Anatomy of a Win-Win Acquisition: Synergy, Growth, AI, and the Future of SaaS | E2047

Dude, I. Sorry, I was going to rant on private equity for a second. I love that.

This is so much fun.

They make tremendous amounts of money. You know, one of the, one of the great players in modern capitalism. But one of my rules is never be on the other side of a transaction for private equity because they have a spreadsheet about how to take all of your surplus away during that transaction. Dude, if, if you want to talk about where the FTC should regulate and regulate the hell out of private equity, like that would be my first order thing because like if you look at their playbooks, most of their playbooks are, hey, consolidate market share to create monopolies or pseudo monopolies and raise prices on consumers.

Yes.

And if you look at U.S. antitrust legislation, the test of are you behaving anti competitively is do prices go up for consumers or down for down for consumers and like the private equity playbook 101. So Lena Cotton, if you're listening to this or whoever the next person the Trump administration is, take a hammer to private equity. I'm all for it.

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Welcome back to this Week in Startups. Now on the show, quite a lot in the last couple of months and quarters, we have talked about startup M and A and more precisely, a lack of startup M and A. If you look at this chart that we have here from the NVCA Q3 report, you can see that overall exit volume for startups in the US has gone down dramatically essentially since 2021. We've seen the exit market for startups collapse. And what that means is we care quite a lot about deals that do get done. Now pick your poison. Is it regulatory oversight that's too much? Too few IPOs? Maybe valuations were too high? It doesn't matter. What does matter is that we just haven't seen as many startup exits lately as we would like to see when deals happen. I like to talk to the people behind them. So today on the show we are not going to talk about Yelp and repair, pal. Instead we are going to talk about a deal that I think is much more interesting, which is Amplitude buying Command AI. Now, if you're not familiar, Amplitude is a former startup that was public back in 2021. It is a public unicorn today. And Command AI is a startup that raised about $24 million in known capital while private, including a $19 million roughly Series A back in mid 2022, which PitchBook pegs at a valuation of $123 million on a post money basis. I wanted to learn more about how that deal got done, what Amplitude saw in the startup, why Command AI decided to sell, and also what founders like yourself can learn from the deal. So please welcome to the show. We have Spencer Skates, CEO and co founder of Amplitude, and James Evans, CEO and co founder of Command AI. Hi guys. How you doing?

Alex, Fantastic to be here on this week at Startups.

I think, Spencer, what I do is I just change jobs and then I make you come talk to me at whatever job that I have.

Alex, I'm a huge fan of yours. From TechCrunch to this to whatever you're doing next, it's always a pleasure. You are genuinely curious about this world in a way a lot of other journalists are. So it's always a pleasure to hang out with you.

I only had to pay him $15 to say that. Also, James, welcome to the show. You and I just met, but I'm actually familiar with your company. Can you tell people just a little bit about your background? I know you were at Bain back in the day.

Yeah, totally. Thanks for having me. It's fun to have a place to talk about this that's not a press release or LinkedIn. So I appreciate the opportunity. Yeah, I started my career at Bain Capital on the private equity team where, among other cool experiences, I was exposed to a lot of crappy software. And that led in a circuitous path to our company, Command AI. So in a nutshell, what we do, we call it user assistance software. The idea is make the Internet, whether that's, you know, like a piece of software you log into or you know, an e commerce store where you want to buy something, something just make it easier for people to use. The kind of motivating observation is that just look at the stuff we log into on the Internet or access on the Internet doesn't really look that different from today versus 20 years ago. Even though there's been Like a crazy proliferation of stuff we can do and the power behind it. We're still facing kind of like the same annoying usability challenges, like, where do I do X? Do I really have to read this Help center article to figure out how to do it? So our company is basically technology to help solve that problem.

And I know we're going to let you show it off here, but if I understand Command AI, there's other software companies out there that do nudges kind of user assistance stuff, but your pitch has always been those are very annoying and users don't like them. And so I'm curious, how did you guys build something that people didn't hate? Because no offense to the world, when I get a software pop up trying to help me, I scream and go, leave me alone.

Yeah, you just immediately close it. I think this is like the dirty secret, like, in our space. And when you ask, like, people who use use sort of more legacy solutions, like, hey, just forget about your company, like, as a user, when you encounter stuff like this, the stuff that you're like, hurling at your users, what do you do? And people invariably say what you said. They're just like, yeah, I close that. And then if they're closing it, it's probably not creating the impact you want it to create. I think, like, it's kind of a visual product, so I'm glad we'll have an opportunity to show it. And, like, the proof is kind of just in the pudding.

Yeah.

Okay, let's. Let's do that now. And James, you have agreed to sportscast. And Spencer, I do want you to weigh in as we go through this because, of course, your perspectives on what they've built and what you've now bought are pretty paramount here. All right, James, so what am I looking at?

Cool. Okay, so there's a few parts to our product, so I'll just orient you to the basic physics. There's the place where our customers instrument experiences. Whether that's a nudge or they want to tweak something in our chatbot, that's our dashboard. That's what you're looking at here. So this is where you know, whether it's a marketer or a product manager or a customer support person, like, this is the interface where you're building these experiences.

This feels very no code to me. Is that fair?

You nailed it. Yes, exactly. You know, there's a few scenarios where it makes sense to use our SDK, but for the most part, we really want to make it so that anyone who has, like, A hypothesis or idea about how to solve a user problem or move a metric can come in here and like instrument that as an experience without having to bother engineering. Because if you have to bother engineering, like way fewer of these actually happen.

So and here, what I have here is a, is a user flow in which I can essentially reward a user for doing something. And in this case you're showing them a gif and a what else can I do Button.

Yeah, exactly. So this is the kind of thing that you might show to a user after they've completed like some sort of a milestone to you know, give them a bit of dopamine and also suggest like a next best action.

Okay. Now Spencer, one thing I'm actually not aware of is how no code friendly the user interface is over at Amplitude. Does this interface mesh reasonably well with how Amplitude looks today?

So there's two parts to it. First, yes, this is the direction we just did a big launch of Amplitude Made Easy a few months ago where the goal was to make it friendly for low code and no code people who wanted to use the Amplitude platform. The second answer though is no, in that James Vinay and team have done such a phenomenal job of creating interfaces that feel native. Like that's actually not expertise that we have an Amplitude and a big part of why we're excited to acquire the Command AI team.

