How it was game over for Guidewire until it wasn’t - Marcus Ryu - Guidewire - Episode #99

When you're a founder, you are leading a company, and every moment that it's not succeeding, it's dying.

Today's guest is Marcus Rue, co-founder and former CEO of Guidewire, the leading platform for property and casualty insurers. Took it public in 2012. Marcus is now general partner of Battery Ventures. How did you keep that energy for almost 20 years?

I put everything I had as a person, as a professional, as a husband, as a son to my parents. I put all of that on the altar of my company. And if you asked me, were you motivated to succeed or were you frightened of failing? It was much more the latter. It's much more terror of failure. And that may sound dark, but it's It's the truth. We started out competing with Accenture. They sued us with an intellectual property lawsuit. It was completely meritless and it nearly killed us. We didn't sell software for over, well over a year and we thought it was actually game over.

And how did you overcome that?

We just fought back using the tools.

Today's guest is Marcus Roo. Co-founder and former CEO of Guidewire. Guidewire is the leading platform for property and casualty insurers to manage policies, claims, and underwriting processes. He co-founded Guidewire in 2001, took it public in 2012, and now the company is doing over $1.5 billion in revenue. Marcus led the company as CEO for nearly two decades before stepping down in 2019. Truly one of the longest and most successful runs for a founder CEO of an enterprise software company. Marcus is now general partner at Battery Ventures. He focuses on early and growth stage companies in vertical enterprise software, fintech, and AI. I'm very excited for this conversation. Uh, 2 years ago I saw Marcus speak at CloudNY. It's a CEO event in, in New York City, and it was honestly the most inspired I've ever felt listening to someone else talk about the entrepreneurial journey. Marcus Rue, Welcome to Not Another CEO podcast.

Pleased to be here.

I'm very excited. First question right out of the gates. What is the one thing that you did, big or small, at Guidewire that had the biggest impact you'd do again if you're CEO of another company in the future?

Well, David, we held ourselves to an extremely high standard of strategic coherence, and we revalidated that strategic coherence over and over again, especially through the early years of the company. And that intellectual honesty with ourselves about, does our strategy make logical sense in light of all of the changing inputs and new facts? Is our chain of inference really coherent and rigorous? And therefore, is our plan of action the most likely to succeed? That intellectual rigor, which we were very, very insistent on maintaining that at all times. And I think that made all the difference.

How often would you do that? How often would you ask yourself that question? Was it every quarter, every year?

[Speaker:MICHAEL_SEIBEL] There's no specific cadence, but it was with any new impactful fact. Anytime that we had heard something different from a customer that surprised us. They say the value of information is directly proportional to its improbability or its unexpectedness. So whenever something unexpected happens, something that sort of jolted our conventional thinking or our priors that we had brought to the moment, It said, we have to revisit, is our diagnosis still intact? And if the diagnosis of the market has changed, is our plan of attack still the right one? And it sounds so obvious. It's very hard for companies to do that because you're in a battle all the time. Your bullets are flying everywhere. And to pause for a moment and say, have we deployed our troops in the right place? Are we oriented and pointed in the right direction? Are we fighting the war that we thought we were fighting? These are critical questions to ask. And a company not only has to give itself the permission to ask those questions, it has to hold itself to that, the rigor of asking, especially when it's uncomfortable.

I literally have so many questions because I think this, when we were trading emails and you mentioned this, I'm like, wow, this is probably one of the things I did not do well at BetterCloud in terms of the pace. I did it. But for me, I would— it would be slower because I always thought I had to go to the board and explain this thing. What am I going to tell the team that's been working toward this goal and this product and I'm going to change the whole thing?

Right.

Did you, let's say, give a shit about those people's feelings? Like, or how did you handle that?

Well, the first thing to always remind yourself of is that this whole adventure, you know, that you've committed your career, your honor, your identity to, as well as that of all the people on the team. You owe them clarity about where to point the direction, what direction you're going, and that the odds are against you. For a very, very long time as a young company, the odds are overwhelmingly against you. So you would have recalled this from that talk that I gave at Cloud New York. You have a very small endowment of a few extremely distinctive assets that you have as a young company. And the most precious of them, it's not the only one, but the most precious of them is that you can choose the line of attack more precisely than anyone, right? That's such a precious asset. You have to make the absolute most of that because you are outmanned, outgunned, you know, outbranded in every other sense. So if you are not putting every ounce, every iota of energy in one direction with great precision, then you're compromising your chance of success, right? Again, obvious in the abstract. It's very hard when you're in the flow. Very hard. Because you don't have time to talk strategy. It's like you're, you know, founders are disposed towards action, right? Towards getting things done, giving orders, trying to transact, trying to sell, et cetera. But if all of those are in the service of the wrong strategy, or let's say an imperfect one or a slightly misaligned one, then, you know, you pay the piper eventually. Right.

