The Exchanges

Q there, obviously you meet them in the fundraising process, but in terms of post-funding and in that relationship building phase, what do those encounters look like? Is that you spending time with them in the office in hiring process, Is that you spending time with them cycling on the weekend? What is the tangible things one can do to build a relationship with the exec team in a natural way?

A I'll give you an example. Given that we've been talking about Zoom, I make it a priority to drive down to San Jose at least once a month and catch up with Eric. And sometimes we have a long agenda. Sometimes it's just about chatting about what's going on in our lives. It's maintaining that relationship. And when I schedule those meetings, I also schedule time with the different executives. I'd say the head of sales, Greg, or head of marketing, or CMO Janine, or dad, or head of product, and I just spend an hour with them, talking about what's on your mind, what's a priority for you, and a question I ask them is, if you had a magic wand, and you could remove a roadblock from whatever you're working on, what would that be? And I take that as a cue to focus on whatever they say they want to fix. I make that a priority. I keep a list of what are the priorities for each company, and that's not just the CEO. It's everyone else on the team. If you don't schedule it, it won't happen. And what I realized is that the executives not only appreciate it a lot, it also helps the CEO a lot because the CEOs don't feel that they're the bottleneck and everything needs to go through them. This gives them a ton of leverage.

AI assessment note: “I make it a priority to drive down to San Jose at least once a month”

Q Now I have to ask a really interesting one for me here, hearing that you joined as a senior associate. What was that transition moment when you actually realized that this was the path for you and this was the right career for you and that actually you wanted to stay in this? Was there a moment when that crystallized?

A There was not a specific moment, but there were three big phases in that decision making process. The first phase was focus on, is this a job that I like? Do I love doing what I do? And it took me a couple of years, and I realized that I loved working with entrepreneurs. I loved the sales nature of our job. I mean, if you distill everything down to the essence, we're sales reps as venture capitalists. We're not, you know, like fancy Sand Hill Road offices waiting for entrepreneurs to come to us. We're out there Trying to identify, trying to convince, trying to recruit people, trying to get the best LPs. So I kind of loved that. That's what I did when I was running my company. The second phase was more about, am I any good at this? And as you know, venture is not a sprint. It's a marathon. So it's hard to realize if you're good in a short period of time. So I didn't have conclusive evidence that I was good at it, but at least the evidence that I had showed that I didn't suck at it. I was able to identify some interesting companies, build relationships with the entrepreneurs, and convince them to partner with us, so at least I had some early evidence that I wasn't horrible at it. And then the last phase was more about, ok, I want to do this, I'm not horrible at it, so where should I focus my energy on? What's the right platform for me to spend the next few decades? And that's whe…

AI assessment note: “There was not a specific moment, but there were three big phases in that decision”

Q of kind of the other ways that in more traditional and formal sense, VCs are involved is often at the board level. I'm super intrigued now, as you said, in nine years or so at Emergence, how have you seen yourself evolve as a board member as the time has progressed and as you've kind of seen the successes really come to fruition? Have you changed as a board member?

A I have. I'm coming from Argentina where there's no venture capital. When you think of a board of directors, that's typically a family. They own the business and they just talk about whatever they want to talk. Or a more professional board where the board is Basically dictating the rules and telling the CEO and the executives what to do. So when I first started my career in venture, I felt the board was going to be this bureaucratic, rule oriented, boring, just like check the box type of a group. And I didn't look up for board meetings. It's like, okay, we have a board meeting. I'll show up. I'll take notes. And over time, what I realized is that those board meetings are great opportunities to To align everyone, but most of the work gets done outside of board meetings. So the big decisions come up when you're having this one-on-ones with the CEO, the CMO, the head of revenue. That's when you identify the real problems, and that's when you try to help out, and then you use board meetings to make sure that everyone's aligned, and that everyone knows that the three priorities for this firm are Getting this customer over the line, hiring a head of customer success, and making sure that we close a partnership with this other company.

AI assessment note: “I have. ... over time, what I realized is that those board meetings are great opportunities”

Q is eight, so, uh. But I do want to finish today, before we move into the quickfire, one kind of layer above emergence, even. To the landscape itself, we're seeing more and more funds, and also larger and larger funds, as you know, being raised. So, broad and probably a terrible question, so forgive me for asking, but I'm super intrigued. How do you see the future of venture, Santee?