Okay, that makes a lot of sense because this looks pretty clean. But then again if Command AI couldn't make clean, well defined user software, they wouldn't be very good at helping other people do that. So I guess kind of table stakes.

For them expectations are too damn high. Yes, that is a known burden we, we have to bear.

Okay, and what else can you guys do apart from, from nudges and gifts? I know there's a, I think the survey component. James.

Yeah, let me actually, I want to just get in and show that kind of end user facing part because this, when I said the proof is in the pudding, like this is what I'm talking about. So you're, you know, you work at a company, you instrument experiences for your users. This right here is just like a sample app we built to demo Command AI. Think of it as like a calendar to do list app. So I'm in this, this product, maybe it's my first time or I'm just not an expert and I'm, I'm clicking around like I'm doing the thing where I don't really know how it works. Maybe I'm trying to find something and I've Kind of got these like spastic mouse movements. This is the kind of thing if you watch sessions, people notice all the time. It's like very obvious when a user is confused and you kind of just want to like reach through the screen and be like, you know, what are you trying to do? And so one of our most popular loops is actually instrumenting that. So if I'm like looking around here, we can actually throw a, what we call a nudge to kind of intercept that confusion here. What I'm doing here is in the top right of the screen, a little message popped up and says, hey, you seem like you're a bit lost. Let's help get you on track. What do you want to do? And I'm presenting the user with some options. So here we're showing things that we think based on what we know about the user they might be interested in. These could just be things that are like common onboarding action.

But to be clear though, if you were just using the service, this wouldn't have popped up. Instead it's tracking mouse movements to see, see when you might be lost. So effectively you've told it how to note when a user is just kind of like flipping around.

Exactly. Yeah, exactly. It's really important to pick up on that because a key problem that many tools in this space make is they show things to users at times when they don't care or are interrupting them. The word it's often it's just as basic as you hit a page and you immediately see a pop up, which is actually, if you think about it like the worst time to show the pop up. Because you just clicked on a page, you want to see what's on the page before maybe interacting with the pop up. So we put a lot of emphasis on these triggers. We call it the when. And in this case, this is one of our most popular triggers. It's confusion detection trigger. So looking for exactly those mouse movements that you were talking about.

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So back to surveys though, because I love knowing what people think. I want to see the survey element of this.

Oh yeah, sure, I can share. So yeah, so here what I'm doing is I just, I got rid of the GIF and I added a text input. So this could be a survey that you show a user after the same milestone, but instead you're kind of looking to get their take on what just happened. And this is something we find companies actually kind of criminally underuse is they think of surveys as like these long things that you hit users with like infrequently. We actually encourage everyone to do more of a micro survey approach where you're constantly showing things or trying to get the pulse of what the user or visitor feels about what they're seeing. And the really cool thing is you can actually then use that same information that you're getting for targeting. So a really basic example would be instead of a text input here, let me actually do a rating input. So a star rating. So here I can maybe rate, you know how that experience just went.

Hey look, the fact what you guys saw earlier with the confusion detection that when we saw that, that is genius.

Yeah.

Because you are intercepting the user at the right time in the right context. It's shown that if you have a pop up in the right context that is five or ten times more engaging than just spamming you with something. So getting something that's personalized to your behavior, to what you might be experiencing, what might you want to do next, like that's next level. And so I'm excited to live in a world of software that does that it's customized for me and customized for.

Each one of us.

I would actually frame that differently because when I get hit with a pop up, to me it's not like a zero something. It makes me a much more negative experience. So if this can be a positive thing, it's not just going from 0 to 5, it's going from negative 5.

To 5, you know. So glad you said that. Every other product in the space, you have to measure the rate at which users close your pop ups. Like everyone does that. People frame it in the, in the context of click through rate. So what percent of users who had an impression of this nudge, what percent of them actually kind of took the next action? Click to Bigfoot. We also measure something that I think no one else in the space would like dare to measure and we call it a rage close. And this is if a user closes a pop up quickly. If a user closes a pop up quickly, it's so much worse than not clicking through. You're exactly right. It's annoying. And it contributes to this sense of like, this product is hurling shit at me. It's not personalized. So I'm just gonna develop pop up blindness and just never pay attention to these things. We actually see that if someone rage closes three popups in a row in a site or a product, you basically lost them forever. And you'll never be able to engage them with the form factor again, which is like a terrible loss. And you will not be able to pick that up unless you differentiate between this state of like, oh, they didn't engage with it. Well, whatever, no harm to the foul versus like, no, they actually hated it. I'll show you one more thing. We focused a lot on our Nudges product, which is the kind of proactive messaging, kind of getting in front of the user before they maybe know what they're trying to do.

Yeah.

We also have another product which we call Copilot, which is a AI powered chatbot. Basically we call it a user assistant. I shouldn't call it a chatbot.

I thought the website said it's not a chatbot. It's the next level.

It's better than a chatbot. So here, let me give you an example. So how do I create chat new? So here we're utilizing a lot of information that we have about the product, like for example, the help center, internal wiki. But one of the things that we do that no other things that call themselves chatbots do is we'll actually teach the user how to use the underlying product. I Think a lot of people treat chat interfaces as like a fallback that's like oh, I can't use the website so I'm going to talk to someone through the chatbot. We think the right mental model is like no, the chat interface is just a query first way of helping the user. And often the best thing to do is actually to teach them to fish instead of just like tell them how to fish. But here instead of giving me like a long text answer, it's just saying like okay, I can just show you. So if I click here now it's throwing up a hotspot and pointing out in the interface where I can do the thing and then it can take me to the next step as well. If it were a multi step flow and this, this is something we think is just takes the chatbot form factor and makes it like way more useful.

Well I, I think that it actually would be useful because the last thing I ever want is to use a chat bot and then get sent to a help center article that I didn't have to read and then re log back into the application cause I got logged out and then try to get back to where I was and then I just give up and go back to using Google Docs.

Totally. The here's three FAQs that might answer your question, but probably don't is something we're trying to banish from the Internet.