So would you go, when you would make these changes, would you go to the board and tell them we're gonna do this, or this was, they understood you're in charge of the company.

Yeah. You're gonna, no, I think in the ideal case, and this is certainly what I strive for as an investor today, I think that the board should be be a great thought partner. In fact, they should be a provocation, a kind of place where that discussion happens. And ideally, that's probably the best that a board can be. A lot of boards aren't that. I did not have that, but we had that as a leadership team. So my co-founders and I— how many co-founders? We were an unusually large group. There were 6 of us. These guys were my brothers. They're still my brothers today. We went through a lot together. But we had a couple of rituals, very basic things. But one of them was that and I advise this to every CEO— is to externalize your thinking, right? Our minds are spaghetti. You know, they're confusion. Even the smartest people, you have a swirl of thoughts and emotions. You know, to get from clear premises to clear conclusions, it's very hard. It's a very hard exercise, even for the smartest, most reflective people. You have to get them out on paper. And the rigor of expressing what are my premises, what do I actually believe, What do I know? What is axiomatic? Meaning what is— I don't know that this is true. I'm just going to proceed as it is true, because if it's not true, you know, maybe I'm in the Matrix, you know, it doesn't matter. So you have certain axiomatic beliefs that you don't question. They're just fundamental. You have other beliefs that you are confident in, but if they got new information, you might have to change your priors. You might have to change your beliefs. And then you have other beliefs that are hypotheses. You know, maybe they're true, maybe they're right. And you, so it's important not only to express your beliefs as lucidly, as declaratively, as simply as possible. It's also what is my attachment to each of those beliefs? How likely do I think it's true? What would change my mind? That exercise. And then on the basis of that, and only once you have that, what do I want to do? What are we going to do? What is our product going to look like? What are its boundaries? What is the, how are we going to segment this market? Who are we going to, what persona are we selling to? How should the product be positioned? What elements of it are we going to foreground as its differentiation? There's all the questions that follow from that, right? But you have to start with the clarity of premises, right? You know, a lot of—

External, I like the external.

It has to be externalized because if you don't have it on paper, you don't. So right now at Battery, I co-host a series of these CEO retreats, right? And I ask them, and I hate giving homework to a CEO. So I do this with great reluctance, but it's necessary. I ask them, It's a very simple kind of questionnaire of about 15 questions. And I ask them to write answers to them. And the very basic things, which are like, who are, you know, who is the user persona? Who is the buyer persona? What is the value proposition to each of those? In what order of priority, et cetera? These kinds of questions. But I say, just remember this one time in this setting, you don't have to promote anything. You're not selling. When you're a CEO, you're selling 99.9% of the time. You are constantly selling. You are selling to your investors, you're selling to your team. And of course you're selling to your market. right? It's so rare to have this little clearing where you say, I'm not selling anymore. I'm just thinking. And I said, I want to create a setting where we're just thinking, but get the spaghetti out of your mind and put it into something clear and coherent on a piece of paper. And now we're going to discuss it. Such a simple exercise. And yet, in my experience, there's a lot of revelation that comes out of that. Yeah. Right. And you just ask each other basic questions. And I try to do this in a peer-to-peer way, you know, with other CEOs talking and not me dominating the conversation, but to say, well, on the one hand, you say that this kind of market structure is the thing that bothers you. And yet you seem to be trying to, you seem to be confused about are you competing or cooperating with them? And these kinds of questions inevitably come out of that very simple explication of what does this company believe and what is it doing?

I've seen that actually with some of the companies I work with, the founders, when I ask them, tell me, just your ideal customer profile. Let's just start there. And like, yeah, we have it, we have it. You know, it's this. I'm like, can we start writing on the whiteboard? And I never really thought about just the actual act of externalization. They start telling you like, this is 6 ICPs, not one. Yeah.