A I see the future of venture changing a lot, and I see it changing not just towards this huge funds and a lot of early stage seed funds. I see it evolving into more of there's going to be capital for different needs, and ClearBank is a great example. When some companies would have raised venture dollars to scale advertising spend, now they can use ClearBank It's a non-dilutive way to fund your expansion, and entrepreneurs are a lot happier, and ClearBank becomes a great partner for that. So I feel that venture capital is going to get disrupted, and I feel it's not going to get disrupted by humongous funds. It's going to get disrupted by people who are funding businesses and are providing the right capital for the right needs. Venture capital should be used For discovery, for product development, early on when you're taking a risk, then when the model is working out, you should be able to access a different type of capital, and we're gonna start seeing those distinctions for different things as well. So I don't think venture capital is gonna go away. I think it's gonna evolve, and as you now have different SaaS applications to do different things, you're gonna have different types of capital that are gonna address different stages along your journey.

AI assessment note: “I see it evolving into more of there's going to be capital for different needs”

Q Not at all, but I chatted to your partner, Jason Green, before the show, and he said to me about your interesting path into venture, and so I want to start on that. So, Santee, how did you make your way into what I always call the wonderful world of venture, and how did you come to be a GP at Emergence?

A So I totally stumbled upon venture. I grew up in Argentina. When I graduated from college, I couldn't get a job. So as I was trying to figure out what to do, I started a tech company and did that for a few years. And we moved our office to Washington, D.C. because we were doing some government contracts in the compliance training category. And I thought that that was it. I thought that that's how you build a technology company. And then in 2006, I got involved with an organization called Endeavor that works with entrepreneurs in emerging markets. It's an incredible organization, and they invited me to Silicon Valley. I've never been to California, so I said, why not? I'll just explore and learn, and that's when I first got connected with the world of venture capital, and I realized that venture capital could help me build a better company, so I decided that I was gonna move on from my company and And come to California, join a venture capital firm, and learn how people make decisions. So that's what I did. I moved here in 2010, determined to get into venture. I talked to a number of venture firms, and the message that I got from a lot of venture firms was that given my background, I was not a perfect fit for venture. And when I double clicked on what they meant by that, it was more that there were not a lot of Latinos in venture, so I had to look for something else. And that ac…

AI assessment note: “I moved here in 2010, determined to get into venture.”

Q kind of tangible takeaway and learning for you from that process. And I do want to stay on you itself though, because when we chatted before, Before we spoke about kind of superpowers or X factors that maybe kind of each VC has. Some are analytical, some are networks. So I wanted to ask you, when you think of your own, Santi, what would you say your X factor is?

A I think I have something that is not a skill, but it's almost like a condition, and I call it the immigrant advantage. I grew up in Argentina. It's a completely different environment where you're exposed to Different challenges and different people. I also had the great opportunity to travel and meet people from different cultures. So that opened my mind to see the world with a different lens. And I'll give you an example. The fact that I was able to meet Eric, the founder of Zoom, early on, it's not that I'm smart and that's like, oh, I did a lot of work. It's, I had a real need. I wanted to stay in touch with My friends and family in Argentina, and I couldn't find any technology that allowed me to have a conversation. I had email, I had phone, I had other video conferencing solutions, but they were more like, okay, I'm going to use it whenever I need something, not just to stay in touch and build a relationship, because the quality wasn't there, and I came out of those conversations incredibly frustrated. So I've always been looking for Something that worked. And when I came across Zoom, I realized that it was a lot better than the alternatives. And that's why I don't fault people here in the Valley for saying video conferencing is done. It's not going to happen again. It's a race to the bottom. There's no room for a new player. And that's because I have a different set of ex…

AI assessment note: “I think I have something that is not a skill... I call it the immigrant advantage.”

Q there, obviously you meet them in the fundraising process, but in terms of post-funding and in that relationship building phase, what do those encounters look like? Is that you spending time with them in the office in hiring process, Is that you spending time with them cycling on the weekend? What is the tangible things one can do to build a relationship with the exec team in a natural way?

