The Exchanges

Q We've really worked our way up to present day, and this has just evolved tremendously, even in the last year. Gordon, I want to bring it back to the very beginning of Emergence's founding story. Could you tell us more about how you founded Emergence?

A Happy to. I'll try to fast forward, but, uh, you know, the people you meet change your life, and Marc Benioff, uh, my second company that I built, um, I sold it to IBM, and Marc Benioff was looking For a launch partnership with IBM to get his, you know, then fledgling company, Salesforce.com sort of its first real launch, uh, you know, logo and customer. And we ended up backing them both from a marketing perspective early on, uh, and from a, you know, financial perspective, really helping, helping to, to fund some of those early, uh, marketing objectives. And Mark Benioff, I, uh, 18 months later, he recruited me out of, uh, IBM, uh, to start a new company with him, a parallel company to Salesforce called Software Service, and it, the concept was to be anyforce.com, that we would create all, any of the new, uh, uh, software that's, that's needed to be created where Salesforce had been a single application, uh, he wanted to, and we wanted to create, um, In effect, a, a, a development platform for the cloud. We worked on that for, uh, uh, a while, and then Mark had to go back in and run Salesforce day in, day out, uh, and he had, he had actually become chair and left it to another CEO for a period. Went back in during the really tough time after the bubble burst and took over the reins, and obviously the rest is history for Mark. Uh, the, uh, software service became the foundation…

AI assessment note: “do I want to start, uh, uh, another, another SaaS company... or a venture firm.”

Q We've really worked our way up to present day, and this has just evolved tremendously, even in the last year. Gordon, I want to bring it back to the very beginning of Emergence's founding story. Could you tell us more about how you founded Emergence?

A Happy to. I'll try to fast forward, but, uh, you know, the people you meet change your life, and Marc Benioff, uh, my second company that I built, um, I sold it to IBM, and Marc Benioff was looking For a launch partnership with IBM to get his, you know, then fledgling company, Salesforce.com sort of its first real launch, uh, you know, logo and customer. And we ended up backing them both from a marketing perspective early on, uh, and from a, you know, financial perspective, really helping, helping to, to fund some of those early, uh, marketing objectives. And Mark Benioff, I, uh, 18 months later, he recruited me out of, uh, IBM, uh, to start a new company with him, a parallel company to Salesforce called Software Service, and it, the concept was to be anyforce.com, that we would create all, any of the new, uh, uh, software that's, that's needed to be created where Salesforce had been a single application, uh, he wanted to, and we wanted to create, um, In effect, a, a, a development platform for the cloud. We worked on that for, uh, uh, a while, and then Mark had to go back in and run Salesforce day in, day out, uh, and he had, he had actually become chair and left it to another CEO for a period. Went back in during the really tough time after the bubble burst and took over the reins, and obviously the rest is history for Mark. Uh, the, uh, software service became the foundation…

AI assessment note: “the question then was, do I want to start... another SaaS company... or a venture firm”

Q And what do you mean by that you're right-sized?

A Meaning that the, the, the major part venture is a, 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, uh, either too small where you simply can't be in those great companies or too big where you need Basically, not dozens, but certainly five to 10 of those great hits to produce the same kind of multiple that emergence can produce. We like, we like kind of where we're sitting. We're certainly bigger than we were when we started, and we can talk about that history, but we like the size range, uh, that we're in today.

AI assessment note: “too small where you simply can't be in those great companies or too big”

Q of iconic emergence is an iconic enterprise investment fund. So I'm going to read off these names and these are all fund returners, I would assume, because this is really incredible. We have Salesforce, Doximity, Zoom, Box, Bill, Blend, Viva. Gordon, given your career experience and success with public markets, do you think the IPO markets will open back up in 2025 as much as people are hoping they will?

A So it's a great question. And, and, and again, I'm a venture capitalist, not a, uh, atomist, uh, of, of the global, uh, of the global world and what's happening in this world. But the comment from, you know, the bullpen here is, uh, there's been a huge run up in the market already, right? A lot of, of excitement about both how the, the economy has been doing and for the upcoming election and what's happened since. Um, so it's, uh, the, the market is actually probably less stable and has a less of an opportunity to kind of hit a new height in this year, I think, than it did in the past year. Markets love stability, and I'm not sensing we're gonna have tons of stability during this year. It doesn't mean it's not necessarily good for the long run, perhaps, but stability is important. 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, uh, levels, but we have some potential policies coming that could drive up interest rates and, and basically inflation, which is, uh, is a challenge. Those are some of the macro pictures that the micro is things like service Titan, which did go out and, um, hasn't performed as well as we all had hoped. It certainly hasn't been You know, a terrible offering, but it certainly is, has not been running up after the IPO. And, um, so I don't know, ther…

AI assessment note: “I'm not sensing we're gonna have tons of stability during this year.”

Q And what do you mean by that you're right-sized?

A Meaning that the, the, the major part venture is a, 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, uh, either too small where you simply can't be in those great companies or too big where you need Basically, not dozens, but certainly five to 10 of those great hits to produce the same kind of multiple that emergence can produce. We like, we like kind of where we're sitting. We're certainly bigger than we were when we started, and we can talk about that history, but we like the size range, uh, that we're in today.

