Sep 11, 2024 · 1h 11m · news
David Schneider: Why the Worst VCs are "Seagull VCs" & VC Value Add - Is it Real? | E1200 · 20VC with Harry Stebbings
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In this episode of 20VC, legendary operator-turned-venture-capitalist David Schneider joins Harry Stebbings to share tactical lessons from scaling Data Domain and ServiceNow. He explores enterprise sales strategies, the reality of venture board dynamics, the value of direct feedback, and how founders can build enduring, multi-product companies.
How this conversation actually went
Every chapter scored 0–10 on four independent dynamics. Hover any point for the reasoning behind the score. Harry holds 18.7% of the talking time here. How this is scored →
Harry as informed peer 4.1 Guest teaching 4.5 Guest disagreement 1.6 Harry pushing back 1.8
speaking balance: gold is Harry, purple is the guest (3 minute bins)
Sharpest disagreement ▶ 22:51 David rejects premise on young work ethic
David directly opposes Harry's assertion that young people do not want to work or sacrifice like previous generations.
Hardest push from Harry ▶ 54:21 Harry presses David on accepting small deal allocationsHarry forcefully challenges David for accepting small check allocations rather than walking away, stating that he himself has zero time for small positions.
Biggest teaching moment ▶ 36:09 Dismantling Customer Success teamsDavid systematically breaks down why Customer Success is a make-believe organization that disguises deficiencies in sales, support, and professional services.
Harry holds his own ▶ 38:52 Challenging Singerman's view on VC value addHarry brings a strong quote from Brian Singerman asserting top founders do not need VC help, forcing David to defend his entire operator-investor premise.
the scores for every segment, with the reasoning behind each
| Chapter | Topic | Harry as informed peer | Guest teaching | Guest disagreement | Harry pushing back | Why |
|---|---|---|---|---|---|---|
| Welcoming David Schneider and His Operating Career | 3 | 4 | 0 | 0 | Harry welcomes David and asks standard interview questions regarding his career achievements and the hostile acquisition of Data Domain. David warmly describes his background and tells the story of EMC outbidding NetApp. | |
| Key Lessons on Product-Market Fit and Value | 4 | 4 | 0 | 0 | Harry brings up budget line items, asking whether new software adds or replaces line items. David reframes this around his framework that enterprise software is bought to make money, save money, or stay off the front page. | |
| Combating Deal Slippage with Clear Value Frameworks | 3 | 4 | 0 | 0 | Harry shares an observation about deal slippage from board meetings. David explains ServiceNow's value prompter methodology and how CROs must forecast revenue within three percent. | |
| Disrupting the Market: Defeating Stagnant Competitors | 4 | 4 | 0 | 0 | Harry discusses his dislike of competition when investing and asks about ideal sales reps. David explains taking market share from stagnant incumbents like BMC and HP while hiring reps with a chip on their shoulder. | |
| Reversing the Pyramid with Bottom-Up Innovation | 3 | 4 | 2 | 1 | Harry asks about executive transparency and bottom-up innovation. David gently rejects top-down models, illustrating how an SE's customer feedback led to ServiceNow's billion-dollar HR product. | |
| Scaling ServiceNow and the Legacy of Fred Luddy | 5 | 3 | 0 | 2 | Harry demonstrates high preparation by citing feedback from twelve mutual contacts regarding David's decision speed. David reflects on Fred Luddy's customer focus and the operational challenge of fixing the plane while flying it. | |
| Internal Promotion, Mentorship, and Retaining Executive Talent | 4 | 5 | 6 | 4 | Harry asserts that young people no longer want to work hard or sacrifice. David forcefully disagrees, defending young talent and offering an artwork analogy to describe the sales leader's role in elevating founder engineering. | |
| ServiceNow's Aggressive Sales Ramp and Pricing Overhaul | 3 | 5 | 0 | 1 | Harry inquires about the mechanics of scaling ServiceNow from eighty million to five billion. David explains ramping sales capacity by hiring 150 reps in 90 days, doubling prices, and overcoming Gartner's market size caps. | |
| Market Timing, referencing, and the Discovery Process | 4 | 4 | 0 | 0 | Harry shares his perspective on the importance of comfortable silence during interviews. David outlines how sales discovery techniques enhance venture investment diligence. | |