A I'll give you an example. Given that we've been talking about Zoom, I make it a priority to drive down to San Jose at least once a month and catch up with Eric. And sometimes we have a long agenda. Sometimes it's just about chatting about what's going on in our lives. It's maintaining that relationship. And when I schedule those meetings, I also schedule time with the different executives. I'd say the head of sales, Greg, or head of marketing, or CMO Janine, or dad, or head of product, and I just spend an hour with them, talking about what's on your mind, what's a priority for you, and a question I ask them is, if you had a magic wand, and you could remove a roadblock from whatever you're working on, what would that be? And I take that as a cue to focus on whatever they say they want to fix. I make that a priority. I keep a list of what are the priorities for each company, and that's not just the CEO. It's everyone else on the team. If you don't schedule it, it won't happen. And what I realized is that the executives not only appreciate it a lot, it also helps the CEO a lot because the CEOs don't feel that they're the bottleneck and everything needs to go through them. This gives them a ton of leverage.

AI assessment note: “I make it a priority to drive down to San Jose at least once a month”

Q absolutely see that in terms of being able to access IT. I do want to kind of discuss the firm strategy, though, because obviously, with the enterprise focus and the insertion .1 would think that there would be less zeros and more of a batting average game. Can I ask, how do you think about this Portfolio concentration and construction today with emergence. And what's kind of leading that thought?

A So we invest in anywhere between five to seven new companies a year. That means that each partner here will do about one new investment a year. That's incredibly concentrated. And that's not because we don't want to work with more companies. It is because we want to work really hard with the companies that we partner with. And we know that it takes a lot of work. The entire firm is focused on the same category. So then when we make an investment and we partner with a team, our entire firm is going to dive in, help them set the right strategy, the right recruiting processes, helping bring in the right people. So that takes a lot of work. We become almost part of their team. And that's one of the best compliments we get many times from our portfolio companies. They feel that we're We're part of their team. We're helping them build, and that's why, again, going back to, we don't need to be in every great company. We need to make sure that every company we're in is great. That enables us to have a highly concentrated portfolio. We typically have about 20 to 22 companies per fund, and that works incredibly well, because over three to four years, we're gonna partner with five to seven new companies a year, and we're gonna build incredibly strong relationships. That also forces us to be incredibly intentional when it comes to partnering with those companies, because we're not going to…

AI assessment note: “So we invest in anywhere between five to seven new companies a year.”

Q kind of tangible takeaway and learning for you from that process. And I do want to stay on you itself though, because when we chatted before, Before we spoke about kind of superpowers or X factors that maybe kind of each VC has. Some are analytical, some are networks. So I wanted to ask you, when you think of your own, Santi, what would you say your X factor is?

A I think I have something that is not a skill, but it's almost like a condition, and I call it the immigrant advantage. I grew up in Argentina. It's a completely different environment where you're exposed to Different challenges and different people. I also had the great opportunity to travel and meet people from different cultures. So that opened my mind to see the world with a different lens. And I'll give you an example. The fact that I was able to meet Eric, the founder of Zoom, early on, it's not that I'm smart and that's like, oh, I did a lot of work. It's, I had a real need. I wanted to stay in touch with My friends and family in Argentina, and I couldn't find any technology that allowed me to have a conversation. I had email, I had phone, I had other video conferencing solutions, but they were more like, okay, I'm going to use it whenever I need something, not just to stay in touch and build a relationship, because the quality wasn't there, and I came out of those conversations incredibly frustrated. So I've always been looking for Something that worked. And when I came across Zoom, I realized that it was a lot better than the alternatives. And that's why I don't fault people here in the Valley for saying video conferencing is done. It's not going to happen again. It's a race to the bottom. There's no room for a new player. And that's because I have a different set of ex…

AI assessment note: “I call it the immigrant advantage.”

Q Not at all, but I chatted to your partner, Jason Green, before the show, and he said to me about your interesting path into venture, and so I want to start on that. So, Santee, how did you make your way into what I always call the wonderful world of venture, and how did you come to be a GP at Emergence?

