Cold open
You are listening to 20 v c the memo with me, Stebbings. Now the memo is our monthly episode where we sit down with an investor who led a round in one of the breakout companies of the last decade. Now the show’s day is focused on Algolia, the unicorn search and discovery platform. That said, the show is with a very old friend of mine. He was one of the first people to ever believe in me seven years ago, way back when I was at university, if you can believe it. We’ve been friends ever since, and so we did go a little bit astray. And so with that, I’m thrilled to welcome the OG of SaaS, Jason Lemkin. As the founder of SaaStr, he has inspired more SaaS founders than anyone else, building the world’s largest community for SaaS. Jason also invests out of the $100,000,000 SaaStr Fund and has led brands in TalkDesk, Pipedrive, Algolia, Gorgias, SalesLoft, and many more incredible companies. Prior to founding SaaStr, Jason was the founder of EchoSign, an early esignature business funded by Emergence Capital that was acquired by Adobe for a $100,000,000. Jason is one of the best, and I just love doing this one. But before we dive into the show’s day, we all hope we never need life insurance. But for me, nothing is more important than my family and knowing they will be protected and looked after. If you follow my Twitter, you know how close I am to my mother. And mortgage payments and other expenses, they don’t disappear when you’re gone. And life insurance just gets more expensive as you age, and so now is always the best time to buy. Policygenius was built to modernize the life insurance industry. Their technology makes it easy to compare life insurance quotes from top companies like AIG and Prudential in just a few clicks to find your lowest price. And with Policygenius, you can find life insurance policies that start at just $17 per month for $500,000 of coverage. And Policygenius has licensed agents who can help you find options that offer coverage in as little as a week and avoid unnecessary medical exams. They’re not incentivized recommend one insurer over another, so you can really trust that guidance. Plus, there are no added fees. Head over to policygenius.com to get your free life insurance quotes and see how much you could save. That’s policygenius.com. And speaking of game changing tools like Policygenius there, Gainsight is the world’s leading platform for helping companies of all sizes and industries drive durable growth through customer, product, and community led strategies. And did you know that GameSight launched a new offering, GameSight Essentials, in early March this year? Essentials makes it easier and more affordable for companies at any stage to reduce churn, drive more expansion, and cross sell dollars, and improve usage and adoption. And best of all, Essentials starts at just $20,000 per year, and you can be live in as little as two weeks. In fact, Essentials has been leveraged by companies like Calendly, Chewy, Dialpad, and nearly a 100 others since its launch in March. Now you can start and scale with Gainsight. Go to essentials.gainsight.com to learn more and mention 20 for special pricing when you schedule a demo or sign up. Tell them I sent you and get that durable growth engine going. But that is enough for me. So now I’m so excited to head into this fantastic discussion with Jason Lemkin, founder and SaaStr. Three, two, one.
What’s your vote? You have now arrived at your destination.
Jason, I’m so excited for this. I can’t believe it. You know, was seven years since we first chatted. So thank you so much for joining me again today.
It has genuinely been a delight to watch 20 VC just grow and grow over the years. If it’s been seven years, it’s a good reminder that overnight success stories take a long time. Oh my god. Jason, I feel so fucking old. I wear a hat because my hair is
thinning. I’m wondering about the hat on the TikToks. I’ve been wondering where that hat comes from. Fun fact. We get 28% of our engagement because of the hat. We’re gonna do the Algolia story here. So I wanna do a little bit of context setting. Where did you first meet the team? How did you meet them? How did that meeting go? Can you paint that picture for me? First of all, it
may be true of you to some extent because in some ways, we invest similarly in some ways, but I only invest from inbound SaaStr super fans. Every deal I’ve tried to go out and get, I’ve failed. I do nothing outbound. Every warm referral doesn’t work out. Nothing works out except the high velocity inbound email, my rounds oversubscribed, would you like to meet, or I just wanna meet with you. Some of those emails, they’re Sony baloney, but the really good ones break through. And every single investment I’ve done has been a high velocity inbound, including if we’re gonna talk about Algolia today, we’ll talk about that, my second venture investment. It’s not that I don’t think hunting is a good strategy,
just not good for me. You mentioned about the ones that break through. Yeah. What is it about those that break through? Is it the traction? Is it the team? Are there elements and commonalities which stand out, which make them higher signal for you? There are exceptions. It’s funny. We
did this digital event during COVID with the founders of monday.com, and they asked why I didn’t respond to their inbound email. I’m like, oh my god. How did I miss the one from the Monday founders? And I went back, their inbound email was terrible. It was very interesting. It was a horrible two they had a different name before Monday. They were like Harry and Jason’s wedding rentals. I’m making it up, but it was a terrible name. They had of great URL. Right? And the email was like, we love SaaStr. We’re gonna be in town for SaaStr annual. Can you meet next week? Those are the worst ones, because I got 10,000 people coming to SaaStr annual. It’s not that this is the best strategy, but what I found with the best investments I’ve done, Algolia will talk about TalkDesk, SalesLoft, Gorgias. I’ve tried my first investment. The best founders are great communicators one way or the other. If you can write an incredible cold email, an incredible inbound email, you can judge a human being in a company just from that email if it’s a plus, but you’ll lose the Mondays. That was my big wake up moment of
the limitations, which I always knew of this strategy. Is there a format for the incredible inbound email?
We did this other event during peak COVID called the new new adventure, and I actually flipped it around, and I asked David Sachs, Keith Revoy, Aileen Lin, and Zaccha Patel, all of the best, how they handle it. It was interesting that all of them plus add me as a distant fifth or whenever. We all gave radically different answers. So I love an incredibly detailed email. Harry, it’s Jason Lemkin from this company. We’re at 18 k MRR. We’re going 29.6% a month. Our MRR is a 142%. Our top customers are GE, Facebook, Twitter, whatever. Here’s our team. Here’s where we come from. Here’s our story. Here’s why we’re gonna win. Here’s what we’re doing that matters. I like it, a cold email, that I already want to invest before the meeting. That’s how I do. Including Algolia, we’re gonna talk about it. I already wanted to invest before I met. All of my initial unicorns, I all wanted to invest before I met. David Sachs was like, I just want two lines. What do you do? And Keith Raboy was like, send me a very lengthy deck. That’s good too. So it was just interesting to hear the different perspectives, but all of these top investors all loved getting the best cold inbound. Because every top investment’s an outlier. Everyone’s an exception. So be thoughtful about the rules you hear, because they may only
partly apply to you. When you apply that to Algolia, how did that come together then? And how did that first meeting take place from the cold email?
This whole series you’re doing is interesting because you go back in time. So you have to be thoughtful about what works today. We’re going back to 2014, my second investment. The first one was Pipedrive. They sold for 1,500,000,000 cash to Vista. Algolia today is worth 3,000,000,000. Probably would be IPO ing if it wasn’t for the markets. The founders were SaaStr super fans in the early days. They had come out of Y Combinator. The round was full. They sent me an email a week after demo day. I was lucky. I met them. I was just in love with the problem, which we’ll talk about. I was in love Algolia does search as a service. It’s an API to automate search. And And when I was a founder, this was one of my top five headaches, was that our search servers built on Lucene would go down every day. I wanted to bang my head on the desk. When you get some founders that can describe a problem you’re passionate about, and they have incredible numbers in the early days, you wanna meet in sixty seconds. The key was staying in your lane, the key again was an inbound deal that picked me. I didn’t pick them. I actually missed the deal because for a year, I had a a full time email reader. I need to get this again. And my email reader said, I don’t know too much about this company, but I think you should meet them. You missed this email. And I’m like, oh, you’re right. I missed the email. And so we met the next day before they were back to go back to France. But within five minutes, ten minutes, of course, I knew what I thought was true was accurate, and I said, I’ll just buy as much of the round as you’ll let me.
