The Exchanges

Q Who's the unsung hero from the team and what did they do behind the scenes?

A Maybe worth mentioning two people there. One is Chris Shagan, Who joined the company as really the first commercial person. And I think he kind of in the early days built up marketing to certain extent, also sales. I think he played a very big role there and should get a lot of credit. And the other one that I would mention is my friend, Roberto Bonanzinga, who at the time was with Balderton and leading the investment. And he, because he was investing out of a bigger fund with a bigger firm, and maybe because he was more His ambition was already bigger than mine. I remember a really funny anecdote when we probably, I don't know, maybe a couple of months after our original investment, we did a kind of like a board offsite in Lisbon to discuss strategy and everything. Then he said in his really nice Italian accent, something like, Christoph, Sascha, I just want to make one thing very clear. If we end up selling storage room for a hundred million, I will consider it a big failure. I was probably thinking, well, a hundred million, this is, I will probably be quite heavy with a hundred million, but for him, it was already clear that this is not what we should be aiming for, and took me probably a bit longer to realize that this has, could become so much bigger.

AI assessment note: “One is Chris Shagan... And the other one that I would mention is my friend”

Q Can I ask, this is, you know, in 2012, developers did not have the same developer but like purchasing power that they do today. Were you not taking a big risk in terms of like developers ability in terms of purchasing and their ability within organizations to try new tools and then spin them up?

A Yeah, I guess we were probably quite naive in that and got lucky that we invest in the company and in some other companies of that generation, like Algolia, for example, and that these companies have then been able to benefit So much from this incredible growth of software and the number of developers and developers having purchasing power. So I think it's, we, I'm not sure if we really understood that well. We knew that there were a few companies already, early players, somewhat successful in selling software to developers. I think there was Parse and Heroku, if I'm not mistaken, but also like with the benefit of hindsight, not big successes. Heroku and Parse, if I'm not mistaken, exited between 80,000,250 or so. Which is the type of exit if when we have thought about that in 2012 strangely given us confidence about the size of the opportunity because we thought this is big. We thought it would be great. And today this is not what gets us excited, right?

AI assessment note: “Yeah, I guess we were probably quite naive in that and got lucky”

Q Now, we're going to focus today on the contentful story, but at the time it was called Storage Room when you wrote the memo way back. So I want to start with the story itself. How did you come to meet the team? Where were they? Where were you? Was it remote? And how did that conversation go?

A Yeah, sure. So I expected that you would ask this question, Harry. So I actually dug out that original email that I got from Sasha Konietzke, the co-founder and CEO of Contentful, which at the time was called Storage Room. And he sent me that email in March, 20 12. It was an cold email with a subject SaaS seed funding storage room. As you know, as a VC, you get a lot of cold emails, and maybe you try to look at most of them, but you probably don't manage to really look into all of them. We try to look at as many of them as possible, but we don't always succeed. But this one was very special, and I think it had all the elements of a great cold email.

AI assessment note: “I actually dug out that original email that I got from Sasha Konietzke”

Q What was it that grabbed you about that first email?

A Yeah. Happy to tell you about it. And it's interesting. Sasha didn't have a sales background, right? It's not like he has learned how to do that. He's engineer by training. He's a young techie founder. He's just incredibly smart. So he just figured it on his own. And I think this email, I don't know if it's right to say it, it ticked the boxes or it pushed the right buttons with me. It had a couple of interesting elements. If you try to analyze it, like one, Sasha made it really cool. Clear why he was reaching out to me. So it was clear that this was not a random email that was sent out to dozens of investors at the same time, and where you kind of see right away, well, this is completely random. This is not that interesting. He referenced my blog, that he liked some of the work that I've already been doing, and that he hasn't found so many investors in Europe at that time who knew something about SaaS. So he really made an Explicit point about why he wanted to talk to me, which, I don't know, maybe it's flattering, but also it made sense to me, right? Like there is a mutual fit, so that was interesting. Then he was able to articulate in really just a couple of words what the product does, why it's different, why it's needed. Then he mentioned some of the early customers that he was already able to attract, and those were some big logos, so also a bit of social proof, which is …

AI assessment note: “Sasha made it really clear why he was reaching out to me.”

Q Can I ask Christoph, do you find with the transition of fundraising rounds where, you know, seed is now kind of pre-seed, and everything's changed, do you find that actually we're looking at much less mature companies, and revenue is more often surprising than not, given how early both of us play?

