The Exchanges

Q Sure, thanks, Taylor. So, Jason, my question is about the, I guess you could call it a subcategory of SaaS solutions that are pre-built or pre-tailored by vertical industry. We have such an app that's been pre-tailored for two industries. I just want to get your two cents. Do you think that customers are ready to buy into enterprise-level apps that are pre-tailored?

A Look, I actually think it's nothing new. I mean, check out the story of Service Titan, SaaS for technicians and HVAC maintenance. As vertical software is nothing new. There has been a niche piece of software for bookkeepers, for dentist office, for doctor's offices. We think these are like new categories. They're not. Walk into any of the oldest. There are multiple categories of SaaS for veterinarians. Okay. I don't know if anyone will have a ten billion dollar outcome, but people have been writing DOS programs and windows programs for years. So it's, it's not new. And it's certainly the case. Look at toast. Let's just do it for restaurants. Toast is essentially taking a combination of square, right? Plus other systems say we're going to do square for restaurants. Square had a little bit of point of sale, right? It had its readers and actually a significant chunk of square's business is to restaurants, right? To small restaurants. Toast said, Hey, we're going to just do one thing, right? And so there's lots of stories. Klaviyo, which was the only IPO of this year is marketing just for e-commerce. In fact, Klaviyo really is just marketing only for Shopify customers. 70% of Klaviyo's almost one billion in revenue only not only comes from e-commerce, it only comes from Shopify, but e-commerce, but, but emails for e-commerce are much more valuable than normal emails, right? Because…

AI assessment note: “Look, I actually think it's nothing new. I mean, check out the story of Service Titan”

Q next metric because we do have a lot to cover and, and I want to talk about, uh, ARR, which, which kind of started out as a It was a well-defined metric, you know, and then it became something pretty fluid between companies. So I wanted to hear, Jason, your perspective on, you know, should all companies, should all SaaS companies measure ARR? What changed since we started using it?

A Well, look, I think the most, I think, I think we could probably all agree that, and this happens, this has happened even with terms like cloud or SAS, it's gotten corrupted over the years, right? And so ARR used to stand for annualized recurring revenue, um, and then fintech exploded. And, uh, and, and so they all wanted to claim they had ARR, even if a lot of fintech revenue is not recurring, right? Not all Stripe payments are recurring. Um, bank banking as a service is not recurring, but they still all claim they had ARR, right? So we had that issue and then it, it wasn't nowhere in that ARR was the word SAS or software, but it should have been because the other thing that happened is hybrid models, models that are services and software models that are hardware and software all started to claim it was ARR, right? And, um, I wrote up today on the Sastra blog, if folks want to look Matterport, I don't know if you ever use Matterport. It's like that cool three D software where you can walk through houses and buildings. It's like super cool, but half their revenue is from services and cameras, so their gross margins are in the forties, right? I think Monday approaches 80, right? Or, you know, this, there's, there's some loose definitions of gross margin, but that's dramatically different margins than Monday, which is a software company to 80 Matterport, which is super cool, righ…

AI assessment note: “ARR used to stand for annualized recurring revenue, um, and then fintech exploded.”

Q Whatever. Have you noticed a pattern among, I don't know, the ones that end up on this stage? Where they go one way or...

A I think I noticed a pattern, um, and I wrote it up a couple years ago and refreshed it, um, And then I'll add a new anecdote. Um, you know, I wrote this years ago and then I've updated it of like the three plans you need to make as a founder, and I call them, no one's really ever copied this nomenclature, but I call them C-ten, C-sixty, and C-ninety, and C is the confidence factor. And C-ten is the big plan that there's a 10%, like a two percent chance you're going to hit it, like, talk about that with your co-founder over beers or Rosé, there's no point, right? 10%, there's a chance. So talk about what, if we plan, if we think we could do nine million next year, but look, if the Stars aligned. We did a Google sheet. It's possible to do 12. That's, that's your 10%. The 60 is probably where your core plan should be. We have a 60% chance thinking we can do it. More likely than not, but barely. That's how you build your core model. Your core model's for sales, for marketing spend, for hiring and engineering and product. And then with your finance person, or yourself, or your outsource person, you build a C-Ninety plan, which is one, we're 90% sure, even if sales slow, we're gonna hit this plan. And the advantage, you don't, in my experience, the 10 becomes your stretch plan, the 60 becomes your base, and the 90 is the quiet plan you use to not run out of money. That's how you mana…

AI assessment note: “I think I noticed a pattern... the three plans you need to make as a founder”

Q Um, so, we're about to hit two million dollars in revenue this year. When is the right time to hire your sales VP, and how do you know, like, that is the guy, that is the guy can take you to an A round or to the next stage? Thank you.