And yeah, that's a lot of incoherence emerges that way. And you know, when you say, what does your company do? Right. It's the most basic thing. Right. And there's, you know, a lot of times the explanations are so overlaid with adjectives and promotional terms. And they said, no, like, what is actually the product? What is the market identity for this company? So I'll tell you in the context of my company, Guidewire, you know, there is a promotional version of what we do. You know, we're delivering transformation to the global property and casualty industry. It's $3.5 trillion. You know, you could get in this kind of promotional way described. But the better way to describe the company is we build core systems that define what a P&C insurance company does. Which are policy administration, claims, and billing. We build transactional systems that fully replace the legacy systems of record that undergird those functions. There's no promotion in it. There's not a claim that we're the best company in the world, or it's an extraordinary market opportunity, or any of those things. It's first just stating what it does, what segment we attach to, and what part of product we build. I don't know how we could get more basic than that. And yet, amazingly, founders struggle sometimes.

Yes.

Because they feel such a need to make the case, to justify why do they exist? Why is it better? Why is it an incredible investment? Right? Why is it a great place to work for? Right. And all of that comes later. All of that's on the foundation of who are you actually? And is it a coherent idea?

When you would make these strategy changes, can you think about a guidewire? What is like a moment where you did one of those where it was— I'm sure you had hundreds based on what you're saying, but what was that moment that was if you hadn't made that change?

Oh yeah, there are many. I'll give you, I'll give you two examples. This is, this is going to sound like ancient. This is a completely different era in technology, but we believed that you had to have an installed client for the product, right? Instead, we're doing complex financial transactions, not that complicated, but nonetheless, they're somewhat intricate financial transactions. We're doing data validations and so forth in the user experience. And like to try to do that in the web, unlike an entirely web interface, was going to press the browser beyond its actual capability. So we said, at the time it was called a Swing client that we built. And we said, we have to have an installed client. That wasn't client-server software, but like there was a functional client that had, that was necessary in order to, for the, for users. And it was pretty clear, like you're invested in that tiny, tiny team. We built that. That's what we were demoing and trying to sell. Uh, we actually had a customer or two that, that was on board with that. But then, uh, others said, no, no, we're, we need to have a completely web client. We want to live entirely only within a web interface. Um, very, very painful thing to reverse. Very painful thing because we had a set of beliefs and like that one of the priors that was in our belief was we have to support a certain category of functions. We wouldn't be able to do that. You know, and like I said, is that, but that was coming into collision with we want to sell to this kind of constituency, right? And so we had to resolve that contradiction and it had to be done with clarity and it had to be done with speed. Otherwise we would be, you know, we'd be dead. Or here's another example. For a while.

So you went, what did you do?

So we made the change and we said we have to—

After you built the client.

After we built that client, it had to be thrown out. It had to be done over again. And the thing is, there's a moment when you realize we're going to persuade or we're going to capitulate. The market's always right in the end. And we decided we had a key moment of choice, said, okay, we're going to capitulate here. And now we've lost some time on the clock. We've got to get back. We're going to work double time. In order to get back into the race where we need to be. So that's one small example. There were a dozen of those kind of core architectural decisions where we realized there was a much more profound one that happened, of course, when the company was much larger, which is that all our software was on-premise, right? And again, we had a very strong set of priors that said why it had to be on-premise, right? It's like our customers care about data sovereignty. There's deep IT integrations. There's a level of customization, of customer-led configuration that we'll never be able to support in a SaaS model. Maybe that works for sales. Salesforce or Workday. It will not work for software of our class. Like these were in our strategy, right? Turned out we're going to have to abandon that because there's a sea change in the market. It no longer wants to buy a big IT asset. It wants to buy a business outcome. It wants to buy business software. It wants to buy working software and they want a new division of labor, right? And we're either going to support that or we're going to be irrelevant. And that was a very fundamental, profound change in the product and the entire business model, all of our, I mean, down to the accounting. Had to be reimagined in now entirely a cloud modality as opposed to an on-premise one.

What year was that about?

You know, the first time we had, you know, started thinking about it seriously was not soon, not long after the IPO, you know, so maybe 2013, '14. And then it became very serious by, you know, 2015, 2016. And then we went into overdrive to make that transition and it could have broken the company. But ultimately we thrived and succeeded.

It feels like that's kind of the situation we're in now with AI. For companies, right?