A There is basically a shift of one phase. Contentful's First round, we call the seed round, was 500 K. And we didn't even do it alone because we thought this was way too much for our tiny little fund. So we did less than half of it and helped Sasha fill up the round with others or help him get Balderson on board, which turned out to be a great partner for the company. And today, as you know, like 500 K is less than the average pre-seed round, right? And seed rounds are often in the millions. So the label and the terminology really has shifted Then also, when you look at the Series A stage, for a real Series A, you usually still need some revenue. I guess, I mean, back in the days, we used to say that you typically should have around a million in ERR for a Series A. I guess, to a certain extent, that's still true, but at the same time, so many companies raise what you previously would have called a Series A on the basis of a PowerPoint presentation. So, I don't know if that means you skip this pre-seed, end-seed,

AI assessment note: “There is basically a shift of one phase.”

Q When you first met him, Did you know straight away that you wanted to invest, or was it a learning process over a couple of meetings over the relationship?

A So I was excited from the first interaction, and I think with every interaction or everything that we learned, we got more and more interested. But in comparison to some of the investments that we've done in more recent times, it actually took a lot of time. One is that just the market has been so immature and so different. So I think even though it had these elements of love at first, I think it took still two or three months. Totally unbelievable today with the current pace in this environment where everything gets done in a week, right? But it took us, I think, two months to do our work and come to a decision, and then probably another one or two months to actually do So slowly in Europe, we kind of were able to move so slowly. It's embarrassing, right? Because there wasn't so much competition. So we were excited from the first meeting, but we dug in quite deeply to try to understand the product, the market, talk to experts, did more DD than we can typically do today.

AI assessment note: “excited from the first interaction, and I think with every interaction... got more”

Q Can I ask, this is, you know, in 2012, developers did not have the same developer but like purchasing power that they do today. Were you not taking a big risk in terms of like developers ability in terms of purchasing and their ability within organizations to try new tools and then spin them up?

A Yeah, I guess we were probably quite naive in that and got lucky that we invest in the company and in some other companies of that generation, like Algolia, for example, and that these companies have then been able to benefit So much from this incredible growth of software and the number of developers and developers having purchasing power. So I think it's, we, I'm not sure if we really understood that well. We knew that there were a few companies already, early players, somewhat successful in selling software to developers. I think there was Parse and Heroku, if I'm not mistaken, but also like with the benefit of hindsight, not big successes. Heroku and Parse, if I'm not mistaken, exited between 80,000,250 or so. Which is the type of exit if when we have thought about that in 2012 strangely given us confidence about the size of the opportunity because we thought this is big. We thought it would be great. And today this is not what gets us excited, right?

AI assessment note: “Yeah, I guess we were probably quite naive in that and got lucky”

Q like, tier one pedigree founders coming out with a pre-seed. I guess second is, like, the big concern that I have. I'm intrigued to hear your thoughts. You know, .9 has such a phenomenal brand. I'm sure the majority of your companies get preemptive term sheets very, very quickly post you investing in them. How do you advise founders on whether to take or not take preemptive term sheets first?

A Yeah, I'm generally not a big fan of Taking preemptive investments. There can be exceptions though, and maybe the real question is not so much, should I take a preemptive offer when it's on the table or not? When you really have a good offer on the table from a firm or partner that you really like, and it's a good valuation, then it can make a lot of sense, right? I think the problem is that so many founders get dragged into these conversations at a time when they're not really ready for it yet. And then obviously investors Are incentivized to convey that they are more interested or deeper in their decision-making process than they actually are, because from the point of view, and you have an investor, like you want to have the possibility or optionality to even explore that. And that makes it hard to read the signals for a founder who is not very experienced with that. So I think the issue is that when a founder hears from an investor, we want to pre-end your round.

AI assessment note: “I'm generally not a big fan of Taking preemptive investments.”

Q market for you when making investments, you know, how much emphasis and weight do you place on it? Because some people say great founders find markets. They may not be in the right one today, but great founders find their market. Others say, sod that. If you're in a huge market with, like, macro tailwinds, even mediocre founders can win. How much weight do you place on market, market size?

A I don't think that mediocre founders can build a very large company to start off with that. I think there are just way too many opportunities to fail. It just takes so much resilience and energy and dedication to always get up again. I think to build a A very, very large company. You probably have to be in that lucky or fortunate position as an investor to be in a company that combines a great team and a great market opportunity. I think if you have a great team in a really, really bad market, there is a good chance that they will still turn it into like some decent level of success, or maybe they can pivot into a better market. So I think the team is the more important factor of the two, but we do look at both of these. Factors. It doesn't mean that we want or expect to have clarity on the market size by the time we invest. I think we've learned like many other investors that it's really, really hard to predict a market size and storage room or contentful is a maybe a good example. And so far as like we made the bet, it was right, but it became even better. So that's the kind of learning that I'm happy to make. But obviously we also had different types of lessons where things didn't work out. So what we're really focused on is Finding founders that have a really strong insight that I've identified a pain that have developed a great solution to that for a specific audience. And…

AI assessment note: “I think the team is the more important factor of the two”

Q My, how the world has changed. What was your pre-mortem for why this maybe wouldn't work? The biggest risk?