A Look, the answer, um, I've written this and no criticism. I've written this at least 80 times since 2012, but I'm going to say it again because, um, it's really true and I've had many conversations around it this week. For, If you can, the right, the perfect time to hire the VP of sales is when you have two scaled reps. When you do what we now all call founder-led sales. When Sastra started, I just said, you gotta do it yourself. Now we call it founder-led sales. Ideally take founder-led sales to two reps that can hit quota. When you have two reps, you have the beginning of an engine. You have something that someone that has sales experience can replicate, ok? So if you have two reps hitting quota, You can go out and fire your first stretch VP of sales, and her or his job will be to take you from three to 300. Once they have two, if they're smart enough to understand the pattern, close some deals themselves, listen and learn to these two, the good ones will listen and learn, the mediocre ones will disregard them. The two ones will say it's a blessing, and they will find two others like them, and then the next two will be a little less like them, and the next two, as you develop a playbook and get some heterogeneity and some diversity. But if you hire a head of sales before two reps, Maybe five percent of the time it works out. There's nothing for them to build on. There's nothi…

AI assessment note: “the perfect time to hire the VP of sales is when you have two scaled reps.”

Q So if we put on the hat of a sales leader or a founder, when we think about like target setting, how do we do target setting in a market like this, where there is such volatility and uncertainty?

A This is where there's a lot of burden on CEOs and CEOs have to Have to be the adults in the room and they have to do it the right way. You got it. You got to slow down. First of all, you have to look at your trailing velocity. You have to look at your last three to four months, average the growth rate, average the burn rate. And that's who you are. Whoever, whatever you've been growing or burning last week, even if you want to be a different person, even if you don't like how you look, that's who you are. The average of your last three to four months. And that's your base plan. And then you have to calmly sit down and say, Hey, if I don't like that, How do I do better? And how, and be realistic about it. You can only inflect a curve so much. If you, if you, if let's say you're, let's say last year you were growing, you were growing 200%, but for the last four months, you've only been growing 20%, right? That's your average growth rate. That's you today. And if you go to your sales team and say, we're going to get back to a hundred by the end of the year, you may destroy the team, right? You have to level, you have to take that trailing three to four months average And scale it, gradually scale it up to something that is sane. And you have to importantly do it with the burn rate. I think we've gotten better the last couple months, but people that don't do this on the burn rate a…

AI assessment note: “You have to look at your last three to four months, average the growth rate”

Q What are the big mistakes you're seeing there, Jason?

A Look, the biggest mistake I I've seen, which is probably twofold. Um, the number one, one is not enough sensitivities to models. And this got people in trouble last year, but it's going to hurt again this year, which is that if you miss your growth plan, even by a smidge, Um, it can dramatically increase your burn rate. People do not build sensitive enough models, right? If I've hired all this head count, extra head count, and they don't hit the number, but I've incurred all the expenses for that head count, um, my burn rate often is materially higher than I think. So people don't build the right sensitivity analysis to when they underperform, right? So you have to have at least either you have to have a great model or what you have to do is build a worser case model. Right? Where you miss the plan significantly, and you're sort of stuck with a certain amount of expenses, and just understand what your burn rate is. So, so really, that's the, that's the biggest problem I see. The second one is, there is still delusion out there on the odds of raising a, a later round. There's still delusion across all of the markets, and I still anger founders when I bring it up. I still get Toxic comments, but you just have to assume absent evidence, you're unfundable. Like, go find, go get a term sheet, or just go get someone you trust to tell you, hey, Harry, if you hit ten million growing to…

AI assessment note: “Look, the biggest mistake I I've seen, which is probably twofold.”

Q Do you enjoy investing by Zoom? I have Brian Seaman on the show from Founders Fund, he said, no, it's, I hate it, and I'm not doing it anymore. So, no.

A I hate it. Um, I hate it, but I didn't know why until a couple weeks ago. Um, it's not because of the risk, and there is, it is increased risk, we've increased risk in venture, but the returns have gone up commensurate with the risk, right? Um, It is for me, and it's not because I'm so amazing at sussing out a founder when I meet them in person, like I have such a human superpower. I mean, we all, we all think we're better at that than we do, right? Including all CEOs think they're amazing at it. Um, it's more because The cadence was perfect for me. I would get an email and it would explain the business, right? We could meet in a week in person. I could ruminate on it. I could see if what I hoped was true was true in person. I could see if I trusted them and loved them and fell in love with them. And then I could decide about 20 minutes into that meeting if I wanted to invest. So I made all my investments decisions pre-COVID in 20, seemingly in 20 minutes. Like, you can, you can ask all my initial investments. I would interrupt the, the, the, the first in-person about 20 minutes, and I would always say the same thing. If everything you've told me, Harry, is true, I'm in, and I would mean it. Like, I would always say that, but I got a chance to do the work ahead of time. I got a chance to not be under intense pressure to make an instant decision, and I got a chance to spend that…

AI assessment note: “I hate it. Um, I hate it, but I didn't know why until”

Q What are the pros and cons for this, and how should we approach it? Love to hear your thoughts on it. We actually have a couple Sastra Pro lessons in later weeks that touch on this.

