The Exchanges

Q You mentioned that the scaling of when it does work, and obviously when you look at your portfolio, there's clear cases of it working incredibly well, so we attained some traction in the space. The other off Often common concern is the growth rates aren't sufficient to maybe appease the venture model requirements. Why am I wrong to say that it doesn't have the growth rates that venture requires?

A Well, again, so as we are primarily sort of SaaS investors, think of us as, right, as enterprise SaaS investors, perhaps our customers are a little different. We think a lot about SaaS metrics, and so what we're looking for are companies that can hit twenty-five million dollars of annual recurring ARR, annual recurring revenue, Within three to four years of our investment. So that means you roughly need to be growing 15 to 17% per month. We have a number of companies on that path, which would make them, honestly, best of breed in the SaaS space. One of the reasons that I didn't mention in the earlier question of, another reason why it grows so quickly, governments are unique in that when they adopt innovation, one of the things they'll often do, and literally this happens in the U.S. hundreds of times a day, is once they adopt an innovation in a given department, Since they're not earning stock options and bonuses and so on as government employees, one of the ways they attain recognition and they want, they go and they share their innovation. So they will set up mini conferences and invite their peers to come and talk about some of the innovative things they've been doing, and they will invite their vendor partners to come in and present. And so literally you have agencies marketing our companies to each other because they want to spread that innovation. I just say that in cont…

AI assessment note: “we're looking for are companies that can hit twenty-five million dollars of annual recurring ARR”

Q That's a special one. I do want to finish today, Ron, on the most recent publicly announced Investment. And tell me, why did you say yes?

A So our most recent would be from Fund Two. We announced two investments at Fund Two. SEMA is the name of the company. S-E-M-A, SEMA. They're in broadly the space of, they would define as legacy code maintenance, which is a mouthful. But basically, it uses the often used AI and machine learning, ML, to automate the maintenance of code. And I said yes to this crew because I Maybe you wouldn't be surprised, but government agencies are still running on COBOL in some cases. And this from like the seventies, I mean, this is a real problem in government. You know, these systems are so old and there's such a major retirement wave that there's literally nobody around to maintain them. And so refactoring is an understatement in the gov tech space. And I'm not talking about like just refactoring for a payroll system at some state level agency. I'm talking about like, you need to refactor code that NASA uses for Right. In launch vehicles. Right. That's what we're talking about here. So to us, code is, if you think about it, is sort of the very foundation now of how our society operates. And every single engineering department in the world, frankly, is going to need SEMA, not just GovTech. And so we, we looked at this whole sort of code maintenance challenge as just a massive business opportunity and tremendously impactful within the GovTech space. So that's why we said yes.

AI assessment note: “we looked at this whole sort of code maintenance challenge as just a massive business opportunity”

Q So why now for the sales cycle reducing so much, as you said there?

A Yeah, sure. So there's a number of factors at play here. One of them is clearly in the emergence of the cloud, and what that has enabled government agencies to do, first of all, is move away from this traditional model of, well, we are a police department of a major city, and we need a new record management system, so what we're going to do is hire a major consulting firm, spend three years designing a brand new system that's custom for us, and then take five years to build it, and by the time we get it, it's technologically obsolete, and, you know, a hundred million dollars over budget and all this nonsense. What's happened now with the cloud and software as a service is, of course, as you've seen in the enterprise, off-the-shelf products that can be easily adopted without going through the CTO, in fact, and so department by department can now make these kinds of technology decisions. I think another dynamic is a procurement itself, and it's related to the first point, as I'm sure you've heard from many of your VC interviews, and of course, as it's commonly known, the cost of technology has dropped so dramatically that the price That my companies can offer in many, many cases is far less than the thresholds, the procurement thresholds that are required by agencies to issue these very long processes. That is to say, every government agency has some kind of a number below which …

AI assessment note: “below their threshold, and get that done in 30, 60, 90 days.”

Q I mean, I love that inherent network effect, and no, I'm completely with you on the example. The final concern that is often presented is the founders themselves. Often founders kind of solve problems that they themselves have experienced. So If we're in GovTech, the founders will largely be older, as university graduates haven't seen the pain points of these public bodies. Fair or not fair to assume that?