I've always read that as we could hire humans to help you, but we're too cheap. So here's some text that we had AI right for you and we hope you're you like it and too bad if you don't.

Alex, the worst part about it is you hit on it which is that humans crave that authenticity and they can tell if they're talking to an AI or talking to another human. And so if you're just getting a long wall of text, you're not actually getting any value out of what it is you're interacting with. Whereas if you're being guided and shown the experience like that is a magical use of AI for me as an end user. And so the fact that James and Vinay and team had this incredible vision for what this could be, that's what got us at Amplitude. Very excited to work with them.

Yeah. So let's pivot back to Amplitude. Now when I think about your company Spencer, I think of it as digital analytics with a product focus. Is that fair?

That's right.

Okay. And I was going through your last earnings call which you guys talked about this Transaction quite a lot through that. And you said a couple of things that really stood out to me because I wanted to get into why do this deal? And you said customers are looking for consolidated solutions. And essentially I read that as point solutions are becoming just harder to sell and so forth. Why not build something? Why buy in this case? Because I love what James and team have built. But Amplitude has a lot of resources. You're a public company, you could do quite a lot. So why in this case buy, not build?

James and Vinayan team have an incredible amount of expertise by working on this problem for the last four years. Four years, is that right?

Yeah, four years.

Four years. And so that's way beyond any expertise anyone at Amplitude has. And so we could spend three or four years to try to get to the same point that they've already built this amazing product to. Or we can say, hey, let's partner with you and let's bring you in as part of Amplitude and let's have our combined expertise, get this to market a lot quicker. We've actually set a very aggressive internal goal for this to get out in the first 90 days. So 90 days from when the transaction closed, we want to get this out to our customer base and get them using it.

Because I think you guys announced this 10-15-ish. So it would probably be about a.

Week and a half before it was the same day we closed on the day we announced.

Yes, that's right. That's right.

Which was a hair a bit of a harrowing experience.

Yeah, there's no, there's no net under that tightrope. Okay, well, shout out to you guys for being bold. I suppose the thing that I'm kind of surprised by your answer though, Spencer, is when I think about the way some investors really on the private equity side think about software, they say things like, software tastes like chicken. It's all kind of the same. But you're describing much more craft and almost like art than science when it comes to building software like this. Is that a standard element of building modern enterprise software that people kind of want to use? Because I don't think that user experience was as much of a priority 10 years ago.

I think particularly for B2B, we're undergoing a renaissance now where the great products went out. If you look at companies like Datadog or GitLab, they have done an amazing job crafting these wonderful user experiences and they are winning because largely because of that, because there are other, lots of other pieces of software that do very similar things from prior generations to what they do, but they've won because they've made it simpler, because they made it more usable, because they've just created these amazing end to end experiences. And so I'm in a belief that the next generation of B2B software is going to look like that. And so we've been intentional about that at Amplitude too. One of the big strategic pillars that we have is we call Win simple, which is about, how do you make it much easier? Analytics is a scary, intimidating thing. You know, when the average person hears analytics, they're like, oh, that sounds like math. I hate math. Like, what is this? And our thing is, hey, how can we make it accessible? If you're not technical, if you don't know SQL, if you aren't an engineer that can instrument code, how can we help you understand what your users are doing? And so that's why we've added things like session replay. That's why we did Amplitude Easy a few months ago. And that's why we're really excited to work with the command AI team.

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Hear you talk about this, because when I think about having easier to use better software, I think about product LED growth, you know, and I feel like product led growth as a concept has lost some of its, I would say favor in the market. But when you're describing helping people start using Amplitude, you guys talked about in your last earnings call, I think like 40% more customers are sending data to amplitude kind of now. So clearly you're seeing some momentum in this, make it easier to use sign up and then hopefully expand your footprint. But that does seem countercyclical. Or is the narrative out in the market today about business software simply wrong? And people do care about crap.

So I think there are tons of great examples of companies that have driven, you know, I named GitLab and Datadog.

Sure.

HubSpot's another phenomenal one that's really done a great job of cracking it. I think one of the things we've seen in the digital analytics world is we're in the middle of a transition. So if you go back to the previous generation of software and you look at what Omniture has done, they built out, they frankly, you know, and I love, I love the Omnisher team, I love Josh and I love Brad and we have Catherine on our board and you know, we're tight with a lot of the folks that built that company, but they frankly had a worse product, they had a worse product than a lot of their competition. And that was okay because they were killer on the sales side. And that was kind of generation 1.0 of SaaS. You don't have to build the best crafted experience, you just have to build the best and most scaled salesforce. I think what we're changing to is generation 2.0 of SaaS, which is where the product experience matters a lot. Now in our space for digital analytics specifically, we are a sales led motion. So we're still. That part does matter. It's not like you can just put it out there and have all these folks come, but the way that they're choosing in these sales processes, it's about, okay, well I need to enable thousands of people to self serve on data. Which tool is going to let me be most successful at that And I'm going to choose that one.

Okay. So essentially the idea, the Vista Equity Partners approach of software tastes like chicken. Big sales team, same playbook for every single company, doesn't entirely go away, but it has to be combined with great user experience and the things that we associate with product like growth. So the answer is not that one way of selling was the only way to go, but instead a blended approach, it seems of high quality software and a high quality sales team that fits under my impression that SaaS has gotten harder in the last couple of years as expectations have gone up and pricing pressures have also increased. So that, that fits. Now, Spencer, I'm going to put you Aside for a second and talk to James. James Spencer just sang your praises about the team, the software. You guys raised money, I think up to a nine figure valuation. Cool company. Why sell now?

Hmm, great question. I think there's sort of like, there's an unhelpful meme that exists in like startups which is like, if you don't need to sell and you consider selling or you like even entertain like the concept of an acquisition, like you're, you're weak and you're like not a committed founder. I actually think Zuck is to blame. I think the like Zuck, however old he was like 21 year old Zuck walking into Yahoo and flip flops and like turning down the billion, billion dollar acquisition, I think, I think contributes to this meme a lot. So for us it came down to a couple things. First of all, I'd say, like, you're not going to consider selling the company if you don't need to. If you don't feel like the value is fair to the team and investors. And like, that's a, that's a decision you make with your board. So like, I don't think you can really have this conversation without talking about value.

