lunch he said, “Hey, Sameer, have you guys taken the pledge?” And I said, “No, I think we missed that boat. I wish we had done it at our founding. We’re going to have a billion dollar IPO here shortly. I can’t imagine our investors, our board or shareholders getting behind that.” And he said, “I thought the same thing, but we came up with a way to do it. We took the pledge ourselves just months before our IPO.”
I was floored and thrilled at the same time. In short, what he described was what we had pledged now called the Distributed Equity Pledge Model, in which we commit to the full 1%, but it gets spread out over a period of time. In our case, it was 10 years. That had two important benefits. The first is that the dilution for your investors is minimized and shareholders’ is minimized because it’s spread out. 0.1% per year, 0.1% is a diminimous number. That is smaller than your option pool refresh, it’s way smaller than an executive hire, and you truly are not going to be likely to get much pushback from your board on that. It also gives your company the opportunity to continue to increase the value of your pledge if you believe you’re going to be creating more and more value as many SaaS companies do compounding on this great recurring revenue stream. In SendGrid’s example, 1% of our IPO was worth about $10 million. I can tell you today, it’s now worth many tens of millions of dollars, that 1%. So you get to ride the upside and give even more than you thought you could.
The downside of this model, of the distribution of course, is that the value is not guaranteed. Each year you vote on it. A new CEO or a new board could undo that commitment in the future unlike doing it all up front, and you’ll hear more about that from Yvonne here shortly as another way to do it. There’s no right way to do it. We’re going to provide you with these templates that give you two different ways of doing it. The most important thing is that you get it done. If you go to slide 12 for me, the funny thing about the SendGrid story is that it all hinged on this serendipitous lunch with Jeff. Obviously we’re trying to systematize this now, trying to spread the word with events like these, trying to create this movement. But if Jeff were here, he would tell you that the Twilio story was him being influenced to take the pledge by Marc Benioff of Salesforce team.
As some of you know, Marc and Salesforce have been huge proponents of 111 from their initial founding. Helped found the Pledge 1% movement years ago with companies like Atlassian and Rally Software and others. Literally years before the lunch that I had with Jeff, Marc Benioff had been hosting a dinner at his house and had invited a number of SaaS CEOs, including Jeff Lawson from Twilio, to talk to them about Pledge 1% to try to convince them to take it. One of the CEOs there, as Jeff tells this story, must’ve asked, “What if we didn’t take the pledge at the beginning at our founding like you did Marc with Salesforce?” Marc simply looked up Riley and said, “I don’t know. You’re founders, go figure it out, go figure out how to do it.” Jeff took that as a challenge and he thought to himself, Marc’s right. That is what founders do. We figure stuff out all day, every day. And that is actually what inspired Jeff to come up and figure out this distributed model that he then passed on to SendGrid, and we are now trying to share with as many companies as possible.
So look, if I peaked your interest at all in considering this equity pledge, I hope I have, some of you listening in. Some tips of advice in slide 13 of what to do. Commit to the discussion, get it on your board meeting agenda, have conviction as you have this conversation. When you talk about it, explain to your board why you were so passionate about this, remember that your boards are there to support, they want to support their founders and their CEOs. If they know that you care about it, I promise you they’re going to care about it too. Give them examples that you’re not on an Island here, that SaaS industry leaders like Slack and DocuSign and PagerDuty and SendGrid and Twilio, have all already done this and we’d be happy to put them in touch with any number of our CEOs or other investors. Make the case that I was sharing earlier about it being good for business, not just being good. By the way, before you get to doing all of that, go build some allies in the board before you get into the room.
Ajay is going to talk about this later, but the one-on-one conversation that happens before the board meeting, pick the people that you know are more likely to support your desire and get that rolling. Talk about the trade offs of which model you want to go with and why, but most importantly, relay urgency. You have to get this done before you file the S-1. Once you filed the S-1, the clock is out, that’s your runway. The sooner you can get this locked in the better. I hear from so many CEOs when I talk to them about this, well, I want to hire a social impact leader first. I want to pick my cause, what should my company get behind? Those are all wonderful things to consider. You do not need to sort out any of those before you take the pledge. In fact, I’d encourage you to take the pledge, you have the rest of eternity to figure out all the details and the mechanics of how you are going to use those funds, but that’s how you get it set aside.
I would tell you that because Twilio and SendGrid did this, on slide 14, we’re in a position to make such a big difference in this global pandemic. We have, suffice it to say, well north of a hundred million dollars because of that equity pledge that both companies took that we can dedicate to philanthropic activity. I’ve been so proud to see all the ways in which we’ve been able to use those dollars for good. Our communication platform, which spans text voices, email video, unto itself is in high demand as people are trying to communicate more in this pandemic. So our twilio.org team created an access program for organization that needed credits or discounts to use in their own COVID solutions. We’re giving away our video API to education, healthcare and nonprofits for the next few months. We’re offering our contact center solution flex at no cost for 20,000 hours a month if an organization directly helping COVID. We’re working with food pantries to help schedule when recipients can come and pick up food. Crisis text line and the national sexual assault hotline are using our channels to communicate with these at risk populations.
We just announced the work we’re doing with the city of New York hardest hit by the virus to deploy a contact tracing solution using all of our platform. That’s just all the tech. We’ve been giving away grants from that a hundred million dollars. We started with a million and a half. We just added another two million to both globally with the UN Foundations COVID Response Fund, and also locally to Bay area organizations like give to SF, the Silicon Valley Response Fund in Denver, where we have another big office for the COVID relief fund. And we’re activating our employees. We took the Pledge 1% branding and created something called We Pledge, which is we all the employees pledge 1% of our individual equity finding remote volunteer opportunities, doubling our matching for COVID related donation. So just trying to do so much, and I’m so grateful that we took this pledge because that is how we’ve been able to do all of this good in this crazy pandemic.
My final thoughts for you, in slide 15, I would just say on timing matters, you got to do what’s right for your business right now, make sure your business and employees are on good footing first and foremost, care for their wellbeing. But I genuinely believe there’s never been a more important time in history for businesses to step up and play a bigger and broader role in our society. We’re learning and teaching all of our children and the people that we cohabitate with that this is a time of we not I, this is about our communities, not about our individual businesses. I think that’s an important message. So please leverage this great organization, Pledge 1%, we’re here to help you do this. Please take the pledge, be a role model and help us build this movement. Amy, thank you so much for the time and opportunity to share the story. Back to you.
Thank you, Sameer. We really appreciate your candidness and really sharing your story and your advice. We’re going to jump over to Yvonne now to hear another CEO perspective. And it’s worth noting that whilst Sameer chose to use the 1% distributing corporate model, Yvonne actually use a different model, which is the 1% upfront model, and she’s going to talk a little bit about that at Puppet. We’re so excited to have you, Yvonne. I hope you don’t mind me sharing that as CEO of Puppet, you fought hard for the equity pledge from day one and it actually took some time, but I think you just finalized it right before we were originally going to do our in-person panel, the SaaStr Summit, before all this craziness started to go down and we all had to shelter from home. Once again, I’m going to throw a couple of questions out to you upfront, Yvonne, and then turn it over to you.
First, I’m hoping you can share your story. Why do you care so deeply about this, Yvonne, and what was your experience at Puppet? Why did you decide to go with the 1% upfront model? What do you see as the pros and cons? How did you get board support? We’d also love for you to share any advice that you have for CEOs and founders, especially in light of COVID-19 and knowing that a lot of folks on the call are probably early or mid stage. So any advice that you might have for some earlier folks. Then finally, as you know, Pledge 1% is really about empowering companies to leverage all of their assets for good. The real magic comes in when you combine the equity or profit with time and product, and really thinking about embedding it into the core DNA of your company. I know that that’s what you’ve done at Puppet. So hoping you can share a little bit about how you’ve done that as well. With that, I’ll turn it over to you. Thanks.
Perfect. Absolutely. I’m super excited to be here. Can you hear me, Amy?
Yep. All good.
Super excited to be here and it’s such a great opportunity to share the learnings. I think Sameer did such a beautiful job framing up why this is important for all of us to engage in particularly more now than ever. What he hit on, I think is a lot of this importance of the increasing disparity of wealth and the importance of social consciousness and the fact that if we want to have and be part of healthy thriving worlds, it can’t be the haves and the have nots. I do believe that there is both a personal, but also a business reason for us to collectively find ways to create a better planet. You have to start change. You can’t expect others to do it for you. So to me, what I think is really important is that true change is not just a single event, but it becomes a way of being. I think that to me is what’s so important about the 1% pledge. We talk a lot about the equity piece, which I think is foundational.