A Again, I'll start with the data, and then we can talk about maybe why. So the data is I've got 19 companies in the portfolio. One is already exited. So of the 19 investments we've made, only two are founders who are over the age of 28. The rest are in their early twenties, recent graduates from some of the top computer science programs. And I don't consider, I'm 46 now, I don't consider myself an ageist in any way. It is just the reality of what's happening on the ground, and I think this is a testament to sometimes the often maligned millennial generation. I quite think the opposite. I think what's happened is there's a generation graduating school now in computer science programs and elsewhere that are saying, look, and many of our founders have, you know, multiple job offers from the usual suspects, right, Googles, Facebooks, and so on. And of course, those are wonderful companies, but I think millennials are perhaps even more aware and socially connected, issue-driven, mission-driven, and are looking to work on companies that matter. If I can say that without sounding condescending, it's not to say that Snapchat doesn't matter, but it's they want to work on something where there's a real definable impact. And so if you look at our portfolio company, Mark, 43 in the law enforcement space, Literally, the co-founders were at Harvard, and they started the company while they wer…

AI assessment note: “of the 19 investments we've made, only two are founders who are over the age of 28.”

Q I mean, I love that founding story, but before we dive headlong into all things GovTech, I do want to just touch on two evolutions The first is maybe a more macro. You mentioned obviously there being an LP, being an angel before GovTech. How have you seen the ecosystem really evolve over the last dozen years here, Ron?

A Well, I mean, I think the infusion of capital has really shifted the entire space, and so went from being sort of a collegial, I guess you could say almost insular nature of certainly the seed stage investing market, Has exploded. You have these significant platforms, you know, the Y Combinators of the World and AngelLists, and I can go on and on, that have really, in their words, and I would agree with this, sort of democratized the very essence of angel investing and seed investing. And so, what that has allowed for is a much broader and, I would say, richer set of perspectives and expertise across the seed investor community. And so, you've got now hundreds and hundreds of investors who That also comes from these network effects of significant exits, right? So you've had, of course, the PayPal mafias of individuals that invested, you know, after PayPal, but there's been a number, you know, the Facebook mafia and Twitter and now Uber and others. And so all of those individuals who were fortunate enough to, you know, make some money in those startups are then in turn going off and investing in, of course, can't forget Google. They're all investing in their own networks and spinoffs of relationships they've had. So All of that capital, and all of that democratization, and all of that transparency into the seed investing stage, I think has dramatically changed the way that seed …

AI assessment note: “infusion of capital has really shifted the entire space, and so went from being sort”

Q to you, though, and that is a true sign, but I do want to dive into all things GovTech today. As we said in the email, I asked for something contrarian, and you said the whole thesis of GovTech is contrarian, but I do want to Let's discuss some nomenclature before we dive in. There's two key terms, really, GovTech and CivicTech. How do you define GovTech and CivicTech, Ron?

A That's a great question. I think it's a good place to start. I think folks often do confuse the two. So to keep it simple, just think of GovTech as the technology that government employees use to do their jobs. So the GovTech funds portfolio today is exclusively comprised of SaaS startups, software as a service startups that, for example, run a police department or manage foster care. Or enable the trillions of dollars spent in government procurement every day, or administer a public school, etc. So think about the U.S. government, if you just take a step back, as sort of the largest enterprise in America. And frankly, I think in most countries, one could say it's probably the largest enterprise in that given country. In the U.S., literally, the U.S. government is the largest enterprise. It employs three and a half times as many people as all of the Dow Jones public companies. If you look at the Dow Jones The US government is three and a half times bigger than all of them combined. As an enterprise, local, state, and federal government combined, it's massive, and so that massive enterprise needs tech to operate day-to-day. Let's call it B to G, if you will. Well, that's GovTech. Civic tech, by contrast, we think of as the technology that empowers citizens to do their civic duties, so if you think about politics, elections, voting, community organizing, policymaking, lobbying, t…

AI assessment note: “GovTech as the technology that government employees use to do their jobs”

Q You mentioned that the scaling of when it does work, and obviously when you look at your portfolio, there's clear cases of it working incredibly well, so we attained some traction in the space. The other off Often common concern is the growth rates aren't sufficient to maybe appease the venture model requirements. Why am I wrong to say that it doesn't have the growth rates that venture requires?