Okay. So if the round was full sorry. I didn’t know that. If the round was full, how were you able to invest? How much did you invest? And what was Look, I think I was the largest investor
in this pre seed round, but I think it was all angels and micro funds, so you just rejiggered it. It’s the thing that’s frustrating when you invest in a y c company sometimes because as a ex founder, I’m passionate about y c, but it’s also such a game. And just everyone finds out, oh, sorry. Your allocation has been reduced 50%. It was a new experience for me, but all of a sudden, there was a room to do half the round. So how much did you put in and what was the price? That’s interesting learning. I did only 500 k in the first round, and I bought up in the next. I did 3,500,000 in the a. So I did 500 k in the seed at 12 pre. So it was low ownership, relatively speaking, at the time. But in a classic y c thing, I got a deal. You could either do 500 k at 12 or 1,000,000 at 15. And I didn’t know, it was my second investment, and I was very valuation sensitive. In fact, this deal at the when I was working at a traditional venture fund, it was seen as very expensive at the time, given that they were like a 10 k MRR. So I chose half the amount at 12 instead of double the amount at 15. That makes sense if you’re optimized around small exits. Actually, there is a logic to that. Now you look back and we laugh today in ’22. It’s like, you could have almost doubled your ownership for a modestly higher valuation. What a numb nuts. But I was so focused, not only was I learning in my segment of adventurism, but I was so worried about losing money. You don’t wanna go too far. You don’t wanna start off and venture and burn all the money in the first six months. But you gotta realize how to lose money, and for me, it took me years to learn how to lose money. I didn’t even lose any money for five or six years, but I had to learn how to wrap my head around it. How did you learn how to lose money, Jason? I’m not the smartest investor out there or the highest velocity. Honestly, I had to get up almost 10 x on my initial investments to realize that losing a one x doesn’t matter. I had to get there. As a founder, I was terrified of losing my VC’s money. I sweated it every day. I raised oh my god. I raised $8,000,000 in venture capital. I thought thought the world would end if I lost them a dollar. It didn’t matter. I was in Emergence too. That’s like a 12 x fund. They didn’t care if they lost $4,000,000 on that fund, but I worried every day and I did the same thing. But then once you’re up literally hundreds and hundreds of millions, at least on paper, and if you’re a seed investor, I was slow. I finally got the perspective on, listen, I gotta take a little bit more risk. And a lot of the great GPs that were investors in me then, the Byron Deeters and others were like, gotta take a little more risk, Jason. It doesn’t matter. But I was slow. I just had to feel it, and I didn’t want to lose much money until it really did not matter.
So the interesting question is 500 k at twelve Yeah. Which done that deal today. I know how you invest today. Would you have done that deal and taken that ownership?
No. There’s so many lessons when you start learning. I think you and I might have talked about this when you started investing more aggressively. First, I would have done the million at 15 in a heartbeat, and that would have been my bare minimum of investment, because then I would have owned 8% or something in the company. And no, I would have passed on it, and of course, it would have been an error. But I’m sitting here at this stage of my investment career, and really, anything under 10%, it’s hard to take seriously. It’s just hard to take seriously. I will do it if I fall in love with the founder. I will do it if it’s a friend. I will do it if there are other reasons. Frankly, I will do it to help build a more inclusive portfolio. The majority of the companies I’ve invested in have a woman CEO, and right or wrong, one of the ways I’ve done that, which is probably not the best way, was to mix and match ownership stakes a little bit. But if it’s not at least 10%, in each batch of investments, I wanna have at least one as a solo GP that I own 20% or more of. I want that because honestly, it’s the only way you could make enough money. If you’re a seed investor and you’re a solo GP and you own 20% of something worth a couple billion dollars, that’s I think what the game of venture is about. And I think if you don’t play it to win, you
shouldn’t play the game unless you need a salary. Do you not worry about adverse selection? The ones where you can get the 10% plus, the ones where you probably shouldn’t. No. I don’t worry about it anymore.
Because what I’ve learned is that, like the Algolia one listen, Algolia was not the hottest company. It’s YC batch. The best founders always have multiple options. Even today, even in a growth round today, the incredible ones have multiple options. If you’re lucky enough that they pick you, and you play the adverse selection game, you’re playing weird psycho drama in your head. But you have to believe there’s a reason you pick you. The worst line you get, this is why I don’t invest in any founders that don’t love SaaStr. I get some Sony baloney line. I talked to this great founder about three or four weeks ago. I really want to invest in this company. Everything was great about these metrics. You’d love it if you saw it. She was like, I’m still learning about SaaStr. I’m like, I know this isn’t gonna work out. Then we have some sort of weird adverse selection thing, where I’m probably either being used as a stocking horse, or it’s too early in the discovery. And you know what? That deal didn’t work Didn’t work out. And ran that experiment one more time this year after nine years of investing to challenge yourself, and I will run that experiment again. I will only invest in folks that come through the funnel and pick me, and I’ll do it somewhat poorly. But if you can find a way that just, even once a year, one of the truly best founders picks you, you’re smart enough to recognize that, that’s all it takes if your fund size isn’t huge to win in venture. You need a real unicorn a year with large ownership, and the math is magical. But if you don’t do that, you’re running something for
fees. One of the main reasons I think I’ve seen founders pick their venture invest is the alignment of realization of problem. You feel the problem of search, and they see that in you. They feel your passion. And you said before, betting on what you know when you go from CEO to VC. Yeah. What did you mean by this, Jason?