In some regards, sometimes one of the hardest pieces, but it’s a piece of an overall program, which is part of the composition of who we are, how we act, how we show up. I think to echo what Sameer said, it’s a big piece of the culture that you’re creating and the legacy that you’re going to leave for those that come behind you. So to me, it’s important to have that change and that commitment show up in terms of innovation. We’re incredibly innovative as companies. It’s important to show up in the form of care and empathy and understanding. It’s important to show up in the presence of time. But it’s also important to show up in the presence of funding. One of the most important lessons my dad taught me when I was a little girl, was the power of compounded interest. To me, doing the 1% pledge and I think doing it early is really around creating that future value. So with that, if we move on to the questions, I think, why I care so deeply about this, I touched on a bit.
Let me move to what Puppet did and why I care. You mentioned, Amy, I came into Puppet, I joined Puppet about a year and a half ago. It was really my first board meeting or actually right after my first board meeting, I went to one of my board members, Jen [Sahada 00:28:38] at PagerDuty, who also committed to the 1% pledge. I talked to her, I said, “Jen,” I said, “I feel really passionate about doing the 1% pledge at Puppet.” What I noticed at New Relic is I led data nerds for good, but at the time we fought for funding out of the regular P&L and it’s hard sometimes to put aside that money for the nonprofit stuff when you’re still trying to drive a business.
It really hit home to me that you need to create mechanisms and organizations and ways to make those right decisions easier to implement. I had great support from Jen. We did go and we did the 1% upfront. I’m a big believer in that in the sense that, we’re a little bit further away from an IPO. There’s many different exits we can have, and we wanted to make sure that our legacy would be fully paid. So by committing that 1% upfront, certainly if we IPO, but also for some reason we decided to sell the company, we’re still committing that money. I think that was a very important concept for us from a culture standpoint. The other important thing, which was a little scary upfront is, you don’t have to set up a nonprofit. You actually can use a donor advised fund.
We use the Tides Foundation, but we didn’t have to set up a nonprofit to make this work. If you go to the next slide, what I would say to build on Sameer’s comments, one is, super important to build on a strong commitment and community of giving. When I talk about it being a way of being, it’s not just setting aside equity, it needs to be incorporated into your culture, into your values and your beliefs as a company and the role that you play in society around you. What I found from a selling perspective to my board, I took a very personal approach. I knew I had the supportive Jen because she had done this for her company. But I went and I looked into what were the commitments that my board members and/or their companies had made that I could then align to? For example, VMware is on our board and they’ve done a lot with their foundation. So framing my desire to have Puppet give back and contribute just like VMware was doing with their work.
I did similar things with my other board members, was a great way to suck them in because they were already passionate believers in giving back, and this was them supporting us and what they knew what was important to our culture. Leveraging experts, it’s complex. I love that you’re coming out with a playbook. It’s a lot to figure out and we had great help along the way. If you do that, again, you can break through the concerns or the obstacles that your board members might have, because you’ve got the data, you’ve got the fact, you’ve got the plans. I think that builds confidence that yes, you’re committed. It makes sense, and they see how it’s gonna play out. I believe that doing the 1% upfront, if you can get that across the line, is the best way to go. Sometimes you can’t. The numbers look too big, people have too much nervousness.
For us we’re able to build that momentum. I think it’s the safest way to get it there and then let it grow and go on and do the other great things. I want to close out on this concept of building on a culture of commitment. It was a huge, huge [inaudible 00:32:25] when I could go back to the company and tell them that we signed up for this. I think to what Sameer said, our team really cares about giving. We already have four community service days a year. We leverage our space. We’re an innovation lab. We’re built on open source. We’ve had a lot of different initiatives come out in the face of the Coronavirus pandemic.
For us, one of our core values is community empowered and engaging the community. Being able to start with that and having our board understand that is who we are, it was very natural for us to work through it. It still took a little over between nine and 12 months to get all the things detailed out and warrants written and votes taken on the board. But I had commitment within the first three months from everybody on the board. And from there, it was really just working through the process and getting it done and thrilled to be one of the folks at 1% and hope others of you out there will go on that journey with us.
Well, thank you, Yvonne. I love what you were saying that true change is not a single event. It’s really a way of being. I think that’s exactly clearly what you’re doing a Puppet and Sameer is doing at SendGrid Twilio. And you could see it in the pledge companies and it’s really the movement that we’re trying to create. Since you brought up open source, I will just mention, and we’ll talk a little bit about this later that we’re able to have this playbook because of this open source nature of the Pledge 1% movement. All of our members are really co-creating these standards. So to the extent that you read it and you have other challenges that you’re facing, help us please flag the challenges and also help us build the solutions. I think this is how behaviors are changed. It’s really co-creating this and making this happen. We’re so thankful to everyone who was willing to open up and be so authentic and sharing their experiences with us. It’s what got us to this point.
I’m going to shift gears now and I’m super excited to turn things over to Ajay. Ajay, you’ve been a venture capitalist for over 20 years or nearly 20 years. I think that you just recently in the last couple of years been personally involved with setting aside the equity at Gainsight and SendGrid. I know that Bain Capital has also been involved with setting the equity aside at DocuSign and really helping get that across the finish line. I’m hoping that you can help us understand this from a board perspective. I think Sameer can attest that every time we bring this up with CEOs, the most popular conversation aside from the models is, how do I get my board onboard? So any insights you have from your experience going through this with Gainsight and SendGrid, please share with us why you’re so committed to being what we call it Pledge 1% of boardroom ally, and helping to really do this. How does this fit into your values at Bain Capital and why do you think that other VCs or any other funders that are on the line should also be supporting this as well?
Well, thank you, Amy. And thank you for including me in this important session and also thanks to Jason Lemkin and the entire SaaStr team for hosting today’s discussion. As you mentioned, I’ve been at Bain now 17 years. Prior to that, I spent time at multiple startups, including the one where I had the fortune of meeting Sameer years ago. I think what’s interesting about this crisis, it really is a tale of two worlds. When you look at the technology industry where all of us spend our time and most of the participants, the stock market for tech stocks is at an all time high. Given the nature of our work, we can all shift to work from home seamlessly. Most of the tech companies have said, work from home indefinitely or forever. So we have enormous advantages in this crisis.
Then outside of tech, you see the rest of the world and the rest of the country where unemployment rates are north of 20%. You have a hundred million people who cannot work from home given the nature of their jobs. So they either don’t work or they have to go and put themselves potentially at risk given that we don’t have a vaccine. I think for our startup leaders in our portfolio, it’s a strange, surreal existence because they feel like, in the office at work, we’re more productive, we’re accelerating, all these tailwinds are happening, but then our communities and our country and our planet just have been destroyed. I think there’s been a remarkable amount of energy that we’ve seen across our companies to find ways to give back and to contribute to the community. I think Sameer phrased it very eloquently where he said, “Look, the nature of capitalism is changing.”
When I think about our CEOs in the Bain Capital portfolio, not just in ventures, but also in our private equity businesses or life sciences businesses, they very much embrace this concept of stakeholder capitalism. That’s not just the shareholder, it’s the broader set of stakeholders that include our customers, our employees and our community. I think that’s where the Pledge 1% makes a lot of sense. We’ve certainly had experience in the boardroom with Gainsight and SendGrid, where I’m on the board at Gainsight and was on the board at SendGrid when we made the decision. My partner, Enrique Salem was on board at DocuSign. He’s also on the board at Atlassian. Atlassian is certainly one of the early pioneers around Pledge 1%. So we are deeply passionate about this at Bain Capital. If you think about our firm, we’re started 35 years ago. Today, we manage about a hundred billion across a variety of businesses across the globe. Given that global perspective, we have a vantage point on this crisis that is unique in the sense that we’re seeing what’s happening country by country.
What we’ve seen as an organization at Bain Capital, part of the reason we’ve been able to build something so enduring is this notion of giving back is a core part of the value of the firm. The day you get to Bain Capital, the senior partners really set the example that, look, we’re here to deliver returns to our investors, but with that comes a great deal of responsibility to be involved and give back to our communities. For example, around the COVID crisis as a firm, we’ve committed $40 million to give back across the globe. We’re featuring all of our portfolio companies, including many of our venture companies, in terms of the work that they’re doing. The reason we do that, and I think this is why VCs and board members should support the 1%, is we think it builds a great culture. We at Bain Capital, just like all of our startups, the single most important asset we have is our people. And the single most difficult thing we have to undertake is recruiting the very best to our organization.
When you think about an important criteria for why people join Bain Capital, why they join many of our portfolio companies, is they want to be something bigger, be part of something bigger than just a job. They want to be part of a community. They want to be part of an organization that is doing great things. We found in our organization that this notion of giving back is so energizing for the employees and for the culture. So I completely agree with Sameer and Yvonne that it’s the right thing to do. I think this is what the future of capitalism is all about. I think the tech industry in particular, and especially in this crisis, has an obligation to really take the lead here. But I think it’s the core to building a built to last culture. To me, even if you want to look at this purely from a shareholder perspective, let’s go back to the old school definition of capitalism, I still think it’s a good thing because you’re going to create a culture that is enduring. You’re going to have an employee base that’s energized.