AI assessment note: “either too small where you simply can't be in those great companies or too big”

Q of iconic emergence is an iconic enterprise investment fund. So I'm going to read off these names and these are all fund returners, I would assume, because this is really incredible. We have Salesforce, Doximity, Zoom, Box, Bill, Blend, Viva. Gordon, given your career experience and success with public markets, do you think the IPO markets will open back up in 2025 as much as people are hoping they will?

A So it's a great question. And, and, and again, I'm a venture capitalist, not a, uh, atomist, uh, of, of the global, uh, of the global world and what's happening in this world. But the comment from, you know, the bullpen here is, uh, there's been a huge run up in the market already, right? A lot of, of excitement about both how the, the economy has been doing and for the upcoming election and what's happened since. Um, so it's, uh, the, the market is actually probably less stable and has a less of an opportunity to kind of hit a new height in this year, I think, than it did in the past year. Markets love stability, and I'm not sensing we're gonna have tons of stability during this year. It doesn't mean it's not necessarily good for the long run, perhaps, but stability is important. 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, uh, levels, but we have some potential policies coming that could drive up interest rates and, and basically inflation, which is, uh, is a challenge. Those are some of the macro pictures that the micro is things like service Titan, which did go out and, um, hasn't performed as well as we all had hoped. It certainly hasn't been You know, a terrible offering, but it certainly is, has not been running up after the IPO. And, um, so I don't know, ther…

AI assessment note: “I'm not sensing we're gonna have tons of stability during this year.”

Q Shifting into the organizational structure of the firm, from my understanding, it's an equal partnership. So how do you resolve the tension of being an equal partnership with, you know, a power law driven business and only very few deals drive the returns? How, how does this work internally? How do you, uh, resolve the tension?

A Yeah. And it's a great question. It's, um, is this is inherently an unbelievably human business, like partnerships and, and the, the money and the difficulty and the risk, the amount of complexity around that I've been quoted as saying it's like a five way marriage, you know, for five partners, uh, it's five way marriage where only one of the five Has to have a challenge or something goes wrong or, uh, and it can blow up a firm. I mean, it really is that sensitive. So we take it super seriously. I won't go into all the detail here, but we are, are, you know, in terms of having an outside, uh, coach and facilitator every quarter, we get together as a, as a, as a partnership and, and work through both business issues, but also more, you know, issues personally as well, because it's that critical. Um, and we've been doing it. It's all, all sort of getting ahead of things, but, but it's something that we believe has, has been really helpful to us really since the earliest days of the firm. Um, so that's a bit of an aside, but the main part question you're asking is partially there's two big things. We work as a team and it's again, equal partnership, which is critical. Uh, and we develop from within. So when Jason, Brian and I started the firm, it was, You know, we all went through those 15 months and longer to get to a final close and all the pain of that. So we were equal from da…

AI assessment note: “having an outside, uh, coach and facilitator every quarter, we get together”

Q Shifting into the organizational structure of the firm, from my understanding, it's an equal partnership. So how do you resolve the tension of being an equal partnership with, you know, a power law driven business and only very few deals drive the returns? How, how does this work internally? How do you, uh, resolve the tension?

A Yeah. And it's a great question. It's, um, is this is inherently an unbelievably human business, like partnerships and, and the, the money and the difficulty and the risk, the amount of complexity around that I've been quoted as saying it's like a five way marriage, you know, for five partners, uh, it's five way marriage where only one of the five Has to have a challenge or something goes wrong or, uh, and it can blow up a firm. I mean, it really is that sensitive. So we take it super seriously. I won't go into all the detail here, but we are, are, you know, in terms of having an outside, uh, coach and facilitator every quarter, we get together as a, as a, as a partnership and, and work through both business issues, but also more, you know, issues personally as well, because it's that critical. Um, and we've been doing it. It's all, all sort of getting ahead of things, but, but it's something that we believe has, has been really helpful to us really since the earliest days of the firm. Um, so that's a bit of an aside, but the main part question you're asking is partially there's two big things. We work as a team and it's again, equal partnership, which is critical. Uh, and we develop from within. So when Jason, Brian and I started the firm, it was, You know, we all went through those 15 months and longer to get to a final close and all the pain of that. So we were equal from da…

AI assessment note: “having an outside, uh, coach and facilitator every quarter, we get together”

Q fun as it is to always talk about exponential growth. Gordon, we need to talk about the plateau. We need to talk about preventing the AI plateau. This is a piece that you recently wrote with one of your principals, Wendy Lu. Um, but could you just explain this out? Like what were the, the core principles of this piece and how do you see preventing a plateau shape out?