A Well, again, so as we are primarily sort of SaaS investors, think of us as, right, as enterprise SaaS investors, perhaps our customers are a little different. We think a lot about SaaS metrics, and so what we're looking for are companies that can hit twenty-five million dollars of annual recurring ARR, annual recurring revenue, Within three to four years of our investment. So that means you roughly need to be growing 15 to 17% per month. We have a number of companies on that path, which would make them, honestly, best of breed in the SaaS space. One of the reasons that I didn't mention in the earlier question of, another reason why it grows so quickly, governments are unique in that when they adopt innovation, one of the things they'll often do, and literally this happens in the U.S. hundreds of times a day, is once they adopt an innovation in a given department, Since they're not earning stock options and bonuses and so on as government employees, one of the ways they attain recognition and they want, they go and they share their innovation. So they will set up mini conferences and invite their peers to come and talk about some of the innovative things they've been doing, and they will invite their vendor partners to come in and present. And so literally you have agencies marketing our companies to each other because they want to spread that innovation. I just say that in cont…

AI assessment note: “We have a number of companies on that path, which would make them, honestly, best of breed”

Q I do, before we move into the quickfire, I want to talk about a couple of key trends we've seen in venture over the last few years. One of them, and let's start with this one being so prominent with you, is kind of the rise of vertically focused funds. Tell me, why do you believe that maybe a vertically focused fund is the right method for an outperforming fund?

A First, I would say one must choose a vertical that is large enough to support massive outcomes. I think GovTech more than meets this test. The U.S. government alone this past year spent a hundred and fifty billion dollars on technology, IT and software. That's bigger than the entire online advertising market. Sorry, Google. Globally, you're talking about governments, uh, Gartner has talked about government spending over four hundred billion dollars a year on IT. That is larger than all of retail, transportation, and utilities combined. That level puts you in the same category as all banking IT worldwide. So it's a massive space. Now, no doubt we are going to miss moonshots, as you alluded to earlier, in other verticals since, you know, we're not investing in those other verticals. But I would say a few things. First of all, I'm pretty confident we're going to hit the GovTech moon. And I think to be sure, though, you know, what I've described as GovTech is really enterprise SaaS, if you discuss the definitions earlier on. And I think a typical great exit in the SaaS space is sort of five to ten billion dollar market cap. If you look at public companies, the largest SaaS player is probably Salesforce today, you know, at a hundred billion dollar valuation. I think it is fair to say that consumer products, you know, Apple, Facebook, Netflix, drive the higher valuations because in t…

AI assessment note: “one must choose a vertical that is large enough to support massive outcomes.”

Q the quickfire, though, on one final element, you said about lowercase there, you said about kind of co-invest And what makes the best? We have a mutual friend in the very talented and charming Matt Mazio. You tweeted recently that spending time with Mazio reminds me why I got into VC. So with that in mind, what do you most look for in your co-investors? Let's start with that. Sure.

A So for the sake of repeating, I guess I would just say again, at the seed stage, and I, cause I think this question does require that context. So at the seed stage, I believe all co-investors focus should be on doing whatever they can to help To really do two things. Again, help the startup achieve product market fit, and put in place the infrastructure for that early scaling, as I mentioned earlier. So, I think that co-investors should bring all of their operational knowledge and experience in actually building a business. So, what I look for, and what we look for in co-investors, is what I would refer to as intensity of engagement, right? So, making a few Series A investor intros, or finding a candidate, you know, or making a couple of customer intros. For us, that's table stakes, right? Right. What I'm talking about is, let me just riff here for a moment, customer discovery process. You know, like, we're listening to the phone calls, recordings of these customer interviews, because even though an entrepreneur says, oh, well, we know, here's what they, well, we, we hear things differently than they do, because we have a different set of experience, right? We're helping with metrics framework. Again, we're SaaS investors, so metrics frameworks and accounting for those with an engineering background, right? Architecture review, sprint infrastructure and practices. Customer pitc…

AI assessment note: “what I look for, and what we look for in co-investors, is what I would refer to as intensity of engagement”

Q What motto or thing do you most frequently revert to, Ron, and why?