I think about our 1,000 employees across the globe at Bain Capital and the amount of energy that has been unleashed through all the work around the COVID response, is really inspiring and true at our startups as well. I think this is the reason I’m so excited about it. This is the reason I’m supportive of it at Gainsight and SendGrid. I think it certainly starts with a founder and a CEO, you folks like Sameer and Yvonne, that are passionate, that believe in culture, that you’re really creating a mission for the organization that’s exciting and inspiring. But I think the combo of a board that’s supportive, but really starting with those tech leaders and CEOs that are also passionate, this is such a no brainer. If there was ever a time for companies in our industry to step up, it’s now.
Well, thank you, Ajay. Wow, $40 million. It’s really incredible to see how deeply this really aligns with your values at Bain, and thank you so much for sharing that. I’m sure it’s really reassuring for a lot of the CEOs on the call to hear directly from you, how supportive you are and how supportive other top VCs are in really thinking that, I think going back to what Sameer talked about, that’s in the beginning, not only is it the right thing to do, but actually it’s a smart thing to do in terms of building a culture that’s sustainable and that will actually attract top talent and that will actually be a successful company.
I love how you put it. Even the pure old school way of defining stakeholder, shareholder, even someone like that would see that this is still the right thing to do. I think that that is, I think really reassuring for a lot of CEOs who I think maybe think that they need the permission of their VCs to do this, to understand like, no, actually it’s, I think increasingly understood that this is what it takes to be a successful company, and it’s really the right thing to do. Because we can right now, and because it’s really needed. So thank you so much for sharing that.
I’m going to jump a little bit to, I promised to sneak peek and we’ve got a lot to get through in just a few minutes. So I’m going to really, really quickly talk about some of the content that’s in the CEO Playbook. But as I mentioned, all of this is going to be a special SaaStr sneak peek exclusive that you guys will have the answer. Julie, if we could go to the next slide. When you’re thinking about equity, the first thing you think about is, what is your equity source? We’ve talked about corporate today on the call. But the source could also be from founders. Atlassian, which Ajay brought up, is an example where the two co-founders, Mike and Scott, personally pulled together their own personal equity to form the corporate foundation. That’s the Atlassian Foundation. That’s separate from whatever thing they’re doing, personally for their own personal philanthropy. They use their own founders shares to create the Atlassian Foundation because they believe so strongly in this. Then there are models which are hybrids like Lookout, where it was both the corporate equity, as well as the founder equity. They came together to create that.
Moving onto the next slide. If we dig a little bit more into the corporate equity, we talked about two models today. There’s the 1% upfront model, which is what Yvonne did at Puppet, and the 1% distributed, which Sameer did at SendGrid. Quick and dirty on this, is just upfront is really great, especially if you’re early or mid stage. It’s a great way to lock in your social impact legacy because it is legally binding. But the downside of that is you’ve got to get the 1% upfront shareholder dilution, especially if you are later stage, that can be hard to do. If it’s a choice between not doing it or doing it, I totally 100% agree with Sameer, just get it done, do whatever is really going to work for your company and your board to make it possible.
On the 1% distributed model, you can [inaudible 00:45:39], then we’re going to go back to the last slide. We’re going to let you spread out your shareholders dilution. But the downside is potential for reduced social impact. Sameer was really, really fortunate at SendGrid that SendGrid was acquired by Twilio and Twilio also shared the same values and absolutely honored the commitment, but it could have had a different outcome. That’s why there’s definite pros and cons. In both cases, you can position this so that you can ride the upside of the stock. And both are just excellent, excellent models. So there’s no right or wrong. It’d be totally depends on where you are and what’s right for you.
Okay. Next slide. Just quickly talking, there’s also two little flavors for the founder equity models. There’s pre-exit and post-exit. Both are legally binding in this case. Pre-exit, you’re actually transferring the shares upfront. You can see examples of companies that envision that. Like Atlassian and Vlocity and Code42. I am not a tax consultant, I’m not who I claim to me, but this might not be the best optimization for your personal taxes. On the post-exit, it might be better from a personal tax perspective, but then again you’re introducing some risk as in the other model.
So jumping to the next slide, there’s other considerations. Don’t have a lot of time to go through this. But things don’t mind to think about are, you might want to set up upfront in your board resolution, or as you’re thinking about this, what happens in a change of ownership? Does your commitment accelerate, does some of it accelerate? Does it go away? You also might want to think about if you’re doing the 1% distributed model, could you lock in at least some of it up front, maybe a 0.1% of that 0.1%?
Social impact dilution for those of you who are doing it really early, do you want to think about an intent to top it off before your liquidity event? Because that 1% that’s done in a series A won’t be 1% at the very end if things go well. Think about writing upside to your stock estimator, pointing out that the 10 million that was the original value is much, much more because the stock has risen and things have gone well. Also, what Yvonne was mentioning, leverage a donor-advised fund. We’ve got preferred partners and we can totally walk you through it. There’s no need to set up a foundation or a nonprofit, there’s many easy ways to do to get the spin up quickly and to help you do that.
With that, will go the next slide. The most important thing really to remember is that Pledge 1% is really here for you. The Equity Playbook, there’s resources and support. As I mentioned, we’ve got the version for the CEO’s, but we also have the nitty gritty. We’ve got resources and consult. I have an amazing colleague who’s working with me, [inaudible 00:48:20], you’re going to receive an email from her if you download the Equity Playbook. she’s a former GC herself, So she speaks to attorney and she’s very well versed in all of this, can really take you through the models. We also have other resources for other types of pledges. If you’re interested in getting involved in the movement overall, you can just go to P1.today, take the shortcut, sign up, It takes 30 seconds, and just be part of the movement. We also have great resources right now around COVID. We’ll go to the next slide.
Here’s the special SaaStr offer. We are not officially releasing this until the summer, but all of you can actually go on right now and get access to this playbook. The shortcut is just p1.today/equity. You can download it and you’ll also receive an email after you download it, it will give you access to either office hours or a one-on-one consult to get more information. If you’re a VC or you’re on the board of an organization or you’re attorney and you want to learn more about our boardroom allies program, so these are the VCs that are actually really supporting this effort, please email us at firstname.lastname@example.org. If you have general questions, feel free to just email us at email@example.com. Go to the next.
Yeah, with that, I’ll just say before we move on to Q&A, I just wanted to take a quick moment to just thank all of my fellow panelists for your incredible leadership in the movement. We’re really here and we have a playbook because of people like you. Hopefully, all of you in the audience or listening, we’ll be taking this next step and potentially passing the Baton and speaking on your own sessions. This is the way behaviors really change. So thank you for all that, everyone on our panel and all of you out there are really doing every day to really be a force for good. Also, want to thank Debra and Tammy and Jason and SaaStr, as well as all of you who participated in this session. I will let you know that we’ll hit maybe like one Q&A, but just want to let you know that again, I think a lot of your questions will be answered by downloading the playbook and in these sessions. We’ll also try and hit a few of them on our blog.
Let’s see, how much time do we have? We actually don’t have time for Q&A, so my apologies on that upfront. But I really do think we’ve got a number of ways set up. I want to strongly encourage you to go and download the playbook. Thank you again for participating. I’ll just echo the words of our panelists, that there’s really never been a more important time for companies like yours to really leverage their assets to be a force for good. So, please join us, check out the playbook, let us know how we can help you. Know that we’re here for you. Stay safe, and thank you very much. Goodbye.
There’s a phenomenon, a type of SaaS company, that I think if you are scrappy, if you can make things happen as a founder — that you need to be careful not to become.
It’s the Bootstrapped-to-Death Start-up.
I’ve known quite a few over the past 7 years, and each and every one is a bit of a slow-motion train wreck disguised as a modest success.
The basic scenario is this: By Hook or By Crook, after 2-3 years, they get themselves to $1m-$2m, in ARR, with no capital at all, no investors except themselves.
Now if you can get there in 12-18 months, that’s great. 24 months is probably OK, but at the edge for most people. Or if it’s a semi-mythical lifestyle business, maybe it’s OK. Or if you are in consumer internet, it might be OK because you don’t have customers or need so many people.
The problem is going too long without capital when you really need it. You get exhausted:
Too many customers to follow up with, without the money to hire a real client success team.
You’re doing all the core sales yourself. Great when you start. Terrible after 24 mos.