A I think two factors there. I think one is that we, we could have been outrun by competitors, and it's not like we weren't really aware of specific competitors really doing the same thing, but nevertheless, this one-man show, which then with the recruitment of the Paolo, the Tecofano, became a two-man show, it still felt like a, against all odds in a way, if you think that there is a Silicon Valley team going after the opportunity, raising more money, having more experience. So I think like potential future competition that would be able to execute faster, I would say, was one reason why this might have failed. Fortunately, it did not. And I think the other was that the amount of proof that we had that the market actually needs this was still pretty small. Like there was also the possibility that Maybe a plugin to WordPress is all that it takes or that developers would rather want to build it themselves using some open source components because they don't want to trust a startup with their most precious content and data.

AI assessment note: “one is that we, we could have been outrun by competitors”

Q When you first met him, Did you know straight away that you wanted to invest, or was it a learning process over a couple of meetings over the relationship?

A So I was excited from the first interaction, and I think with every interaction or everything that we learned, we got more and more interested. But in comparison to some of the investments that we've done in more recent times, it actually took a lot of time. One is that just the market has been so immature and so different. So I think even though it had these elements of love at first, I think it took still two or three months. Totally unbelievable today with the current pace in this environment where everything gets done in a week, right? But it took us, I think, two months to do our work and come to a decision, and then probably another one or two months to actually do So slowly in Europe, we kind of were able to move so slowly. It's embarrassing, right? Because there wasn't so much competition. So we were excited from the first meeting, but we dug in quite deeply to try to understand the product, the market, talk to experts, did more DD than we can typically do today.

AI assessment note: “I was excited from the first interaction, and I think with every interaction”

Q the business model itself, in particular pricing. I think pricing is an area where a lot of founders really struggle, and when we look at kind of pricing today, my big question is always, how do you have a variable pricing mechanism which optimizes for, you know, revenue generation, but also doesn't disincentivize usage? How do you think about the balance there, and what have been some lessons for you?

A Yeah, well, pricing is definitely one of my favorite topics, because it has Such a huge impact, right? Like it can really change a company, right? If you have got your pricing wrong or right, because the right price doesn't only mean that you charge more. It opens up totally new ways to acquire customers. If you have much higher customer lifetime values, there are a lot of trade-offs, right? Like, and you mentioned one of them already, like on the one hand, you want to align pricing with a value that you deliver, but by doing that, you also charge for the value that you deliver and value is Usually comes from usage. So you could disincentivize usage. And I think on this particular question, I think it's mostly a question around like timing related to onboarding and how you do implementation and customer support and customer success. You have to make sure that you show the customer the value first, and then when they see the value and then they might want to add more seeds or maybe use the product more often. So they generate more API calls and that will lead to Higher costs. But if that happens at a time where they've already seen the value, they're probably fine with it because they'll, they'll still have a great ROI on that additional spend.

AI assessment note: “You have to make sure that you show the customer the value first”

Q When you think about market evolution, how did you expect it to change? You believed in software eating the world. How did you expect the market to move when you projected out for five years?

A So I think we made a bet on the growth of mobile. I think that was already a safe bet to make. So this was already like year five of the iPhone. So there was already a considerable growth of mobile consumption, but I think it was unclear. So it was maybe a bigger leap of faith to assume that there will be a big market for developer tools, like everything that you need as a developer to create and market a mobile or a web app that works on multiple devices. I think we were bullish enough Based on this high-level theme, but we couldn't really put our finger on this, and we definitely were surprised by how big Contentful has become. It was not an overnight success, though. It's not like this company has taken off right away. Like, it took a couple of years of relatively slow growth and ups and downs, and re-architecturing the product takes a year longer than expected. So there were all the things I would expect from a startup roller coaster ride, I would say, also have happened in the case of Contentful.

AI assessment note: “So I think we made a bet on the growth of mobile.”

Q market for you when making investments, you know, how much emphasis and weight do you place on it? Because some people say great founders find markets. They may not be in the right one today, but great founders find their market. Others say, sod that. If you're in a huge market with, like, macro tailwinds, even mediocre founders can win. How much weight do you place on market, market size?