A Yeah, I'm about to write about 17 posts on this when I have time. So, um, doing away with free trials. Uh, The sales loves this. Sales loves doing away with free trials. Sales loves getting rid of long trials. Sales loves shrinking the pilot process to six nanoseconds, one minute. Um, don't do it. At least to the founders on the call, don't do it. As founders, we get, and I'm going to give you a couple stories, even from yesterday, I'll give you some stories. As founders, we get benefits from free trials that the rest of the organization doesn't always see. Free trials forces you to build better software. This is so important. This is maybe my best hack I can tell you so that you can get to a hundred million on this, on this point. Once you give up free trials, you will never go back, and you will be able to have terrible onboarding, and you will be able to have all this friction behind the scenes, and you will be able to have many broken processes and things, and you will never build great software if you abandon your free trial. Um, There are a hundred reasons to abandon it. Um, uh, we, we need pre-populated data to make it work. Uh, we need the customers upload enough data. We don't see enough engagement. Yes. These things are all true and anyone can, can on your, on your team can convince you to not do this, but if you don't let them off the hook and you force this friction…

AI assessment note: “Free trials forces you to build better software.”

Q So in your experience of a thousand startups, how many have?

A Let me give, let me give you a fun example. So when I started to invest, I've been investing for about 10 years, and so I've only done like 30 investments, ok? Here's my first five early stage investments. First five early stage investments. Um, Pipedrive sold for 1.5 billion, now doing almost two hundred million in revenue, ok? Second one, Algolia, worth three billion, doing over two hundred million, we'll IPO next year. That's the second one. I invested 8000 dollars a month in revenue. Third one is talk desk. They're worth ten billion. They're doing hundreds of millions of revenue. They will IPO yesterday. I invested when it was five people, and one person in the United States who didn't even have a desk, ok? Fourth one is Greenhouse, which is over there, ok? They're doing hundreds and hundreds of millions of dollars, and will probably IPO in two years. I invested pre-revenue. Fifth one was sales loft, sold for 2.5 billion dollars, 12, 31, 21. I was there pre-revenue. Ok, so look, it sounds like a humble brag, and it's not for reasons that we could talk about, but what, that's a, that's five for five. Five for five. Ok, so, so, um, the sixth one is an e-discovery company called Logical that acquired, got acquired for 300,000,002 weeks ago. That was the sixth one, so six for six. Ok, um, my point of the story we can dig in is you bend the odds. You bend the odds. Now, these al…

AI assessment note: “that's a, that's five for five. Five for five.”

Q are a founder today in 2022, a first-time founder, and you get accepted to YC, but at the same time you have a seed offering, uh, which, and you're under one million ARR, would you go for YC or You know, skip it and, and immediately go to a, to the VC stage, and I would, yeah, sorry, is that the question? No, no, and like, what's your thought process?

A I've been through this, um, I've written a little bit about it on Quora, but maybe not on Saster. Um, I, I think that, um, and listen, I don't work at YC, right? I think if you're not sure to do it. Because the YC companies I've invested in, It, look, YC is expensive. It's a lot of dilution for a little bit of capital. Um, when, when the earlier waves pre YC that did this back when I was starting my career, you see what they were founder rip offs. Okay. Give us seven percent for like one hour of a designer's time. That was like the biggest rip off back in the day. Um, but YC is not that white. And listen, I'm not into brands. I don't know where any founder I invested in went to college, but YC is Stanford, Harvard, MIT, and Caltech all rolled into one. And even if you don't learn a goddamn thing from the program, It, it, all things being equal, you might as well go to Harvard or Stanford or MIT, right? Not that I care. I don't care, um, uh, and I went to Harvard, and maybe that's why I don't really respect it or even ask for founders I went to, but it doesn't hurt, right? And, and VCs so respect it. Now look, there are like, 220 companies in this batch, right? They can't all be the next stripe, right? There's gotta be a few, a few that will struggle and a few dogs, so But, but everyone's looking for signals in this world. There's too many startups, there's too many opportunitie…

AI assessment note: “I think if you're not sure to do it.”

Q Is it, is it that important a metric, you know?

A Well, hold on, let's step back. I hear your point. Um, and I think if, if, if, if you worked at Sequoia Capital, I would agree with you. Um, you're, you're right. Um, and, but, but I am constantly Surprised, maybe not surprised, impressed with the ability of great founders to drive up their NRR, NPS, and CSET. I am constantly impressed. So look, if you go meet with a VC and let's say, and let's say your enterprise, ok, and your NRR is only a hundred percent in the enterprise, not good enough. It's got to be north of a 120 in the enterprise, right? Let's say your SMB and you're below 95%, not good enough for SMB, right? You're not going to get, you're not going to get, you're not going to get that check. You're not going to get that Series A or B check because you're not top quartile in NRR, ok? You've got to be top quartile to get funded. Let's be clear. Today, it's known. If you're not top quartile, you're not going to get funded. I'm not even sure that was true three years ago. It is true today. Like, do not pass go, but, so that's depressing if you need to raise venture capital, right? But that's just a little piece of it.