You can’t really keep up with the customer-driven side of the roadmap. It’s great you have customers, but they have needs. Of course you can’t do it all. But if you are too scrappy, you may not be able to do enough. The competition will then kill you.
Worst of all: you start to Think Small. Because you can’t afford to spend an extra nickel, as the years roll on … you abandon the Big Vision, if not nominally, then at least deep inside your psyche. You’ve thought scrappy for so long, you forget how to do anything else.
Exhaustion sets in. And this is where the competition kills you. Because they aren’t so tired, and even if you are ahead of them, they have a fresh perspective, fresh troops, fresh capital. You will ultimately lose.
I’m all in favor of bootstrapping in SaaS. In our IPO/Billion Dollar Valuation/Bootstrap Case Study of Eloqua/Marketo/Pardot, the bootstrapped founders at Pardot did the best financially. But they got to scale relatively quickly – in 24 months. This is hard in SaaS.
And you can also bootstrap for a while, and then raise later. This worked out well for Atlassian and Qualtrics and more.
So bootstrapping is great. But if after 18-24 months of bootstrapping, you can raise venture capital — I would take it, in SaaS at least. So you don’t exhaust yourself, your team … and your vision … to death.
There’s a reason 97/100 of the top 100 Cloud companies eventually raised VC. More on that here.
Early in the Pardot days, it was clear things were going well and we had something special. Only, we were inexperienced and didn’t know what we were doing (does anyone, really?). My concern was ensuring we grow faster than the market, and to do that we had to ensure our employees’ personal growth was even faster than our company growth. For me, my needed personal growth was around communications and company alignment.
Recently, I was introduced to a new idea: the Startup State of the Union. Generally, the idea is to map out all parts of the business in a slide deck that is updated monthly and available to the team.
As an entrepreneur, you are a cartographer making the map, not following someone else’s map. The Startup State of the Union is your internal map.
Let’s take a look at what slides would go into the Startup State of the Union
Purpose / Vision
Simple Strategic Plan
Why Now, Why Us
Board / Investors
Consider team, renewal processes, etc.
Consider team, recruiting process, employee development process, etc.
Consider team, definitions of qualified leads/accounts, ideal customer profile, tech stack, etc.
Consider team, AE + SDR + CSM alignment, territories, etc.
Consider team, financial forecasting process, etc.
Consider team, product planning process, pricing/packaging, etc.
Consider team, development process, etc.
Overall, the big idea is to have an internal slide deck, updated regularly, that captures where the business is today, where it is going, and how it is run to get there.
Organizational alignment is hard, and only gets harder as the company grows. Consider a Startup State of the Union internal slide deck to capture the most important details and re-evaluate them regularly.
Over the past two weeks, I actively watched both the Republican and Democratic Political Conventions and actively ignored the mostly useless commentary from cable news political pundits. My aim was to hear and experience the original talks and segments from both conventions without the biased real-time analysis. I was watching not only the live and pre-recorded talks, but also the structure of each of the events, who spoke, how the pieces were integrated and what the overall experience was.
There is still one day left, but so far the Republican Convention has been a flop.
I’m not afraid to make a political statement, but this is not meant to be an article about my political beliefs. Instead, I want to analyze both conventions as high-profile examples of virtual events that were held on perhaps the biggest stage imaginable. And they were very different in eight specific ways.
Why Does My Opinion Matter?
Before I share more, you may be wondering why I’m even qualified to have an opinion about this in the first place. Over the past decade, I’ve spoken at and attended more than a thousand live and virtual events from around the world. I have taught marketing, storytelling and persuasion at multiple universities and written seven books on related topics, including a #1 Wall Street Journal Bestseller earlier this year.
So if you’re tempted to dismiss this post as the biased commentary of an entitled blowhard, at the very least I hope you’ll consider me a decently qualified blowhard.
The Republican National Convention didn’t work, the Democratic National Convention did and there are eight specific reasons why. Let’s take a deeper look at each, along with some insights on how you can use these lessons in your own career and work.
1. Create an Experience
At most events, having a host or an MC to guide the experience for the viewer can help to bring all the different pieces of the event together. Every night of the DNC, there was a different celebrity female host, including Julia Louis-Dreyfus, Kerry Washington, Tracee Ellis Ross and Eva Longoria. They each offered a bridge between segments and added continuity to the event. For the RNC, this role was left to the TV networks to provide – which felt more disjointed. Particularly for viewers like me who would switch between multiple news networks throughout each night to watch the coverage on FOX, ABC, CNN, NBC and other networks.
2. Inject a Personality
The roll call is typically a predictable formality of a political convention, where a representative from every state stands up and submits the votes of their delegates to officially nominate their party’s candidate for President. At the RNC, this usually boring ritual was done in front of a step and repeat banner by those delegates who were invited to attend the convention in person. At the DNC, these nominations were treated as a welcome moment for personality to be injected into the event and every state’s representative took full advantage. The video of the entire DNC roll call and all the personality of it has already been watched more than half a million times (across multiple videos). It brought a moment of fun and personality into what could otherwise have been a rigid and formal event.
3. Show a Wide Base of Support
One of the things that stood out for many people was how many Republicans spoke on behalf of Joe Biden at the DNC. Beyond having members of the opposing political party, though, the DNC also included a panel discussion of every candidate that had run against Biden in the primary. The RNC, in contrast, featured (as of tonight) five members of the Trump family as well as a handful of loyal political appointees and elected officials. They certainly had the support and ability to bring a more diverse range of speakers to the event. Limiting it so heavily to members of the President’s family was a missed opportunity to show a wider base of support.
4. Tell a Backstory
People believe stories, and the most masterful communicators always focus on delivering a story by showing instead of telling. When former Second Lady Jill Biden went back to her former classroom to deliver her speech, it helped viewers to imagine her roots as a teacher and humanized her. First Lady Melania Trump’s speech was delivered in the Rose Garden of the White House in a formal setting surrounded by a backdrop of US flags. Both speeches were strong performances. Biden’s, however, offered a more authentic setting and positioned her as more approachable and human because it showed her backstory as well.
5. Have a Conversation
Both conventions worked hard to try and bring some interaction with their respective candidates into their events. For President Trump, this included a pre-recorded segment with former hostage survivors who were invited to the White House to offer their thanks to the President. And live during the convention, there was also an ethically questionable naturalization ceremony for five aspiring US citizens. Both were highly scripted moments designed to illustrate specific groups of people that owe their gratitude to the President. Biden, in contrast, used an interactive format with multiple virtual screens to have conversations with citizens about healthcare and racial justice where he spends most of the time listening to their perspective and asking engaged questions. As a result, it felt like more of a discussion instead of a staged conversation.
6. Make It Human
For many viewers, a highlight of the DNC was a pre-filmed segment with basketball star Steph Curry alongside his wife and kids talking about the world, elections and what’s really important. It was sweet, human, relatable and genuine. It’s a calculated strategic choice that both conventions had to consider this year … what speakers should they invite, record and then share with America? For the Democrats, they featured several recognizable celebrities, a wide variety of real citizens, elected officials, and (as I wrote before) more than a few Republicans. The Republicans too had some winners (South Carolina Senator Tim Scott was a particularly bright spot and an amazing speaker). Other choices for speakers, however, seemed to be selected solely on their ability to provoke outrage from the left. The end result was that many segments from the RNC failed to make that human connection beyond the most loyal base of the party.
7. Show the People
The third night of the RNC showcased perhaps the biggest difference between the conventions. While the DNC consistently popped in and out of people’s homes via shared Zoom screens and virtual audiences, the RNC largely focused on scripted audiences and (apart from the live speech from VP Mike Pence), almost all pre-recorded speeches from a podium in an empty conference hall. Now more than ever, we need to see the people. And the irony is that President Trump and the RNC likely have no shortage of people who believe in the party and the President. Yet it is always a risk to show real people unfiltered. The Democrats decided to take the risk. The Republicans didn’t, and it was hard not to notice.
8. Offer Redemption
On this last point, both conventions created highly memorable moments. On the DNC side, it was a young boy overcoming his stuttering problem thanks in part to encouragement from Biden and showing courage in a short speech that went quickly viral. On the RNC side, there was a feature about a boy who had been quickly and unfairly condemned by the media for a viral video that showed him standing at a rally with a Make America Great Again hat and a silly smile on his face. Both stories featured kids and a story of how they overcame difficulties, and both stood out.
It is perhaps this last example that offers the clearest takeaway of the one thing that could have transformed the Republican National Convention: more humanity.
That technology, as it’s getting cheaper, more flexible, more accessible is democratizing access and doing so most profoundly in industries and functions and for constituencies that haven’t been able to leverage technology in the past.
I’m here to talk to you today about raising capital in today’s environment, particularly at the seed stage, so we’ll touch on the Series A stage as well.