A I don't think that mediocre founders can build a very large company to start off with that. I think there are just way too many opportunities to fail. It just takes so much resilience and energy and dedication to always get up again. I think to build a A very, very large company. You probably have to be in that lucky or fortunate position as an investor to be in a company that combines a great team and a great market opportunity. I think if you have a great team in a really, really bad market, there is a good chance that they will still turn it into like some decent level of success, or maybe they can pivot into a better market. So I think the team is the more important factor of the two, but we do look at both of these. Factors. It doesn't mean that we want or expect to have clarity on the market size by the time we invest. I think we've learned like many other investors that it's really, really hard to predict a market size and storage room or contentful is a maybe a good example. And so far as like we made the bet, it was right, but it became even better. So that's the kind of learning that I'm happy to make. But obviously we also had different types of lessons where things didn't work out. So what we're really focused on is Finding founders that have a really strong insight that I've identified a pain that have developed a great solution to that for a specific audience. And…

AI assessment note: “I think the team is the more important factor of the two, but we do”

Q My point is, they suddenly got a hundred million in their bank, and they're hiring 20 sales, perhaps 20 marketing, and the most obscene customer success team, when they have no playbook and they have no form of repeatability. Are you concerned that actually funding advancement has changed company execution in a negative way?

A I think having a lot of money can make a company better, but it can also make a company worse, right? And it depends on a couple of things. It doesn't make sense to hire lots of salespeople if you haven't figured out the sales motion yet, right? And this is like a classical mistake, which a lot of people have talked about. So I think that is also quite well understood. It doesn't mean that people won't make that mistake again if they have just So much money in the bank account. So I think one of the best things you can do as a founder in this environment is raise a lot of money at a very high valuation, but don't use it, or at least don't spend it faster than you would if the money had been much harder to raise. And I mean, I think it's great if a company can operate in a way that cash is not the constraint, right? I think that should be the goal of every investment should be that the Cash being the constraint, which then means usually the actual constraint is just like manpower. How quickly can you hire great people and then onboard them, which is something which you can accelerate a bit with money, but with some limitations. Ultimately, it depends a lot on the personality of the founders, right? And if they're able to use the money to accelerate, or if I'm just too early for that, if they just keep a pretty low burn, and all of this is then great, right? Like what's obviously…

AI assessment note: “having a lot of money can make a company better, but it can also make a company worse”

Q What was it that grabbed you about that first email?

A Yeah. Happy to tell you about it. And it's interesting. Sasha didn't have a sales background, right? It's not like he has learned how to do that. He's engineer by training. He's a young techie founder. He's just incredibly smart. So he just figured it on his own. And I think this email, I don't know if it's right to say it, it ticked the boxes or it pushed the right buttons with me. It had a couple of interesting elements. If you try to analyze it, like one, Sasha made it really cool. Clear why he was reaching out to me. So it was clear that this was not a random email that was sent out to dozens of investors at the same time, and where you kind of see right away, well, this is completely random. This is not that interesting. He referenced my blog, that he liked some of the work that I've already been doing, and that he hasn't found so many investors in Europe at that time who knew something about SaaS. So he really made an Explicit point about why he wanted to talk to me, which, I don't know, maybe it's flattering, but also it made sense to me, right? Like there is a mutual fit, so that was interesting. Then he was able to articulate in really just a couple of words what the product does, why it's different, why it's needed. Then he mentioned some of the early customers that he was already able to attract, and those were some big logos, so also a bit of social proof, which is …

AI assessment note: “Sasha made it really cool. Clear why he was reaching out to me.”

Q the business model itself, in particular pricing. I think pricing is an area where a lot of founders really struggle, and when we look at kind of pricing today, my big question is always, how do you have a variable pricing mechanism which optimizes for, you know, revenue generation, but also doesn't disincentivize usage? How do you think about the balance there, and what have been some lessons for you?

A Yeah, well, pricing is definitely one of my favorite topics, because it has Such a huge impact, right? Like it can really change a company, right? If you have got your pricing wrong or right, because the right price doesn't only mean that you charge more. It opens up totally new ways to acquire customers. If you have much higher customer lifetime values, there are a lot of trade-offs, right? Like, and you mentioned one of them already, like on the one hand, you want to align pricing with a value that you deliver, but by doing that, you also charge for the value that you deliver and value is Usually comes from usage. So you could disincentivize usage. And I think on this particular question, I think it's mostly a question around like timing related to onboarding and how you do implementation and customer support and customer success. You have to make sure that you show the customer the value first, and then when they see the value and then they might want to add more seeds or maybe use the product more often. So they generate more API calls and that will lead to Higher costs. But if that happens at a time where they've already seen the value, they're probably fine with it because they'll, they'll still have a great ROI on that additional spend.