AI assessment note: “You've got to be top quartile to get funded. Let's be clear.”

Q Jason, I appreciate your bluntness in tackling the questions. I have a question that's with skills like engineering computer science in these days, given the coding assistance and coding AI, I guess how important you see that now or, you know, going into the future?

A Well, look, it's a complicated question, right? I mean, Here's what I, here's what's clear today, right? If you look at all the data, engineers were most in the demand in 20, 21 and 20 20, for the reason we talked about, there was no automation. I mean, budgets were infinite and it was okay to not make, to be unprofitable. So that was the peak of engineering hiring. It has bounced back some relative lows and it is on a relative tear. I think engineering higher, hiring roles are up 20 or 30% now. Okay. So, and Let's, and let's, and let's, let's examine even a simple reason. Let's say to build crappy software, we don't need that many engineers anymore, right? To build a, a Kanban tool. Like, look at what Amelia and I built. Like, we built some pretty, okay, there's some slop, but we built some pretty badass stuff without it. So if that was the bar, we, we'd be, we'd be billionaires, right? But there's an arms race. So, I mean, let's have a fun example. Let's just take, cause Rapid and Lovable are in like a death race. They're both at like five hundred million in 18 months. Ok, which is amazing, but they're like, what if they decided to phone it in for a year? So what's happening is even though we can do some basic crap with fewer engineers, that means the bar has, I mean, this is obvious. The bar has gone up so high that everyone is still gonna hire any TEDx engineers, any hundre…

AI assessment note: “everyone is still gonna hire any TEDx engineers, any hundred X engineers”

Q door. Looks like SpaceX could do some type of deal, beat, uh, OpenAI out the door. A nice Spite IPO. Uh, how, how much do you think, how much do you think kind of the ordering of these IPOs really matters? Like is, is it, uh, could Elon successfully suck Uh, some real oxygen out of the room and make things more difficult for his, uh, for the other labs?

A Um, well, look, I, I think I, in my limited experience, and I think some of this is a media creation for something to talk about, um, these, all these companies are so exciting at a retail level and at an institutional level. There is infinite demand in the private markets, and there will be sufficient demand in the public markets to go public. So some of this is an, is a media creation. Um, certainly though, um, the IPO markets are, are wide open, but Uh, they're, they're, they're discriminatory. I mean, Wealthfront bombed. Equipment share crushed it. Wealthfront bombed. You got, you got, why did, I mean, equipment shares at, what, four and a half billion growing almost 50%? That's a pretty high bar, ok? So it's open-ish.

AI assessment note: “there will be sufficient demand in the public markets to go public”

Q this shift to being able to control narrative? Are we in the age of storytelling? Do we need to, Be focused just on ARR or cash flow at the earlier stage. Like what changes about, because there will be companies that are created today and wind up being successful. I'm sure you're not bearish on just startups generally right now. Uh, but the landscape is different, right? So what's different?

A Look, here's the challenge. The challenge isn't even all the clones. I think we've accepted there's a lot of clones. I think we've accepted there's a thousand competitors now. Um, the, the, the, the challenge that, that, I mean, you guys know from the show, but not all founders have internalized. It's just investors are expecting insane levels of growth. Insane levels of growth, right? They want, like, the idea that you can go from one to a hundred in a year is now seen as what you want to invest in. That used to be almost unprecedented. It did happen in the old, old days, right? Now, there's, there's companies that, like, I invented, invested in early, like, Higgsfield for, for, for video. People never even heard of Higgsfield, and it's a hundred and something million, right?

AI assessment note: “the challenge that... not all founders have internalized. It's just investors are expecting insane levels of growth.”

Q hire the VP of sales and so on. You know, which, you know, the context of what you just said, do these need updating? You know, are these kind of core canonical pieces of, you know, content about how to build your company, how to get to that first one, you know, zero to one, one to 10, et cetera. Do they shift in this kind of new like area?

A I don't think it shifts. I mean, in all, in all seriousness, if you read SAS for carefully, you'll actually see, I am updating a lot of the canonical pieces. I, a couple of times a week, I'll take some of the really good ones and I rewrite them and update them. So I'm, I'm cognizant of it. Don't get me wrong. But if you watch what I said, I think, 30 to 40% of inside sales will become AI. I think we won't need mediocre customer success. I think marketing is changing. I think it's all happening, right? But the motions are still there. So even though Kyle and I had a little bit of a debate, I don't challenge people, debate on whether a CRO will manage AIs and humans together. I actually think he agrees when he thinks about it. Yes, but it's still the motion, right? It's still discovery demo solutions solving, you know, even street art from snowflakes that it's the same thing. It's just the speed and the quality are changing.