A So I would say my dad, he was a first-generation immigrant, so his English wasn't perfect, but he used to say this thing that I often keep in my head. He would say, think, don't sink. I think probably because it just rhymed, but anyway, what I took from that is it basically means that there's always a way out of a problem. And so, uh, whenever I find myself or the portfolio companies, you know, in a jam, I think the key message there is stay on message, stay on the problem, and don't let it overcome and overtake you. If you think your way through it, there is a way to find a doorway out. So, I've often kept that in mind. Plus, it's easy to remember. Think, don't think.

AI assessment note: “He would say, think, don't sink.”

Q having the other day here, Ron. I always believe that ownership is largely built on first check, and with the breakaway companies, the big boys come in at the next round, and you don't get to See them again. A friend of mine thoroughly disagreed with me and said that actually you can strongly build ownership over time, and that's not the right opinion. How would you respond to that?

A Yeah, so I'm in the second camp. Not, of course, against larger ownership stake in the first check, but I would say that if you looked at the 19 investments I've made to date through GovTech Fund, one and two, the overwhelming trend has been certainly taking a meaningful position with leading a round or certainly being one of the, you know, co-leads or significant investors in the, in the earliest rounds. For sure. Adding to my position, we would invest typically through a series B kind of round, but I would, in some cases, perhaps even doubled my ownership position over those first early stages. Now, you know, you could say, well, gee, you're, you're paying a lot more for that extra ownership, but actually when the companies do well, it will all sort of work itself out. And I still will make, you know, obviously a better return on that first dollars. So I think For us, the strategy has worked because we are so engaged in these companies. Yes, we do sign pro rata rights, and we have all those agreements as typical VCs, but honestly, we don't even need them. My sign of success is that a founder has come to us as a round is coming together, and basically, and this has happened often, said, how much do you want? And, you know, we're raising 10. We know you're a small fund. Can you do five? Can you pull some of your LPs in? Can you put together an S SPB. Whatever you, Ron, and GovT…

AI assessment note: “Yeah, so I'm in the second camp.”

Q So why now for the sales cycle reducing so much, as you said there?

A Yeah, sure. So there's a number of factors at play here. One of them is clearly in the emergence of the cloud, and what that has enabled government agencies to do, first of all, is move away from this traditional model of, well, we are a police department of a major city, and we need a new record management system, so what we're going to do is hire a major consulting firm, spend three years designing a brand new system that's custom for us, and then take five years to build it, and by the time we get it, it's technologically obsolete, and, you know, a hundred million dollars over budget and all this nonsense. What's happened now with the cloud and software as a service is, of course, as you've seen in the enterprise, off-the-shelf products that can be easily adopted without going through the CTO, in fact, and so department by department can now make these kinds of technology decisions. I think another dynamic is a procurement itself, and it's related to the first point, as I'm sure you've heard from many of your VC interviews, and of course, as it's commonly known, the cost of technology has dropped so dramatically that the price That my companies can offer in many, many cases is far less than the thresholds, the procurement thresholds that are required by agencies to issue these very long processes. That is to say, every government agency has some kind of a number below which …

AI assessment note: “One of them is clearly in the emergence of the cloud”

Q having the other day here, Ron. I always believe that ownership is largely built on first check, and with the breakaway companies, the big boys come in at the next round, and you don't get to See them again. A friend of mine thoroughly disagreed with me and said that actually you can strongly build ownership over time, and that's not the right opinion. How would you respond to that?

A Yeah, so I'm in the second camp. Not, of course, against larger ownership stake in the first check, but I would say that if you looked at the 19 investments I've made to date through GovTech Fund, one and two, the overwhelming trend has been certainly taking a meaningful position with leading a round or certainly being one of the, you know, co-leads or significant investors in the, in the earliest rounds. For sure. Adding to my position, we would invest typically through a series B kind of round, but I would, in some cases, perhaps even doubled my ownership position over those first early stages. Now, you know, you could say, well, gee, you're, you're paying a lot more for that extra ownership, but actually when the companies do well, it will all sort of work itself out. And I still will make, you know, obviously a better return on that first dollars. So I think For us, the strategy has worked because we are so engaged in these companies. Yes, we do sign pro rata rights, and we have all those agreements as typical VCs, but honestly, we don't even need them. My sign of success is that a founder has come to us as a round is coming together, and basically, and this has happened often, said, how much do you want? And, you know, we're raising 10. We know you're a small fund. Can you do five? Can you pull some of your LPs in? Can you put together an S SPB. Whatever you, Ron, and GovT…