Okay, but to be clear, based on what you just said, command AI was not out of cash. You were not, you know, ceiling burning down. Oh my Lord, we need a savior. I'm going to call Spencer and see if we can do a deal.

No. Okay. No, definitely not. We were not thinking about selling the company. We had plenty of Runway. Growth was good. Which I think begs the question of like, okay, then why entertain it? Yeah, say number one, value number two. I think there's, there's a way of approaching this which is just like forget all the trappings of an acquisition, like going to work at the company and all that. Can you achieve what you want to achieve as a company? More better, faster by being part of another company? And for us, my existential concern or fear with building a standalone company is I really think we've built like already a tremendous product that can create a shit ton of value for companies, but also just like make the Internet a better place. Like banish these like annoying experiences and like help people get more value out of the stuff they use.

And that's where scale really comes into play. Because if you could have, you know, your same level of growth you had before, it would take 10 times as long to reach the same number of people than if you can plug into. And Spencer, back me up here. You said that you now have 3,500 paying customers, if I recall correctly.

Yes, that's right.

Yeah. Over the ability to, to get our stuff into their hands. And I think the fear is like you could a great product but like that's not enough. And if you can't crack distribution and if you can't keep getting it right, like you're not going to be able to achieve as much as you wanted to. And so for me it was just such a natural, like strategic fit to yeah, sell to those 3, 500 customers and all, you know, more customers will go get. And the last thing I'll say is there's just a lot of like the physics of our business align really naturally with the physics and amplitude. Like if you look at the demo I showed. Yeah, you don't create something in command AI unless you have found out something that's not working in your product or customer base or have a hypothesis of something that could work better. And 95% of the time those ideas are coming from a tool like amplitude. Like someone is using amplitude, figuring out that like, oh, users of this type aren't using this feature. Okay, great. The thing they have been able to do in amplitude is let me go fix that straight from the product. It's okay, I'll go back to engineering and I'll instrument something. Now with our thing, they can just immediately fix it. And so just connecting like we're almost finishing the feedback loop of the, of the thing that starts in amplitude. And that logic is what ultimately led us to think it was a great tie up.

Okay. So to put this into relatively prosaic terms for everyone listening, people use products. Amplitude keeps track of what they do and how they do it. And then with command AI, you can then go, okay, here's a, here's a bottleneck we've discovered and we're not going to go apply one of our tools to help unstick people or help them get more done or more value out of it. So it's kind of a, you're on top of the stack if you will.

Exactly. Like we kind of think of it as like you've got a kind of relatively fixed rigid layer which like is the product we're not trying to replace, like a website or the app or whatever. But then you've got this kind of more liquid layer that you can experiment with and can be more personalized. And that's what we're attaching on to all of our customers.

I kind of like that. But again, I'm kind of shocked. Spencer, you haven't had this before because you mentioned in your, in your notes that people were asking for this. I'm kind of shocked that Amplitude didn't build kind of a quickie version of it just to have something in place before this deal came to be. Is that just you guys being focused?

Yeah. So we've always been focused on being the best in class in digital analytics. And it's only more recently in the last few years that we've started to branch out to experimentation, session replay, and other things. And so this was one of the things that we were looking at and it was really clear to us that we'd much rather partner with a talented team because that again, it would take us a bunch of years to figure out how to do this ourselves. Like, there's a bunch of expertise that James just showed in the demo that we didn't have. How do you create an interface where a pop up looks natural? And in context of what's already on the screen, how do you think about the management interface for, you know, tens or hundreds of these nudges and guides? How do you think about, you know, creating all the right templates for surveys? So, like so many of these interactions that we just didn't have expertise on. And so, you know, we're not, you know, as big as we may seem as a company, we're not that big. And one of the superpowers that, that we've honed over time is how to stay focused. And so it made a ton more sense to, to, to, to partner with the, with the command AI team. The other thing I want to say on that is that acquisitions are incredibly risky. There's a stat where 90% of acquisitions fail. And so this is something, you know, it's, it's not like that was the obvious path either for, for amplitude or for command AI.

That's funny because it feels, from where I'm sitting, based on what you've told me, it does feel relatively natural because people want, you know, platforms, not point solutions. Your customers were asking for this specific capability.

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I know you guys had, if not customer overlap, some information that I know Command AI was sending customers amplitude and vice versa. So to me it actually, it doesn't seem that risky on the surface, Spencer. So tell me, you know, what is the risk that you're going to be managing now that this deal is done? Just overpaying or lack of integration that.

Like, you know that I think you have all this overhead where it costs a bunch of work and effort and you know, change on both sides and so you're kind of, it's a high barrier to say, okay, hey, it makes sense to do this. But the incredible benefit is that you have this combined vision. So we strongly believe in a world where products no longer are frustrating. Everyone has had a frustrating experience in their life with technology and it's because you have to adapt your brain to how the technology works. And we believe with data you can actually make technology adapt to your brain much, much better than it does today. And so we want to partner with other great teams that have that vision as well. And so it wasn't just okay, the Command AI team had this fantastic product and expertise that was, you know, that was obviously kind of a part of it and that was a great proof point of their capabilities. But it really was, hey, we have the same view of how great software should be built and we want to allow every single company out there to use that.

So you had vision, alignment essentially.

Yeah.

And the other thing I'll say on that is I think the biggest mistake a lot of companies make in these is they're not clear about what the end state you're going towards. And so we were really clear from the start that, hey, it's going to be one platform together, and that's what we're going towards. A lot of times companies will leave it ambiguous and they'll be like, well, you know, we'll let you run standalone, but then we'll kind of integrate you. And that's like the worst of all worlds. You either leave something fully alone and let it run, or if, if the point is, hey, we have a combined vision to create this better, this product that's better together, then you want to rebuild it as part of one platform. And so one of the things we were very deliberate in talking with James and Vinay from the start was, hey, it's got to be one company and one platform and one product and one brand at the end.

Okay? So, James, I want to ask this to you because you're the company being purchased. And I have known Spencer for years now. He seems very affable. I've always enjoyed talking to him, but I don't see him behind closed doors when something goes wrong. So how did you know that joining his company and his culture was going to be the right fit for your team and its own unique culture and so forth?