A So I totally stumbled upon venture. I grew up in Argentina. When I graduated from college, I couldn't get a job. So as I was trying to figure out what to do, I started a tech company and did that for a few years. And we moved our office to Washington, D.C. because we were doing some government contracts in the compliance training category. And I thought that that was it. I thought that that's how you build a technology company. And then in 2006, I got involved with an organization called Endeavor that works with entrepreneurs in emerging markets. It's an incredible organization, and they invited me to Silicon Valley. I've never been to California, so I said, why not? I'll just explore and learn, and that's when I first got connected with the world of venture capital, and I realized that venture capital could help me build a better company, so I decided that I was gonna move on from my company and And come to California, join a venture capital firm, and learn how people make decisions. So that's what I did. I moved here in 2010, determined to get into venture. I talked to a number of venture firms, and the message that I got from a lot of venture firms was that given my background, I was not a perfect fit for venture. And when I double clicked on what they meant by that, it was more that there were not a lot of Latinos in venture, so I had to look for something else. And that ac…

AI assessment note: “So I totally stumbled upon venture.”

Q I'm really concerned by the compression and timeline on fundraising cycles with founders saying, We're raising for two weeks, and we will accept term sheet after X, Y, Z. And it really constrains the amount of time that founders have to build a relationship with the investor, the amount of work the investor can do. Am I right to be concerned by this? And how do you think about that?

A I think entrepreneurs are going to start learning from that. It's like getting married after meeting someone online for two weeks, chatting, and then the next thing you do is you get married. That's, I mean, the majority of the cases, that's going to be problematic. You might get lucky every now and then, but it's going to be problematic. So I'm with you. I believe that that's becoming an issue, and what we're seeing is that the most experienced entrepreneurs and the entrepreneurs with the most experienced advisors, board members, and investors are doing it right. They're focused on building relationships and making sure they find The right partner, the right deal, and the right terms. The ones that are not that experienced, are not surrounded by the right advisors, are running these short processes, trying to optimize for price and valuation, and then we hear some horror stories of them saying, oh, this marriage is not working, and they can't get out of it. At least if you get married, you can get a divorce. Here, divorces are much harder to pull off.

AI assessment note: “So I'm with you. I believe that that's becoming an issue”

Q that you guys have. We very much have the same with Stride, so totally aligned on that. I guess my next question though is, in terms of the absolute winners that you guys have had at time and time again, Viva to Zoom, my question is, in terms of kind of concentration of dollars, how do you as a firm think about reserve allocation, and what's that investment decision-making process?

A We did an analysis, now that we have 15 years of data, and the typical strategy that a lot of firms follow is, they write that initial check, and then they want to do pro rata in every subsequent round. Because they want to maintain the big ownership. What we realize for our fund and our strategy, we typically generate most of the returns when we write that first and second check. Then everything else we do afterwards, it's not in line with the initial returns that we're generating. So our strategy has shifted over the years from we want to participate in every round until the company goes public and beyond, to we're going to Be incredibly concentrated early on, and then we're going to help those companies find the right partners to support them along the way, and then if they, if these companies need more support, we have reserves to support them, but we're not going to crowd out other investors just to make sure that we do our prorata.

AI assessment note: “if these companies need more support, we have reserves to support them”

Q I totally agree with you on that. I've seen it first. I do want to finish, though, on the most recent publicly announced investment for you, Santi, and why did you get so excited?

A So I can talk about OpenPath. It's a next-gen access control company, and this also came from my own personal frustration. We're a small firm, and now we have an office in San Mateo and one in San Francisco, so I carry around four or five different access cards to get into the garage, to get into the building, to get into the office, and I never have the right So I'm always calling someone to let me in, and it's unbelievable that we're still using this HID card to get into the office when we're always carrying around a phone. So I've been looking for a company that would disrupt access control for many years, and when I met Alex and James, founders of OpenPath, I not only got excited because they were doing it right, but also because they were the right type of founder. With that long-term vision, they've been there, done that, And they're optimizing for the right thing, not for the best thing. So very similar to Eric. So I'm pretty excited about it. We're happy customers of OpenPath. And if I fast forward a few years, I see everyone using next-gen access control with mobile phone being their credentials and not carrying around HIT cards.