Yeah. It’s the same advice I give to lots of operators. Came out of a second generation SaaS company now called Adobe Sign. We hit 1,000,000 a month when we sold to Adobe, 12,000,000 a year, growing a 100%. And my biggest headaches were we talked about our search servers going down. We used a cool in browser thing that didn’t scale, then we switched to Lucene, which is basically elastic today, but it was an early deployment, and we didn’t have the right engineers to make Lucene scale. So search was core to our product, and when you’d search in the contract with Harry Stebbings, it would crash the product. And so just drove me nuts as someone who was very product focused. So I had this problem. Our contact center never really worked, so I invested in TalkDesk as my third investment worth 10,000,000,000. I invested in Front, which is worth 1,700,000,000. I invested in Gorgias, which is number one contact center in Shopify worth almost 1,000,000,000. I invested MaestroQA, which will be worth 1,000,000,000 in the not too distant future. So I knew this contact center was one of my headaches, getting my contact center search, contact center. I could never get Salesforce to work for me, so my first investment was Pipedrive for an elegant CRM, and then our whole outbound cadence was broken. So the Outreach, SalesLoft, I invested in SalesLoft, which exited for 2,500,000,000 last year, to Vista as well, these were all like my top headaches. But interestingly, the things that worked well, like payroll, I met Josh Reeves really early. He was such a good CEO really early. He didn’t ask me to invest, but I never met him early, but I didn’t get the problem because it wasn’t a problem I had as founders. My payroll always worked just fine. This wasn’t even in my top 100 problems. So I knew there were HR issues. I knew recruiting was hard, so I was involved with Greenhouse, which sold for 800,000,000 very early pre revenue, because I got that. But I just didn’t get payroll. I didn’t get a whole bunch of other things that worked really well. I didn’t even get parts of web design, because I had a great designer. So it sounds silly, but when I talk to folks that come out of different success stories, I’m like, just don’t do what a lot of VCs say, which is wait a year. Slow it down. Take it easy. No. I’m like, invest in five companies your first year that are your top problems where you have this special insight, and you’ll know who the best founders are in that space too, because they can’t bullshit you. Because you just saw your search go down four times a week. So when this group of French cofounders come in and they can explain to you exactly why you had your problem and why their product is 10 times faster and could be deployed in an hour, when we’ve been spending two years trying to get this to work and it doesn’t work, and this is 10 times faster in one hour, you buy every share you can. Today, that, in some ways, that’s decayed. I know a lot about community with SaaStr as you do. Right? And I remember you made a comment to me not too long ago that you should have invested in Riverside that we’re on because you knew the space. Well, so that was your mistake. But as investors, as folks that have gone from CEO to VC, you got about two years before you’ll understand the problem. You’ll understand the problem, but not necessarily what’s next generation. My head of customer success, like, we use New Relic very early, and I beg my head of customer success to go there next, but I’m not sure I would have understood Datadog. I would have got the problem, but I wouldn’t have been able to say Datadog would be huge, even though I knew New Relic would be. So
you got this two year window. How do you retain that plasticity? Like, when you look at yourself now, you know, you haven’t been a SaaS CEO for many years, you’ve been a venture investor for many years. Yeah. You don’t have the pain points, and you don’t know what is front and center for SaaS CEOs because you’re not living it. How do you think about retaining that awareness of pain? First of all,
I think it is permanent decay for VCs. I don’t think you can retain it. You can retain a curious mind, which I think is critical to this. But maybe there’s a reason I’ve done six contact center investments in a row because I can’t think of something new. But I think it’s an existential issue, and I think anyone that says that it isn’t, I think is full of it. You can either build a team under you that’s close to the problem, which is what I suspect David Sachs has done off the charts brilliant as a SaaS CEO, but I think his team keeps him fresh and alive. But I think it’s risky, and you probably have to all converge on a more traditional venture playbook, and I struggle with that. Both you and I are doing something quirky, which is we are attempting to run operating businesses and communities at the same time as we’re investing. So SaaStr Inc. Will do 40,000,000 this year. So there are a set of issues around sales compensation we’re gonna talk about when we get off this year, commissions. I really understand CMOs’ problems, because we have 200 CMOs that we work with. But it’s a narrow set of riverside esque investments that you get out of it, but it does keep me fresh. I understand the pain of having rebuilt the sales team that closed 30 something million. I know the issues there. I feel young in a sense in that area. But parts of the tech stack, you age out of a lot of things in venture. You really do. And if you’re not honest about it, I think you’d just end up in a fee milking vehicle.
I do. Wonder why, Cindy, you mentioned there about doing four or five in your first year, really taking advantage of knowing the pain. Is there any other bits of advice that you give to operators turn VCs in their first year of transition?
So one, don’t listen to the advice to slow it down. If you join a larger fund, their incentives are different than yours. You’re new. The ball is set. A large fund is hoping in the next two years, you find one notion, that’s all they care about, and that you don’t create a lot of drama or headaches. They’re only looking for one. That’s all they need out of adding use. You want 10 so that you can get a couple unicorns and get your track record going. So invest in as many as you can even if the ownership is suboptimal, even if you have to join a syndicate you wouldn’t want, or even if you have to do do a few as an angel, just do all the good ones. And the second piece of advice is this is a rule I’ve bent over time and regret it every single time I do. They have to be better than you. This is the rule that only operators get and founders and VCs do. When I tell this to the most successful VCs, they don’t get what I’m talking about. You have to invest in CEOs that were better than you. If you know the problem, if I’m a podcaster and I know Riverside or whatever the other versions are, and I look, Riverside’s great. We’re on it today, and you meet the CEO who I don’t know, and he’s not better than you, Harry. You shouldn’t invest. But if you meet the CEO of Riverside, and my god, you’re you just know that whether he’s five percent or she’s 5% better than you or 50%, but they’re better than you, and you’ve already had a decent outcome as a founder, you can’t lose in those ones. We’re jumping around a lot, but if we go back to Algolia, and again, this was the first venture investment I did when it was unanimously no, and I still did it. But the founders were clearly better than me. The traction was better than I had. The understanding of the problem was better than I had as a founder, adjusted for time, and they were better than me. They were better than me. The mistakes I’ve made is whether there’s traction or the product’s cool, but the founders aren’t better than me, because this stuff’s so hard. It’s so competitive. It’s so agile that if the founders aren’t better than you, in two to three years, the products decayed with against the competition.
So the founders were better than you. But we’re gonna get on to the partnership wanting to do it. Yeah. The other element though, there’s a couple of elements we’re gonna dig into, but competition is always one that VCs spend a lot of time on. Yes. Look at the competition. You were competing with free. Tough competition. How did you answer the question of how Algolia would beat free alternatives and get comfortable with that? I do think
competing with open source is really complicated. Yeah. I feel like I’m a tiny bit smarter about it today, although I haven’t done as many commercial open source investments as I wish I had. Competing with free is both tough and wonderful, because it cuts through the Sony baloney. If you’re competing with a world class open source product, and you are getting relatively incredible traction in the early days, that means your product rocks for some use case. It’s not gonna be the best for everything. It cannot be the best for everything. But there must be some segment, some sliver where you are literally 10 x better, or you would never get any traction. There’s probably no better signal than when you compete with a free open source platform, and your product is exploding even in an early day, because it’s it’s gotta be magical. So actually, yeah, hard on the founders, but easier on the VC. You can’t buy that traction typically. You can’t buy it with marketing dollars. It has to be magical from
the beginning. So many founders present the two by two matrix with them in the top right hand corner alone. When you think about the way that founders present competition in competitive landscapes, what advice would you give them in terms of how to present competition the right way to potential investors?
First of all, most of those two by two matrices are throwaway slides. Don’t have a throwaway slide. Not only is it a waste of everyone’s time, but it makes you look less than great if you have a throwaway slide. Let’s step back for a minute. If you can’t come up with a two by two matrix, do it a different way. Do it in text. Do it in a 10,000 line memo. If you the two by two doesn’t work for you, a two by two is a construct. If it doesn’t work for you, don’t do it that way, because there’s nothing worse than when I see a competitive slide, and I see the two by two and it just the axes make no sense. I’m like, ugh, I don’t wanna do this one. Because here’s the thing about competition. I can think back vividly on the handful of investments I’ve made that haven’t worked out. I can remember how they’ve answered the competitive questions, and it’s always been mediocre. The best know their competition cold, and they respect it. For example, one of the things I loved about Algolia was before I even met them, they had this iconical piece of content marketing, back when we barely knew what content marketing was. And it said, Algolia versus Elasticsearch, which is free. And they explained quite honestly where Algolia won and where it didn’t, where you should use each product. It was data driven in terms of spec for search time and everything, and they said, listen, for these use cases, do not use Algolia. Okay? This was not a VP of product marketing that doesn’t even know what the product does, and it worked. It got them tons of leads because people would type in elastic competitor, and then they would find out so it worked. But that’s what you want. You want founders that profoundly respect the competition, and they know exactly today where they sit in the market, and they know in three or four years where that white space is going, and that’s what you want out of a competition slide. Who cares? Everyone has between two and two thousand competitors. I wanna know why you’re breaking out and where it’s gonna go, and then your jaw drops because ninety five percent of founders fail that exercise.