AI assessment note: “I'm in the second camp. Not, of course, against larger ownership stake”

Q to you, though, and that is a true sign, but I do want to dive into all things GovTech today. As we said in the email, I asked for something contrarian, and you said the whole thesis of GovTech is contrarian, but I do want to Let's discuss some nomenclature before we dive in. There's two key terms, really, GovTech and CivicTech. How do you define GovTech and CivicTech, Ron?

A That's a great question. I think it's a good place to start. I think folks often do confuse the two. So to keep it simple, just think of GovTech as the technology that government employees use to do their jobs. So the GovTech funds portfolio today is exclusively comprised of SaaS startups, software as a service startups that, for example, run a police department or manage foster care. Or enable the trillions of dollars spent in government procurement every day, or administer a public school, etc. So think about the U.S. government, if you just take a step back, as sort of the largest enterprise in America. And frankly, I think in most countries, one could say it's probably the largest enterprise in that given country. In the U.S., literally, the U.S. government is the largest enterprise. It employs three and a half times as many people as all of the Dow Jones public companies. If you look at the Dow Jones The US government is three and a half times bigger than all of them combined. As an enterprise, local, state, and federal government combined, it's massive, and so that massive enterprise needs tech to operate day-to-day. Let's call it B to G, if you will. Well, that's GovTech. Civic tech, by contrast, we think of as the technology that empowers citizens to do their civic duties, so if you think about politics, elections, voting, community organizing, policymaking, lobbying, t…

AI assessment note: “think of GovTech as the technology that government employees use to do their jobs”

Q I mean, I love that founding story, but before we dive headlong into all things GovTech, I do want to just touch on two evolutions The first is maybe a more macro. You mentioned obviously there being an LP, being an angel before GovTech. How have you seen the ecosystem really evolve over the last dozen years here, Ron?

A Well, I mean, I think the infusion of capital has really shifted the entire space, and so went from being sort of a collegial, I guess you could say almost insular nature of certainly the seed stage investing market, Has exploded. You have these significant platforms, you know, the Y Combinators of the World and AngelLists, and I can go on and on, that have really, in their words, and I would agree with this, sort of democratized the very essence of angel investing and seed investing. And so, what that has allowed for is a much broader and, I would say, richer set of perspectives and expertise across the seed investor community. And so, you've got now hundreds and hundreds of investors who That also comes from these network effects of significant exits, right? So you've had, of course, the PayPal mafias of individuals that invested, you know, after PayPal, but there's been a number, you know, the Facebook mafia and Twitter and now Uber and others. And so all of those individuals who were fortunate enough to, you know, make some money in those startups are then in turn going off and investing in, of course, can't forget Google. They're all investing in their own networks and spinoffs of relationships they've had. So All of that capital, and all of that democratization, and all of that transparency into the seed investing stage, I think has dramatically changed the way that seed …

AI assessment note: “the infusion of capital has really shifted the entire space”

Q Not at all, but I'd love to get the ball rolling today with a little bit on you, Ron, and tell me, how did you make your way into what I always call the wonderful world of venture with the founding of GovTech?

A Sure. So my story starts when I became a U.S. citizen in So in 2009, my life at that point, I had been part of two tech startups that had exited already at that point. I was parenting my then two young children, getting involved in building a local school, and I was angel investing in mostly in SaaS startups at the time, LP and a couple of VC funds. I owned a home, I made a lot of friends, and so the net of all that is, you know, my point is that my life at that point was very much grounded in the U.S., And so citizenship just really felt like an organic next step for me. I really enjoyed the process of becoming a citizen. I know it sounds a little cliche, but it was really a moving experience. You know, I never had earned a citizenship before. You're sort of bestowed upon it in Canada, right? And I really had this newfound, you know, patriotic connection. I really wanted to give back to the country that in the prior dozen years had really become my home and the home of my children at that point as well. So I looked into getting involved In politics, I had done some politics work in Canada, but I found the two political systems between the two countries, you know, radically different, and becoming part of a political campaign just, it didn't really resonate with me, but as it turned out in 2010, there was a movement growing in the valley, referenced as Gov two dot o, so what wa…

AI assessment note: “So my story starts when I became a U.S. citizen”

Q Thank you so much. It's where the show is a brilliant tool, but tell me, what's the ideal insertion point then for you, and what does kind of product market fit and meaningful traction look like to you in the space?