I wanted to start by just talking a little bit about something that all of you have been hearing about, which is PPP loans, the SBA program for getting capital to companies in need. The reality is is that if you’re a startup just getting off the ground, PPP isn’t a legitimate option for you.
So, I’m here to tell you exactly what you need, what PPP really means for you, and the difference between raising money in today’s environment versus not being able to do it. So, with that, let’s jump right in.
The world has certainly changed, there’s no question about that. Sheltering-in-place is just the most obvious impact; how people interact with each other, when and if customers buy, whether the rebound is a V-shape or a W-shape or a loop-de-loop, there’s definitely a lot of change in today’s world, and that’s the only thing that we know for certain.
The other thing that we know is that there’s a ton of confusion about what’s going on and how long this is going to persist. We don’t know very much about the virus, we don’t know the right way to approach fighting it, and we certainly don’t know how the economy is going to perform over the coming months. So, don’t count on anyone, I mean anyone, to give you the answers.
And you certainly shouldn’t expect answers from The Midas List or VCs that you know and respect. We’re just living in unprecedented times. Anyone who pretends to know this is going to play out is doing just that, they’re pretending.
As much as VCs spend time evaluating the markets, evaluating businesses, trying to predict the future, we don’t know any more than any of you in relation to what’s going to happen here over the next 12, 18, 24 months.
So, for you, as founders and entrepreneurs, the key is to focus on the things you can control, and one of the things you can control is how you tell your story to VCs. But, to do that effectively, you need to get in their heads, no matter how scary a place that might be.
So, what are VCs busy doing right now? That’s a good place to start, to understand the actual landscape in which you are trying to raise capital.
First, they’re focused on their current portfolios, which companies are in a world of hurt, which companies are benefiting from accelerating trends and new dynamics, which just need to bide their time?
Any VC worth his or her salt is focused on helping the founders and CEOs that they work with, take care of the physical and mental wellbeing of their teams, stabilizing their businesses and planning for the uncertainty over the next 18-24 months.
So, getting their attention right now for anything new is really tough and that’s something that you should just accept and know, going into any potential fundraising process.
The other thing that VCs are doing is one very important part of their jobs, and that’s meeting companies and studying markets to figure out where they might want to invest eventually. You’ve all probably gotten a cold email from a VC associate or partner asking about your business or wanting to understand your market.
Expect more of those because VCs trade on data and they all have the time available to them right now to spend hours talking to folks like you about what’s going on in the world and collecting that data.
But that’s only the beginning for them, collecting data is the thing that they can do right now. Unfortunately, the reality is most of them are just waiting and sitting on their hands.
The thing that most people don’t realize about venture capital is that VCs are always thinking about capacity, and most venture partners at Series A and later firms only make one to two investments per year, and so the opportunity cost of making an investment now, versus thinking about an investment later, is a real cost to them because it’s a cost of their time, not to mention what might be happening from a broader market perspective.
And, from that standpoint, there’s a huge disconnect between the public markets, unemployment rates, and what startups are experiencing on the ground right now with customers.
Until there’s more stability in those areas, you can expect that most VCs will be waiting for a time where they have more comfort with valuations, with customer behavior, and with knowing that there’s going to be another set of VCs down the road who are going to be willing to write a check to support their companies on an ongoing basis.
So, most investors, no matter what they say, are taking a wait-and-see approach. If an investor is telling you that they’re active or open for business, they probably are in the sense that they’re busy collecting data, but that doesn’t necessarily mean they’re in a position to write checks.
The good news for all of you is that seed is very different. I don’t want to be a complete downer, so this is hopefully a bright spot. There is a ton of capital committed to the seed asset class, and because we’re investing at the earliest stages of the market, there’s only so much price compression that investors can expect. As a result, what’s happening in the public markets isn’t necessarily impacting the very early stage of the private markets.
The other thing that’s important is that there are many types of investors at the seed stage. There are angel investors, super angels, pre-seed funds, micro funds, institutional micro funds.
The reality of their businesses, our business, is that we can’t afford to miss the next great company. We only get one bite at the apple, we are seed-stage investors. Unlike firms that are later, Series A and later, oftentimes those funds will invest at Series A and Series B, or Series B and Series C, so they have the opportunity to revisit companies that they may have missed. Not the case to the seed stage.
And, as a result, seed-stage investors are active in the market at this very moment. The other thing is that most seed investors tend to do more volume of investing than investors at the later stage, so the opportunity cost of investing in something right now isn’t the same as it might be for a later-stage investor. And so, for all of those reasons, seed right now is a very different beast than Series and later-stage investing.
It’s definitely an active market at the seed stage. Homebrew is only one data point, but we’ve made five investments since shelter-in-place started, and every one of those investments was a competitive situation, so there are many firms that are trying to write checks into some of the best companies, hopefully.
We’ve spoken to many of our peer funds and most of them have made at least one, and mostly more than one, investment during shelter-in-place.
And probably the even better news for all of you is that, given the competition, valuations at the seed stage haven’t declined dramatically, maybe 10-20% at the seed stage, and maybe up to 20 or 30% at the pre-seed stage, but given the world we live in, there are some realities about seed-stage investing and the amount of capital that’s being committed to the asset class.
That means that the amount of activity and the opportunity for you to go tell your story and raise capital is as strong as ever.
That said, there are some differences about the world we’re living in now. Obviously, as we’re seeing now, the most important one and probably the biggest difference is you’re going to be pitching over Zoom. And no matter what a VC says, they prefer to meet people in-person.
So, it remains true that lots of VCs still haven’t figured out if they can get comfortable making investments without having met someone in person. For you, the thing to do is ask the question: are they willing to and have they made an investment over Zoom? And then determine whether you want to continue the conversation.
It’s going to be tough to be the first investment that a partner at any VC makes without having met you in person. There’s so much subtle communication that gets lost over video, you need to make it up with energy.
You might feel like you’re exaggerating your expression or tone, but it’s going to be more effective. You really need to put your best foot forward and exude that passion and energy that maybe you take a step back from when you’re in the room, but over a video, there’s nothing more important than convincing people and demonstrating to them that you have the energy and the commitment to whatever idea that you’re pursuing.
A very tactical piece of advice: invest in good lighting. Do it now, before you pitch. Both subconsciously and consciously, it has an effect on whoever’s going to watch you. Ideally, another piece of advice is that you’re setting the camera on the video at eye level.
No one’s going to get a sense for who you are by looking at your chin or the top of your head, certainly if you’re going to have a glare off the top of your head, like I do, in many cases. So, invest in good lighting, set up your camera well, and exude energy if you’re going to be pitching over Zoom, which is the reality of how the next 12-18 months is likely to look like for founders and entrepreneurs who are trying to meet with VCs.
Another major difference is that you can expect that investors are going to want to do many more references than they might have in the past, both customer references and professional references. Have those ready.
Prep anyone you’ve asked to be a reference with the things that you want them to highlight, and make sure that they have the two or three questions in mind that they’re likely to be asked by any potential investors. Definitely have at least one person that you’ve worked with, recently, on the list.
Nothing’s more frustrating for a potential investor than getting a set of references where the most recent reference is from two jobs ago.
And if you don’t have any mutual contacts with the investor, where they can do backchannel referring on you, you’re going to need to go the extra mile in terms of that communication style that we talked about over video, and also the proof of your commitment to what you’re building, and maybe even evidence of product-market fit.
But, backchannel referencing and on-sheet referencing are critical at this moment, and being prepared to handle those requests well is going to be the difference between success and failure in your fundraising process.
Expect that investors are going to want more time with you. Because you’re not getting those soft cues that you get from meeting people in person, investors are going to want to have more time over Zoom with you and your team, and you should want that, too.
After all, you’re choosing an investor and making a commitment for the life of your company, and so take the time to get to know those investors over Zoom cocktails or virtual working sessions or whatever is going to give you a better sense of what it might be like to work with them and give them a better sense of what it might be to work with you.
Deal processes may take more time overall, but if you make yourself available, and you probably have some time, you’ll help speed things along. But know that there’s going to be a greater time commitment, more meetings, more conversations, to get over the bar and over the hump for closing your seed financing or any financing in this environment.
So, despite some of these changes, which are subtle in some ways, fundraising is mostly the same at the seed stage.
Seed investors are betting on a market that’s two to four years from now, and sometimes even longer, so they can’t afford to take a wait-and-see approach and wait until the economy straightens itself out or the government gives better advice around how we’re going to deal with all of this, they have to be investing now for the future.
And given the number of investors and the amount of capital that’s in the market, remember that it only takes one yes, that’s all you’re trying to get to, and that one yes will automatically create scarcity for you and get others to say yes, so put your best foot forward and try to get to that one yes.