Yeah, the first thing I'll say is, like, it's always a risk, right? You can only do so much of that diligence, like outside in, and you're never going to get to 100% comfort. And that is like, one of the things that definitely weighed on me and Vinay was today we're in total control of decisions, but also culture. And like, we know we're not gonna. That's not gonna be the case as we're acquired. And so honestly, I don't have a great answer for you other than Spencer and I just like, hung out a good amount before the deal. And I just got comfortable that from a product and like, strategy perspective, we had alignment. And from a culture perspective, like, actually, it's funny, there was, I think AMTA has three values. We have five values, and there's overlap in two of them. And so we felt like there was, you know, we were, we were going to be part of, like a team with relatively similar, you know, and just.

So everyone knows that the company with more stated values is more virtuous by definition.

We were, we are, we are diluting our virtuousness by entering a company with fewer values than Sesame.

What were the two that overlapped?

Ownership and growth mindset? We had slightly different words for them, but.

Yeah, yeah, but the same concepts. Ah, that's very interesting. So I want to go back to the start of this. Going from partnership to transaction. Which of you was the first to say, hey, what if we just did this as one company?

Some folks on the product side had a tremendous respect for what the command AI team had built, and we had reached out to them, and James and Vinay were incredibly friendly and were willing to share what they had built. I think the thing that both the product experience and the fact that we had a lot of overlap in customers, that was kind of the initial signal that it would be worthwhile to have a conversation as we got more serious about considering buying a company that was able to do nudges and guides and surveys.

Yeah. And then, James, how fast was the company growing before the deal came to be? So I don't know. How fast did you guys grow year over year?

In 1H24, we were growing about 3x year on year.

So that's real quick. I mean, even for a series A startup, that's kind of the triple, triple, double, double, double everyone talks about. So given your growth and the fact that you raise a good amount of venture capital, how much work was it to get to your investors and get them comfortable with the transaction terms and taking an exit for an asset that had potentially more room to run?

Yeah, I mean, totally. That's like the fundamental thing that is what kept us up at night, frankly, was determining, you know, being really confident that this was actually the outcome we wanted. Starting with that kind of LinkedIn DM that Spencer mentioned. That kicked off the whole process, but.

It was a LinkedIn DM.

LinkedIn DM.

And that is the most NBA thing I've ever heard. You gotta use a Twitter dm. You gotta keep it casual. Come on, Spencer.

Yeah.

Thank God I saw it.

Yeah, no, I. I was about to joke that I never actually read my LinkedIn DMs.

No, me neither.

Now I wonder what's in there.

Yeah, maybe someone's trying to acquire you. Who knows?

Oh, God, please not. Anyway, so Spencer reaches out and then you have a decision to make on your end with your board and your backers.

Yeah, I've heard, like, horror stories where, you know, founders have one view and investors have another view. And, like, that just wasn't the case with us. Like, our investors were. Were super supportive. Like, helped us reason through. You know, how could this fail? What's like, what path? What's the path to glory Standalone, but, like, ultimately their Their vibe was like, we're going to help you make this decision, but like it's your decision to make and if you think this is the right fit for the company, it's probably the right fit for us as investors. So we, it was a very like high stakes, but yeah, but you know, well reasoned and kind of non emotional conversation.

I got to give James tremendous credit for how he navigated and handled it. It took us a little bit longer to get there. We were dealing with a few things on our end, including a CFO transition, but he saw the vision of what could be and we saw the vision of what could be combined. And they were actually command AI was in the middle of a fundraising process and they were good to go.

That explains a lot.

Okay, yeah, so they were in good shape to build a very successful standalone SaaS business and continue that path alone. And so, you know, it took us quite a bunch of back and forth to figure out, okay, hey, I have conviction that the equity of these two companies combined is much more valuable together than separately. So how can we create a construct? And so, you know, we negotiated quite a bit and, and James is a, James is a. I'll give him a lot of credit. Very good negotiation.

It helps. I think it comes back to like, do you, are you like, have you decided you're selling your company? And that's just like a totally different style of conversation and like thought process versus you're excited about the company. You're, you know you're going to make it. If the deal falls apart overnight, it's fine, you just keep going. And that's very much how we approached the conversation was like, hey guys, we are happy we don't have to do this deal, but we were really excited about the potential of doing it. And here's what we care about. And it just made it really clear. You know, we kind of, we described the deal that was interesting to us and we were like, hey, no worries, like if this isn't the deal that's interesting to you, like you mentioned earlier, Amplitude could try to build the functionality. It wasn't like we had to make it work. I think that made it much more of like a conversation versus like you know, a really intense zero sum style discussion.

Okay, so from the first LinkedIn DM to the deal being closed, what was the timeline like? And I ask because we have a lot of founders that watch the show and I think the timelines of M and A transactions are pretty opaque. So I'm just kind of, I want to get as Much detail as I can to help those folks understand how these things actually happen.

The first conversation was sort of like late spring, early summer, like I think, I think April or May. But I wouldn't say it was like, you know, we weren't like negotiating an acquisition since April or May. It was more of like an exploratory, like, hey, maybe it makes sense to partner. Like, maybe it's a go to market partnership. We already had a product integration. Maybe it's a deeper product integration. So I don't think we really started like focusing on the, you know, hey, let's try to make an acquisition happen until like middle of the summer.

Okay? Now, Spencer, I know you have a new cfo. And I was reading their early commentary and they said, I believe this is a direct quote. First, we are not a growth at all cost company. We are investing appropriately to drive accelerating growth while generating positive free cash flow. And then of course, when it comes to leverage, you'll make decisions. How hard was it to get your C suite and board on board with purchasing an asset that just given what I've learned about the company, probably wasn't cheap? And I say that not as a dis, but more of a. It was growing fast.

No, look, I mean, James had this path, you know, he was already growing very fast. Command AI was already growing very fast. They were very successful. They could definitely be incredibly successful as an independent company. And so we needed to make it worthwhile for them to do so. I was very lucky to have an incredible board of directors that's seen the good, bad and ugly on transactions like this and to get their guidance through this process. And so we had done a few smaller ones earlier a few years back in both Clearbrain as well as iteratively. And so we had a little bit of experience. This was by far the largest one that we had ever done. And it came back to my conviction and the conviction of the team that this was a really valuable combination for amplitude and that this was something our customers were asking for and that we.