A So we, by design, I run a fund that has, so fund one, which we stopped investing out of in December of last year of 20, of 2017, had 15 portfolio companies in it, so we're, we're roughly doing one investment a quarter, Think about a sort of three to five year investment horizon. So, 15, 16 portfolio companies per portfolio. As a result of that, it's a high intensity, high engagement model, and we might talk more about that later. And so, as a result of that, as much as I wish I could engage with companies in sort of the idea phase, right, really sort of the ideation and incubation phase, we just don't have the bandwidth. So, a typical company coming to us has a product. I wouldn't call it product-market- But what they've got is a half dozen agencies that have signed on to be beta partners, perhaps just to give feedback. They've got something going in terms of motion, and again, because it's all we do all day long, very good chance I probably know those agencies or people there or whatever, so I can have really meaningful conversations. And then beyond that as well, my diligence actually is many of the agencies. In fact, probably about a third of our deal flow today comes from the U.S. government. I think I'm the only VC that can say that. And that is because agencies will call us and say, have you heard of XYZ company? And if you were to help put together a round of financing, …

AI assessment note: “a typical company coming to us has a product... half dozen agencies that have signed on”

Q I couldn't agree with you more, but I got told recently that VCs and founders, we shouldn't be friends. There's a clear delineation between the two, and that there's got to be a line of professionalism. Where would you stand on that?

A Right. So, I'm not dodging the question. I think you can do both. I literally have situations where As I mentioned earlier, I mentioned some personal dynamics, right? These are, in the GovTech Funds case, these are twenty-year-olds, and especially if they're hitting those growth rates I mentioned earlier as well. I have a few companies now that when we invested, they were two or three people. They're now well over 200 employees in just a few years, and that is a tremendous amount of pressure, I think, for anyone, much less a recent graduate, and there are personal dynamics that come into that. I think you have to find a way, as a seed investor, I feel like I am doing it that way, Where you can have personal conversations when they need to happen. You can be a coach. There's a difference between being my spouse, who I'm having obviously very direct and close conversations with, of course, because we are married to each other, and being a coach to someone. You can still have personal conversations and offer advice and be an empathetic ear and present context for that individual and help them, I don't want to say as a therapist, but in that context, in a professional way, such that the next day at a board meeting, If they're not hitting their numbers, you can slam on them, right? And make sure that they're, they get the message. I don't think that there has to be this dynamic wher…

AI assessment note: “I think you can do both. I literally have situations where”

Q One of my favorite great fires. What's the most memorable LP meeting and why?

A That's a tough one because I think a lot of high net worth individuals and family offices and so on prefer to sort of keep these things confidential. But what I would say, so we're, we're fortunate. We've got some really great LPs. One of them is one of the wealthiest individuals in the world. I mean, just believe that that, and maybe people can fill in the blanks, but I think the takeaway from that was, you know, I had done a lot of Pitching. Again, people didn't understand what I was talking about in the early days, and what's interesting to me is that sometimes the most successful business people, you sit with them and investors, and literally that meeting was all of seven minutes. I sat down, I flew over to see them in the family office and so on, and literally I sat down, they said, okay, we're in for, I think it was two million or three million in fund one, which was, you know, 10% of the fund. We're in, and here are like seven questions or whatever they had, and it's like, okay, and I just answered it, and all I could do was stop myself from Don't forget, I was in pitching mode, and I had to just tell my, like, they just said, yes, you know, shut up. Stop selling. And so, I think that's, for me, memorable in the sense that, like, you know, I was so prepared because I thought, look, this is going to be, you know, this person is very, very successful, and I thought, this i…

AI assessment note: “literally that meeting was all of seven minutes. I sat down, they said, okay, we're in”

Q I do, before we move into the quickfire, I want to talk about a couple of key trends we've seen in venture over the last few years. One of them, and let's start with this one being so prominent with you, is kind of the rise of vertically focused funds. Tell me, why do you believe that maybe a vertically focused fund is the right method for an outperforming fund?