| Exiting Down-Market: The ServiceNow Express Mistake | 4 | 5 | 0 | 0 | Harry shares advice he gives founders on premature customer segment expansion. David details the failure of ServiceNow Express and how focusing exclusively on enterprise allowed them to build multiple hundred-million dollar products. | |
| The Operational Case Against Customer Success Teams | 5 | 6 | 4 | 3 | Harry references Snowflake's Chris Degnan in calling Customer Success teams 'bullshit'. David agrees, calling CS a 'make-believe organization' whose responsibilities belong in sales, support, and professional services. | |
| Founder Helpful VC and Transitioning to Venture | 5 | 5 | 5 | 4 | Harry cites Founders Fund's Brian Singerman's view that the best founders do not need VC help. David counters sharply, arguing that VCs who say this simply do not know how to help, while distinguishing between founder friendly and founder helpful. | |
| Mitigating Series B/C Risks and Preventing Plateaus | 5 | 5 | 2 | 3 | Harry references Greylock's Sam on compressed Series B/C returns and asks why growth plateaus. David explains how customer profiles, NRR, and unproven renewal cycles drive growth slowdowns. | |
| Stagnant Startups & the Need for a Second Act | 4 | 4 | 2 | 3 | Harry posits that ten-billion-dollar companies require a founder who can navigate multiple acts, clarifying the difference between valuation and revenue. David explains how post-2021 startups are navigating excess cash and valuations. | |
| Winning Competitive Deals & Board Seat Selection | 4 | 4 | 2 | 3 | Harry presses David on target ownership percentages and return hurdles. David explains Coatue's growth underwriting strategy and check sizing, highlighting a co-investment with Karl Eschenbach. | |
| Concentration & Continuous Participation Across Funding Rounds | 5 | 4 | 2 | 2 | Harry asserts that investors know whether an investment is good within three to six months and references Jason Lemkin's view on feedback. David agrees that underlying issues emerge quickly post-investment. | |
| Walking Away Over Valuation & Managing Small Allocations | 6 | 6 | 3 | 5 | Harry challenges David for taking small fund allocations instead of declining them outright, citing Vinod Khosla's view on VCs. David coin's the term 'Seagull VCs' and outlines his three red / three green board framework. | |
| The Best Board Members: Lessons from Doug Leone, Mike Volpe, and Anil Bhusri | 5 | 5 | 4 | 3 | Harry asks for David's favorite board members and asks how pattern matching applies when comparing veteran CEOs to young founders. David reframes this by comparing current founders to Frank Slootman's early days at Data Domain. | |
| The Coatue Edge: Why David Schneider Joined the Firm | 5 | 4 | 2 | 4 | Harry starts a quick-fire round and pushes back against 'shit sandwich' feedback. David details why he joined Coatue and emphasizes the value of employee windshield time on business trips. | |
| David's Greatest Operational Correction & Frank Slootman's Brutal Feedback | 3 | 6 | 0 | 0 | Harry asks about Frank Slootman's temper. David shares a story from Data Domain where Slootman threatened to fire him over an aggressive email to engineering, teaching him an invaluable lesson in operational culture. | |
| Bill McDermott's Sales Mastery & Enterprise Relationship Building | 3 | 4 | 0 | 0 | Harry asks about Bill McDermott's sales strengths and David's personal motivations. David praises McDermott's enterprise network and reflects on his own fear of failure driving continuous improvement. |
Statements from this episode (49)
David Schneider helped scale Data Domain from $0 to $1B revenue
“I spent almost nine years at a company called Data Domain, where I joined at zero dollars in revenue, and by the time I left, we'd gone through an IPO, took it to about a billion dollars, and then we got acquired by EMC in a hostile acquisition in 2009.”
David Schneider helped grow ServiceNow from $80M to $5B in revenue
“I spent 10 years at ServiceNow joining Frank Slootman again, who I had the privilege of working with at Data Domain. Into that company, which was about eighty million or so in size when I joined, and when I left it was five billion in revenue”
Schneider: Data Domain had $550M revenue and 75-80% margins at acquisition
“Yeah, but imagine buying a company at the time, five hundred and fifty million in revenue, 75, 80% margins for two billion dollars.”
Schneider: Data Domain reached $2B in revenue two years post-acquisition
“That company inside of EMC, we drove it to a billion that first year, and two billion dollars in the second.”
Schneider: Data Domain spent its first year selling a paid beta
“The first year we didn't have the right product. We had an initial product that I almost would refer to as a paid for beta.”
Schneider: Data storage buyers prioritize fast data recovery over backup
“It's not about the backup guys. It's about the recovery. It's about how fast can I recover this data so I can do my job and not get in trouble if something is corrupt.”
Schneider: Companies buy software to make money, save money, or avoid scandal
“People buy product for three reasons. They either buy it because it's gonna help them make money, they buy product because it's gonna save them money, or it's gonna keep them off the front page of a newspaper, which is usually what security products are being …”
Schneider: CROs must forecast revenue 90 to 180 days out within 3%
“And so my job always was, be able to call the number, 90 to 180 days in advance, plus or minus three percent.”
Schneider: Most founders cannot articulate their core value proposition until prompted
“No. I think not until we start asking. Now the best founders, the ones that I really get excited to work with, are the ones that have clarity of thinking about that process.”
Schneider: Capturing legacy enterprise budgets is easier than creating new spend categories
“The secret for me was it was easier for me to unlock dollars from existing known spend areas than it was for me to create a new spend category. And create new budgets that didn't exist before.”
Schneider: BMC and HP Software were 'dead already' during ServiceNow's 2011 rise
“The two companies we were competing with were BMC and HP Software. Two companies that quite honestly were dead already in my book. All they were trying to do is take money out of the revenue stream and drop to the bottom line. They weren't focused on the custo…”
Schneider: Hire salespeople with a chip on their shoulder to prove something
“I look for people with a chip on their shoulder. I look for people that have something to prove, where the best days are in front of them.”
Stebbings: Competitive athletes make great salespeople due to pain tolerance
“I actually like it when you find competitive athletes who turn into sports Reps and sales reps or salespeople. They can endure great pain for long periods of time for delayed gratification. It's like a core trait, I think, of sales.”
Schneider: ServiceNow's $1B HR product line originated from a sales engineer's idea
“That's probably a billion dollar product now, inside of ServiceNow, because we just listen to customers.”
Schneider: Key Coatue investment thesis targets repeat founders fixing past problems
“I love repeat founders on solving a similar problem, just with a better approach. You'll find that as a theme of mine when I make investments.”
David Schneider: Delayed 'perfect' decisions are wrong decisions because issues change
“I think people try to make a perfect decision. By the time you make a perfect decision, it's actually going to be the wrong decision, because the issue's already changed.”
Stebbings: Younger workers are less willing to make sacrifices than past generations
“I do not think young people want to work like they used to, or want to sacrifice like they used to.”
Schneider hired 150 ServiceNow sales reps in 90 days to hit $100M
“I hired a 150 people in less than 90 days. And we did the hundred million dollars.”
Schneider: ServiceNow doubled street pricing and doubled revenue in his first quarter
“We basically doubled street price in that first quarter which helped us double the revenue for that first quarter.”
Schneider: Gartner claimed ITSM market was capped at $1B during ServiceNow's IPO
“During the IPO process, we had Gartner Show up at a lot of the investor pitches and say, the size of the ITSM market is gonna be capped out at a billion dollars. So, we don't see the growth potential for ServiceNow.”
Schneider: Real diligence truths are uncovered on second or third follow-up questions
“I think it's that art of the question, and not being satisfied with just the first answer, but digging deeper, because the truth is usually the second or third question you ask will get you closer to the truth.”
ServiceNow Express priced at $10K-$15K vs $50K enterprise entry price
“We were selling it for 10 to 15,000 dollars versus 50,000 dollars at the entry price.”
Schneider: Enterprise software leaders should ignore low-end competitors and avoid moving down-market
“And what I realized is there's 10 competitors down market. Let them go beat the crap out of each other down there. They'll drive all the investor dollars into the toilet. And we'll just sit here and focus on what we do really, really well and own the market th…”
ServiceNow had hundreds of customers using product off-label by 2015
“Turns out that by 2015, we had hundreds of customers using us in new ways.”
Schneider: ServiceNow funded quarterly bonus pools based entirely on net new ACV
“In fact, up until recently, they had a bonus profile that was every quarter we would fund a bonus pool based on the company's achievement of net new ACV, which was new business minus any churn.”
Schneider: ServiceNow required new internal products to hit $100M in three years
“And so we actually launched four products at the same time in 2015, or 2016, I thought we were going to kill two of them, because for me to be viable, it had to be a hundred million in three years.”
Schneider: Customer success departments are make-believe organizations that shouldn't exist
“So we got rid of customer success because quite honestly, it was a, just a make believe organization that didn't need to exist.”
David Schneider: ServiceNow achieved a 98% plus renewal rate
“We were at 98% plus renewal rate, so I didn't have a churn problem.”
Schneider: VCs must be founder-helpful, coaching founders with hard truths
“There is a difference, by the way, between founder friendly and founder helpful. And I think I have to walk the line between what I call founder friendly. I'm in your camp, but I'm gonna also tell you the truth. And I'm gonna get you ready for what's coming. A…”
Schneider discounts startups relying on revenue from young tech companies
“If you're a business selling to other young technology companies, and that's your source of revenue, I'm gonna discount some of your future opportunity just from day one.”
ServiceNow saw 20-40% ACV expansion six months post-implementation
“So six months after the go-live of the system, we used to see 20 to 40% increase in ACV size.”
Schneider: Many stagnant startups today are worth more as cash than companies
“I would honestly say they're probably worth more as cash than they are as independent companies, and some of them have made the choice to refund the cash back to the investors, sell off the assets.”
Stebbings: $10B companies require founders who can transition between acts
“I always think a ten billion dollar company needs a second or a third act, and I always say the difference between a billion dollar company and a ten billion dollar company is a founder who's able to transition between chapters.”
Schneider: A company can reach a $1B valuation with a single product
“Billion dollar company, I think you could do with a single product.”
David Schneider admits Coatue overpaid for venture deals in 2021
“In 21, I definitely feel like sometimes that, That time and place, we probably paid too high a price.”
David Schneider passed on early rounds over valuation before joining Series D
“Because I was worried about that, I missed a couple at earlier stages where I thought they were too expensive, and I came back, I looked at them in the A, I looked at them at the B, maybe even looked at them at the C, thought they were expensive every way, and…”
Schneider: Coatue usually requires a $75M minimum check for growth board seats
“So I'm typically in a growth deal trying, if I'm gonna take a board seat, it's usually a seventy-five million dollar check. I'll break the rule and go to 50 sometimes, but mostly it's 75 minimum, with the goal of doing more over time before it goes public.”
Schneider: Coatue underwrites growth investments for a 5x to 10x return
“Yeah, we're usually in growth trying to underwrite Can it be, you know, five to 10 X kind of outcome?”
Coatue Prefers Continuous Follow-On Investments Over One-and-Done Round Participation
“It's continuous. It doesn't always mean we participate every round, right? So sometimes things get too expensive, and we'll make a choice that Our risk adjusted rate of return for that deal isn't something we want to pursue at the same level as we would have b…”
Schneider: VCs uncover hidden startup flaws within three to six months
“Usually three to six months, you undercover all the warts that you didn't see, that they hid from you on the, in the diligence process.”
Schneider tests passed-on founders by offering continued help
“I tell people that, you know, hey, even if I don't make the investment, call me sometime. Like, and that's a test. I wanna know if they're thinking about me as a resource.”
Coatue walked away from a multi-billion dollar 2021 deal over price
“There was a deal that I got really excited about that when it came down to valuation, we were we did not hit the number that the company wanted, and I'm sure glad I missed it. So that was one that I probably dodged a bullet, because it was the height of 21, an…”
Schneider: Small allocation sizes prevent VCs from taking board seats
“If my position's too small, it's hard for me to dedicate the time, and so I have to try to tell these founders, hey, you know, this is going to be awkward. I know you want us, you want me on the board, but I can't use one of my spots to”
Schneider: 'Seagull VCs' distract management without providing real assistance
“My terminology from experience is there are VCs that are seagulls, And here's my definition. They fly into a room, or fly into a meeting, fly into a location, they basically take a shit, and they fly away. They talk a lot, they give work to do for other people…”
Schneider limited ServiceNow management reviews to three green and three red items
“When I led the review of any portion of ServiceNow or Data Domain, I started with the three things that were working, that were really green, and the three things that were red. If somebody wanted to help me on something in the red, be my guest. But if you wan…”
Schneider: Founders should select board members with operational experience over board volume
“I do think it's up to the management team to drive the clarity of thinking, and avoid when you're interviewing potential board members, look for relevant experience. Not the fact that they've been on eight other SaaS boards, but have they ever done anything th…”
Stebbings: Put every new hire in customer support for two weeks
“I always say to everyone, hey, put everyone in support for two weeks minimum. Just hear the pain points. Hear what they want. Hear what they don't like. Just hear everything. It's the best way to do it.”