Could sell a lot of.

And so we put that case together and they were very supportive of what we were doing.

So I want to ask about the public company perspective, because one thing I've heard from some founders, and I'll say some VCs, is that the government has so heavily slammed the door on acquisitions because of essentially antitrust concerns that no one can do a deal, transactions are put and so forth. But then I'm sitting here talking to you guys and not once this far. And I Don't know, talking for half an hour or so. Have you guys mentioned concerns about regulatory oversight? So did that come into concerns conversations at all?

No, we're. This sort of, this sort of acquisition is small enough that, you know, it's not something that's on the radar of the ftc, so. But they are, they are definitely cracking down for much larger companies and much larger transactions.

Right. But I mean not everyone is meta. Right. And so to me like hearing you guys talk about the deal this, I'm almost surprised I don't see more of this stuff happening because there are so many cool companies out there building neat software and not all of them are going to go public. Maybe, you know, James and the command AI team could have. But I guess the complaint that I hear, and I'm mostly talking to myself right now, but the complaint that I hear about it's all Lena Kong's fault, doesn't match the reality of talking to you guys about this transaction. Because it doesn't sound like you were terrified of the FCC kicking the door and now.

Absolutely not. For, for stuff of this scale, you know, this is, this is, you know, ultimately this is better for Amplitude customers. It's just not a, there's not, it's not like the market that we're in, digital analytics nudges assistance. It's so early, like nobody knows what's going to happen. And so, you know, we're way. This is many, many years before anyone has any regulatory concerns about this market. I, I will say the reason that this doesn't happen and that you see this go down is because I think there's a mismatch in valuations. So if you're a public company or recently public company valuation multiples are actually quite low. If you look at, you know, revenue or air multiples, you know, a lot of times you'll get like 2, 3, 4 x ARR. Whereas private markets are still actually very high. You know, a lot of times, I mean you see some of the AI companies, they'll get like 200x ARR. But even for mid stage stuff, you know, you often be 10, 20 or more ARR. And so what that means is those companies can run independently for a long period of time. And that means a lot of the natural acquirers, larger companies aren't going to be able to pay that much because they don't have, you know, the stock isn't worth that much. And so you actually, it's a much higher hurdle to clear. You have to have conviction that there's going to Huge amount of value combined. You can't just say, okay, These companies are 10% more valuable together because then, you know, the private company might as well continue running because its valuation is already pretty high. You need to be able to say, hey, we can create five or ten times more value together than we would separately.

Yeah. It's funny you mentioned the AI companies. I had a question in here that I didn't have to get to because we talked about that command AI could have raised more. But I was going to ask, given AI excitement to command AI's copilot, I would think you could have raised more. And the answer is yeah, because everybody wants to pour money into, into AI.

Totally. I think, I think people simplify or I think, I think at least speaking from the founder perspective, like, I think people simplify the, the decision as, oh, well, if we can raise at a better valuation. Say you're, say you're deciding between raising at, you know, evaluation and selling your company for less than that valuation. Oh, well, of course we would take the higher valuation in some cases. That's totally correct. You know, like if you're growing 10x year on year and you know, your, your path to IPO is like two years and by all means, like, I'm not, I'm not suggesting that everyone sell their company or sell it for less than it's worth, but you can't make that comparison isn't as straightforward as I think a lot of founders think it is. And I think a lot of founders don't entertain the idea that. Just think of it, simple, simple thought experiment. What's more likely that we get sold for 3x what we got sold for or that we can 3x the value.

Of the combined entity that's predicated on being purchased in equity versus cash. Because if you could purchase an equity and that appreciates, then you have even more upside. I meant to ask this earlier, but have you guys shared what the deal was done in? It was, you know, dollars, shares, monopoly money, small shells.

We did a small amount in cash for some of the existing investors, but for James and for the whole existing team, it's all amplitude equity. Because we want them to share in the combined upside as well.

Right.

Right. Like we wanted to participate in that. In the upside.

Well, no, it makes a lot of sense to me. There's one I want to get to AI and also a little bit about the enterprise in a second. But there's a tension between what you guys are telling me that I want to unpack a little bit. Spencer, big on offering a platform attach rates, you know, multiproduct customers. I think you said something like 23% of current customers have more than one product by today. And then you know, I have James and Command AI which was more pointy solution versus broad and they were growing at 3x. So those seem to be statements that go in different directions. I, you know, need to be more platform but also points doing well. So what am I not understanding there to harmonize those two different data points?

Alex, I just want to make sure I understand your question. You're saying that the Command AI independently is growing, you know, at this great rate, but does it make sense to have as part of this platform versus run independently?

Well, no, it's, it's that you're emphasizing the importance at amplitude of having a suite of products that work together so you can offer a non point solution but the point solution that Command AI was selling in the market was doing well. And so I'm just confused between why you're telling me this, but I'm also seeing this over here and I presume that I'm just missing something in between.

So the whole reason that we do this is because it's that that 3x can be a lot faster with Amplitude's customer base because we have thousands of customers, whereas Command AI is much, much earlier. So by getting the product into the amplitude customer base Instead of growing 3x a year, you're more like growing 20x or 30x or even more in terms of the growth rate because it's part of that platform that so many other people are using.

And how many of your existing customers do you think will be using Command AI software via Amplitude in let's say 12 months post closing? Is it, is it half? Is it 25%?

That's a good question. We actually haven't, we haven't looked at it from that lens. I think think we want to be really aggressive in getting it out early next year and then getting, you know, probably it'll probably be, you know, 10ish percent in the first year is, is a, is a good rate. But then yeah, eventually you want to get it to 50 and then 100.

James, 10% in the first year, it feels like crap numbers to me. Can you get 25%?

I don't mean I'm allowed to make forward looking statements is one of the things. Right, I've been. That's a good point. But I think just to go back to your question around like point solution versus platform. Yeah, I think there's sort of like A misconception in the space that like, if you have a platform and if you have a bundle, your products, the bundled products are like kind of shit. But like, collectively they make sense because platform and because one buyer and because like discounted pricing. It's not like we're taking our product that was selling well, independently differentiated and like making it worse so that it can fit into a bundle. Like it's the same product. But now when you create a cohort in amplitude, you just immediately get to use it in command or you can view the sessions where users have impressions of your assistant stuff in amplitude. So it's like getting better, but it's not like it's losing the ability to stand alone, compete against other products. And frankly, I think that's like one of the most exciting things about this deal and one of the reasons why I think it can make sense for companies to buy instead of build because you're getting that standalone differentiation out of the box.

