Jan 30, 2025 · 1h 21m · sourcery
How Emergence Capital Bet Early on Zoom, Salesforce, Veeva—& Now Together.ai · Sourcery with Molly O'Shea
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In this episode of Sourcery, host Molly O'Shea interviews Emergence Capital partners Gordon Ritter and Yaz El-Baba to discuss the firm's thesis-driven venture strategy, iconic early bets on enterprise cloud leaders like Zoom and Veeva, and their evolving investment frameworks for the enterprise AI landscape.
How this conversation actually went
Every chapter scored 0–10 on four independent dynamics. Hover any point for the reasoning behind the score. Molly holds 14.3% of the talking time here. How this is scored →
Molly as informed peer 5.2 Guest teaching 6.0 Guest disagreement 1.6 Molly pushing back 2.0
speaking balance: gold is Molly, purple is the guest (3 minute bins)
Sharpest disagreement ▶ 31:17 Gordon firmly rejects the idea that SaaS is dead
Gordon immediately and forcefully rejects Molly's question regarding the death of SaaS, countering that SaaS is merely the current iteration of workflow software that cannot disappear while humans remain in the operational loop.
Hardest push from Molly ▶ 1:16:48 Molly catches the guests with a tricky regret questionMolly corners the partners by asking for the single investment they most regret making, prompting Gordon and Yaz to laughingly call it out as a trick question before Gordon refuses to answer and pivots to missed opportunities.
Biggest teaching moment ▶ 11:08 Gordon breaks down the technical evolution from Documentum to VeevaGordon provides an architectural history lesson explaining why client-server platforms like Documentum could not vertically integrate across multiple software layers, whereas multi-tenant cloud enabled Veeva to conquer life sciences efficiently.
Molly holds their own ▶ 54:26 Molly demonstrates full mastery of the host's published frameworkMolly recites verbatim the four core pillars of Gordon and Wendy Lu's AI plateau thesis—engaging experts, leveraging latent data, capturing in context, and securing the secret sauce—steering the conversation directly into technical data governance.
the scores for every segment, with the reasoning behind each
| Chapter | Topic | Molly as informed peer | Guest teaching | Guest disagreement | Molly pushing back | Why |
|---|---|---|---|---|---|---|
| Welcoming Emergence Capital Partners to Sourcery | 5 | 4 | 2 | 3 | Molly opens by citing the Utimco report and reporting from Eric Newcomer to question whether VC is dead. Gordon clarifies market cycle dynamics and introduces the concept of right-sized venture funds. | |
| Redefining Venture Capital in the Age of Mega Funds | 5 | 5 | 1 | 3 | Molly asks whether the asset class should simply be rebranded as technology investing given mega-fund crossover expansion. Gordon and Yaz explain the structural divergence between buyout-style mega funds and early-stage conviction investing. | |
| Macroeconomic Analysis and 2025 IPO Market Outlook | 4 | 6 | 2 | 2 | Molly asks if the 2025 IPO window will reopen as widely as anticipated. Gordon gives a cautious macroeconomic assessment, noting interest rate stickiness and post-IPO performance like ServiceTitan. | |
| Evaluating the Role of Secondary Markets for VCs | 6 | 7 | 1 | 2 | Molly cites specific metrics from Veeva's IPO ($3M capital burned to achieve a multi-billion valuation) and asks if it can be replicated. Gordon details the architectural transition from Documentum's client-server limitations to multi-tenant cloud vertical software. | |
| Analyzing Stargate and Massive Infrastructure Capital Commitments | 5 | 7 | 2 | 2 | Molly introduces the $500B Stargate AI infrastructure commitment and asks about its venture implications. Gordon deconstructs the capital structure between debt and equity and highlights the tension between national security imperatives and commercial buyer ROI. | |
| Geopolitics, Foreign Capital, and National Security in AI | 5 | 7 | 1 | 2 | Molly queries the role of foreign capital entities in national security AI initiatives and asks Yaz how to measure enterprise AI ROI. Yaz presents a detailed framework across cost, speed, and quality advantages while Gordon adds their historical coaching networks thesis. | |
| Investing in Infrastructure and the Applied AI Layer | 5 | 6 | 1 | 2 | Molly asks how Emergence built conviction across infrastructure and the app layer with bets like Together AI. Yaz explains how infrastructure tooling like fine-tuning and evaluation pipelines enables the applied AI layer. | |
| The Evolution of SaaS and the Permanence of Workflow | 4 | 7 | 4 | 2 | Molly asks whether traditional SaaS is dead. Gordon rejects the premise, explaining that SaaS is fundamentally workflow software and humans will continue interacting with systems via lived experience neural loops. | |