Well, it's an interesting question. It's an interesting question because some would say, you know, we like analogies. The human mind thinks analogically. So we say, well, just as we went from clients, you know, from mainframe to client-server to end-tier applications, you know, to SaaS, you know, surely that's now AI-native applications. I think there's some analogies, but there's some serious disanalogies, right? So, you know, AI or LLMs, can you build an entire enterprise-grade application in an LLM? Obviously not. It doesn't have a database. It doesn't have state. It doesn't maintain workflow. It's not configurable, right? The model just exists. You can just, you can put a new vector into it, but it calculates against the same model. So can you build the kind of same set of what we used to call an enterprise application entirely in AI or, you know, in an LLM or something like it? I think it's not clear to me that you can. That's not in any way to diminish the power of what we're experiencing right now, but is it, you know, where does the analogy apply and where does it not apply? And I think that's another example of the importance of this kind of clarity of strategy, kind of this clarity of like, what are our premises? And what do we actually believe are the boundaries of the perimeter of what an application is supposed to do? What is the state of art, of the art actually capable of doing? What, and what is it not able to do? A lot of times you see this kind of shortcut where it's like, well, this is just like the transition from, you know, from client-server to enter applications, end of story. Or as a kind of technology fetish, which is these things are so powerful. Look at the rate of change and it's inevitable. It's all going to happen. It's usually more nuanced. It's more complicated than that.

I agree with that. I think the thing that is similar seems to be, I think, is how people at least run their companies.

Yes.

Maybe.

Yes.

Where that is going through a transition where people At first, I wasn't convinced myself, to be honest. Then the more time I spend seeing the companies that are transitioning to it and that are not, it is going to be hard for the companies not transitioning to, even if their product stays the same, how they run the company.

There's no question. We're seeing a complete upheaval in something that's been relatively stable for a long time, which is the software development lifecycle, right? The role of the product manager. The role of, you know, of a Scrum team, the role, you know, what you, you know, what comprises a pull request, who is responsible for that, the way features are planned. Do you even need a documentation team anymore? You know, a million of these kinds of questions are being really, really put to the question right now. Yeah. And, you know, there are several CEOs in my portfolio who, you know, who say astonishing things like one quarter or one third of their of their dev team, at least in headcount, you know, will not be necessary in the future. Or at least even if they, if they retain, they're going to be put, you know, redeployed towards new. I mean, these are very significant kinds of aspirations or we don't, we no longer need a product manager anymore.

Right.

Right.

Or, well, I do wonder, you know, I mean, I had the product manager, the product owner, the UX designer, the, this, right. My kids are 10 and 12. The other day they coded a fully functional app in Lovable over a course of 2 hours with a beautiful UI that they told it how to change and they, And you're just kind of looking at that and saying, I mean, you still need a— I still think you need a human being somewhere in the loop, but fewer.

But exactly where and with what responsibilities. Exactly. These things are in question. There were some comforts before that, well, when it comes to good design, when it comes to architectural rigor and clarity, like you surely need a human being to think that through. The boundaries of that claim are also, I think, in question right now. I think from my own experience of leading a software company for a long time, it, I do not believe that you can just vibe code your way into serious transactional, you know, mission-critical enterprise software. I just don't believe that's possible. Maybe that's just stubbornness on my part, but I, when I think about the kinds of decisions that had to be made, the kind of design decisions that had to be made to make, um, to make a product work with the necessary precision, it's very, very hard to imagine that happening. But you have to, you have to remain agnostic until you, you know, given the pace of change.

To transition a little bit, you know, one of the things that I really, I mean, truly was inspired by when you talked about how you communicated with your team, how you got your team to line up and basically go and attack, you know. And, and can you talk a little bit about how you did that, both in having the enemy and how you communicated the challenge in front of you? Can you talk a little bit about that?