Okay, so given the endorsement there, Spencer, of buying versus Build, I'm just curious and I know public company and I know you just did deals. This is a slightly brat question, but you know, how attractive is doing more acquisitions in the next Pick a timeframe for Amplitude. And I'm asking this because I want to understand what other public company CEOs might be thinking about, you know, the market, what's available and prices.

So first on our end, we're absolutely going to be doing more. I think there's lots of great technology in this space out there with people who are just as smart as the folks that we have here at Amplitude that we would love to partner with. So we're going to be doing more. We're also going to be building more internally. It's going to be both. I think that the great companies are able to do both. One of the things I talk a lot about is that we are so early in our space that product innovate to James's point product. It's not like the innovation's done. It's like we're at the really early days of innovation. What you guys saw like that is the bleeding edge from the command AI demo of what great user assistance and great nudges look like, looks like. And there's so many other similar adjacent spaces that I think that make a lot of sense with the digital analytics and with the platform. And so we're absolutely going to be talking to more teams and going to be doing more acquisitions in the future. The one other thing I did want to say is part of what made this so exciting from my standpoint as Amplitude CEO, is the thing we're always behind on as we grow in scale is great leaders. So just great leadership, as you grow as a company, the ability. It's like you're always at a deficit or if you grow 10% in a year, you need 10% more leadership. You go 30%, you need 30% more leadership. And so we're always behind on that. You're always trying to catch up in a technology organization. And so being able to work with like James and Vinay are really important part. They're not just, oh, the command AI founders. They're actually, I think a lot about how do we get great product and engineering leaders here at Amplitude to own bigger parts of the stack and of the platform and of the future things that we're building.

That's very interesting because there was a meme and I said that very politely in the startup world the last six months about Founder mode. And instead of federating out responsibility to individual leaders at a company who were subsidiary to the CEO, the founder instead kind of constraining that authority and decision making to some degree inside the singular executive. But it sounds, Spencer, like you're comfortable with having some distributed leadership and perhaps more than the founder Mode meme said was correct.

I want to give a little more new. I was actually at Brian's talk and it was.

Oh, wait, you were at the YC thing?

Yeah, he had. He was basically had just come out the other side of a religious experience and to. To hear that directly, the level of passion and intensity and just like, yeah, you know, religiousness that he had about what it meant to run a great organization. He had this great thing where it's like, yeah, it takes 12 years to make a good CEO, you know, because he felt he was a bad one for the, for the first 12 years of Airbnb. The thing that, the thing that I think the. It's fun. And he actually wasn't the one that came up with Founder Mode. That was Paul Graham, who's just an incredible marketer. The thing that. The point. It's actually not either of the scenarios you talked about, Alex. It's not delegation and it's not, hey, like I'm in. I'm deciding all this stuff myself. It's actually the point Brian made was that you are in the details of what is critical path for your company. And so for Airbnb, that's the great product experience. For Amplitude, that is also the great product as well as how do you sell this product, and you can't delegate those. And what I'm looking for is fantastic leaders who I can partner with in those details. And so as an example, one of the things I've had for the last year is I do a two hour a week product review of how do we make the platform easier to use. What I'm looking for in that meeting is who are folks that I can go back and forth with as peers to say, hey, what does a great experience look like? And it's not just me saying, hey, do this, do this, do this, do this. It's saying, okay, hey, here's what I think. And then they'll say, hey, here's what I think. And it's that back and forth that leads to that combined great outcome. So it's not a delegation, but it's also not a micromanagement. It's about. I want to get people at amplitude that I can have that interaction with. And that's what we're always at a deficit for.

Okay, so turning this into a World War I analogy, because that's where my brain went first. You're not back at headquarters 20 miles behind the front line, nor are you the only person aiming down a rifle. You're instead in the trenches.

Yeah.

And very involved with the strategic. Okay, that makes a lot of sense to me.

The key point on the founder mode is there is you have to be in the details for whatever is important to your company. You cannot delegate that. That's not to say you don't work with other people. You absolutely do. And that's not to say you micromanage them, but you're working with peers in the trenches with them.

Yeah. It's the opposite of what Boeing did, which was abstract leadership. Way totally disempower the engineers and turn it into. I'm just going to keep making private equity jokes because James is here. Turn it into kind of like the private equity, you know, platonic ideal of a management team.

Dude, I.

Sorry, I was going to rant on private equity for a second. I love that they make tremendous amounts of money, you know, one of the, one of the great players in modern capitalism. But one of my rules is never be on the other side of a transaction for private equity because they have a spreadsheet about how to take all of your surplus away during that transaction. So, you know, you can either do a transaction and get no surplus or not do a transaction. So you might as well not do a transaction. But I love them. I love them. They're great. They're great capitalists. So I have tremendous respect. Just don't do transactions.

Think you can be a capitalist as I am and have one or two disagreements with standard private equity approaches to personnel and staffing?

Dude, if, if you want to talk about where the FTC should regulate, can regulate the hell out of private equity. Like that would be my first order thing because like if you look at their playbooks, most of their playbooks are hey, consolidate market share to create monopolies or pseudo monopolies and raise prices on consumers.

Yes.

And if you look at U.S. antitrust legislation, the actually the test of are you behaving anti competitively is do prices go up for consumers or down for down for consumers and like the private equity playbook 101. So Lena Cotton, if you're listening to this or whoever the next person the Trump administration is can take a hammer to private equity, I'm all for it.