A So first of all, and I've been around this industry for a while, unfortunately seen most of these firsthand, but there have been, uh, that most of us can remember these plateaus, these moments where there's a, uh, a series of, of small factors going on in the world, either open source ideas in the check space or, or just unique, um, concepts that people are working on, even in the labs. And then something brings them all together. So TCP IP as a protocol, I was around, um, I wasn't around when it started, but certainly around when it really became, um, ingrained as, uh, within the internet broadly. And it was a series of, of underlying activities that came together in a protocol that opened up the world. And that TCP IP has been compared to crypto in terms of if you could just have made the money that you could make in crypto, Like TCP IP, it would be far bigger than anything that we've seen, but it was an open source platform that, that created a series of, of incredible markets after it. The next, uh, example is obviously the browser. The browser, I do recall when that was, that came into the world and, you know, FTP for file trans, uh, transfers, uh, and other technologies like TCP IP all came together to make a, Human readable version of all of these underlying technologies, and it opened up a whole new, uh, you know, uh, avenue of, of both business acumen and value for, uh…

AI assessment note: “these plateaus, these moments where there's a series of small factors going on”

Q fun as it is to always talk about exponential growth. Gordon, we need to talk about the plateau. We need to talk about preventing the AI plateau. This is a piece that you recently wrote with one of your principals, Wendy Lu. Um, but could you just explain this out? Like what were the, the core principles of this piece and how do you see preventing a plateau shape out?

A So first of all, and I've been around this industry for a while, unfortunately seen most of these firsthand, but there have been, uh, that most of us can remember these plateaus, these moments where there's a, uh, a series of, of small factors going on in the world, either open source ideas in the check space or, or just unique, um, concepts that people are working on, even in the labs. And then something brings them all together. So TCP IP as a protocol, I was around, um, I wasn't around when it started, but certainly around when it really became, um, ingrained as, uh, within the internet broadly. And it was a series of, of underlying activities that came together in a protocol that opened up the world. And that TCP IP has been compared to crypto in terms of if you could just have made the money that you could make in crypto, Like TCP IP, it would be far bigger than anything that we've seen, but it was an open source platform that, that created a series of, of incredible markets after it. The next, uh, example is obviously the browser. The browser, I do recall when that was, that came into the world and, you know, FTP for file trans, uh, transfers, uh, and other technologies like TCP IP all came together to make a, Human readable version of all of these underlying technologies, and it opened up a whole new, uh, you know, uh, avenue of, of both business acumen and value for, uh…

AI assessment note: “there have been, uh, that most of us can remember these plateaus”

Q but I, I hope, and we'll get into this, but with AI, we'll have much more efficient businesses and, and growth stories out of that. In terms of the market, uh, the exit markets, what would that new ideal exit market look like? What do you, what do we think is going to be possible or, uh, the opportunity for these, these companies that have been cooking for some time?

A Well, so, I mean, if we're talking about the, a bit of the macro picture again, just to, to remind us, uh, for, for anything in the recurring revenue software space, um, low rates are really important, right? And, and just to make sure folks understand why you're looking at, at growth rates that could be very, very big for these companies. So they have excellent growth rates, but to get the kind of multiples that software companies are used to, It's, uh, growth rates over a very long period of time that, that are, they are compared against just buying a bond, and bonds are interest rates, and if you are, your ability to produce cash flows well in excess of interest rates is where those incredible multiples come from. That was happening certainly over the last decade, but rates have certainly ticked up off those near zero rates, We're gonna need to create, you know, exciting companies to get to those kind of multiples again. I think we can, but that's important. And on top of that, it's, it's the, you know, you, you want disruptive technology that all customers need to buy, need to have within their four walls, and it can't be innovation teams, can't be dabbling, it can't be trying out, which is, you know, we're a lot of where we are right now in AI, and that's okay. As long as we punch through it, it's absolutely okay. Uh, we'll get to the infrastructure we're spending money on…

AI assessment note: “to get the kind of multiples that software companies are used to”

Q but I, I hope, and we'll get into this, but with AI, we'll have much more efficient businesses and, and growth stories out of that. In terms of the market, uh, the exit markets, what would that new ideal exit market look like? What do you, what do we think is going to be possible or, uh, the opportunity for these, these companies that have been cooking for some time?

A Well, so, I mean, if we're talking about the, a bit of the macro picture again, just to, to remind us, uh, for, for anything in the recurring revenue software space, um, low rates are really important, right? And, and just to make sure folks understand why you're looking at, at growth rates that could be very, very big for these companies. So they have excellent growth rates, but to get the kind of multiples that software companies are used to, It's, uh, growth rates over a very long period of time that, that are, they are compared against just buying a bond, and bonds are interest rates, and if you are, your ability to produce cash flows well in excess of interest rates is where those incredible multiples come from. That was happening certainly over the last decade, but rates have certainly ticked up off those near zero rates, We're gonna need to create, you know, exciting companies to get to those kind of multiples again. I think we can, but that's important. And on top of that, it's, it's the, you know, you, you want disruptive technology that all customers need to buy, need to have within their four walls, and it can't be innovation teams, can't be dabbling, it can't be trying out, which is, you know, we're a lot of where we are right now in AI, and that's okay. As long as we punch through it, it's absolutely okay. Uh, we'll get to the infrastructure we're spending money on…

AI assessment note: “if we're talking about the, a bit of the macro picture again”