AI assessment note: “I don't think it shifts. I mean, in all, in all seriousness”

Q Jason, I want to finish on a quick fire, my friend, but if we look forward to the next year, December, 20, 23, will we be in a better or in a worse place than we are now?

A First of all, seed investors are optimists, I think, right? And I'm a founder and founders are optimists, but I, based on all the downturns I've been in, the 20 16 flash crash, which we don't talk about enough in SaaS, because it was terrible when multiples failed at two X, three X. Uh, from the global meltdown in 2008 to 2009, um, I have learned again and again that things are brutal. They seem to move in slow motion, and then they come back pretty fast, and they're never quite as bad as we thought. So I, I find it very difficult to believe that when we see Okta growing 40% at two billion, okay, when we see the type of growth we see out there, that we will have these multiples when we, when the Fed gets through whatever the hell it's gonna do. And when we get on the other side of this, I just don't believe that we will have multiples that are just this low in the public market. Now, I'm not a DCF guy, and I'm not going to talk to you about free cash flows in 2084. OK, I'm just a meat and potatoes ass guy, but I've never seen multiples this low when businesses were this good. OK, I've only seen multiples this low when businesses were struggling or shrinking like in 2016 when literally they were shrinking. And so I'm pretty bullish at the end of this year. Um, I'm bullish that multiples will be up somewhere between 20 and 40%, and I believe that will lead to a rush to deploy cap…

AI assessment note: “And so I'm pretty bullish at the end of this year.”

Q Do you think that like a company doing two million in revenue is going to raise it 10 pre?

A No, no, at 20. I think that's, that is, if you're not in the bubble, if you're not from YC, if you don't have elite founders, I do think for my whole career that's been an anchor point, and you can anchor up based on, you know, oh hey, I was head of marketing at Gusto, I was this, I was that, you anchor up, or you might anchor down. No one's heard of me, I'm self-taught, um, I have no pedigree, fancy pedigrees, and you may get a discount, but I still think that, in today's world, I think it's good to go back to that, and then just look, if you hit that, In venture, the math pencils out for everybody, and if you get more, great, and you may come up short, and that's a lesson that you're not hot. Like, you're not checking these boxes, right?

AI assessment note: “No, no, at 20.”

Q which audience you're in front of you, and how you are going to play that audience. So it's what we mentioned, profitability maybe resonate way more here in Southeast Asia, that it will resonate in U.S., and U.S., they may don't care, like, are you growing fast enough? Can you give me my Android X? And they want you to take that risk. So here they will be more cautious.

A Well, you know, to simplify all of it, thinking through it, um, when you meet, there's all, there are all different types of investors, and the investors you're gonna hear after this, you're gonna hear from Sequoia, and Bessemer, and GGVC, and others, they're all gonna have this, the same answer to this question that I'm gonna tell you to ask everybody, but not all investors, especially in, in different smaller markets, ask them what their, their goal is, what their average exit size is, ask them what your average exit goal is, and the average exit goal for a big U.S. fund, even if they're the low, the local version, it's two billion. They want some at ten billion, you know, and twenty billion, but the model, ask them what their model is at, at two billion, and you'll hear, I'll give, you know, on, not to over Europe-ize this, but when I invested, my second investment was, venture investment was this French company called Algolia, and, and, and back then, Europe, Europe was a very local market. They, they did not believe in unicorns until 2015, 20 16, and another, and I was able to buy more stock in the seed round, Than I thought I could get. And you know why? Was because Alvin, which is one of the top French capital firms, said, we can't afford to invest in the round. I said, what, what do you mean you can't afford? He said, well, the valuation's twelve million. I said, it see…

AI assessment note: “ask them what their, their goal is, what their average exit size is”

Q Can you elaborate a little bit on that?

A It's a rich question. Two different threads. One, really none of these products, these SDR products, I think worked before Claude IV.one Sonnet or Claude IV this year, right? Repla didn't work. Lovable didn't work. Base. 44 didn't work. Nothing. I mean, they were out there. They weren't very good until the magical moment when Claude four came out and everything was kind of magical. Gamma didn't gamma was around since 20. We read about gamma and we love gamma for, for, for AI presentations, one to eighty million that we'll do this year, but it was founded in 20, 20. So it was five years to one and then one to 80 this year. It's not a coincidence that all of these apps took off January, February, March of this year. That's when the LMS got better. Okay. So. In a way it doesn't matter, but if you bought a lot of over hiked go to market SDR tools before February, March, or April of this year, They just didn't work well. Right. And, and I mean, literally we were a million. It's on our saster.a slash agents website. We were at this company qualified that does AI inbound and outbound. We use it on a website. And we were with the CEO that they've been around for like five years. He was the ex CMO of Salesforce. Okay. They've been doing this for trying to use AI to qualify inbound leads since like 2019 or something. Okay. Repeat founder, great guy. I'm like. I don't have any of your num…

AI assessment note: “none of these products, these SDR products, I think worked before Claude”

Q company, not in a founder, to be clear, like you are a shareholder of the company. And so do you meet those like head of marketing? Because I, I meet some head of marketing as a sponsor of the show, Jason. And I'm like, You are shit. Like that was, that was terrible. And I would never have invested in your company if I'd known you were head of marketing.