| Deep Dive into Together AI and Multi-Model Routing | 5 | 6 | 1 | 2 | Molly asks Yaz about Together AI's rapid ascent and his writing on the foundation model development cycle. Yaz details the emergence of multi-model routing and the need to abstract infrastructure complexity away from application developers. | |
| Identifying Winning AI Founder Profiles and Post-Sales Risk | 4 | 6 | 2 | 1 | Molly inquires about winning founder profiles in the new AI landscape. Yaz outlines how young teams are moving fast, accepting loose pre-sales contracts, and shifting the critical retention burden entirely onto post-sales execution. | |
| Preventing the AI Plateau and Unlocking Commercial Data | 6 | 7 | 2 | 2 | Molly asks Gordon about his essay on preventing the AI plateau. Gordon compares the current inflection to historical platform shifts like TCP/IP and the App Store, arguing that public web scraping has peaked and private enterprise data moats are the next frontier. | |
| Corporate Data Security, IP Protection, and Regulatory Risks | 7 | 6 | 1 | 3 | Molly asks whether data isolation is primarily a cybersecurity or contractual issue and directly cites the four framework pillars from Gordon's article. Gordon elaborates on why corporate business processes embedded in private models represent vital enterprise IP. | |
| Emerging AI Business Models: Bolt.new and Mechanical Orchard | 4 | 6 | 1 | 1 | Molly asks how AI is altering software business and pricing structures. Yaz compares Bolt.new's hybrid per-seat and usage credit model against Mechanical Orchard's project-based mainframe migration pricing. | |
| The Origin Story of Emergence Capital and Fund I | 5 | 6 | 1 | 1 | Molly prompts Gordon on the founding history of Emergence. Gordon recounts his time collaborating with Marc Benioff on Software Service and raising Fund I in 2002 despite widespread skepticism toward multi-tenancy. | |
| Navigating Cycles Through Primary Thesis Development | 6 | 6 | 1 | 2 | Molly asks how Emergence navigates market shifts and whether their theses are predictive or reflective. Gordon and Yaz explain their structured internal process of vetting hunches and translating them into major investment themes. | |
| Maintaining an Equal Partnership Model and Culture | 6 | 5 | 1 | 2 | Molly questions how an equal partnership model functions without friction in a power-law-driven venture business. Gordon and Yaz describe their quarterly external coaching, internal partner promotion, and collective investment accountability. | |
| Backing Horizontal Voice Infrastructure with Bland AI | 6 | 5 | 1 | 1 | Molly asks Yaz about his latest investment risk. Yaz details their $40M Series B lead in Bland AI to capture horizontal enterprise voice infrastructure, with Molly noting her former firm Upfront was an early backer. | |
| Anti-Portfolio Lessons: Missed Investments in Figma and Twilio | 5 | 6 | 3 | 3 | Molly asks the partners what deal they regret doing most, which Gordon playfully calls a trick question before pivoting to anti-portfolio misses in Figma and Twilio. |
Statements from this episode (27)
Ritter: VC industry received more capital in 2020-2021 than it needs
“What is different this time is the amount of money that's in this industry right now. It is, there is so much capital that came in over the pandemic and in the 20, 21 timeframe that that is you know, it's probably more than the industry needs”
Ritter: Mega-funds require 5 to 10 hits to match smaller fund multiples
“Venture is a hits business and you have to be able to have one or two really exciting companies in each portfolio and produce wonderful LP returns for our investors. And if you're either too small where you simply can't be in those great companies or too big w…”
Ritter: LPs Know Real Venture Returns Come from Early Stage, Not Late Stage
“Most of the LPs that are backing this segment, the venture capital segment, know that the real returns come from early stage and later stage is great, but it's a different, it's closer to their buyout category than it is to their what they call venture capital…”
Ritter: Interest rates probably will not drop and may rise
“Interest rates are probably not going down. My bet is that they're Either going to kind of stay where they are, which is fine for kind of absolute, you know levels, but we have some potential policies coming that could drive up interest rates and basically inf…”
Ritter: 2025 tech IPO window unlikely to be as good as hoped
“I I'm not sure that the IPO markets are going to be as good as I had hoped coming into twenty-twenty-five.”
Ritter: Veeva scaled to $2.5B revenue on just $3M in capital
“They used three million dollars. Thank goodness. It was our three million dollars worth, but that was all they needed to get to this scale of a, you know, a two and a half billion dollar revenue plus company.”
Ritter: Tight vertical strategies may not yield the best AI outcomes
“A lot of AI companies are now doing very tight verticals for good reason, because they have, you know, they have tighter context around what they can do with AI. And we love that, but it may not be the best strategy to reproduce those kinds of results.”