For me, the thing that I always run away from is commoditization products. And what I mean by that is products where it’s just a race to the bottom. Now you could see payment processing as part of that. I know many investors lost on Stripe and Adyen because they viewed market as that. Yeah. But how do you feel about commoditization products where it simply is a race to the bottom?
I’m with you. And all things being equal, I’d rather have a product that hits small, medium, and large customers and has a bit of a mid market or enterprise element that isn’t very low end or race to the bottom. But I also think that is an a VCism, and you’re gonna lose great deals due to VCisms. All these VCisms are truths. When I started investing, they back to the dot bomb era, when everyone knew things didn’t work. There was a famous tweet that David Sachs said, before he started investing in craft, that all the good ideas in SaaS were done after he sold Yammer because we were of the same CO class. And it seemed for a couple years there, it was done. All the categories had been built out until maybe 2015. My point is this race to bottom thing, is it true or is the fact that Stripe’s API was so elegant and disruptive and that they could build so much functionality around it that why would you use anything else? Maybe we missed the whole point, and I do not believe Stripe is a commodity whatsoever. If I were building the SaaS company today from scratch, I I wish I’d invest in Stripe because this was also in my top 10 problems as a founder, was payment processing. If I and your team wanna use anything but Stripe, I would really challenge them. I’m like, it’s proven, it works, everyone uses it, I’m in, I don’t even care what the fees are that much. They might say, hey, look, use something like Pilot that can handle billing and automation, I might do that. But for the pure API piece, no. So I don’t know that this race to the bottom thing, you might just miss some things. The tough thing is all these VC isms are accurate, and
they’ll all lead you to missed deals. You said VC ism there multiple times. Was there any other mistakes that VCs make or you always laugh at when you hear them talk about competition?
The one that we all hate, of course, the old version of is why wouldn’t Microsoft or Google or whomever do this? Then it became why wouldn’t Salesforce do this? I was involved, invested in SalesLoft pre revenue. We sold for 2,500,000,000 last year. Everyone thought this was a terrible category. SalesLoft and Algolia is just worth 4,000,000,000. They all thought it was a terrible category because, of course, Salesforce is gonna do this. Of course, automating sales communication with customers, why would the number one CRM not do this? There’s no way they’re gonna let these guys get big enough before it is just built into Salesforce. So why wouldn’t they do it? Why should Calendly even exist? Google should have built that. Listen, Top had a couple incredible work flow insights in this product that were profound. So that’s the ism. The worst ism is why didn’t somebody do it? And I think that you can ask that question in a thoughtful way, but it’s a lazy question if you don’t ask it in a thoughtful way. Tell me, why didn’t Google build it? Just so I always use the Columbo type approach. I honestly don’t know. Why do you think Google has not built this into their calendaring function? Ask the question, why doesn’t Salesforce built SalesLoft or Outreach back in the day? It seems so core. Tell me why they haven’t built it. And the smart founders will actually tell you why they didn’t
build Have you ever had a portfolio company been smoked by competition? And what did you learn from that? I’ve had a couple,
and I’ve had one that wasn’t, even though they were slow, which is interesting, which was my first one, Pipedrive, so we can contrast them. Fact is, what they say on this VC isn’t true, but really it’s only the operators that say this, which is it really is the folks that can iterate more rapidly that win. Let’s say you use the story points, and let’s say you put out 40 really high quality story points a quarter, whatever, however you measure it, and your competition puts out 30. Okay? But think how that compounds over two years. It compounds, and you find a way to double your team. So by the end of year one, you’re doing 80, and they’re doing 30, and then you’re doing one sixty in the new 30. The great team’s just your jaw drops what they ship each month, and then the mediocre teams, nothing happens. The product is frozen in time, and EverNote just got acquired. We just watched that after all these years. It was so disruptive when it came out. Everyone in the Internet used EverNote, especially for clippings, like every smart person. It was the notion of its day. Not just because they’re similar, but because it was so cool. Probably because the founder turned over their other turned over, it was never able to re innovate ever again. Like, it lost its innovation, but the best ones keep going. Notion’s nothing like it was when we started using it for our team. Pre product market fit, is speed still everything? It is. Because the faster you can iterate, the faster you get into market, and the more tests you can run. I know Figma spent seven years crafting their product in closed beta. First of I’m not sure that story is completely true. I bet if we got Dylan back together, and we really picked at it, I bet he actually got some version of it out early, and I bet before this version one came out, there were 25 versions. Now, I might be wrong, but I’ll bet you there’s 25 versions that went out, because you want those reps, you need those iterations, and however you do it, whether it’s with friends, beta customers, users otherwise, when you launch this was my stress point when I launched as a SaaS founder. We burnt half our money before we launched. Luckily, it wasn’t all of it. It was a different time, but what I knew, and I pushed the team really hard to launch too early. It was a mistake. We still launched too early, but I knew we would run out of iterations. I knew our initial launch was not gonna be the right product. No one had ever really done e signatures at scale back then. DocuSign was a Windows printer driver. We were doing something innovative, and I knew as cool as the product was that we were using, it was not gonna be monetizable the way was. So I wanted three or four iterations, and I knew I had about twenty four months total of time to do it. So I shoved our product out the door after six months, my team almost killed me. It was a mistake, but it gave me eighteen months to get to 2,000,000 of revenue in a sellable product, like a minimum sellable product. So the better the team is, the more of those iterations you get. It’s wonderful when you see it happen because they just have this leg up.
You mentioned there about burning half the money before the launch. Yeah. We’ve seen a whole generation of SaaS companies raise 50,000,000 plus with 30 to 500 k in ARR. So really pre PMF still. What happens to them who’ve raised that much at a 150,000,000 plus? What happens? For better or worse,
I don’t see any way any of them succeed. I’m very concerned. However you define this term zombie, I do worry about zombies. Zombies are the ones that took advantage of a valuation last year. Whether they raised 50 or a 100 or they raised 30, now they have infinite runway. They have runway forever. When you get an investor update is bad news is we’re not growing, Harry. Our growth has dropped from 150% to 0%. The good news is we have ten years of runway. These zombies have a lack of urgency. I and I think the VCs have given up. In the old days, the VCs would be all stressed and yell at them, bring in a new CEO, liquidate the company. I think VCs just wanna ignore their zombies for the moment because they have bigger problems to solve than their zombies. Well, presume say for
VCs, it’s not a problem. There is no existential crisis. We even tell your LPs they’re figuring it out. They have lots of runway. Yeah. You can hide it from your LPs. Yeah. It’s not a crisis.
Yeah. Do you see what I mean? I think it is not a crisis. I will say that personally, the handful of things I have that are vaguely like that, I wish I could get my money back and put them into another investment though. It’s not that I’m worried about it, but I’m like, gosh. Even if it’s just a couple million bucks, what if I could have put that into a breakout seed company that could do a lot with $2,000,000? Instead, this zombie $2,000,000 is just lost zombie and nefying across the wilderness, the Arctic, for the next seven years.
But, Matt, I’m seeing this. I’ve seen four in the last month where the series b investors have come back and said, hey, Jason, it’s not your fault. It’s our fault. But it’s not working. Give us the money back. We’ll get you a million in secondary. Go on your way, and we support you. That’s a good deal. And we all win. We fucked up. It’s not I
haven’t been part of one of those, but if that’s common, that’s like the Elon Musk’s offer to the Twitter. Take your ninety days now, and don’t show up on Saturday. If the founders want a million dollars rather than to not keep going, it’s a great incentive alignment because that’s a lot of money, and the VCs get 30,000,000 back. They probably don’t get one x though in that scenario or the math wouldn’t work. That’s the part I don’t totally get, but it’s better than none x.