A The latest I do is late seed. Um, but I'll tell you a story. I do, I don't meet with the whole team because usually there isn't much of a management team. I do for sure always spend a lot of time with the CTO. This is my cheat. Um, I view the CEO as the proxy for sales and marketing. Like if the CEO is great with some help, maybe you and I can, we're working on a search together day. We can help you find a sales and marketing leader. But I don't really care who you have at a hundred K in error or one million. Like you are that person, but the CTO is the product, right? Usually. So that's, I think the mistake. 90% of VCs make is they haven't built product themselves. I don't even know how to talk to a CTO or a technical co-founder, and I find them the funnest conversation. So that's as far as I usually go. But when I've invested at the edge of A, right? I certainly do. And I remember when I was starting investing, there was a founder. I really, I just liked him. I knew him. He was so charismatic and they had pretty good traction. And I went and it was great. And I kind of wanted to do the deal. It was cheap. Always a good sign adventure when it's cheap, right?

AI assessment note: “I don't meet with the whole team because usually there isn't much of a management team.”

Q you stuck to plan, and you actually prioritize the relationship, this is where, you know, I love people, you know me. Like, if you did build the relationship throughout cycles, and didn't just take money and say fuck off, Actually, and you start to plan, they should be there, but likely in the same, not an expanded capacity where they would have expanded normally. Do you see what I mean?

A I think that's right with, with maybe the only family caveat for newer man, like, yes, I forget someone great on Twitter said, like the ultimate LP judge was how many exits did you have in 2021, right? So I'm new, but I did have three billion dollar cash exits in 2021 in my investing career, but I didn't make those investments in 2021. So if I hadn't started investing or I didn't have any like B to C stuff, if I had invested early, I would have zero instead of these good looking cash. So I think new managers are, it's tough because there just wasn't enough time for all, but you know, unless you're in these super hot deals to create those cash exits, right? You probably are sitting on no DPI and it doesn't mean your investments are bad, but it's just, that's a time trouble, right? Is that these, the just, it, it, it, there, there is secularity there.

AI assessment note: “I think that's right with, with maybe the only family caveat for newer”

Q I totally agree with that in terms of market expansion there. I do want to ask you, when we look at And you look at portfolio companies today. When you look at the buying patterns, what are you seeing in terms of overall SaaS buying patterns today?

A Yeah, I have a very different perspective than Twitter. There is a, a subset of categories that are doing fine. Let's, let's be clear. They're doing fine. There is a subset that's deeply troubled, and then there's a bunch in the middle where it's just a little bit, a little bit or a lot harder, and so be it. That's called life, right? But These folks who are saying this is the worst recession since the tulip age in Holland are out of their minds. They haven't, they have no life experiences, um, and it's not evenly distributed, and let's talk about a few examples for a minute, but before we even get there, think about folks maybe in your portfolio, Harry, that are selling to healthcare. In the US, there's no downturn in healthcare right now. There's nothing, and I can't imagine it's different in the UK. So yes, I'm sorry if you sell only to overfunded startups, you may think that this is the worst recession since 1811. But if you sell to healthcare, and then we'll just give some others, you don't see an issue. For example, in my portfolio, like, let's, let's take a really interesting example, which is B to B e-commerce, okay? Now, B to B e-commerce, I have two leaders I've invested in. Gorgias, which is number one contact center in Shopify, and then Algolia, which we talked about before, or about half of Algolia's business is in e-commerce. And interestingly, you can see the fut…

AI assessment note: “There is a subset of categories that are doing fine... a subset that's deeply troubled”

Q Yeah, but I mean, like, like, I'm not here to, like, You know, be an apologist for, for venture investors, because like, you know, Lord knows they don't need it, but you know, their LPs were expecting the same sort of thing, right?