AI assessment note: “I not only got excited because they were doing it right, but also because”

Q Now I have to ask a really interesting one for me here, hearing that you joined as a senior associate. What was that transition moment when you actually realized that this was the path for you and this was the right career for you and that actually you wanted to stay in this? Was there a moment when that crystallized?

A There was not a specific moment, but there were three big phases in that decision making process. The first phase was focus on, is this a job that I like? Do I love doing what I do? And it took me a couple of years, and I realized that I loved working with entrepreneurs. I loved the sales nature of our job. I mean, if you distill everything down to the essence, we're sales reps as venture capitalists. We're not, you know, like fancy Sand Hill Road offices waiting for entrepreneurs to come to us. We're out there Trying to identify, trying to convince, trying to recruit people, trying to get the best LPs. So I kind of loved that. That's what I did when I was running my company. The second phase was more about, am I any good at this? And as you know, venture is not a sprint. It's a marathon. So it's hard to realize if you're good in a short period of time. So I didn't have conclusive evidence that I was good at it, but at least the evidence that I had showed that I didn't suck at it. I was able to identify some interesting companies, build relationships with the entrepreneurs, and convince them to partner with us, so at least I had some early evidence that I wasn't horrible at it. And then the last phase was more about, ok, I want to do this, I'm not horrible at it, so where should I focus my energy on? What's the right platform for me to spend the next few decades? And that's whe…

AI assessment note: “There was not a specific moment, but there were three big phases in that decision making”

Q of kind of the other ways that in more traditional and formal sense, VCs are involved is often at the board level. I'm super intrigued now, as you said, in nine years or so at Emergence, how have you seen yourself evolve as a board member as the time has progressed and as you've kind of seen the successes really come to fruition? Have you changed as a board member?

A I have. I'm coming from Argentina where there's no venture capital. When you think of a board of directors, that's typically a family. They own the business and they just talk about whatever they want to talk. Or a more professional board where the board is Basically dictating the rules and telling the CEO and the executives what to do. So when I first started my career in venture, I felt the board was going to be this bureaucratic, rule oriented, boring, just like check the box type of a group. And I didn't look up for board meetings. It's like, okay, we have a board meeting. I'll show up. I'll take notes. And over time, what I realized is that those board meetings are great opportunities to To align everyone, but most of the work gets done outside of board meetings. So the big decisions come up when you're having this one-on-ones with the CEO, the CMO, the head of revenue. That's when you identify the real problems, and that's when you try to help out, and then you use board meetings to make sure that everyone's aligned, and that everyone knows that the three priorities for this firm are Getting this customer over the line, hiring a head of customer success, and making sure that we close a partnership with this other company.

AI assessment note: “I have.”

Q Okay, so I'm going to fly out to the West Coast, and I need a book. What book am I going to take?

A The book that I recommend a lot of the entrepreneurs that I work with to read is Candid by Voltaire, and it's not a mainstream book that a lot of entrepreneurs are going to read here. They're going to read The standard books, and I, I mean, I've read this book probably, like, 20 or 30 times, because whenever I read it, I get something new, and it talks about this optimism and resilience in the face of adversity, and that's a lot of what I've been through in my life, and I think it's a lot of what entrepreneurs go through as they are starting businesses, so I feel that it's a very short book. You can read it in one night, and it's incredibly insightful, In terms of how do you react when you're facing a roadblock?

AI assessment note: “The book that I recommend a lot of the entrepreneurs that I work with to read is Candid by Voltaire”

Q absolutely see that in terms of being able to access IT. I do want to kind of discuss the firm strategy, though, because obviously, with the enterprise focus and the insertion .1 would think that there would be less zeros and more of a batting average game. Can I ask, how do you think about this Portfolio concentration and construction today with emergence. And what's kind of leading that thought?