AI assessment note: “You have to make sure that you show the customer the value first”

Q Can I ask Christoph, do you find with the transition of fundraising rounds where, you know, seed is now kind of pre-seed, and everything's changed, do you find that actually we're looking at much less mature companies, and revenue is more often surprising than not, given how early both of us play?

A There is basically a shift of one phase. Contentful's First round, we call the seed round, was 500 K. And we didn't even do it alone because we thought this was way too much for our tiny little fund. So we did less than half of it and helped Sasha fill up the round with others or help him get Balderson on board, which turned out to be a great partner for the company. And today, as you know, like 500 K is less than the average pre-seed round, right? And seed rounds are often in the millions. So the label and the terminology really has shifted Then also, when you look at the Series A stage, for a real Series A, you usually still need some revenue. I guess, I mean, back in the days, we used to say that you typically should have around a million in ERR for a Series A. I guess, to a certain extent, that's still true, but at the same time, so many companies raise what you previously would have called a Series A on the basis of a PowerPoint presentation. So, I don't know if that means you skip this pre-seed, end-seed,

AI assessment note: “There is basically a shift of one phase.”

Q My point is, they suddenly got a hundred million in their bank, and they're hiring 20 sales, perhaps 20 marketing, and the most obscene customer success team, when they have no playbook and they have no form of repeatability. Are you concerned that actually funding advancement has changed company execution in a negative way?

A I think having a lot of money can make a company better, but it can also make a company worse, right? And it depends on a couple of things. It doesn't make sense to hire lots of salespeople if you haven't figured out the sales motion yet, right? And this is like a classical mistake, which a lot of people have talked about. So I think that is also quite well understood. It doesn't mean that people won't make that mistake again if they have just So much money in the bank account. So I think one of the best things you can do as a founder in this environment is raise a lot of money at a very high valuation, but don't use it, or at least don't spend it faster than you would if the money had been much harder to raise. And I mean, I think it's great if a company can operate in a way that cash is not the constraint, right? I think that should be the goal of every investment should be that the Cash being the constraint, which then means usually the actual constraint is just like manpower. How quickly can you hire great people and then onboard them, which is something which you can accelerate a bit with money, but with some limitations. Ultimately, it depends a lot on the personality of the founders, right? And if they're able to use the money to accelerate, or if I'm just too early for that, if they just keep a pretty low burn, and all of this is then great, right? Like what's obviously…

AI assessment note: “having a lot of money can make a company better, but it can also make a company worse”

Q Now, we're going to focus today on the contentful story, but at the time it was called Storage Room when you wrote the memo way back. So I want to start with the story itself. How did you come to meet the team? Where were they? Where were you? Was it remote? And how did that conversation go?

A Yeah, sure. So I expected that you would ask this question, Harry. So I actually dug out that original email that I got from Sasha Konietzke, the co-founder and CEO of Contentful, which at the time was called Storage Room. And he sent me that email in March, 20 12. It was an cold email with a subject SaaS seed funding storage room. As you know, as a VC, you get a lot of cold emails, and maybe you try to look at most of them, but you probably don't manage to really look into all of them. We try to look at as many of them as possible, but we don't always succeed. But this one was very special, and I think it had all the elements of a great cold email.

AI assessment note: “I actually dug out that original email that I got from Sasha Konietzke”

Q When you think about market evolution, how did you expect it to change? You believed in software eating the world. How did you expect the market to move when you projected out for five years?

A So I think we made a bet on the growth of mobile. I think that was already a safe bet to make. So this was already like year five of the iPhone. So there was already a considerable growth of mobile consumption, but I think it was unclear. So it was maybe a bigger leap of faith to assume that there will be a big market for developer tools, like everything that you need as a developer to create and market a mobile or a web app that works on multiple devices. I think we were bullish enough Based on this high-level theme, but we couldn't really put our finger on this, and we definitely were surprised by how big Contentful has become. It was not an overnight success, though. It's not like this company has taken off right away. Like, it took a couple of years of relatively slow growth and ups and downs, and re-architecturing the product takes a year longer than expected. So there were all the things I would expect from a startup roller coaster ride, I would say, also have happened in the case of Contentful.

AI assessment note: “assume that there will be a big market for developer tools”