A And the same. No, no, no, no, no, no. If you really want to get into the, the atomic piece, yes, LPs did fuel it, but LPs don't care whether you deploy, how much the company burns or anything, right? They just want strong, reliable returns. Um, LPs don't, Did not, are not really to blame for anything. Um, and the markup, the markup activity you described is the one thing where LPs were to blame. Um, historically in my investing career, LPs were always skeptical of markups. They, they always looked and, and, and many funds historically in the old days didn't even do markups, right? And then markups became institutionalized and what happened? But LPs will always be like, whatever. I remember when I raised my first own fund, Um, back in 2016, the LPs literally didn't care about anything, like it doesn't matter, I'm betting on the future, right? Markups don't matter, companies go up and down, companies raise at a hundred or 200 and then fail, but the LPs last year all started to report it as is. Top LPs last year reported, had 90% average IRR. So they got drunk on this too, and they fueled it, and they took this stuff seriously. But no, VCs do play to their own investors, but their own investors are one layer less in the weeds, right? They're less in the weeds.

AI assessment note: “No, no, no... yes, LPs did fuel it, but LPs don't care whether you deploy”

Q stage AI fund since 2020. I have about 30 companies across two funds so far. So since you've gone through a number of business cycles, once the IPO market opens up, liquidity, et cetera, do you think a later stage kind of AI SaaS companies that are working, like growing might consider going public earlier? What does that scenario What does that potentially look like or how are you thinking?

A Let's step back for a minute. First of all, it's a misnomer that the IPO window is closed. Canva's at two billion in air are growing over 40% and it's profitable, cash flow positive. It can IPO this afternoon if it wants. It'd be a little hard to get it through the SEC in one day, but it can IPO and it could have IPO'd any month this year because it's been profitable for four years. It started this year at 1.4 billion with those metrics. It could have IPO'd in January or February or March, no matter anything. And it can IPO any month it wants next year. Databricks is, is another top candidate. But my point is it's a misnomer that the windows open and close, right? They only open and close for the marginal ones. A bird declared bankruptcy today. Okay. They went public at a two billion dollar valuation at the peak. That's a window open for gobbledygook and scams and fakenesses. And also maybe for marginal SaaS companies. There are folks that IPO'd in 20, 21 that were at the margin, a hundred percent, a hundred million in ARR with mediocre growth that weren't cashflow positive. Probably shouldn't have IPO. Okay. All the ones that are sub a billion or sub a billion and a half shouldn't have. So the window closes for the obscure or the fraud or the edge, uh, but it's always open. And so what do I, what's happening though? And I've invested in one way or another in about four compani…

AI assessment note: “it's a misnomer that the windows open and close, right? They only open and close”

Q Sure, Jason. Thanks for the, thanks for the time and Tom. Yeah, good timing. So what are your thoughts, I guess, on platform, on the platforms like specifically ServiceNow and of course Salesforce, which is the gorilla there from an ISD perspective and bringing products that extend that platform or those platforms to market?

A Look, I don't have any brilliant insights other than, and again, I wish of, of, of all the ecosystems, I know service now the worst, right? I, I know, I know a lot about Shopify now. I know a fair amount of Salesforce. I've been in it. I know the least about service now, but there's huge power laws. There's at least 10 vendors in these ecosystems that can build massive businesses. Where it gets confusing is when you look at all the folks out there, right? They can't all there's power laws and let's take a look. I don't know service now, but let's take a look at the Shopify ecosystem because they all have similar power laws. Okay. So Shopify there's thousands and thousands of Shopify apps. Okay. Number one is Klaviyo, which we talked about. You can research Klaviyo. They're the only SAS IPO of the last two years. The only SaaS IPO since Hashi Corp in December of 2021. Klaviyo is coming up on a billion in ARR growing 50% in profitable.

AI assessment note: “there's huge power laws. There's at least 10 vendors in these ecosystems”

Q SaaS? So you, in MarTech, you have, like, a bunch of players. It's not winner takes it all. Some of them are stronger, and then there are younger guys like us that want to win the market or grab the share. So shall we innovate more in marketing or in products, kind of unique features? So what type of approach do you think is more More important, or it's just?

A Well, look, there's a lot in that question. The question is, what's in crowded spaces? Should you focus on marketing or product or what you should do? I think it's, um, Henry from ZoomInfo had a lot of good thoughts on it that I can reiterate now that he's at a billion in revenue, but I think, I think if you're early stage, it's the wrong, it's the wrong way to think about it. Um, Crowded, it's not bad to be in a crowded space. Crowded space means there's a lot of buyers and there's a lot of money. Crowded space means that, crowded space also means you don't have to do everything. You don't have to do every single function to still get a customer. There are spaces where if you don't do everything, the product's worthless, right? If there's a thousand vendors in the space, that means if you just do one thing well, there's enough ROI and there's enough mental bandwidth to buy That you can sell, and that's the reason there's a thousand marketing applications, because every CMO needs to generate pipeline awareness leads, and they will test anything that works, and shoot what doesn't, and keep trying things, right? Same in cyber security, like the threats always change. So cyber, I'm not an expert in cyber security, but since the dawn of time, security is evergreen, because every year you've got to try to keep up with threats. Every year there's budget, and so there's always room fo…

AI assessment note: “you just have to find your Tenex feature that someone will buy.”