Yeah, one of those key endowments that I, I think that a a small team has, a small company has, is that it can have an enemy. It can name— it's defined in distinction, in contrast with something else. Who is Google's enemy? Who is Nike's enemy? Who is Walmart's enemy? These companies don't have enemies. They love the status quo. Like, life is great. Okay? When you're a young company, you're restless, you are a challenger, and you exist because you have a premise that something is wrong with the world. Or something's wrong with the world, that it can be fixed, but the current people trying to fix it are idiots. They are not capable of it. And that of other people who could fix it, that only you can do it, right? So that's a very kind of audacious premise, right? It's very oppositional. I like to call it insurgent. It's like an insurgent attitude. And that means, what does an insurgent have? An enemy. And when you name an enemy, when you're specific about we exist to beat this, doesn't mean after anyone has to get hurt, But in business terms, you want to kill them, right? If you have that attitude, a number of good things happen that I think are very helpful. Number one, you infuse your whole adventure with a certain moral purpose, right? We exist because it's not right that this problem still exists, and it's not right that these individuals are profiting from an unfair, inefficient, suboptimal situation. So you summon a kind of moral energy. Secondly, you give people a sense of team that— and it sounds primal. And when it's harnessed for bad purposes, it can be reprehensible. But positively, you say, we are here because we believe something that they don't. There is an us and them attitude, and we're deeply tribal animals. And that sense of our— that we are in opposition, in contrast to this other group, on the other side is a very powerful force to harness. So that's not even moral. It's just, it's us, right? Us against them. And I think there's nothing wrong with that. And, you know, proverbially, why do soldiers go to war? Do they go to war for a great idea? No, they jump on the grenade because of their buddy that's in the trench with them that they've suffered through, you know, suffered things with. And I think it's true for, you know, for a young startup team. And then finally, an enemy gives a kind of clarity of purpose, right? So moral energy, kind of team energy, but there's also a kind of clarity about this is what they do. We have to define ourselves in sharp distinction. On some dimensions, we must be not just better, we have to be different. We have to approach our market in a different way. We have a different theory of our customer. We have a different approach to our product, right? And that is the compulsion to define something that distinct is how you define, how you create differentiation and then potentially generate market traction.

And how did you do that with the company? Like how did you talk about that?

How did you? So in Guidewire's case, we didn't want it to get too personal. There was a personal element and I can get to that, but we said, what do we define to, what are we here to kill? What are we here to really change? And I settled on the idea of like there's a green screen mainframe system. You know, in the early days in our discovery, we visited a lot of insurance companies. And, you know, when you visit them, this is now, keep in mind, this is in the early 2000s, but we would, you know, we would see a claims adjuster or an underwriter or a clerical assistant, and they will be looking at, you know, essentially 1980s, 1970s, sometimes technology, green screen system. Sometimes they would have to, they'd have a KVM thing so that they could switch between an OS/2 system and something that was in, you know, and a Windows system. They had sticky notes all over the place and their life was like a knowledge worker hell, right? And we said, why is it so bad? And they would always say in an insurance company, it's because, well, we have this Atlas system, this Cognos system, or there would be some, it was always all in caps, some monster mainframe that had just been there since the beginning of time that it was like a fundamental constraint on everything that they did. And we said, you know, we're here to kill that, you know? And that was like, how could you possibly? It's like, this is the, this is the, it's like the mothership. How could it, how could you possibly remove it? But it was ambitious and it was clear. So therefore we have to do, if we're going to kill it, it's not enough just to do a few things better. We have to satisfy all the things that it already does. And it gave rise to a belief that I think every, I urge a lot of founders to think about. It's like, where are you 1X? Where are you doing exactly? Where do you understand your market enough to say that you can do everything you can meet what it did. Where are you 10x? Where are you doing something just dramatically better? And where are you offering something binary that's just above and beyond, like night and day difference than what that old system or old environment can do? What are your 1x features? What are your 10x features? And what are your binary features? Right. When you have an enemy and you have the clarity of who that is, then it really helps answer those set of questions.

When you're saying this, I'm thinking back, not even purposely, probably the most successful we ever were from a growth perspective was when we chose a competitor.

Yes.

Which was our direct competitor who had tried to sue us and this and that. And we took all the logos off their website. We printed them and put them— our sales leader did this— and printed them and put them all over the sales, like, area of the office. And we made a bounty and just said, hey, anyone who closes one of these logos, you could do anything you need to close it. Anyone, I'll get on the plane, go there. Like, and you'll get $1,000.

Yes.

And it wasn't even the money. Yes, it was for 6 months. People were— you said like you're in war too. You are. You are in war and you're in battle together. And when you have this enemy, everyone's like, did you do it? Oh yeah, you got that one.

Yeah.

You know, high-fiving and that energy. We crushed that company, was going like crazy, and then they just stopped growing, started shrinking, got acquired, and it was like you know, a celebration of, you know, we were able to do this. And that is the most I've ever seen. What, as you're saying, I'm thinking back to, I'm like, that's the most cohesion I had ever seen.