El-Baba: AI-era startups will not need billions before going public
“No long gone are the days where you're going to have to raise Billions of dollars before you go public. 15 years down the road, you actually can follow the Viva capital efficiency story and build a really great company that can drive a really strong venture ou…”
Ritter: $500B Stargate project is $100B equity, 75% chips, 25% infrastructure
“Remember, it's equity dollars and debt that's going into this, so five hundred billion is probably a hundred billion of equity, of money going in that is sort of risk money, the rest is building out The infrastructure, 25% of it goes to buildings and cooling s…”
Ritter: Almost no dollar price is too high to beat China
“The national security part, we should put in I, it's one person's opinion, but we need to make sure we win this race against against China in particular. And I, there almost no dollar price is wrong in that using that lens”
El-Baba: Fast-to-build AI apps without data moats cannot sustain pricing
“Because if it's really quick to build, you're not building a data proprietary moat around what you're building. It's gonna be really hard to sustain the pricing that you see today, and that's gonna become a really, really challenging business proposition.”
El-Baba: Modern AI application startups require applied research talent
“The DNA of an app layer company is very different than what a traditional SaaS business used to look like 10 years ago, five years ago, even two years ago. Like you're seeing more and more job openings for applied research roles, applied scientist roles. In a …”
Ritter: SaaS Will Endure as Long as Humans Direct Workflow
“As long as humans are critical and we are to the advancement of these technologies and the advancement of the IP within our companies, that workflows some form of workflow is going to continue. And that's what call it SAS, call it workflow software. It is goin…”
El-Baba: Top organizations will use multiple AI models, not just OpenAI
“Like, I think the major takeaway from that piece is that the best organizations are going to use multiple models in concert with one another to power their end experiences. It would no longer be a world in which you just plug in to open AI's latest model.”
El-Baba: Younger founders grow fastest by breaking traditional SaaS playbooks
“And I know this has been a little bit more of a provocative one, it's like, the younger teams are the ones that are growing the fastest right now. They're the ones that are willing to just break things, try new stuff, and sometimes they'll, they'll move away f…”
El-Baba: Enterprise AI Deals Close in a Month but Face 12-Month POCs
“We're no longer going through 12 months, 18 months enterprise sales cycle. Sales cycle was a month. You're in the door. But we're gonna evaluate you for 12 months in a POC or POB.”
Ritter: Public AI training data is exhausted; commercial data is next
“Fundamentally, the harvesting of publicly available data has, for the most part, run its course, and Ilya Sutskiver said as much I love, you know, it's an interesting quote by saying, ah, AI data is fossil fuel for AI, and we've run out of it. And I generally …”
El-Baba: AI Winners Will Build Proprietary Datasets from User Workflows
“The next phase and what gets me really excited is there's richness in the data of the users that is being created as they use your product. The more someone puts in an input that's unique as to how they should look at a certain certain asset class or a certain…”
Ritter: Leaked Corporate IP Risks Becoming Globally Accessible via AI Models
“That is going to be more and more of an issue going forward because these models, one person who has a chance to share information about how something is done that is a piece of either business process or IP, one person, and that is now not just out to, you kn…”
Ritter: Raw corporate data is worthless compared to captured employee workflows
“Remember when it was just data? You can get access to our data. Well, data is nothing. It's the way your employees are using that data to make value out of it. Guess what models do and good models are going to do it even better.”
El-Baba: StackBlitz's Bolt.new reached a $20M run rate in two months
“So for example, we just invested in a company called Bolt, or previously the parent organization called StackBlitz... They've gone zero to 20 million in run rate in two months. And we were lucky to lead their series, be there.”
El-Baba: Portfolio company Mechanical Orchard charges strictly on project outcomes
“There's one in our portfolio, Mechanical Orchard, that's working on legacy to modernization efforts, moving things from on-premise mainframes to the cloud. And that is very much on a project basis... They're pricing based off of the outcome of being able to su…”
Ritter: Promoting VCs internally makes equal partnerships stickier and prevents departures
“When you've come through the firm for many years, you're not as apt to say, ah, you know, I just landed this great deal, and I'm not getting, you know, extreme amounts of credit for this. I think I'll just take off and go somewhere else, because you've been pa…”
Ritter: Emergence passed on early Figma because its revenue was too low
“Figma was one that we all, back to we work as a team, we all looked at Figma back when their revenue was low, but their engagement was incredibly high and spreading within organizations, and we just couldn't get comfortable. We were a little biased on if we're…”
Ritter: High user engagement is effectively revenue because monetization inevitably follows
“The classic line now we say, When we call it the Figma effect is engagement is revenue. If people are using it heavily and love it, you might as well just be getting paid for it, even if you're not, because you'll find a way.”
Ritter: Emergence passed on Twilio because developer leverage wasn't obvious
“Second one was Twilio. Twilio develop developer first, you know, kind of model. And we weren't as clear as to the power, the kingmaker, Or queen maker of developers was not as obvious to us”
Ritter: Voice and Hardware Modalities Will Open Whole New Software Categories Like Mobile
“And I think one of the things we believe is there's going to be a whole new, if the mobile device was something that opened up a whole new category of software for mobile devices, we've got devices companies like Bland that may open it up for voice in unique n…”