A First, I would say one must choose a vertical that is large enough to support massive outcomes. I think GovTech more than meets this test. The U.S. government alone this past year spent a hundred and fifty billion dollars on technology, IT and software. That's bigger than the entire online advertising market. Sorry, Google. Globally, you're talking about governments, uh, Gartner has talked about government spending over four hundred billion dollars a year on IT. That is larger than all of retail, transportation, and utilities combined. That level puts you in the same category as all banking IT worldwide. So it's a massive space. Now, no doubt we are going to miss moonshots, as you alluded to earlier, in other verticals since, you know, we're not investing in those other verticals. But I would say a few things. First of all, I'm pretty confident we're going to hit the GovTech moon. And I think to be sure, though, you know, what I've described as GovTech is really enterprise SaaS, if you discuss the definitions earlier on. And I think a typical great exit in the SaaS space is sort of five to ten billion dollar market cap. If you look at public companies, the largest SaaS player is probably Salesforce today, you know, at a hundred billion dollar valuation. I think it is fair to say that consumer products, you know, Apple, Facebook, Netflix, drive the higher valuations because in t…

AI assessment note: “one must choose a vertical that is large enough to support massive outcomes.”

Q Final question, pretty quick, Farhan. We mentioned kind of the attributes that it takes to be a great co-investor. Who have you most been impressed by co-investing with, and why, in the last few years?

A Well, I'm fortunate to be co-invested, actually, with lowercase. In both Mark 43 and Binti as well, so that'd be a great starting point. On the larger institutional investor side, I think the folks at First Round Capital have done a great job. Their model's different, so they can't have the same level of intensity that I was describing for the GovTech fund earlier, but they have put in place, I think, very good platforms that can help us as entrepreneurs in very specific ways, and they're able to tap a very good support network. So I really like investing with those, with those folks, But if you look at our portfolio, it's everyone from General Catalyst to Cowboy Ventures and all the rest. I mean, there, there's a number of investors in our companies. Our portfolio, you know, I've invested now seventeen million all in. Our companies have raised nearly three hundred million, uh, in follow on capital. So it's, we've got a lot of good people in the mix. I think we've been fortunate to work with some really good folks.

AI assessment note: “I'm fortunate to be co-invested, actually, with lowercase. In both Mark 43 and Binti”

Q I couldn't agree with you more, but I got told recently that VCs and founders, we shouldn't be friends. There's a clear delineation between the two, and that there's got to be a line of professionalism. Where would you stand on that?

A Right. So, I'm not dodging the question. I think you can do both. I literally have situations where As I mentioned earlier, I mentioned some personal dynamics, right? These are, in the GovTech Funds case, these are twenty-year-olds, and especially if they're hitting those growth rates I mentioned earlier as well. I have a few companies now that when we invested, they were two or three people. They're now well over 200 employees in just a few years, and that is a tremendous amount of pressure, I think, for anyone, much less a recent graduate, and there are personal dynamics that come into that. I think you have to find a way, as a seed investor, I feel like I am doing it that way, Where you can have personal conversations when they need to happen. You can be a coach. There's a difference between being my spouse, who I'm having obviously very direct and close conversations with, of course, because we are married to each other, and being a coach to someone. You can still have personal conversations and offer advice and be an empathetic ear and present context for that individual and help them, I don't want to say as a therapist, but in that context, in a professional way, such that the next day at a board meeting, If they're not hitting their numbers, you can slam on them, right? And make sure that they're, they get the message. I don't think that there has to be this dynamic wher…

AI assessment note: “I think you can do both.”

Q I love it. I'm going to remember that. Biggest challenge in founding a new fund?

A Well, I would say the question here, I think, for any new fund is, Can you have a vision for a new product offering? Because I think a fund is effectively a new product in the context of a ton of competitors. Money's coming from all sorts of directions, and you have to have a unique value proposition that I think will create a long-term competitive moat. So actually, if you think about what I just said, it's actually the exact same question I asked startups. Do you have a vision? Is it unique? Will it create long-term moat? All of those same questions. I think when you're founding a new fund, you have to ask yourself the same thing. And if you can't Answer those questions. Then I don't think you'll be successful.