Yeah. And I can still, I can see the delight in your face as you remember those times. I do as well. You know, we had all kinds of rituals. Uh, you know, one of them was at a certain point there was a certain, uh, you know, Accenture was our competitor and they, you know, they did some very underhanded things in our opinion, et cetera. And we said, we will no longer use that word. It's forbidden in this company. You can only use the word enemy. From now on, they're the enemy. And to this day, people would say, well, you know, the enemy's product does this, the enemy's does this. And I liked it. I love it. I actively encourage that all the time. You know, when it was, when we had beaten, you know, obviously beaten the enemy or, you know, an enemy, you know, there was another, you know, worthy and challenging competitor, Duck Creek for many years. You know, we really like ritualized the thing that we had done. you know, to, you know, to have, you know, to have beaten them in the market. And it was honorable, but it was also in a way kind of a blood sport because it was like, I had an expression that people thought I was joking, but I said, look, I don't want us to just beat these people, right? I want everyone here has to be animated with the spirit that we want their children to go hungry. Like that's how much you have to want this because they want us to go hungry. right? It's a zero-sum game. And if that's, you know, distasteful, that feels like too harsh, then you're not going to work with the necessary intensity that it's going to take to do this. And that's okay. There's no— it's a free society. It's not a slave system. But you've got to be up for something of that kind of intensity. And the beauty of it is that people— it activates not only competitive energy, but also a kind of fellow feeling. A kind of esprit de corps, a kind of love for each other that comes because you're trying to do something against someone who's trying to hurt you.

Right. How did you separate the responsibilities of the different co-founders? Because it was a big co-founding team.

It was. We had very clean lines. It was very obvious.

From the beginning?

From the beginning. Well, there was an expression we also had in the beginning, which is We're a software company. So you were either building software, selling software, implementing software, or you're overhead. Those are one of the three things. That's all you want. So you better be, you better be building, selling, or making our customers successful. That's all there is. We slotted very nicely into those categories. It was actually awkward for me because I was not a software engineer, so I could not build the product. I had a lot of opinions about it. I ended up, I think, giving a lot of requirements and inputs, but I did not build the product. I had, you know, we didn't have any customers, so there was no one to really implement. I did, I was very heavily involved in our early implementations, but I realized that I guess I'm here to sell, right? There is strategy and I just talked about how important that was, how vital it is to get the strategy right, but you can only do so much strategizing. You have to get on the field, right? And in our case, that meant selling and I had never sold anything. Before in my career. And it was profoundly humbling, you know. And when I think back to all the company had given me, all that this experience had rewarded me with, when I think about that today, learning how to sell, I think was probably foremost among them. Because, you know, I had approached selling with this kind of disdainful attitude, something a little distasteful. Like, you know, it's kind of grubby. It's, you know, it's like you're commercial. You're trying to get something from other people. Et cetera. Now I say I'm a salesman and I say that with great pride. And I think it's a noble profession if you practice it with integrity. And I think that if you are a CEO of a company, you must embrace being a salesman, salesperson, you know, above all else.

Even if you're the technical CEO who's an engineer.

Even so, because you were constantly persuading, you're constantly negotiating. And most importantly, You are interacting with people who are not like you and you must persuade them. And in order to do that, you have to find common ground and you have to find a way that they get something of reward from their interaction with you. And you have to learn how to convey that. And that's what a salesman does, right? You don't just talk to people who agree with you. You find a way to persuade those who don't. And I don't know if I would have ever learned that if it was not a matter of life or death for my company.

How'd you get the first 5 customers?

Well, it was a lot of begging. There were a few or two editors.

Or did you come from the industry?