A So we invest in anywhere between five to seven new companies a year. That means that each partner here will do about one new investment a year. That's incredibly concentrated. And that's not because we don't want to work with more companies. It is because we want to work really hard with the companies that we partner with. And we know that it takes a lot of work. The entire firm is focused on the same category. So then when we make an investment and we partner with a team, our entire firm is going to dive in, help them set the right strategy, the right recruiting processes, helping bring in the right people. So that takes a lot of work. We become almost part of their team. And that's one of the best compliments we get many times from our portfolio companies. They feel that we're We're part of their team. We're helping them build, and that's why, again, going back to, we don't need to be in every great company. We need to make sure that every company we're in is great. That enables us to have a highly concentrated portfolio. We typically have about 20 to 22 companies per fund, and that works incredibly well, because over three to four years, we're gonna partner with five to seven new companies a year, and we're gonna build incredibly strong relationships. That also forces us to be incredibly intentional when it comes to partnering with those companies, because we're not going to…

AI assessment note: “That enables us to have a highly concentrated portfolio.”

Q Can I ask, we spoke about the pricing there, and really appreciate the pushback. In terms of assessing your own price sensitivity, how do you think about that Stay in a time of real excess capital supply and pricing being quite mind blowing in some cases. So how do you think about your own price sensitivity?

A So I'll say two things. One of them is at emergence, given that we're focused on early stage, we're going to write a check and we're going to focus on ownership. Given that we have this concentrated portfolio, we need to get paid if things work out, because we're going to do a lot of work for those companies. So that's why for us, Ownership is incredibly important, and, and that's tied to price, but it's not directly, that there's not a white or black distinction, or if you're beyond this price, we're not going to do it, and that gets me to the second point, which is sometimes when we stretched a little bit beyond our comfort zone, that shows that we're incredibly convinced about this entrepreneur's ability to build something, and those have turned out ok. So we have some guidelines, But we want to make sure that when we're investing, we're not checking boxes and following a preset process. We want to make sure that we have what we call unanimous enthusiasm, meaning that everyone around the table is excited, not just supportive, to partner with this entrepreneur.

AI assessment note: “there's not a white or black distinction, or if you're beyond this price”

Q to me before, you know, you love the relationship-building process with the founders themselves, and one of the founders of yours that I spoke to before was Roy at And he asked, in terms of that process of getting into venture in the early days, what was the most challenging thing you had to overcome to get to where you are today? And also, how did you take the knockdowns?

A So the biggest hurdle that I had to overcome is the fact that there were not a lot of people like me in venture. And this was before the diversity conversation was made more public. So this was back in 2010. So people were a lot more direct. About someone like me getting into venture. I remember having conversations and people saying, oh, what are you going to do? You're not going to be able to take an entrepreneur to a baseball game or a basketball game. They won't want to go to see a soccer game. That's like, okay, is that how you're going to measure the ability of someone to succeed? So I felt it was very narrow-minded, but people had very strong biases in terms of who's the right person to be in venture, who's not. And that translated into who's the right entrepreneur that I want to back and who's not. So for me, I took that as a learning opportunity, and I also took it as a commitment not to applying those biases when I was going to build my next company. And it's like looking at people for who they are and not how they look or how they talk.

AI assessment note: “the biggest hurdle that I had to overcome is the fact that there were not”

Q I do have to also, we mentioned a couple of your investments there, from Chorus to Top Hat to Michelle at Clearbank and Eric at Zoom. In terms of the portfolio itself, I always think a big question within VC is how you allocate time across the portfolio. So how much time do you spend with the team, and how do you think about that time allocation across the portfolio?

A I don't think I own my time. I think when I commit to working with the entrepreneurs, I commit to being with them when things are going well, and where they're going through a learning experience. So I just tell them that they can email me, text me, call me whenever they need something, and I commit to responding to them within a few hours. And it's not just the CEOs. I spend a lot of time building relationship with the executive team, Because what I realized is for a CEO, if you can help them build stronger relationships, and if you can help the executives be better at what they do, that helps the CEOs, and that helps the company. So I make it a priority to give the CEO leverage by helping not just him or her, but by helping the entire executive team. So that's the first thing I do when I wake up in the morning. I have a priority inbox where I get All the emails and messages from the executives and CEOs of the companies that I work with, and that's the first thing I address, and that's the last thing I do before I go to bed. My time is their time.

AI assessment note: “I don't think I own my time... My time is their time.”