So, how do you do that? My point of view would be there’s still only one way to get to yes at the seed stage. You’ve got to make them believe. Investing at the seed stage is an irrational act.
There’s no amount of data that is available about your company and about you, at the seed stage, that’s going to convince somebody based on cold, hard facts. Think about it: all there is is a few people and an idea, and that idea has all the odds in the world stacked against it, yet investors have to decide to give you hundreds of thousands or millions of dollars, despite all of that.
And that’s why your goal is not to win the argument with data, it’s to generate emotional resonance so that the investor irrationally believes in what it is that you’re pursuing and in you. And that’s where we get to what we believe PPP really means in today’s environment and in any environment when you’re raising capital at the seed stage.
This PPP doesn’t come from the SBA or any government entity, this PPP comes from the story that you weave when you deliver your pitch. It starts with you and the other people on your team.
VCs want to surround themselves with people who they can learn from and who they want to enjoy spending time with and working with. They want to support founders who deeply believe in something that should exist in the world, in founders who they feel deserve tremendous success, and who they want to see succeed.
Belief might spring from any number of things related to your team, any number of characteristics, including the founding story, the chemistry of your team, the unique insights that you have into the problem that you’re solving, but it’s important that you get across something special about your team.
Because this is an emotional decision more than a rational one, it’s very true when VCs say that they invest in people first. It’s the emotional connection to those people that leads to the investment because no rational thinking leads to saying yes at the seed stage when it’s an idea and a team and not much more. So, focus on the people and communicating what’s special about you and your team.
The second way of building an emotional connection is about the potential of your business.
The potential of your business might be captured by the mission or the market or the product, but somehow you need to leave the VC feeling that he or she absolutely wants the problem that you have identified to be solved, and the thing that you’re building to exist in the world, and that what you’re building is going to be enormous in scale and scope.
This is why VCs have a hard time investing in things that aren’t targeted towards them; if something’s not relatable, it’s hard to see the potential of it, but your job is to communicate the potential of it, whether it’s through the market opportunity or the product or the mission of the business. It’s the promise of the early-stage startup that can make VCs take that emotional leap and ignore the difficult reality of what it means to start a company that’s most likely to fail.
And the final P in the PPP that really matters is proof. Unfortunately, accept that you don’t have it at the seed stage.
Most companies don’t end up where they start and, if that’s the case, then the early signs of what you see as product-market fit aren’t real, for the most part, because the use case you’re addressing probably isn’t consistent across all the customers you have, the customers who are adopting don’t share enough common characteristics for you to have identified a singular customer type, long-term engagement isn’t proven, early customer acquisition costs are misleading, so there’s a bunch of reasons that the proof you think you have is probably not proof in the investor’s mind.
So, the thing to remember about that last P, proof, is that you can’t count on it at the seed stage. Nothing kills a good story like data. For most VCs, it’s easier to bet on the promise then the reality, especially at the seed stage, so you’re better off playing on emotion, and, again, people and potential are the emotional keys that you want to cue off of and drive your story around.
So, now that you know the keys to raising seed capital with PPP, it’s time to think about the A, and while the seed is all about emotion, the A is completely different, it’s about risk, and so we’re going to talk a little bit about how to think about risk in the context of your seed-stage company that’s in pursuit of a Series A.
The dirty little secret of investing of a business which is predicated on people who take risk is that VCs actually don’t like risk very much, they’re afraid of it, and that’s why the bar for Series A rounds and later keeps rising, and investors are generally willing to overpay for clear momentum as opposed to take an early risk when they could be getting a better price because, at the end of the day, most VCs don’t want to take a dramatic risk.
And they’re only willing to take risks when they know that the risk that they’re taking is less than what the prior investors took and, hence, the higher price. And so that’s the thing to keep in mind is you’re always being evaluated from a risk perspective, and VCs are trying to evaluate very specific areas of risk when it comes to your business.
We categorize the types of risks that investors are looking at into five buckets. The first is product, and that includes everything from technical risk, timing risk, those kinds of things related to establishing product-market fit.
The second major risk is team risk. Are you missing some key skillsets that are going to be critical to execute the plan that you have or to deliver against the mission that you’re pursuing?
Sometimes, that could be somebody from a sales perspective, somebody from a design perspective. Many founding teams have people who can build products, but they’re missing some other key areas that could be critical to reducing the perceived risk or executing against the potential of the company.
The third risk is market risk, which includes everything from size of the market, regulatory risk, geopolitical risk, all those kinds of risk that fall under the category of market.
The fourth major risk that investors are evaluating is go-to-market risk.
Is there a clear definition of an ideal customer? Is there a repeatable, scalable sales model? Is there somebody beyond the founder who’s been able to sell on a repeatable basis?
Those are the types of questions that are asking in the category of go-to-market risk.
And then, finally, fifth is financial risk. Can the capital be managed until the next financing? Can the company manage cash until the key milestones have been achieved or the risks have been addressed?
And will the business be attractive to future financers and future investors based on what it’s able to accomplish? So, those are the five risks that you need to think about because these are the risks that are in the heads of any investors that you’re going to be talking to.
Your job with seed capital is to reduce or eliminate those risks, but it’s unrealistic to tackle five of them. Pick the three that are the most significant and focus on those, and then tell the Series A investor why you chose those, what have you done to mitigate those risks, and why should they bet on you being able to eliminate the other risks in the business?
Oftentimes, at the seed stage, the most common risk to focus on are product risk, market risk, and go-to-market risk, but it’s going to really depend on the investor that you’re talking to and, more importantly, on your specific business.
So, with your seed investors, get on the same page in terms of what are the most critical risks to address, and then pick the three that you’re going to try to tackle during that seed phase of your company.
Finally, in addition to addressing the risks, you need to achieve some level of scale. The Series A investor is trying to bet on less risk, but also there’s clear scale to demonstrate that this can be a large and viable company.
Whether it’s customers or revenue or some reasonable trajectory of growth, or some absolute level of customer attraction or revenue traction, you’re going to have a hard time demonstrating that you’ve eliminated or reduced risks if you haven’t achieved some level of scale. And so combine reducing three risks with scale and you can unlock your Series A.
So, if you’re going to remember three things from today, start with the very first, which is don’t fear the world that we’re living in. Things have certainly changed, but more is the same than is different in the world of venture financing, especially at the seed stage.
Second, the only PPP you need to keep in mind is the ones that will help you make them believe: people, potential, and proof. Importantly, people and potential are the ones that you can control, proof is unlikely to amount to much, but it’s in my opinion for you to know that as you’re going into your seed fundraising process.
And then, finally, after your seed, pick the three risks to tackle and you’ll be set up for a successful Series A. So, with that, hopefully, you got some nuggets there that are useful and I’m happy to take it to questions.
“Do you invest in pre-revenue products at the intersection of AI and PropTech?”
And the answer is yes. Property or real estate technology is one of the areas where we feel technology is being leveraged for the very first time. We’ve made a number of investments in that category and we continue to look for opportunities, particularly where data is being aggregated where it hasn’t been aggregated before, or there’s data transparency being created to help drive down costs or help to democratize access.
Then there’s a question, “For proof, how important/good is a video of early-stage customer feedback interviews?”
As I told you, at the early stage, most people are going to say the early customers are interesting data points, but there’s not enough from the early customers, unless there’s a singular use case, unless the customs have very common characteristics, unless their buying behavior is similar to suggest that there’s proof.
So, I’d say video testimonials from customers are interesting data, but probably not going to demonstrate proof for you.
There’s a question, “Is there a directory for seed, pre-seed, VCs investing and enterprise SaaS?”
I don’t know of any that are comprehensive, but a couple of good ones: one, NFX has put out a product called Signal, and Signal has a very good way of sorting VCs by stage and by sector, so that’s something to check out.
And then, secondly, I believe there are some resources on the SaaStr website as well, around VCs active in the enterprise space.
Don asks “What’s the greatest difference between meetings that were conducted before and after COVID?”
The biggest differences is that we’re spending more time trying to suss out how the founders think about risk in this particular environment, meaning are there trends that they’re seeing driven by this environment that benefit them?
Or are there trends that they’re seeing that work against them, and if trends are working against them, how are they trying to adjust their businesses or buy time to get past this period? So, we’re spending a lot of time focused on today’s market environment, which we tend not to have done as much pre-COVID because the world operated differently and we were planning for well into the future.
“What would you personally look for in an early stage pre-seed company looking for funding?”
We’re always evaluating investments along three criteria, which tie somewhat to people and potential.
We’re looking at the founding team, the market opportunity, and the product vision. From a team perspective, we like to say we invest in mission-driven founders who almost want to solve the problem that they’re addressing more than they want to build a business.