You know, I really think that if you're hoping for private equity to take a whacking, we have elected the wrong next president because I don't suspect that it's going to be a 47 goal. All right, we've gotten a little bit off the rails here. I want to bring it back to Spencer. What you're building at Amplitude. You said something very interesting about your near term goals and your near term focus. And you said that there's two things you're working on right now. The first is automated insights which you can use to surface to customers proactively without human intervention. And then automated actions where Amplitude can quote, recommend and take actions that we know will improve the end customer experience. Now the first one seems to be digital analytics and also I would say what command AI does. The second smells quite a lot like AI agents. And people have been making a lot of noise about AI agents. Brett Taylor over at Sierra OpenAI and so forth. And so I'm just kind of curious, is that the direction that you're pointing at here with that comment? And if so, what does that look like in an Amplitude context?

Yes, absolutely. That's the exciting part. So you saw that great interaction that James just demoed where you're asking the chatbot, hey, how do I create a new project? And then instead of just giving you a list, it actually shows you, it says, hey, here's I'm going to create a tutorial just for you and I'll walk you through this process that is the future of software. And so one of the things I'm really excited about is how can we automatically create Right now it's a very manual process to create those experiences. How can you automatically create them? So we can, every single person can get a custom guide to the software. So the guide to software is custom for me or for you Alex, or for James or for anyone else.

But more than just guides though, because you're talking about where amplitude you can take recommend. We recommend and take actions that will improve the end experience. That's more than just nudges, that's more than just actions.

So, so nudges is, is kind of a very, you know, like that's like the first step towards, towards doing a bunch of this. I think there's a whole bunch else like one of the areas we're really excited about is starting to recommend different text or images on your website based on what we think will convert better or resonate with a particular user or even change the layout of a website or break down and create functionality. That's where this is ultimately going. And that's what, when I think about the envision it's we want to create a world where products are always improving, they're self improving all the time.

Okay. And then this will all rest on an ocean of data. And one thing that you said that one of the quote really exciting things about amplitude is that you have this enormous repository of data of customer behavior, one of the largest in the world. So does that mean that there will eventually be, I don't know, like an in house amplitude LLM or similar that you guys then deploy against your data set for your customers?

Yes, absolutely. Absolutely.

So are you going to raise another billion dollars to train it?

We haven't gotten to that point yet. I think we're doing a bunch of different things with AI internally. I think what's interesting is that you have so many dollars going to Google and Meta and Microsoft and OpenAI where they're spending crazy amounts of money to create these phenomenal models. And so our thing is not to get into the model, build the business ourselves. Our thing is to leverage those and then, okay, we're what we're experts is putting them to work for this particular application. So how do we know how to train the model to recognize the right types of text that is going to lead to an engaging, great user experience or create the right type of nudges or what have you?

Okay. So then the question then becomes, and again thinking about founders that are watching this, just helping them kind of learn how you think there's two approaches to using off the shelf AI technology. There is closed source models and open source models. OpenAI, of course, closed source, Meta's, llama family, medium, open source, if you will. So where does the amplitude direction lie? Which way are you going?

Oh, we're, we're using a lot of the OpenAI models, but there's no reason you can't use the open source models with amplitude as well.

Okay, so you're not, you're agnostic, but currently giving Sam Altman money.

Okay, that's right.

That helps.

He's losing money on every transaction. It's, that's the crazy part. OpenAI is losing money on every, every time you, as you submit a query to it, which is bananas.

Well, that's why the best way to take big AI down is to use lots of big AI. That's why I use GPT01 or whatever the hell it's called all the time. Because that's the fact. I'm joking. Sam Altman, I've only met him once, but gross margin negative is a weird place to be for any business.

It is a weird spot. It's going to be interesting to see how these turn. The other problem is a lot of the AI businesses have much worse retention characteristics and so I, you know, it's not sustainable at current levels, so it'll, it'll be interesting to see where it ends up a few years from now.

Well, I'm just glad that amplitude is not going to get involved in the great capex race.

We're in SaaS, which I think back in 2021, a few people figured out that this was the best business model of all time and it still is the best business model of all time. So we're, we're just happy away creating a great product and continuing to sell it to more and more companies and we're going to be building a great business that way.

I want to say that that is a contrarian statement in late 2024 that SaaS is still the best business model.

Out there because SaaS is the best business model of all time.

It's taken lumps, but that's also a beautiful segue to my last question for you, Spencer. You guys talked about how you thought that the majority of overbought optimization contracts has kind of gone through, but the macro environment is still choppy, quote, buyer scrutiny remains high. So I'm just kind of curious from where you sit, what is the state of the B2B software buyer today and how quickly is it improving or getting more healthy or not?

So I think you had a lot of software buying back in 2020 and 2021 that frankly just didn't get any scrutiny at all. So as long as you justify it, you could spend crazy amounts of dollars on it. I think what is changed is that people now want ROI for their software. They want to make sure it's addressing their top priorities. And they're not going to spend anything on, you know, they're not going to spend anything on whatever it is that's out there. And so I think that's going to continue. Like, people want to make sure that they're getting. Yeah. A real return for what they're doing. Now. The great thing is data analytics and understanding the user journey. That is a top priority of almost every single company we talk to out there. And so whether times have been good or whether times have been bad or wherever in between, there's going to be a lot of demand for what it is that we do. And so we're going to be out there selling it.

I just realized something though about what you just said, which is that in a higher scrutiny software buying environment, the fact that Command AI was growing as fast as it was is actually more impressive because they're not growing that fast. In 2021, when everyone was just taking bricks of cash and going, we SaaS.

Let me tell you, one of the most impressive things actually, so. So Command AI was the number one rated on G2 against much, much larger companies. Because that experience you saw, you can't get that experience if you're using the top guides product or the top surveys product or someone else out there. So it's just. Yeah, what they have done is incredibly impressive and we're excited to work with them.

All right, James, how much money did you guys have to pay G2 to get that top of the pyramid ranking?

It's a beautiful grid. I look at it every day and I hope the whole software market does too.

And that's what we call a very polite dodge. My geofriends. Anyways, Spencer, James, thank you so much for coming on. And Spencer, just drop for people amplitude's.

Website, socials, amplitude.com or follow me on Twitter at Spencer skates critically.

Spencer with an S. S?

Yes.

If you try to see, you will not find him because Twitter search is garbage. But guys, thank you so much. Congrats on the deal. And Spencer, I will be tuned in to all your earnings reports as always and I'll talk to you in early January.

Sounds great. Alex, thank you so much.

Awesome.

Appreciate you all. Bye, everybody.

Bye.