Q that we have seen over the last few years, do you not think there's increasing overlap between kind of traditionally consumer businesses, be it DTC brands to gaming companies, now with The rise of bottoms up SaaS businesses in terms of performance boxing, in terms of adoption cycles. Would you not say that the overlap is so considerable now that there's so many skills you could carry between the two?

A Yes, and the difference with pure consumer plays is that you're solving a business problem. So what we're seeing, and Zoom is a great example of this, the most successful companies are catering the consumer within a business setting to And then the IT organization is an afterthought. They build for IT later on. It used to be the other way around, where you would build for IT, and the end user was the afterthought. So now that that changed, and you need to build and delight that end user, but you need to make sure that you're solving a real business problem, because that's how you're going to get to the bigger, more enterprise contracts, and that's how you're going to get IT to embrace your solutions. If you don't do that, if you're not solving a real business problem, and you're just solving something that the end user wants, but that's it, you're not going to be able to build a true enterprise company.

AI assessment note: “Yes, and the difference with pure consumer plays is that you're solving a business problem.”

Q that you guys have. We very much have the same with Stride, so totally aligned on that. I guess my next question though is, in terms of the absolute winners that you guys have had at time and time again, Viva to Zoom, my question is, in terms of kind of concentration of dollars, how do you as a firm think about reserve allocation, and what's that investment decision-making process?

A We did an analysis, now that we have 15 years of data, and the typical strategy that a lot of firms follow is, they write that initial check, and then they want to do pro rata in every subsequent round. Because they want to maintain the big ownership. What we realize for our fund and our strategy, we typically generate most of the returns when we write that first and second check. Then everything else we do afterwards, it's not in line with the initial returns that we're generating. So our strategy has shifted over the years from we want to participate in every round until the company goes public and beyond, to we're going to Be incredibly concentrated early on, and then we're going to help those companies find the right partners to support them along the way, and then if they, if these companies need more support, we have reserves to support them, but we're not going to crowd out other investors just to make sure that we do our prorata.

AI assessment note: “So our strategy has shifted over the years from we want to participate in every round”

Q as well, because they're totally aligned on that. I do have to ask, in the UK and in Europe, we have a big signaling risk of multi-stage firms that invest at seed, and then if they don't follow on, it makes it very difficult for the companies to To raise A and B considering they haven't followed on. Is there signaling risk in the valley, or is that maybe overblown?

A Oh, totally, totally, and a lot of entrepreneurs underestimate the negative effect of signaling. They raise from this multi-stage funds, and this multi-stage funds are incredibly focused, and typically they follow on on about 30% of their earlier stage investments, and that's an incredibly unpowerful negative signal for those founders. So that's why for us, when we think about what do we want our founders to do when they raise the next round, we want them to raise that round from the right investor who's focused on that next round, and not all the way through IPO, because that could create some issues. And sometimes it's not that the investor is saying, we don't like the company. They're saying, we like this company better, and we are not that close, so we're not sure things are going to inflect. So that's why for us, this strategy of being incredibly focused It's the right strategy, not just for us as investors, but also for entrepreneurs.

AI assessment note: “Oh, totally, totally, and a lot of entrepreneurs underestimate the negative effect of signaling.”

Q I'm really concerned by the compression and timeline on fundraising cycles with founders saying, We're raising for two weeks, and we will accept term sheet after X, Y, Z. And it really constrains the amount of time that founders have to build a relationship with the investor, the amount of work the investor can do. Am I right to be concerned by this? And how do you think about that?

A I think entrepreneurs are going to start learning from that. It's like getting married after meeting someone online for two weeks, chatting, and then the next thing you do is you get married. That's, I mean, the majority of the cases, that's going to be problematic. You might get lucky every now and then, but it's going to be problematic. So I'm with you. I believe that that's becoming an issue, and what we're seeing is that the most experienced entrepreneurs and the entrepreneurs with the most experienced advisors, board members, and investors are doing it right. They're focused on building relationships and making sure they find The right partner, the right deal, and the right terms. The ones that are not that experienced, are not surrounded by the right advisors, are running these short processes, trying to optimize for price and valuation, and then we hear some horror stories of them saying, oh, this marriage is not working, and they can't get out of it. At least if you get married, you can get a divorce. Here, divorces are much harder to pull off.