We look for people who are insatiably focused on learning, who have a strong set of hypotheses about the world, but are flexible in their thinking, and who are able to draw people to the cause, whether it’s employees, investors, customers, they’re able to tell the story in a way that lets people come along with them.
From a market perspective, we’re not looking for the market today to be worth billions of dollars, we think about markets being defined by whether the pain that’s being addressed is large, meaning felt by a lot of people. Is it acute, meaning is it a hair-on-fire problem, a top-three problem that needs to be dealt with right now? And is it valuable?
At some point, can you extract some economic rent for addressing that problem? And so that’s what we’re trying to assess about the market.
And then, finally, from a product standpoint, and at the pre-seed or seed, we’re usually investing pre-product, we like to say that we want to see founders who have a very narrow near-term focus and a singular use case for a singular type of customer that’s addressed 10x better than the alternatives, but a broad, long-term vision and a set of hypotheses for the path for how to get from the narrow focus to that long-term, broader vision over the course of time. So, those are some of the things we think about when making an investment.
Chris asked, “For Series A, could you quantify some level of scale necessary for success?”
As I said during the presentation, it’s going to depend on the investor. There’s no absolute number that every investor thinks is important, it’s not a million dollars of ARR.
Some investors are okay looking at trajectory of growth, others are thinking about customer adoption engagement, others are thinking about revenue.
We’ve found, from our companies that have gone from seed to Series A, that it’s all over the board, and more important than trying to figure out what the right answer, in terms of scale, is being able to tell the story around why the scale you’ve achieved is demonstrative of having reduced or eliminated risk.
So, that’s the important thing is try not to cater your story and your pitch to any particular investor’s criteria. Do what you can to focus your story based on your business. A great story doesn’t come from something manufactured, it comes from the reality of your business and you telling the story of why your business is worth investing in that particular moment.
A question about “What is Homebrew’s target ownership and average check size at seed right now?”
We’re generally 10-15% owners of a company after we invest, and our average check nowadays is about a million dollars, but anywhere between half a million and two million is pretty typical for us.
“Do you invest outside the U.S., specifically Brazil?”
Unfortunately, we’re U.S. and Canada, investors. There’s plenty of entrepreneurship and opportunity outside of those markets, but we try to invest where we believe we can be the right partner and helpful partners, and if you’re focused on some of those other geographies, there are better investors than us that you could be talking to.
Ramon asked, “Do you invest in pre-revenue remote teams working on SaaS products?”
Absolutely. In fact, one of the investments we’ve made during sheltering-in-place is exactly that kind of company, a distributed team building a SaaS product that we met over Zoom, and so we’re certainly open to that.
There’s a question, also from Ramon, about “Do we invest in solo founders?”
We do invest in solo founders, but we think that solo founders have a much tougher journey ahead of them than founding teams, and so we’re certainly biased towards founding teams, for a whole host of reasons.
Starting companies is already incredibly difficult, it’s rare that any one person has the skills needed to tackle all the parts of early-stage company building, and it can be lonely as a CEO, to begin with, and when you’re the CEO and the only founder, it’s incredibly lonely, so we’re big fans of founding teams, although we do invest in and have supported solo founders before.
Revi asks, “How big an MVP needs to be in terms of revenue before it becomes attractive for investing?”
Again, that’s going to vary. We don’t think of MVPs as meeting revenue metrics, investors will vary from that standpoint, but we’re generally investing pre-product and, hence, pre-revenue for most of the companies that we invest in.
“How receptive are angels/super angels right now to SaaS enterprise IT tools?”
I think SaaS and enterprise IT tools have been a great category of investment and it seems to be true in this environment that that’s going to continue to be a good area, and we’ve certainly seen from the angels and C and VCs that we talk to that there’s plenty of interest in those areas right now.
“Is there some proof, pre-COVID, then a pivot, and now only promise versus proof? When does this become fundable in this climate, if there was some proof, pre-COVID?”
There wasn’t proof, pre-COVID. It’s exactly the same as it has been. I think if you’re counting on proof at the pre-seed or seed stage, you’re fooling yourself.
The decision to invest is an emotional one at this stage, and so you’ve got to determine what story you want to tell around people and potential because there’s probably no clear proof that what you’re working on is working at the pre-seed or seed stage.
“As a pre-revenue SaaS startup, any specific tips on fundraising I can use?”
Hopefully, you saw the presentation, but I think the key is: if you’re pre-revenue, then there’s very little proof that you can point to around the success of your company, and so you’ve really got to focus on telling the story around the people and the potential and getting an investor to believe in those two things.
Again, investing is an emotional act, emotional resonance is probably the most important factor in writing a check at the seed or the pre-seed stage, and so you’ve got to focus your story around that.
“Any advice for helping to build trust with investors and show a track record of the execution or what metrics to focus on?”
This is a question I really appreciate. In terms of building trust with investors, I think there’s nothing like telling your founding story and why you’ve hit on the particular insight that you have around the problem that you want to solve, and then also sharing what you don’t know about the business.
A lot of founders assume that you should be able to answer every question that a potential investor has or know every potential thing that could work with your business, and it’s just as important to admit what you don’t know and what you’re still trying to figure out.
And that’s why we say that we’re looking for founders who have a strong set of hypotheses about the world; that doesn’t mean answers, that means things that could potentially be true, but they’re willing to pursue the truth.
We’re always trying to invest in truth-seekers, and I’d recommend that if you want to establish trust with an investor, make clear that you are a truth-seeker by admitting what you don’t know and sharing how you think you might go about figuring those things out.
“What are the typical questions you ask customer references?”
It varies, obviously, between consumer and enterprise businesses, but for enterprise businesses, we start a lot by understanding the pain as the customer describes it, so really wanting to get in their heads in terms of why this is a problem that they want solved, trying to understand how urgent the problem is.
We often ask what other alternatives they looked at when trying to address the problem. We’re also trying to understand the purchase decision and why and how they decided to go in this particular direction.
And then, finally, we’re trying to understand how upset would they be if they were no longer able to use the product. That’s typically a good signal for the value of the product, and we want them to articulate the value of the ROI, but oftentimes it can be distilled into answering that one question: if this product went away, how would you react and what would you do?
“How different is SaaS seed from consumer seed? Is there any overlap?”
I would argue there’s a tremendous amount of overlap because, again, whether you’re a SaaS business or a consumer business at the seed stage, you probably don’t have a lot of proof, and so it’s all about the story that you’re telling, and keys to your story are the people and the potential, so whether that’s an enterprise business or a consumer business, those things tend to remain true.
So, I think those are the things for you to focus on. Obviously, you want to approach investors who are SaaS investors or consumer investors and are open-minded and have a prepared mind for what you’re doing, but I don’t think you have to think of those types of businesses very differently when raising capital for them at the seed stage.
“Do you invest in a team working a 9:00-5:00 job and working on the startup?”
The answer there is we’re always open to it, there are economic realities that people have, but our general point of view would be: if you have the means, you’ve got to be 100% committed to what you’re doing and we want to see people who are 100% committed to the difficult job of building companies.
We try to invest capital, but also sweat and reputation, and so if we’re going to put our sweat and reputation into supporting founders, we want them to be all in on what they’re building.
“When would be the best time to have a VC on board?”
That’s a good question. Raising capital is also a form of risk; as soon as you raise capital, you’ve got another stakeholder or set of stakeholders who you’re beholden to, and, oftentimes, those stakeholders have expectations.
And so we always tell founders that every time you raise capital, you’re taking on more risk, and so you’ve really got to determine when you feel like you’re ready to take that risk in the sense that when do you believe that you’ve got a business that you want to bet on and that you’re willing to take the risk of taking somebody along on that ride with you?
So, oftentimes, that could be at the outset, when you’ve got an idea and you have a plan for how you want to go tackle that idea; oftentimes, it can be after you’ve got a product in market because you’re unsure whether there’s really a market there or whether customers will really engage with the product. But think about bringing on a venture investor when you yourself feel like you’re ready to bet on the business.
“How scalable and repeatable do seed-stage business models need to be?”
To raise seed capital, they don’t need to be at all, but I think in the market in which we’re operating, and I would argue it’s even been true in the last couple of years, that to raise a Series A round, you need to get to the point where the go-to-market is scalable and repeatable in the sense that it’s not just the founders who are doing the selling.
If you’re doing enterprise selling, there’s got to be a salesperson or, ideally, two salespeople who have proven that they can generate leads and close customers, and if you’ve got a bottoms-up product, then you’ve got to be able to demonstrate that customer adoption is happening organically or from a self-serve standpoint at some modest growth rate.
But you don’t yet need to be at the point, we would argue, where you know that $1 invested is automatically going to translate into $5 in a machine-oriented sense, but you’ve got to have enough evidence that that’s possible, based on what is happening within the business at that particular moment.