No, we did not come. So yeah, there's 2 ways that companies get started. Sometimes people come from the industry and they say, this is a problem that should be fixed and I can't stand it. No one else is fixing it. So I'm going to go do it. There's another kind of, you come up with the idea in the abstract and in general, the former is better in my opinion, but they're great companies that have been formed in both modes, and we were in the latter mode. I had enough to have a hypothesis, enough knowledge, but not enough to really know. And so we had to just, you know, get in the field and learn. And that meant just asking permission, just getting, just finding a reason to be relevant to companies. And it was very, very hard because, you know, today, as you were saying about, you know, your daughter, you could vibe code something that looks interesting. At the time, that was not possible. And so we had nothing to sell. So what could we sell if we didn't have a product? We had to sell our intelligence, our relevance, our observation. What does that mean? In the early days, it meant I would visit companies and say, we have a hypothesis that your core system, your claim system, for example, is causing, it's a structural limitation on your profitability, on your operations, on your strategic options, whatever. Therefore, and we have a second hypothesis that the current technology incumbents who provide this for you are really deserving you. Like they're in the wrong era of technology. They treat you just as a source of consulting revenue, et cetera, et cetera. So we posit that what you need is a new modern architecture built by a high-quality Silicon Valley software company with the right division of labor. That's what we, we don't have that to sell you today. Well, we can though, but we want to get the system right and we want to spend time in your operations and we want to observe your systems and we want to come back to you with a hypothesis. I mean, I know that sounds crazy that anyone would spend time with us to do that. And most of the time they said no. But if you ask enough and you're persistent enough, eventually you find people to say yes to some variation on some lesser version of what you hope, but eventually you parlay that into something that feels like a consulting arrangement, which then turns into a discovery and then turns into a co-development effort. And then eventually, in the fullness of time, maybe comes a customer.

How long between those conversations and then delivering to that customer?

You know, our sales cycles were long. We had sales cycles that lasted 10 years, believe it or not. But our early sales cycles were, you know, on average, like a year to 2 years long. And then, you know, once we actually had a product that could be implemented, it was usually a year to 2 years to implement. So, you know, these are long time periods. And so it required, you know, a lot of deferral, a lot of deferral of gratification, a lot of patience. Yeah. To go the distance.

And how did you fund that? I mean, because you basically had no customers.

So yeah, one of the things I'm proudest about Guidewire is that we raised over our entire life $29 million. I mean, now granted, you have to adjust for inflation. So if you'd like, you could maybe double or, you know, 50% to 100% more. This is not very much to go from zero to, you know, we went public with $120 million and the company is, as you said, you know, a billion and a half or so now. So we were incredibly capital efficient, but where did that come from? And my answer is it came from our hides. Like we paid ourselves very minimally and we treated every dollar of capital like it could really be our last. Now, sometimes when I tell founders this, I'm conscious that I don't want to sound like I'm from the Depression. And I'm just telling them how hard things were and how we had to use both sides of a sheet of paper because we couldn't waste it. I don't want to be a scold, but there was a trade-off. And I have to acknowledge that the capital was incredibly scarce. It came at a very dear, dear price. But it was not as competitive. And the kind of overall clock speed, the kind of expectation of getting to hypergrowth very quickly, that kind of pressure was not nearly as intense as it is on founders today. So we were afforded, let's say, more latitude to get the product right and to build it. Now, investors were extremely impatient, et cetera, but it didn't feel like if we don't get to a certain growth by this, you know, within this window, you know, absurdly short window, then we're irrelevant. We're a loser company. We didn't have that particular pressure. And I see in founders today, they've really internalized a kind of terror of not only not succeeding, but of like not being on this, you know, on a rocket ship.

I think people think today that if they're not going 0 to 100 in 18 months, that now you've automatically failed as a founder, which I think is not— I don't think it's true. Obviously, we all would like to go 0 to $100 million, but there aren't that many of those stories. But if you were to read LinkedIn, you'd think that everybody is doing that.

Yeah, it's one of the curses of comparison right now. I mean, it's why why our children are so anxious. You know, like you can compare yourself so easily to the rest of the world. And of course that's true in founderland. You know, one, I, it's, you could say again, blessing or curse in, you know, I, the, my, my co-founders and I, we generally toiled in obscurity. Like we didn't, I had no idea what other founders and other companies were doing. There was no time to talk to them. There was no venue. There weren't wonderful podcasts like this. There was nothing. So I mean, it wasn't quite so primitive, but there were, but there were far fewer venues far fewer outlets where you would have a— there were no— there weren't meetups. There were not this kind of— and so there was no— there were no— there was no way to really know or track or, you know, or let's say benchmark your progress other than what investors would say or what you would occasionally read. And I think that was mostly a healthy thing in our case. It was lonely, especially later on. It ended up being quite lonely. And I had a sense I'm in and of one, you know, walking a completely lonely, isolated path. And one of the things that happened after the IPO was I realized, no, there's a deep universality to this founding journey. And what I experienced and continue to experience here is relevant to other people. And that's kind of ultimately what led to, you know, to becoming a VC now.