Totally. If you got 0.8 x back, it’s gonna be a zombie anyway. Take the 0.8 x back. But my faith is all the founders are like, fuck you. No. I’m like, oh, yeah. I was like, oh, I would not do that. I would take it. So I totally agree with you there. It’s amazing how this goes off schedule. I do wanna go back to Algolia though, because the market size is another one where there’s a lot DC isms. Algolia’s market size, I read your tweet about this. $2,000,000, I think it was. Yeah. It
was funny. That was a learning. When the first one was Pipedrive, so you don’t have to do a TAM analysis for CRM. At least back then, it was the largest category of software, so you really don’t have to do the world’s smartest TAM analysis. It’s okay, who’s in the next generation of SMB CRM? Who seems to have the most traction? That’s this one, Pipedrive. Okay. That’s the end of your TAM analysis. Algolia, I knew this again, this was one of my top problems as a CEO, was getting search to work as an API. You basically had three competitors at the time. You had versions of Elastic, which was a services business, so it’s free. You had a deprecated Google product no one was using, and so that doesn’t really count. And then you had weird niche offerings from Amazon that weren’t directly competitive, but the best I could tell was doing $2,000,000 in revenue. But literally, the TAM was 2,000,000, and I was deeply challenged on this. Obviously, search is an important part of the Internet. It’s how we all got on the Internet. It’s the onboarding, but for this b to b thing, I don’t get it, and here was my dumb guy math. I’m like, okay, listen. These guys are at 12 MRR by the time we’re gonna do the deal, and they’re growing consistently 25% a month. Now, on the one hand, that may not be statistically significant. We could talk about it, but let’s do a line. It is impossible for the TAM to be 2,000,000. They will approach a 100% market share way too rapidly if they are growing at 12 to 20% a month, even at a couple 100 k in ARR. It’s not mathematically possible, and it sounds silly, but what I have learned is that hyper growth in the early days can decay for a variety of reasons, but it does prove you have a large TAM. It always proves to me that if you grow quickly in the early days, you have a large TAM. Even if it looks small, you’ll read up and all these categories get bigger. Even e signatures, not to talk too much about the old days, but that was a $1,000,000 TAM, and today, it’s a $6,000,000,000 business. But the technology remakes categories again and again. So you either have to be smarter than me and figure out how all these navel gazers are figuring out how Web four is gonna remake categories, or this hyper growth in the early days, it’s good enough for me. That’s all I need to know for TAM. That’s all I need to know. Can
you speak about the hyper growth in the early days being a real signal? I think you’ve spoken before. I think it was about Pipedrive and how they’ve plateaued at certain points in the journey. Yeah. My question to you is, what are the number one or two drivers why companies go from hyper growth to plateau? Why do they plateau?
They all do. I mean, a few haven’t, but every single company I’ve invested in, every true unicorn, 100,000,000 more revenue or billion more cash exit, all of them have had a plateau year. All a 100%. And others have tell other stories. It’s really always not rebooting the management team. That’s the real answer. It’s always sticking with the one point o management team too long, or Algolia, we’re talking about Algolia, Nicolas was very clear on this, he waited until 40,000,000 to build his first management team. That was way too long. And Nicolas’ problem, when he’s been very direct about them, this is a wildly successful company doing hundreds of millions. Here’s another problem founders have. If you wait too long to build your management team, it’s kinda like the product conversation we had earlier. You don’t give yourself another chance, because if your first management team doesn’t work out and you recruit them at 5,000,000, okay, you got another chance. It’s painful. A lot of founders these days and the boom, actually, they waited. They waited to hire a real VP of sales or especially a VP of marketing or VP of product. Sometimes you don’t get that extra chance if when you screwed up because you lose a year with every bad VP. You hire two bad VPs, you might lose a year and a half. And so timing the your second management team, that’s really the plateau. The underlying issue is often not expanding your TAM enough, not expanding your surface area, not going enterprise enough, not building a second product. We see all these root causes, but the great management teams figure it out. The great management teams figure out when to go upmarket, when to add a second product. What looks like the reasons, it’s all really the management team.
Do you have many of your winners that still have the founders as the CEOs? When I think through the winners that you have All but one. But one.
Yeah. All but Algolia that we’re talking about. Nicolas did. It stepped out as they’re approaching a 100,000,000, and Bernadette took over. And it’s been fascinating learning for me because it’s only one. Did team up Pipedrive for CCO? Oh, I forgot. We have Pipedrive. Pipe there are a lot of CEOs at Pipedrive. You’re right. Okay. Hey, Marc. We came that’s out. I take that one out because it was my first investment, and I made so many mistake. We could have a different podcast, all the mistakes you made on your first investment in Pipedrive. I made every mistake you can make as a VC. Made all of them, and I would not make them. I I immediately course corrected on the number two Algolia. They all could be summarized as acting like a VC. Talk to me about that. What do you mean by that? I wasn’t sure it was worth my time. I would tell them how to raise money. I would tell them this thing and that thing, and I dressed like a VC for a couple months, and it just didn’t fit. The outfit didn’t fit. And What’s wrong with telling them how to raise money? Surely, we’re here to help coach some fundraise. I think as a VC, it’s harder these days when things are stressful in the markets. You gotta give the best advice you can, time the way you can. And once every two years, you have to give some arse kicking advice, which I hate doing, because I’m usually the only one left these days that’ll do it. Every two years, you have to give some arse kicking advice. But then, they gotta just run with it. It’s their company. When I grew up as a founder, VCs were still much more patriarchal and patronizing than they are today. They’re still patronizing today, but, boy, it used to be worse. I still had a that a bit of the abused founder in me by being abused by a couple generations of VCs where I acted a little bit like that, and then I immediately saw what I did. I’m And like, I could never do this again. And it helped going to one of the conversations we had actually before we started. It helped that my second investment, I wasn’t on the board, interestingly, because then TalkDesk, was my third. It allowed me to have a more aligned collaboration with the founders than I might have had if I were Exal, the largest investor.