AI assessment note: “you have to have a unique value proposition that I think will create a long-term”

Q Not at all, but I'd love to get the ball rolling today with a little bit on you, Ron, and tell me, how did you make your way into what I always call the wonderful world of venture with the founding of GovTech?

A Sure. So my story starts when I became a U.S. citizen in So in 2009, my life at that point, I had been part of two tech startups that had exited already at that point. I was parenting my then two young children, getting involved in building a local school, and I was angel investing in mostly in SaaS startups at the time, LP and a couple of VC funds. I owned a home, I made a lot of friends, and so the net of all that is, you know, my point is that my life at that point was very much grounded in the U.S., And so citizenship just really felt like an organic next step for me. I really enjoyed the process of becoming a citizen. I know it sounds a little cliche, but it was really a moving experience. You know, I never had earned a citizenship before. You're sort of bestowed upon it in Canada, right? And I really had this newfound, you know, patriotic connection. I really wanted to give back to the country that in the prior dozen years had really become my home and the home of my children at that point as well. So I looked into getting involved In politics, I had done some politics work in Canada, but I found the two political systems between the two countries, you know, radically different, and becoming part of a political campaign just, it didn't really resonate with me, but as it turned out in 2010, there was a movement growing in the valley, referenced as Gov two dot o, so what wa…

AI assessment note: “there was a movement growing in the valley, referenced as Gov two dot o”

Q Thank you so much. It's where the show is a brilliant tool, but tell me, what's the ideal insertion point then for you, and what does kind of product market fit and meaningful traction look like to you in the space?

A So we, by design, I run a fund that has, so fund one, which we stopped investing out of in December of last year of 20, of 2017, had 15 portfolio companies in it, so we're, we're roughly doing one investment a quarter, Think about a sort of three to five year investment horizon. So, 15, 16 portfolio companies per portfolio. As a result of that, it's a high intensity, high engagement model, and we might talk more about that later. And so, as a result of that, as much as I wish I could engage with companies in sort of the idea phase, right, really sort of the ideation and incubation phase, we just don't have the bandwidth. So, a typical company coming to us has a product. I wouldn't call it product-market- But what they've got is a half dozen agencies that have signed on to be beta partners, perhaps just to give feedback. They've got something going in terms of motion, and again, because it's all we do all day long, very good chance I probably know those agencies or people there or whatever, so I can have really meaningful conversations. And then beyond that as well, my diligence actually is many of the agencies. In fact, probably about a third of our deal flow today comes from the U.S. government. I think I'm the only VC that can say that. And that is because agencies will call us and say, have you heard of XYZ company? And if you were to help put together a round of financing, …

AI assessment note: “a typical company coming to us has a product... half dozen agencies that have signed”

Q a bigger passion point of mine being portfolio construction. You mentioned the 15 to 16 there. I'm very much with you. We kind of aim for a 23 to 25, but with you on the concentrated portfolio, we got a lot of pushback from LPs for not being diversified enough. How do you think about kind of diversification with a much more concentrated portfolio than a lot of your peers?

A Sure, and it's, it's a valid point. I understand. I think, however, and all I can look to is the data again, If I look at, you know, my experience with the lowercase capital portfolio as an LP there, I think they had a very concentrated portfolio and tremendous results. As an angel investor, my focus was very much enterprise SaaS, and I was only doing one or two or three investments a year. Obviously, as we talked about earlier, the dynamics as an angel investor are different. My board of direct consisted of my wife, but still the pressure was there, right? What are you doing with our money? And she would underline our money. So I think that there is something that To be said for their seed stage investors, that they should be highly engaged in their companies and really help those companies achieve product market fit and put in place the infrastructure for early scaling. That's kind of our view on what we should be doing are those two things. And we can get into all the things the GovTech Fund does and how we think about co-investors and so on, maybe down the road. But I would say if you want to do that well, I think it's difficult to do that with 50 or a hundred companies, and I think the perspective, just to come back to your question, I think the perspective that LPs have is, well, it's a portfolio play, and so you're going to make a lot of mistakes, and also, if you're a g…

AI assessment note: “In our case, we only know one thing, and hopefully we know it well”