Q Um, cool. Now there's the next question, which is related. A few folks have asked, what are we driving towards with the AISDR? Is it a meeting with, um, an AE?

A One small point on this, there's so much we could talk about here. The, um, it isn't, I don't, you know, the, On the qualified side, right on essentially the, the, the inbound, right. Um, what I really like that. And again, there are a lot of things you, you could do this pre-air with other tools. It's just much better now is that now the it's not perfect, but the AI will qualify the prospect on its own. Right. So there's nothing I hate more than a qualification step, which is not with the seller, right? It's just awful. So we don't do that anymore. And then as it does it without Without seeing obnoxious, it then does create the appointment and sets up the meeting and puts it in the calendar of the rep, right? That's a huge positive rather than, you know, even today in 20, 25, I can't tell you how many times, uh, I inbound to a vendor and it's like a week before I can get a meeting set or someone tries to qualify me out. It's just unacceptable today, right? I mean, literally there's a vendor, there's a, there's a pretty cool tool, a niche tool that I literally love. I hadn't seen anyone automate this before. So I, I reached out to them on Twitter and I said, listen, If you can get this to work for me, I'll be, I'll be in your homepage. Like I will tell everyone to buy your product. It's so great. And then a week later I get a DM from the CEO. What happened? Um, I mean, what do …

AI assessment note: “it then does create the appointment and sets up the meeting and puts it in the calendar”

Q Depends on the time horizon. It will be 50%. Is that in six months, 12 months, 24 months? It is an eventuality.

A Yep. Let me ask you about this point. I actually didn't realize it on the slide. I think it's actually the third one. I'm colorblind in yellow or green or whatever it is. Maybe I said CROs and CROs, but I also mean RevOps. I think this year, To be a RevOps professional imminently in a CRO by the end of this year, you will have to know how to manage a fifty-fifty team. 50% AI, 50% human. Not just tools, but you will have to learn how to manage agents, agents, AIs, whether that's training, whether that's whatever, your team, your extended team. This is PLG two point on steroids, right? Your team may be half AI, half humans, or it doesn't matter if it's 2080, or 30, 70, right? Your team will, as soon as it's double digits, you better know how to manage this hybrid team of humans and AIs. It sounded crazy a couple months ago. I don't, I think it's gonna, you're gonna have to know this year.

AI assessment note: “by the end of this year, you will have to know how to manage a fifty-fifty team”

Q So basically my question was, in the next few weeks, my co-founder and I were going to be like publicly launching officially after having some alpha and beta testers. We think product-led growth is like the best route now, but I really want to try the product-led route first because I know it's like good value, good product. What's the best advice you can say for starting product-led growth?

A Okay. First of all, A lot of folks that have been around for a while, Aaron Levy and I discussed this at. 2021 annual out here. A lot of folks like me that have been around for a while, we don't really believe there's any such thing as product-led growth. And what I mean is, look, the term has taken over. I'm not, I can't argue. When cloud became a term, I'm like, this isn't a cloud. And I lost that argument. I think I lost software as a service as an argument. So I've lost the PLG. But what Aaron and I, folks like Aaron and me that started off with freemium products and self-serve products, we just think PLG is a slightly better instrumented version of it. Slightly. There's much better tools. There's much better analytics. There's in product, the whole counter of in product analytics didn't exist. It's wonderful. But the idea of building a product that is self-serve that is somewhat viral and that is so easy to use, you don't need onboarding. It's not so new. Webex created it on the web. Uh, zoom kind of perfected it, but none of this is new. And what my, my, so my point is what folks like Aaron and I think are a little cynical about is that there are these three magic letters PLG that solve your problems. I don't think there's a PLG motion to magically adopt at zero dollars in revenue. I think you have to step back for a minute. There's basically two ways to, to win. Um, you …

AI assessment note: “I don't think there's a PLG motion to magically adopt at zero dollars in revenue.”

Q What was the thing that allowed you all to punch above your weight from a go-to-market perspective?

A There's a couple of things I didn't think about until recently, but it's really interesting that we only had 20 something sellers and 10 of them went on to be top CROs, right? CROs at Brex, CRO at Ripley now, Gong, also CRO at Gong, CRO at Gong. Seismic, a long list of others, half of them went on to be leading, not in a week. We sold 10 years ago, but why, how did 10 of those folks become so dominant? And the answer is so simple, but it really is The, the best do attract the most ambitious under them, right? And this, it's, it's, this is why when you cut a corner in VP and we're all tired, you just, I know we could all write it. Henry and I could write this post a hundred times, but if you cut the little corner, you get this mediocre team. And if you. And when Brendan, when Brendan Cassidy had come, he just came from LinkedIn to us. And then everyone just wanted to work for this guy. And he recruited. 30% of his time.

AI assessment note: “The, the best do attract the most ambitious under them, right?”