That’s an interesting learning, so I course corrected. I would disagree on the patronizing. Maybe I’m sure they’re patronizing. But I find, say, I’ve had one which has not gone well recently. I said to the other investors, Why are we not doing more? And they go, oh, Harry, it’s a bad look. It’s a bad look to their right. You and I are wrong, and they’re right. I don’t wanna be part of a business where we just say, yeah, sure. We’re happy to actually not oblige by our fiduciary responsibility and not do what’s best for the company. I’m gonna say the hard truth, Jason, and say you should be on I tell Harry, time will
tell whether we’re right. It’s funny. I put this on Twitter yesterday and this tough conversation, and maybe the sixth investment I did is a company called Logikcull. I love this company. It’s e discovery, but it’ll take a long time to it’ll get to a 100,000,000. It’s worth hundreds of millions for real, but it’s on a thoughtful growth. It’s never race again. And Andy’s like, yeah, you gave me that kick in the ass conversation 2017, and I I needed it, and I’m grateful. But he still remembered it as a hard kick in the ass in 2017, and I realized there’s this line, and I would say, hopefully, you’re invested in pretty good founders, so you’re already in this Ivy League segment. But I would say, even of this Ivy League of venture backed founders, I would say only maybe 50% really can take the feedback. 25% will tolerate it, and then 60% will hate you for it. That’s why all the other folks in the room say nothing, Harry. And I had a tough board meeting about a month and a half ago, and the founders asked me eight times, what do you think, Jason? I’m gonna pass. I’m gonna take a pass off this discussion. I said, literally, you do not wanna hear what I have to say. I gotta be honest, trust me, you don’t wanna hear what I have to say. And they kept pushing me and pushing me. Finally, I was clear. It’s, I love what you guys are doing, but your burn rate’s unsustainable. You don’t have to make a change this week. You have a lot of but you don’t make a change in the next three days, you will fail. Here are the 10 reasons you’ll fail, and they’re upset with me to this day. And Andy’s from Logikcull, I’m glad he wasn’t. We bailed out the company when he spent too much money. But I would say the majority of the time, I’ve had to be the ass kicker. The relationship is damaged permanently, and not with the best ones, not with the Algolias like we’re talking about, but with more than I would have expected, Harry. And is it worth it? I’m not sure. I’m not sure it’s worth
it. I just want your thoughts. So when you go to an enterprise customer and you fucked up or the product’s SSO is not working or whatever permission is not working, they’re gonna kick your fucking ass. And if you are a child and can’t take that, you’re not gonna have very good enterprise division. You’re gonna have great engineers, great employees who are gonna advise you on your leadership and how it could be improved. If you can’t take that, you’re not gonna be a very good leader. That’s indicative that they just can’t take feedback. And then you know what? Fine. We’ll point to anomalies like Steve Jobs and Elon Musk. But predominantly, especially in b two b, that’s actually just a sign of a bad leader.
I also think that the board member, CEO relationship is a nuanced one. It’s complicated what it means and how it works. My feedback’s always honest. It’s always from the heart. It’s there’s never any malice, and if we lose the money, it’s fine. It’s relatively trivial for me compared to the founder, but most folks take months to deliver tough feedback. The truth is, this is the VC
Intro
approach in twenty twenty two, twenty is give the tough feedback, but hint at it, get into it, and then talk about the big tough layoff meeting in two months. I just don’t have the patience to sugarcoat, but it’s tough. I don’t know that’s right. I think that VCs, they have a peculiar relationship with startups, and maybe it makes sense to sugarcoat your feedback over three months. And at the end of the day, as a manager, and I don’t know that VCs are managers, it’s always better if your report comes to the conclusion themselves.
It’s always worse if you have to tell them the answer. You don’t want to do that, and VCs are so weird. We have these board meetings every two months. We don’t have the daily meetings to hope that in a month or two, your VP of sales realizes Jack and Jill aren’t going to work out. The problem is it’s these punctuated moments in time, and if you don’t speak up, you can try it out of band. Don’t get me wrong. You can pick up the phone, but sometimes three months later is pretty late.
You
said about speaking up there. You spoke up in your partnership when no one else was to Algolia. Yeah. Talk to me about the internal discussions there and how you got it over the line when you were the only one, and it was your second investment. Yeah. First
of I don’t mean that to be critical. It’s just a learning. It was interesting. My third investment was TalkDesk, which is worth 10,000,000,000 today. That one was so unanimous. It was a yes before he left the building, but both will probably end up being equally successful. Number two was all no. Number three was all yes. Nothing else I did was unanimous. Maybe the lesson is one of the VCisms I hate is conviction, because conviction can justify so much sloppy thinking. But it doesn’t mean it’s wrong.
Right? And I was a 100% sure this investment was going to be successful. I had lived the problem. My colleagues had not lived the problem at the time. They were right about the TAM. They were wrong about a few things we could chat about too, but I was so sure this would be successful that I was willing to
take whatever hits it took to push it through. You think investment partnerships are the best decision making bodies. You have one person like you in this case, with the main expertise, the relationship, the knowledge, and then the other partnership, which not specific to this, but just generally, have the relationship. They often don’t have the knowledge. They maybe specialize somewhere else. And it’s a very different level of knowledge barriers. Are they the best structures
to make the best decisions? I’ve thought about this over the years. Forget about VC. Think about real partnerships. How many partners are there typically? That’s the right number. VCs are legal partnerships, but I think once they’re beyond two, they become dysfunctional. Almost they have to be dysfunctional. At a minimum, you’re only there because of the fund size, because you lose all the benefits of a partner once you’re passed. Now, there are great three co founder startups, but even three, it’s usually two plus one. So that’s the problem is this corruption.
We confuse the term. Look. If you’re gonna deploy $500,000,000 traditionally, you’d need at least five GPs to do that. That’s the way the map. There’s crazy exceptions the last couple years, so you had to do it for the kids, for the LPs, and then you had to find a way for this to work. I would’ve been a much better investor with a partner than as a solo GPL. Say, I’m gonna do fine. Don’t get me wrong. But I could’ve had a fund or two for the ages if I’d had a partner.
Just when I did not have a co founder as a founder, I was less successful. It’s the same thing. Why did you know that? The weird thing about venture is you gotta pick one of two types of partners. You can either pick someone that’s as established as you, in which case the timing has to be right. Are they gonna leave are they gonna leave Sequoia to join twenty VC? Well, it might seem exciting, but woah, how much are they vested into at Sequoia? You don’t even wanna know the numbers.
There are one or two people I thought about working with, but what they would leave behind made no sense. Wasn’t even comfortable with it at the time. Then there’s the up and comer, and that’s what you wanna do nine times out of 10 anyway, is bet on the up and comer. I did some experiments there, both of which were successful. They end up on their own journey. And sometimes that journey is not synergistic with the way you’re running your fund. And, yeah, I consider it a feeling that I did not, as an investor, find a cofounder.
We can call them a partner, but I do consider it a feeling of finding a cofounder because the best cofounders are mega accretive. Do you find it lonely? Investing? No. Because just running SaaStr overall is so rewarding and enriching and complicated and nuanced that that fills up every energy I have as the community side. No. I just know I would be a better investor with a true cofounder. You mentioned doing it for the
kids, spear on the LPs. Yeah. As Samuel said on the show the other day from Haystack, we’re about to see the greatest LP churn ever with all LP books overweight on venture, and the churn in this next wave will be phenomenal or huge. Yeah. Not phenomenal, but huge. Do you agree with him? And how do you expect LP markets to move in the next twelve months?
I can just tell you from my vantage point, don’t think so. The LPs I have are pretty well established institutions that had been invested in venture for decades and decades. I have one that experienced some stress during this period, but it’s someone that’s relatively newer of my LP stack. I have the exact same LPs across multiple funds, no change. Some losses, but basically, others just took up the slack, so no new LPs. And I just think that folks that have been in this category for decades, they may drop managers, if that’s the point.
Managers are gonna get dropped. Don’t get me wrong. Like, it’s gonna be brutal. But they’re not going to not remain committed to the asset class. I remember talking to Horsely Bridge when things went pretty far south, and they’re like, we’ve done an exhaustive analysis again of everything since we’ve been doing venture. And like, there’s just this type of manager is still gonna outperform every other asset class. They’re a fund of funds. You can argue they’re biased. The fact that top LPs made 80 to 90% IRR last year was insane.
That should’ve been a flag to every LP on the planet instead of doing victory laps and committing more to the asset class. But it’s really the only way they’re gonna beat Nasdaq on this side, some combination of PE and VC, and and otherwise, you gotta do it. You gotta deploy the capital. This is what I learned before the boom. We talked about the boom in venture, we’re missing the but we’re missing the boom in all the managers. Such a boom in managers, and so many are gonna get dropped.