“What should pre-seed stage B2B founders be spending their first 250k on?”
Building product. You should be hiring the team to go build the product. At the pre-seed stage, there are really only two things to be doing: one is building a product and the other is distributing products. But you’ve got to build the product first, so if you’re spending money on much more than your team and building the product, then you’re probably misallocating that capital.
“Does emotional connection overcome proof?”
Absolutely. Emotional connection, actually, I would argue, makes it such that proof isn’t necessary. And I would argue that without an emotional connection, you’re not going to get an investment because, at the pre-seed and seed stages, we’re betting on people, the idea may change, the market they go after may change, but we can’t change the people that we’re investing in, and so people can certainly overcome and potentially can certainly overcome any requirement for proof.
“What’s your advice on startups that got affected on the risk due to COVID situation while on wait of Series A?”
That’s a really good question. To the point of building trust with investors, you’ve got to be clear and forthright about what those risks are and communicate a plan for either how you mitigate them or how you get around them. It’s going to be really tough, frankly, to get a Series A if you’re operating in a market that has been hammered by COVID, like hospitality or travel, because I think most Series A investors are going to wait and see how those markets are going to evolve.
So, unless you’re able to talk about why, when the market does rebound, you have a product that is going to be an urgent need and that you can spend the next 8, 12, 15 months building product and demonstrating early product-market fit, you’re going to have a really hard time raising Series A money.
“What’s the fifth risk Series A focus?”
Product, team, go-to-market, and financial risk, that was the fifth risk. I think SaaStr will share slides after the fact.
“Are there any good books you recommend to further understand PPP and that may have also helped influence your ideas?”
In terms of books around fundraising, the best book around fundraising is a book written by Brad Feld, called Venture Deals, but that’s around the mechanics and structure of investments. Fundraising is a moving target, so, unfortunately, I can’t recommend a great book on that front.
There’s a lot of great books around founding companies and being a leader of companies. Peter Thiel’s Zero to One is a great example. Ben Horowitz’s book is a great example. So, those are good books to read as a founder, but nothing specific to raising capital, so to speak.
You’re probably better off reading blogs and content that’s more real-time based on the market in which you’re operating.
“Can you clearly define what you mean with people and what kind of skills you’re looking for?”
In terms of people, again, we’re really looking for people who are mission-driven, who have a unique insight about how the world should operate or what should exist in the world, who are truth-seekers and trying to figure out what the right answer is and don’t have it assumed, but have a set of hypotheses about how the world can evolve, who are incredible at telling their story because that’s what’s going to draw employees and customers and partners and investors.
We haven’t talked about integrity, but that’s an important essential as well. So, those are the types of things. We often say we’re invested in attitude as much as aptitude, so, of course, if you’re building a product, you need to be able to do that, but we think attitude matters a lot more. Aptitude is necessary, but insufficient, from our perspective; attitude is what wins the day.
“In the COVID area, what is a reasonable pre-money valuation for a pre-seed and seed deal?”
Good question. We continue to see pre-seeds anywhere from two million to four million pre-money; seed deals are anywhere from six to 10 million pre-money, and, again, those ranges haven’t changed dramatically, I would argue, since COVID.
There’s just not that much difference in pricing that can happen, given you’re starting at a low base and founders are only taking a certain amount of dilution at that stage, otherwise, it gets really hard to continue to build the business when they take too much dilution, so valuations have stayed fairly consistent, I would argue, at the pre-seed and seed stages.
“We are a revenue-generating company, continue to acquire customers in a large potential market. Would you recommend we wait or seek additional capital?”
I think it’s going to depend on what market you’re operating in. I mean if you continue to grow through this market, that’s a great story to be able to tell.
If things have flattened out, but your existing customers are highly engaged and/or buying more, that’s a great story to tell. If your pipeline is frozen and you’re not able to sell in this market, you might be better off waiting.
In general, if you don’t need to raise capital right now, don’t try; you’re going to be better off waiting until the Series A investors and later are not just collecting data anymore. So, that would be my recommendation.
“Can I test my product in one market, validate it and raise funds from another market and expand in that geography?”
It depends on whether you’re building a consumer product or an enterprise product. I’d argue, for a consumer product, probably not because consumer behavior varies so dramatically from geography to geography.
In an enterprise market, potentially. But I think if you’re going to try to tell that story, you’ll want to have more proof around the repeatable, scalable sales model than you might otherwise because investors will look at transitioning to a new geography where you don’t have any sales on the ground as risk, and so you’ve got to be able to tell a story of how you’re addressing that risk.
“What’s the best way to present market opportunity?”
We don’t hide, we’re publicly available, our email is on the website, at Homebrew.co, so feel free to drop us a note.
“What’s your opinion on fintech SaaS startups?”
We’re big fans. We have been long-time fintech investors, starting with a company called Plaid, about seven years ago, and we continue to be very active; about a third of the work we do is in fintech, and so we think that’s going to continue to be a really good market for the next decade-plus.
“If it’s an industry-specific that your team doesn’t know a lot about, do you go through the process of validating the product and team, or you’d rather stick to the industries you know more?”
No, we are led into areas of innovation by founders, so if it’s not an industry we know well, we will work hard to try to get smart in that industry, and we want to learn from the founder, so we’re not opposed to investing in industries that we don’t know. The first time we invested in a number of different industries, we probably, and rightfully so, didn’t know it as well as the founders, so we’re anxious to learn from founders.
“How would you approach a VC in the COVID area? Does cold emailing work?”
While we respond to every cold email we get, I would argue that the vast majority of venture investors don’t, and so you’re always going to be better off getting a warm introduction in a COVID environment or not.
In a COVID environment, it’s going to be particularly true that a warm intro is the best way of getting the attention of investors, and a warm intro combined with a compelling story is really the best way of getting the attention of an investor.
You got to realize, in an email or a pitch that you’re sending somebody, you need something that stands out: what’s going to be the one thing that they remember that’s exceptional either about you, the product, or the opportunity that you’re addressing, that makes them want to take a meeting and have an additional conversation with you?
So, try to get across that one exceptional thing in the pitch or the email that you’re sending to someone.
Let’s see. I think we are out of time. I can take maybe one more question? No, we’re done. Thank you all for joining, hopefully, you got something out of that, and looking forward to hearing your pitches over the next little while.
Money matters. Money is part of why we do this, maybe more in the early days than later. It’s not just about building software and the journey. It’s about turning your shares from $0.00001 into … something.
So when should you sell your company — if ever? Especially, if things get a little tougher, selling may seem like a valid option, if you do have options.
You’ll know when the market has passed you by, when you’re no longer competitive, when you just can’t recruit the right team to win anymore.
But … be careful to not let exhaustion and emotion cloud your thoughts here. Especially if you have happy customers and are growing:
First, and more importantly, bear in mind good acquisition offers are rare. Most start-ups never get a decent one. So the idea you can wake up one day and decide to sell your company is a bit of a delusion. Odds are you will never get a strong offer. Assume that going in and you’ll be happier. A little more on the odds here: Should I Sell for $50m … Or Push On And Try to Build a Unicorn? – SaaStr
Second, you’ll be in a unique position to understand risk/reward. Your experience, the company’s momentum, and your gut will know better than any outsider.
Liquidity is rare. But so is lightning-in-a-bottle. If you sell now, that’s probably smart. But what the odds you can do it again? Maybe lower than you think. Are you OK if the company you started is shut down 2 years after the acquisition? That’s fairly common.
It’s OK to get a bit behind once in a while, IF your customers are still happy. You can’t go 5 years without innovation. But once you have some scale, if you need a slower quarter, or even a slower year to get your house in order, it may be fine once in a while. If your customers are happy and your net retention is high, they’ll carry you through a patch when you need to reorg things. Don’t let a rough patch make you think you have to sort of throw in the towel. If you can build great software and have happy customers, you can often get back on track quicker than you might think.
Finally, think about other options if you have something good and are growing and have happy customers. Decent priced acquisition offers tend, by their nature, to come for good start-ups. Especially in SaaS. These days, you can often instead sell some of your shares in “secondary liquidity” instead. And sometimes, bringing in an outside CEO of your choice can help, too. The need to de-risk our financial lives sometimes pushes us into choices here that are too conservative.
Ask yourself: Would you push on, if you just had a few more nickels in the bank?Then I say, find a way to push on. And see if you can just get those nickels to destress your life and tide you over. Sell 5%–10% of your shares instead, if you can. If that’s enough money (selling 5%-10% of your stake) so that your experience, momentum and gut then say “don’t sell” — then maybe don’t sell.
A discussion on a $1b M&A exit here from SaaStrAnnual.com:
And on maybe bringing in an outside CEO of your choice here: