The Exchanges

Q Well, I'd love to kick off today with you, and always starting with the foray into the world of venture. So how did you come to be at Spark today, Alex?

A For sure. So I actually got my introduction to the industry when I was at Goldman Sachs. I was in the investment banking group in San Francisco as an analyst for two years. My first day on the job, I was actually staffed on the Yelp IPO, and that became a big part of my life for the next 12 months. They had early investors like Bessemer and Benchmark. After that process, I knew I wanted to work with high-growth businesses, and being able to marry a corporate finance skill set with companies I was really excited about felt like the right area for me. I went to Redpoint Ventures, Post-Goldman, and their growth fund, and then I was there for three years, and I've been at Spark for almost three years as well.

AI assessment note: “I went to Redpoint Ventures... and I've been at Spark for almost three years”

Q Well, I'd love to kick off today with you, and always starting with the foray into the world of venture. So how did you come to be at Spark today, Alex?

A For sure. So I actually got my introduction to the industry when I was at Goldman Sachs. I was in the investment banking group in San Francisco as an analyst for two years. My first day on the job, I was actually staffed on the Yelp IPO, and that became a big part of my life for the next 12 months. They had early investors like Bessemer and Benchmark. After that process, I knew I wanted to work with high-growth businesses, and being able to marry a corporate finance skill set with companies I was really excited about felt like the right area for me. I went to Redpoint Ventures, Post-Goldman, and their growth fund, and then I was there for three years, and I've been at Spark for almost three years as well.

AI assessment note: “I went to Redpoint Ventures, Post-Goldman... and I've been at Spark for almost three years”

Q Two phenomenal institutions, but I do have to ask, and a slightly unfair and hard question of me, but you mentioned Redpoint there, and what can I say? Tom Tungus is my homeboy. So what were the biggest learnings and takeaways from that experience for you?

A For sure. So I think I was fortunate to start my career at Redpoint. They have an incredible team, track record, as you just described. They're in companies like Zendesk, Twilio, Stripe, and Looker. I was on the growth team there, and so while Tomas was on the early stage fund, we got to work together a lot, And I think the biggest takeaway I learned from him was just learning how to be a data-driven investor, particularly in enterprise software. While metrics are only part of the equation, I think it's a critical piece, and I got to learn from one of the best. For example, the first week I was there was when Tomas closed the Looker Series A. They had 15 people there. I think now they have over 600, and they've raised hundreds of millions of dollars. So, um, working beside him and seeing some of that was awesome.

AI assessment note: “biggest takeaway I learned from him was just learning how to be a data-driven investor”

Q Two phenomenal institutions, but I do have to ask, and a slightly unfair and hard question of me, but you mentioned Redpoint there, and what can I say? Tom Tungus is my homeboy. So what were the biggest learnings and takeaways from that experience for you?

A For sure. So I think I was fortunate to start my career at Redpoint. They have an incredible team, track record, as you just described. They're in companies like Zendesk, Twilio, Stripe, and Looker. I was on the growth team there, and so while Tomas was on the early stage fund, we got to work together a lot, And I think the biggest takeaway I learned from him was just learning how to be a data-driven investor, particularly in enterprise software. While metrics are only part of the equation, I think it's a critical piece, and I got to learn from one of the best. For example, the first week I was there was when Tomas closed the Looker Series A. They had 15 people there. I think now they have over 600, and they've raised hundreds of millions of dollars. So, um, working beside him and seeing some of that was awesome.

AI assessment note: “biggest takeaway I learned from him was just learning how to be a data-driven investor”

Q huge market now. There's not much competition. We need to dig into the team and the product. From backing and working with some of the best of the last few years, as you said there, from Manny at Outreach to Todd at Pendo, what have been the commonalities, both in Product and team that really have led them to kind of be that leader in that situation, do you think?

A Yeah, for sure. We're fortunate to work with those two folks and many others. I think at the end of the day, it's rapid product development. We've seen teams that are great managers, but too scared to innovate on product. I think the companies that continue to build and get really big and stay ahead is the ones that have a ton of product velocity over time. All of these, particularly in SaaS, you start with a wedge into the market and you have to expand from that wedge. So there could be four or five, six, seven companies that are eventually going to converge. You need to get there kind of first and to stay in the lead in the wind, you got to innovate on product. I might talk to you about an example on this to service now, which I think is the best case study in this. They went public in 2012, one hundred sixty million dollar in run rate. It was a single product company. Fast forward to today, they have five plus products. They committed to launching one to new products every year and new products are 30% of new business. And almost 80% of their customers have multi-product deals that they're buying multiple products from ServiceNow. And they're also launching business units that have billion-dollar revenue potential in areas like HR and customer success management. I think it's just one of the best stories out there of companies that aren't scared to innovate on product. They …

AI assessment note: “I think at the end of the day, it's rapid product development.”

Q the funnel evaluating a potential company today, Alex. I thought it was too much of a good opportunity to pass by. So if we start today with really the first step of the funnel in venture, the sourcing, I often speak to many early stage managers, and the sourcing for early stage differs greatly as we move later. So what does the sourcing process look like for you today, Alex?

A I agree. I do agree with, um, there are certainly some nuances between Early stage and sort of venture growth, what I'm doing. So I guess sourcing definitely my favorite part of the job. I think as a growth investor, your ability to source and get in the best companies is what sets investors apart. And so I'll describe in two ways how we see it. It's both opportunistic and thematic. So at Spark Growth, most of the companies we invest in have previous venture funding. And so every single series A or series B that gets announced in the market, we want to evaluate that company at some level. We're looking for themes as well as looking for growth. So if you're an early stage SaaS company, you can't really hide if you're growing fast. People can check your LinkedIn headcount, see how fast you're hiring on the website, what type of people. If you're a series A SaaS company, you have 35 employees, you go to 65 in three months, and you're hiring eight AEs on your website, you should probably meet them ASAP. Clearly, whatever they're doing is really working. I mean, in the early days, particularly SaaS companies scale with people, whether it's PMs, AEs, account managers, SDRs, they get leverage as they grow, but in the early days, you really have to build up That's more opportunistic. You're looking for momentum, and then we go out and figure out a market. Then there's the thematic side…

AI assessment note: “I'll describe in two ways how we see it. It's both opportunistic and thematic.”

Q So I totally get you on the importance of kind of product velocity there. Advice though, Alex, how do you determine product velocity when you're meeting and engaging with founders and you haven't worked with them yet and seen kind of multiple product cycles?

A There's no one way to figure it out, but what we like to do is track them over time. We track every product announcement they do, and then when we really get in the nitty gritty of it during a fundraising process, we want to look at their product, their historical product roadmaps, and how far, how much they've executed on those. And then you talk to customers. We asked them, Hey, how, how is their product? At the end of the day, the customers know this. How has their product development been over the past two years since you've been a user of the product? Some will say, wow, every two months they're launching something that really changed my business that they almost know what I want and I don't have to tell them. Other customers will say, well, they haven't really changed the product in two years. I've asked for a lot of these features, but they've never gotten pushed out. Those are two interesting points and things that we like really hear and look at.

AI assessment note: “what we like to do is track them over time. We track every product announcement”

Q So I totally get you on the importance of kind of product velocity there. Advice though, Alex, how do you determine product velocity when you're meeting and engaging with founders and you haven't worked with them yet and seen kind of multiple product cycles?

A There's no one way to figure it out, but what we like to do is track them over time. We track every product announcement they do, and then when we really get in the nitty gritty of it during a fundraising process, we want to look at their product, their historical product roadmaps, and how far, how much they've executed on those. And then you talk to customers. We asked them, Hey, how, how is their product? At the end of the day, the customers know this. How has their product development been over the past two years since you've been a user of the product? Some will say, wow, every two months they're launching something that really changed my business that they almost know what I want and I don't have to tell them. Other customers will say, well, they haven't really changed the product in two years. I've asked for a lot of these features, but they've never gotten pushed out. Those are two interesting points and things that we like really hear and look at.

AI assessment note: “look at their product, their historical product roadmaps, and how far, how much they've executed”

Q the funnel evaluating a potential company today, Alex. I thought it was too much of a good opportunity to pass by. So if we start today with really the first step of the funnel in venture, the sourcing, I often speak to many early stage managers, and the sourcing for early stage differs greatly as we move later. So what does the sourcing process look like for you today, Alex?

A I agree. I do agree with, um, there are certainly some nuances between Early stage and sort of venture growth, what I'm doing. So I guess sourcing definitely my favorite part of the job. I think as a growth investor, your ability to source and get in the best companies is what sets investors apart. And so I'll describe in two ways how we see it. It's both opportunistic and thematic. So at Spark Growth, most of the companies we invest in have previous venture funding. And so every single series A or series B that gets announced in the market, we want to evaluate that company at some level. We're looking for themes as well as looking for growth. So if you're an early stage SaaS company, you can't really hide if you're growing fast. People can check your LinkedIn headcount, see how fast you're hiring on the website, what type of people. If you're a series A SaaS company, you have 35 employees, you go to 65 in three months, and you're hiring eight AEs on your website, you should probably meet them ASAP. Clearly, whatever they're doing is really working. I mean, in the early days, particularly SaaS companies scale with people, whether it's PMs, AEs, account managers, SDRs, they get leverage as they grow, but in the early days, you really have to build up That's more opportunistic. You're looking for momentum, and then we go out and figure out a market. Then there's the thematic side…

AI assessment note: “I'll describe in two ways how we see it. It's both opportunistic and thematic.”

Q companies you do really want to spend time with and build those relationships with, though. I do want to dive a little bit deeper into the evaluation element, because we often state that they look to these big markets, as we know, Alex. But I have Peter Fenton on the show, who said he laughs when he hears this. So how do you think about market sizing and evaluation today?

A Yeah, we spend a lot of time on this, and of course, everyone wants a big market, but we take a few layers deeper of a look on here. So this is a nuanced question. I think markets can be defined in a few different ways. So let me walk you through a few Points for a typical SaaS company. So at the very high level, there's the total market. Like if you take, what is the market? If every customer who could buy your product, bought your product, a lot of these businesses and the rest one will come up with a number here in the many tens of billions of dollars. Then it's the serve market. So what does Gartner Forrester say? If you add up all the revenue of all the players, what does that number look like today? And then there's the market depth. And I think this is one of the most important things in an area where we spend a lot of time trying to figure out Is that while the total potential spend could be larger, what is the actual market depth? So say the problem that your product is solving is only relevant to a small portion of the market, that makes it harder. So as a growth investor is really important. Companies can reach 10, 20, thirty million of ARR, but if the market depth isn't there, they can really slow down. So those are kind of a few areas that we think about on market size.

AI assessment note: “those are kind of a few areas that we think about on market size”

Q the companies in these markets. Almost an infinite resource. Do you believe that capital in itself can be a sufficient or competitive edge? I mean, often I hear VCs on the show say, well, I mean, I was really excited about X, but I saw that Y got three hundred million from SoftBank, and you know, that changed our perception. How do you think about capital as a defensive mode?

A It's certainly a competitive advantage, but I think it's only temporary. But it can still have big impacts on markets. So in the early days, for sure, but I think at some point, the rubber meets the road. These companies are going to have to go public. They're going to have to show improving unit economics and leverage in business models. Public market investors are only going to tolerate very high burn if you're growing incredibly quickly. So even while companies are staying private longer and keep raising money, It's not going to be a sustainable advantage in the day, because they're going to have to go public, and they're going to get, every part of the business is going to get scrutinized.

AI assessment note: “It's certainly a competitive advantage, but I think it's only temporary.”

Q and touch When it comes to the product itself, though, often, you know, uh, doing this show, I speak to a lot of SaaS investors who say a lot, it's a great company, but is it a product, or is it just a feature, really? So when it comes to kind of value prop, how do you find yourself approaching this question and evaluating that with kind of prospective opportunities?

A Yeah, it's really hard, and I hate to just say, is it a platform or a feature? I think those are just kind of buzzwords. At the end of the day, it's like, is this product core to business continuity? So what does that mean? If you ask the customer or stakeholder, If you rip this thing out or if it shuts off, what's going to happen to their business? I think the best products are things that customers just can't afford to live without. At the growth stage, it's really important to invest in companies that are core to business continuity, in my opinion. And sometimes a customer will say, yeah, like if this product shut down, I couldn't do my job. Or if they took this product away from me, I would quit. And sometimes people say, well, if this product shut down, I could get by. It would just take me a little bit extra time. I think you want to be investing in the foreword.

AI assessment note: “is this product core to business continuity?”

Q so I'd love your advice. I'm very much a network-driven investor. Is it possible to be a network-driven investor and a thesis-driven investor when you think about one singular person, me, and what would you advise me? Would you say, Harry, pursue the network-driven investing thesis, or would you say, actually, yes, that's Great. But you can incorporate thesis driven as well. How, what would your advice be to me?

A I think the best investors do both. At the end of the day, the ability to both find a company early and figure out if this is going to be a winner in market, that's probably more important where, hey, I don't have the luxury as a growth investor to wake up and say, hey, I have a thesis about emergency response software, and I can go spend three months doing that. At the end of the day, I kind of have to look at where the market's being pulled and being able to understand the Themes and where investment's going, even at the very earliest stages in angel or seed funding. I think that's something that's really critical in an area that you can derive themes from as well, but I think you have to do both.

AI assessment note: “I think the best investors do both.”

Q years. Often founders today are advised to have constrained periods of fundraising, be very efficient about the process, but building relationships over years takes you meeting a much earlier stage founder, much earlier in the process than you'd invest. What kind of advice would you give to founders on the Should you always be raising or not element and the right way to engage with investors at the right time?

A For sure. It's a great question. It's very nuanced. Like I said, the best companies don't need the money. They don't have time to meet with investors when they're not raising, but in order to be in a position to win as an investor, you have to get meetings when they're not raising. So it's pretty tricky. I think for me, the thing is if a lot of these fundraisers come together really quickly, investors figure out a way to get a few meetings. The founder talks to three or four people. One tries to make an investment. The rest of the people don't get involved that weren't there. And I think for founders, they shouldn't always be raising, but they should only typically meet with investors if they're going to actually give them tangible business value, whether that's intros, customer intros, or prospect intros, recruiting. I think CEOs should take them up on the offer if investors are willing to do that.

AI assessment note: “for founders, they shouldn't always be raising, but they should only typically meet”

Q the companies in these markets. Almost an infinite resource. Do you believe that capital in itself can be a sufficient or competitive edge? I mean, often I hear VCs on the show say, well, I mean, I was really excited about X, but I saw that Y got three hundred million from SoftBank, and you know, that changed our perception. How do you think about capital as a defensive mode?

A It's certainly a competitive advantage, but I think it's only temporary. But it can still have big impacts on markets. So in the early days, for sure, but I think at some point, the rubber meets the road. These companies are going to have to go public. They're going to have to show improving unit economics and leverage in business models. Public market investors are only going to tolerate very high burn if you're growing incredibly quickly. So even while companies are staying private longer and keep raising money, It's not going to be a sustainable advantage in the day, because they're going to have to go public, and they're going to get, every part of the business is going to get scrutinized.

AI assessment note: “It's certainly a competitive advantage, but I think it's only temporary.”

Q and touch When it comes to the product itself, though, often, you know, uh, doing this show, I speak to a lot of SaaS investors who say a lot, it's a great company, but is it a product, or is it just a feature, really? So when it comes to kind of value prop, how do you find yourself approaching this question and evaluating that with kind of prospective opportunities?

A Yeah, it's really hard, and I hate to just say, is it a platform or a feature? I think those are just kind of buzzwords. At the end of the day, it's like, is this product core to business continuity? So what does that mean? If you ask the customer or stakeholder, If you rip this thing out or if it shuts off, what's going to happen to their business? I think the best products are things that customers just can't afford to live without. At the growth stage, it's really important to invest in companies that are core to business continuity, in my opinion. And sometimes a customer will say, yeah, like if this product shut down, I couldn't do my job. Or if they took this product away from me, I would quit. And sometimes people say, well, if this product shut down, I could get by. It would just take me a little bit extra time. I think you want to be investing in the foreword.

AI assessment note: “At the end of the day, it's like, is this product core to business continuity?”

Q companies you do really want to spend time with and build those relationships with, though. I do want to dive a little bit deeper into the evaluation element, because we often state that they look to these big markets, as we know, Alex. But I have Peter Fenton on the show, who said he laughs when he hears this. So how do you think about market sizing and evaluation today?

A Yeah, we spend a lot of time on this, and of course, everyone wants a big market, but we take a few layers deeper of a look on here. So this is a nuanced question. I think markets can be defined in a few different ways. So let me walk you through a few Points for a typical SaaS company. So at the very high level, there's the total market. Like if you take, what is the market? If every customer who could buy your product, bought your product, a lot of these businesses and the rest one will come up with a number here in the many tens of billions of dollars. Then it's the serve market. So what does Gartner Forrester say? If you add up all the revenue of all the players, what does that number look like today? And then there's the market depth. And I think this is one of the most important things in an area where we spend a lot of time trying to figure out Is that while the total potential spend could be larger, what is the actual market depth? So say the problem that your product is solving is only relevant to a small portion of the market, that makes it harder. So as a growth investor is really important. Companies can reach 10, 20, thirty million of ARR, but if the market depth isn't there, they can really slow down. So those are kind of a few areas that we think about on market size.

AI assessment note: “there's the total market... Then it's the serve market... And then there's the market depth”

Q that must have been some serious number crunching there. I do have to also, one that really stood out to me, and it It does make me quite happy that I'm young entering venture, but you said there about the median time to IPO being 14 years. Are you concerned by the extended period of privatization that we're seeing today with the kind of increased time to liquidity for VCs?

A It's an interesting topic always. These hundred million dollar rounds that seem to be happening or announcing almost every week used to be IPOs. Here's the thing. I think the opportunity that we're investing in is just bigger than it ever has been before. We're really still kind of in the second inning here. I was just reading a report about public cloud penetration. We're only about seven percent penetrated in what is a six hundred billion dollar plus enterprise IT market. And so if you think about that, and you think about all these businesses that are out there, there is still so much value that's going to be created. And so while today it might look like, hey, it might take 15 years to go public, when we go public and that number that we price at and what our opportunity is, is just so much bigger. So it's definitely something we think about, but at the Opportunity that we're going after is just a leaps and bounds ahead of what people thought about 10 to 15 years ago.

AI assessment note: “while today it might look like, hey, it might take 15 years to go public”

Q that must have been some serious number crunching there. I do have to also, one that really stood out to me, and it It does make me quite happy that I'm young entering venture, but you said there about the median time to IPO being 14 years. Are you concerned by the extended period of privatization that we're seeing today with the kind of increased time to liquidity for VCs?

A It's an interesting topic always. These hundred million dollar rounds that seem to be happening or announcing almost every week used to be IPOs. Here's the thing. I think the opportunity that we're investing in is just bigger than it ever has been before. We're really still kind of in the second inning here. I was just reading a report about public cloud penetration. We're only about seven percent penetrated in what is a six hundred billion dollar plus enterprise IT market. And so if you think about that, and you think about all these businesses that are out there, there is still so much value that's going to be created. And so while today it might look like, hey, it might take 15 years to go public, when we go public and that number that we price at and what our opportunity is, is just so much bigger. So it's definitely something we think about, but at the Opportunity that we're going after is just a leaps and bounds ahead of what people thought about 10 to 15 years ago.

AI assessment note: “It's definitely something we think about, but at the Opportunity that we're going after”

Q huge market now. There's not much competition. We need to dig into the team and the product. From backing and working with some of the best of the last few years, as you said there, from Manny at Outreach to Todd at Pendo, what have been the commonalities, both in Product and team that really have led them to kind of be that leader in that situation, do you think?

A Yeah, for sure. We're fortunate to work with those two folks and many others. I think at the end of the day, it's rapid product development. We've seen teams that are great managers, but too scared to innovate on product. I think the companies that continue to build and get really big and stay ahead is the ones that have a ton of product velocity over time. All of these, particularly in SaaS, you start with a wedge into the market and you have to expand from that wedge. So there could be four or five, six, seven companies that are eventually going to converge. You need to get there kind of first and to stay in the lead in the wind, you got to innovate on product. I might talk to you about an example on this to service now, which I think is the best case study in this. They went public in 2012, one hundred sixty million dollar in run rate. It was a single product company. Fast forward to today, they have five plus products. They committed to launching one to new products every year and new products are 30% of new business. And almost 80% of their customers have multi-product deals that they're buying multiple products from ServiceNow. And they're also launching business units that have billion-dollar revenue potential in areas like HR and customer success management. I think it's just one of the best stories out there of companies that aren't scared to innovate on product. They …

AI assessment note: “I think at the end of the day, it's rapid product development.”

Q investors actually meeting the five people in customer service management and then ingesting the data and then picking from there with almost this kind of incredulity. Is that fair of them to be unhappy about this kind of overall market assess? Investment ingesting data and then kind of having that inside knowledge and picking from there, or is that just kind of the name of the game of growth investing?

A I understand that on, on both sides. I think everyone would want to have full information before they make an investment, but I really think that talking to customers is to me the most important thing. And so one of the things that gets us really excited about a product is that, Hey, we love this product so much. We'll pay two times more than their competitors. That's when, you know, they're driving an incredible amount of business value and they've really won the hearts and minds of their stakeholders. You talk to some companies, and they say, hey, on a related note, the thing that I love about this product is that it's a lot cheaper, and the only reason I bought it is because it's actually half the price in all the competitors. If you talk to enough customers of all these different products, irrespective of actually meeting with the companies, I think you can actually figure out which product is driving the most business value.

AI assessment note: “I think everyone would want to have full information before they make an investment”

Q investors actually meeting the five people in customer service management and then ingesting the data and then picking from there with almost this kind of incredulity. Is that fair of them to be unhappy about this kind of overall market assess? Investment ingesting data and then kind of having that inside knowledge and picking from there, or is that just kind of the name of the game of growth investing?

A I understand that on, on both sides. I think everyone would want to have full information before they make an investment, but I really think that talking to customers is to me the most important thing. And so one of the things that gets us really excited about a product is that, Hey, we love this product so much. We'll pay two times more than their competitors. That's when, you know, they're driving an incredible amount of business value and they've really won the hearts and minds of their stakeholders. You talk to some companies, and they say, hey, on a related note, the thing that I love about this product is that it's a lot cheaper, and the only reason I bought it is because it's actually half the price in all the competitors. If you talk to enough customers of all these different products, irrespective of actually meeting with the companies, I think you can actually figure out which product is driving the most business value.

AI assessment note: “I understand that on, on both sides. I think everyone would want to have full”

Q so I'd love your advice. I'm very much a network-driven investor. Is it possible to be a network-driven investor and a thesis-driven investor when you think about one singular person, me, and what would you advise me? Would you say, Harry, pursue the network-driven investing thesis, or would you say, actually, yes, that's Great. But you can incorporate thesis driven as well. How, what would your advice be to me?

A I think the best investors do both. At the end of the day, the ability to both find a company early and figure out if this is going to be a winner in market, that's probably more important where, hey, I don't have the luxury as a growth investor to wake up and say, hey, I have a thesis about emergency response software, and I can go spend three months doing that. At the end of the day, I kind of have to look at where the market's being pulled and being able to understand the Themes and where investment's going, even at the very earliest stages in angel or seed funding. I think that's something that's really critical in an area that you can derive themes from as well, but I think you have to do both.

AI assessment note: “I think the best investors do both.”

Q years. Often founders today are advised to have constrained periods of fundraising, be very efficient about the process, but building relationships over years takes you meeting a much earlier stage founder, much earlier in the process than you'd invest. What kind of advice would you give to founders on the Should you always be raising or not element and the right way to engage with investors at the right time?

A For sure. It's a great question. It's very nuanced. Like I said, the best companies don't need the money. They don't have time to meet with investors when they're not raising, but in order to be in a position to win as an investor, you have to get meetings when they're not raising. So it's pretty tricky. I think for me, the thing is if a lot of these fundraisers come together really quickly, investors figure out a way to get a few meetings. The founder talks to three or four people. One tries to make an investment. The rest of the people don't get involved that weren't there. And I think for founders, they shouldn't always be raising, but they should only typically meet with investors if they're going to actually give them tangible business value, whether that's intros, customer intros, or prospect intros, recruiting. I think CEOs should take them up on the offer if investors are willing to do that.

AI assessment note: “they shouldn't always be raising, but they should only typically meet with investors if”