In the old days, people would drop Excel, and they would drop everything but Sequoia. And then you would think, oh my god. I dropped out Excel after the Facebook fund? That was like a career limiting move, but people are gonna drop out of everything. They’re gonna drop out of Andreessen, and it’s not because these aren’t great funds. There’s just stress in the market. But it doesn’t mean that the best LPs are going anywhere. But they’ll come back. If you look the overall numbers for Andreessen, I’m shocked at how wildly successful Andreessen has been across these funds as they’ve grown wildly successful.
That their blended returns are 3.5 x net after all these years, pretty darn good at that scale. And 3.5 x net beats everything, Harry. The other thing is, the last couple years, everyone was so brilliant, we would throw out three x, four x, five x, six x. I’m gonna have a 10 every new VC that never had a fund, their deck was, I’m gonna raise an eight x fund. I’m like, do you even know what that means? There’s a reason 3x net used to be rare until the boom.
It’s because that beats everything. 3x net beats every other asset class, except September in Goodyears, or diamonds in odd years. 3x net beats everything, and 3x net is used to be rare and will be rare again. It will be rare in today’s multiples again. Three x net will be
rare. It so pissed me off the way people said, oh, I can see x can easily be a 5 to $10,000,000,000 company, but can it be a $50,000,000,000 company? And you’re like, 5 to 10,000,000,000, that’s a big company. That is a huge success. That was a throwaway comment for something.
And what if you own 2% of it and you have a $100,000,000 funnel? Then you ask them, okay, how are gonna get a 10x fund out of that? Great. Hooray. I don’t think most of these folks can even do the math. You
said to me before, if your numbers aren’t great, you hold the product. You said that before. What did you mean by that? Because I thought that was very interesting. I
just remember, I told you this story before we met. When I first started nVenture, the first LP meeting I went to was a huge entity in New York and Manhattan on the 48th Floor of whatever. We came with an 80 page spiral bound notebook of all strategy and the thesis and all the best, and they just turned to the very end, the last page of the returns, studied it for about ninety seconds, looked up and said, so are you guys IT or biotech? Like, he only cared about the numbers and which of the two buckets of this asset category for a slot.
Then I’m like, okay, I get it. We’re just a product. We’re just a product. And venture seemed human for a while, because when I started doing this, like, we’re solo GPs, but emerging managers was seen as crazy when I started investing in twenty third. When when Cemo was crazy, when I started investing, all the LPs I met with talked about homebrew. And they’re like, we love homebrew. The fund size is too small. We can’t make any money in homebrew. We and so homebrew, I got to know Hunter and Sacha early for different reasons, so I wanted to emulate them a bit.
But the LPs actually were negative on them, not because they didn’t love these guys, but just didn’t make wasn’t worth their time for these small checks, just like it’s not worth your time for a 50 k check or a 100 k check. And then the crazy numbers and the energy for LPs to do exploded for three or four years, and emerging managers blossomed. They never want to do this, and that may well end. The appetite to go hunt the next SaaStr or 20 VC or Homebrew or Cowboy or whatever it is that I wouldn’t be shocked if that evaporates in the next twelve months, if the appetite for the next one just is gone, if it just evaporates at the LP level.
We have startups that aren’t growing, but the top public companies are still growing like a week because that’s where all the budget’s going. And all the LP budget, similarly, may see a flight to trusted brands, and just the energy to write a $5,000,000 check out of a $10,000,000,000 endowment. Hey, Thursday’s maybe gone. I always think the best discussions are when we’re very honest. Yes. What was the biggest fuck up in your fund? I cut corners during the boom. All the corners I cut, they’re masked by a decent fund returns overall.
That’s the one benefit of venture. But I think about them every day, the corners I cut, and I regret them. It was obvious I was cutting the corner. Money was too easy to make. Markups were too fast. But I will never cut a corner again. And even though there are minor corners, I just won’t do it. And it will impact investment velocity. Makes it harder to invest over Zoom when you won’t cut certain corners. But that’s why I think that my learning Eisenberg at a left,
who’s a very close friend and an investor of my funds, told me, like, how many of your founders have you met in person? Yeah. And he is very intent on this. How do you feel about the need to meet in person in this Zoom invested world?
I have not figured this out since March 2020. What I was very good at with this inbound strategy was getting an inbound thing. I didn’t care where the founder I invested in Estonia, France, what all these different countries. But when the founders came here from The US, I was often the first one they’d meet, okay, off the plane. Even if they went back to Belgium or wherever it was, inherently got all that benefit of that socialization from that meeting, and that’s gone forever. The first meetings will never happen in person again.
Even if you’re in San Francisco, you’re all in San they’ll never happen. And I’m a worse investor for it. I have not figured out the answer to your question. I will say I’m a worse investor for it, and I don’t have all the answer. What I really don’t like is that founders don’t care. They don’t care. Investing has gotten so transactional that even if they want you on the cap table, they don’t care. They just want to check the boxes and move on. I think some of this advice we get is old school.
We have to be thoughtful. The world has changed. When I think what San Francisco was like up until 2019, it feels so far in the past now. It feels like they should make a movie about this because this world was so different, and I still miss it, and I was a better investor in it. But we can’t go back, and you can’t meet every founder face to face at the seed level. And then I look at friends of ours like Christophe Jansen from point nine, which has ended up developing epic fund after fund, and Christophe, in the beginning, perfected investing all across the world over pre Zoom, over GoToMeeting, or whatever.
We can ask them. So obviously, it can be done wildly successfully, but you have to countermand that risk in some fashion. And I think taking a high risk without really getting to know folks is risky. On the other hand, I do like folks that are like, VC’s over index on their ability to suss up a founder in a face to face. Like doing a walk and talk in Chelsea or wherever, East London is so magical that all of a sudden, you’re such a great student of human nature because so many founders are great bullshit artists.
Sam Blankman, Freed and Friends, so it’s not that. What I do think the face to face does for me is, and I think this is what we lost in COVID, is it builds trust. And maybe this is going back to the eras you and I have both made. It builds trust. It’s not that I’m such a great judge of character. There’s so many different cultures in the world. I don’t exactly what culture is like in other countries. I think entrepreneurs all have kind of the same culture.
Venture is so full of risk. I remember being terrified my first check-in to Pipedrive, we would go into the wrong bank account or this would happen. I was still terrified. And founders forget that VCs are taking bounded risks. It’s not the whole fun. But they don’t get to know you that quickly. It’s so risky. And one is you wanna de risk things for vcs that increases the odds you get a term sheet. But for vcs, man, it’s just when you build a relationship, it’s just old school sales.
When you build a relationship, it goes better, doesn’t it? There’s more honesty, there’s less baloney. And So when we skip that step, we just never have that relationship, and I don’t like it. I don’t like it.
I wanna ask one final question before we do a quick fire, cut back on Algolia. I was watching a documentary on J Lo yesterday on preparing for Super Bowl, and she was talking about her her continuous fear of being replaced, being the old god. This in total respect to you Yeah. You’re v one, I’m v two, and I worry that I’m not the hot one anymore. I think it’s good
worry. Yeah. Think that just like VCs don’t have enough time to really get to the level of trust you like to investments, founders don’t really have enough time to truly understand the nuances of venture. And it makes sense that founders are attracted to the most loudest VCs, the biggest brands. Everyone’s attracted to brands, Harry. And one way you can build a brand is your fund is a brand. Sequoia will always be a brand. It will be, and for a million reasons, like the business model’s insane too.