AI assessment note: “So I'm with you. I believe that that's becoming an issue”

Q Can I ask, we spoke about the pricing there, and really appreciate the pushback. In terms of assessing your own price sensitivity, how do you think about that Stay in a time of real excess capital supply and pricing being quite mind blowing in some cases. So how do you think about your own price sensitivity?

A So I'll say two things. One of them is at emergence, given that we're focused on early stage, we're going to write a check and we're going to focus on ownership. Given that we have this concentrated portfolio, we need to get paid if things work out, because we're going to do a lot of work for those companies. So that's why for us, Ownership is incredibly important, and, and that's tied to price, but it's not directly, that there's not a white or black distinction, or if you're beyond this price, we're not going to do it, and that gets me to the second point, which is sometimes when we stretched a little bit beyond our comfort zone, that shows that we're incredibly convinced about this entrepreneur's ability to build something, and those have turned out ok. So we have some guidelines, But we want to make sure that when we're investing, we're not checking boxes and following a preset process. We want to make sure that we have what we call unanimous enthusiasm, meaning that everyone around the table is excited, not just supportive, to partner with this entrepreneur.

AI assessment note: “Ownership is incredibly important, and, and that's tied to price, but it's not directly”

Q Yeah, that is so wonderful to hear, and I couldn't agree with you more. What do you believe that most around you disbelieve, Santi?

A And it's an interesting thought, and this comes from being close to Eric and the Zoom team, is that You don't necessarily need to follow what everyone says that's going to happen. If you're here in the Valley, everyone's talking about the next artificial intelligent mobile app built on blockchain, and they're always trying to find the next new, new, and they overlook a lot of the productivity apps that we use every day that haven't changed in decades. People didn't think that there was a need for a new video conferencing solution. Now they know it. What are the other technologies that we've been using that people take for granted? Email, calendar, CRM, marketing automation, those haven't changed significantly in decades. So I believe that in the next 10 years, we're gonna see a lot of the leading companies in those categories disrupted by new generations of companies that are rebuilding the entire stack, taking into account how the world works.

AI assessment note: “So I believe that in the next 10 years, we're gonna see a lot of the leading companies”

Q No, I do totally agree with you. I have to also, on Zoom, it's too interesting a one not to double click on. In terms of Eric and your first meetings with him, what was it that excited you so much, especially with regards to Eric as the founder, and how have you seen Eric evolve as a founder over the incredible journey that Zoom has been?

A So Eric has always been incredibly obsessed with customers. The only way I was able to convince him to share Zoom with the rest of my team here was a product demo. It was not a fundraising pitch, so he came over, and he asked us to download the app and start a video conference call, and it worked incredibly well, and you know that when someone's pitching, they typically try to stay away from demos because they don't work. Eric wasn't even pitching. He was just download the app and use it. So that customer obsession is one of the key engines that helps Zoom get to where it is now. And Eric has always been this incredible human being focused on the right thing and not focused on, oh, I want to get the best customer or the best deal or the best valuation or the best pricing. He's always focused on finding the right customer, the right valuation, the right executive. And even though it sounds subtle, it makes a huge difference.

AI assessment note: “So Eric has always been incredibly obsessed with customers.”

Q No, I do totally agree with you. I have to also, on Zoom, it's too interesting a one not to double click on. In terms of Eric and your first meetings with him, what was it that excited you so much, especially with regards to Eric as the founder, and how have you seen Eric evolve as a founder over the incredible journey that Zoom has been?

A So Eric has always been incredibly obsessed with customers. The only way I was able to convince him to share Zoom with the rest of my team here was a product demo. It was not a fundraising pitch, so he came over, and he asked us to download the app and start a video conference call, and it worked incredibly well, and you know that when someone's pitching, they typically try to stay away from demos because they don't work. Eric wasn't even pitching. He was just download the app and use it. So that customer obsession is one of the key engines that helps Zoom get to where it is now. And Eric has always been this incredible human being focused on the right thing and not focused on, oh, I want to get the best customer or the best deal or the best valuation or the best pricing. He's always focused on finding the right customer, the right valuation, the right executive. And even though it sounds subtle, it makes a huge difference.

AI assessment note: “So that customer obsession is one of the key engines”