I think subscale brand building on VC is a waste of time. But top brand is always compelling, and founders, founders don’t know. We’re all attracted to brands. If the way we build brand is evolved, then you should be worried. And also, not to do too much insider baseball, we’re also both products of different types of social media. And social media changes as a blog, SaaStr is still a huge even though blogs are dead, SaaStr traffic’s insane. It is a canonical source of a lot of content.
But half of probably my deal flow came from Quora in the early days. Quora is dead for b to b. In the early days of Quora, I would write something, and you know who would comment on it? Gary Tan, and Keith Raboy, and David Sachs. And Stuart Butterfield and I were on Quora talking about how quickly Slack would grow. It’s all dog pictures and weird stuff on Quora, and I’m still there by myself getting half a million views a month, but it changes. That’s what I think
is down to us, Chase. Yeah. It’s changing. I mean, TikTok is a new platform, and I’ve doubled down on it. But it’s like founder’s job to scale into enterprise, to scale new products. It is our responsibility to move with platform.
We could talk about platforms. It’s a fun conversation. I’ll actually answer your question at a little bit more of an existential level. I thought about it. Okay? Brands matter in venture investing. They do matter. There are many ways to invest, as we talked about. Brands matter. The thing about brands that I’ve learned and we all got brand wrong in SaaS. We all used to make fun of brand in SaaS, but brands last a long time if you nurture them. And so why do I still write Quora posts when Gary and Keith and David and Stuart are all long gone?
Because some good people are still there, and those 500,000 views a month can source one good deal. It has value beyond venture. But once you have a brand in venture, if you nurture it, whether it’s TikTok or doing other things, your deal flow might decay to some extent. But if you have a top brand, you’re gonna get into one or two good deals a year by Hucker by Crook if you play the game. And it’s enough. That’s the beauty in venture. I think the game in venture is to establish a brand and not let it decay.
Andreessen has rebuilt their brand in the time I’ve been in venture. Exal has rebuilt their brand, and it’s enough. It’s okay that the top five funds fluctuate a little bit. They think it’s the end of the world, but you’re still in the game. When I started doing SaaS, I would say Andreessen was at the bottom of the top list that founders wanted. I remember one of my investments was crushed that he couldn’t get an invest a meeting with Andreessen and not Sequoia. Today, no way. Like, founders love Andreessen.
We could compare the results, but they love it, so brands go. And so that’s the way I would worry less about ebbs and flows of this month, but how can you maintain what’s special about your brand adventure if you’re lucky enough to have one? And it can last a decade. Brands last a decade. Maybe mister beast will lose his brand in a month, but I doubt it. I think mister beast, he may decay, but he will invest enough in that brand that even in five to seven years, we’ll be watching mister beast.
I know it’s a silly example, but No.
I think it’s a great example. He is the ultimate definition of modern brand execution done well. I think my final question I just have to ask is, are you still the absolute fucking killer in sight that you used to be? Do you worry that over time you become civilized? I
don’t think I’m a killer at all. I actually think I’m a super nice and asafie. It’s just I can’t get anyone else to agree with that analysis. Yeah. I think if I was a killer, I wouldn’t have sold my last startup. I think I’m not a killer at all. I think your question is, are you as aggressively on the hunt? It’s a different way to look at it. I think I’ve never been aggressively on the hunt, but I think when I started investing, I definitely had a a sense of fear of failure.
Sam Blond just joined Founders Fund, his newest partner. We worked together since the earliest. Was our first SDR. We’ve been working together a lot of years. And I’m like, how does it feel like? Is there a lot of pressure? Said, no, but there’s pressure to do a deal. It’s not this week. Times are mellow, but he’s got the pressure. And I would say, don’t feel that pressure today. I actually worry every day about my LPs and returns and stuff like that, but I don’t feel that same pressure to prove myself as when I started, and I think that’s a probably a net negative.
There is that decay element, and sometimes it comes from money, sometimes it comes from other things, but I do think it creates the most fertile period of investing when you have the maximum hunger. I don’t know if you asked Semmel the question, but I’m curious if he has the same hunger. He may get even better returns going forward. I don’t know him that well, but I know when I first met him, that hunger was it was in a good way. Everyone liked him, but you could see the hunger coming out of his pores when I first met him at
demo why is he demoing it? Jason, I can talk to you forever. I’m gonna do a quick fire with you. So I say a short statement, me reading the thoughts. What was your premortem for Algolia?
I’ve never done a premortem. The only way b to b startup dies is when the founders kill it. My own startup’s doing over 200,000,000 ten years later at Adobe. These things are hard to kill once you give them a little bit of momentum. They’re hard to kill.
When you made the investment, what did you think the outcome scenario would be post mortem?
Oh, look. SaaS has gotten so big. The other investors thought that 50,000,000 was the highest outcome for Algolia. One of the reasons I was able to invest is because 12,000,000 pre was too high for them. Because a $50,000,000 exit can’t support anything much more than a 5 to $6,000,000 pre money. So the European VCs didn’t gobble up the next round because it was too expensive at a $50,000,000 exit. The world has changed. But none of these investments I thought all of them would get to eventually a billion, but it would take forever.
And it would take an IPO. It used to be to get to that they would all have to IPO to be worth a billion. Who’s the most underrated investor in Algolia
who you seem to deliver real value?
I should have a great answer. It’s just such a concentrated cap table. Excel led three rounds. But I would say that if there’s a small shout out, it would definitely be Alex Kyle from Salesforce Ventures. Salesforce Ventures has so many companies. He has been a champion to Algolia since well before they invested, since he’s been a board observer. And when we had a rocky round, I was the first one in the seat, but I was also the first one in the sea. He also came in very early when Salesforce didn’t need to.
Salesforce doesn’t need to be a leader or follower. We were the first two investors in a rocky round, and that’s pretty cool to see out of a seemingly corporate BC. So would give Alex from Salesforce Ventures the, by far, the biggest shout out. What was the single hardest moment in the Algolia journey? Nothing. I’m not a founder. It’s easy. It’s easy. I think for them, the toughest part was when that first management team, which because they had so much momentum, they recruited so late, right, at 30 or 40,000,000.
When really none of that team worked out, it almost wrecked the company. It was tough on them.
Algolia in ten years’ time, Jason. What does it look like? 2032.
I think it’ll be a fun one for them to figure out. The market will change so much. One of the things that’s fun about Algolia, I know, is some things are obvious, but search is one of the five biggest problems on the Internet, but there’s not that many vendors. So where they’re searching and where it goes in ten years, honestly, I couldn’t predict. I’m very happy that the CTO is the co founder, is still one of the technical leaders of the company because you need that agile mind.
But I have no idea. I have no idea. Other than that, the two largest verticals for Algolia are e commerce and SaaS, and no matter what it looks like in the press, these are great verticals. They’re gonna grow organically with e commerce, which has resumed growth since its peak, and we got a good run-in SaaS. So you like these ones that get these tailwinds from markets, and they’ve got two to counterbalance each other as they have relative strengths in the market.
Chase, I’m so grateful for our friendship. I really mean that. You’re seven years we said at the beginning, but genuinely, you were one of the first people to believe in me. I’m sure you’re probably disgraced at how I’ve turned down. It’s heartwarming to see. It’s great. But honestly, it means the world to me, and so thank you for always being there for me. I don’t think I tell you enough, and I really appreciate Stay. For sure.
Thanks for making the extra time.
I just love that show with Jason. Jason is such a phenomenal character and player in this ecosystem. I can’t thank him enough for all he’s done for me. If you’d like to see more from us, of course, you can find us on 20vc.com. You can also find the videos on YouTube by searching for 20vc. But before we leave you today,
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