What, you know, almost 20 years. That's a long time. I would say that there's some like magic, not magic, but imaginary number at like 10 years where I see a lot of founders start to kind of lose the, the energy. How did you keep that energy for almost 20 years?

Yeah, I, I, I put everything I had as a person, as a professional, as a husband, you know, as a, as a, as a son to my parents. I put all of that on the altar. Of my company. I wanted it to succeed more than, more than anything else. And I felt if it failed, it was even more than I had failed as a person. It was, in a sense, my life was pointless. It's very dramatic. It's too much, you could say. If it was, any psychologist would have said this is extreme, this is not healthy. You need, you need more proportionality or balance. None of that would have been persuasive to me because I had identified so profoundly, so utterly with the company's success or failure. And the failure felt imminent a long time, even after the company went public. I thought maybe I will disappoint all these, you know, these investors, or maybe I will disappoint, you know, there's still so much room for doubt. There's so much downside. You know, I was obsessed with that, that I, you know, I bore that weight, you know, and it was excessive. It was mostly created by myself. but it was also in its own demonic way, a kind of energy. Uh, and if you asked me, you know, were you motivated, you know, to succeed or were you frightened of failing? It was, it was no, it wasn't close. It was much more the latter. It was much more terror of failure. And that may sound dark, but it was just the truth. It, and you know, when I talk to founders today, I often ask why, you know, why are you doing this? Like, you know, you understand the possible price, you understand what the odds look like. Why are you doing this? And they give a variety of answers. Some of the answers, for example, are, well, this is a wonderful time to build software. Incredible, right? Or there's this problem and I just have such conviction that I can improve on it, right? Or I want to challenge myself. And these are valid answers, right? I don't think they're the best ones because I don't think in the dark night when you are really facing failure, you're seeing it in the face, in your face, and you have like your own instinct, your own gut knows this is probably not going to work. The idea that, well, this is a great time to build software or this is a problem worth solving. They don't sustain you through that night, right? What does, or if it's not sustain you, but at least powers you through and forces you to work with the same intensity as you did the day before. What powers you is, I cannot fail. I just cannot. It's not an option to fail. And that Um, I'd like to hear that actually.

Yeah, I think that, um, people don't know how— if you're a first-time founder specifically, you don't know how dark that journey gets. And if you're a multi-time founder, what I find is a lot of exited founders are too scared to do the next one because they're not naive enough.

That's right.

You know, it's like this, you know how painful— you know, I, I, I, uh, for me, I got married and had 2 kids within the first 3 years of building the— 4 years of building the company. I didn't see either kid walk for the first time. I almost missed the second one being born. I, you know, like I didn't— I was traveling probably 2 weeks out of every month and the rest of the time I was too tired to actually do anything. So I was sleeping on the couch like while they're like, that whole period is, is really a— but, but why was I doing that? Actually the same. I tell people for me it was when people, whenever anyone would say no to me like that, I wasn't going to be able to do that thing.

Yes.

Be successful. That anytime I got a no from a VC, That's literally what drove me to the next round of like, well, I'm going to prove them wrong, you know, and I'm going to— but it's, um, I don't— I agree. The way you just said that about asking founders that, I think that may be the most important question to know, because if they can't make it, if they don't have that, they will reach a point where they won't want to do it anymore.

That's right. And it's like going other extreme adventures, like, you know, trying to climb extreme mountaineering or going to war or these kinds of things that put you on the edge of life or death. You know, these kinds of encounters, you don't really know, of course, until you don't have any— there's no third-party description of it that can really capture what that is like. I think founding a company and really walking the walk through all of it is that kind of distinctive journey. And when you're walking that kind of distinctive journey, the people around you don't really understand. They have not, they don't, you're operating in a different kind of space-time. Your time means something different to you than it does suddenly to your friends. Your workday, your relationship with your job is something fundamentally different than people, even people, even serious professionals than they have to their jobs. You know, you can, if you work for an accounting firm and your firm fails, you are not a failed accountant. Right? You worked for a firm that didn't work out. Now you go work for another firm, right? But if your company fails as a founder, then you have failed in some very profound and direct way. It's a different kind of relationship that you have to your work. And for other people, I have a job, I have a lot of things I have to get done. These are my requirements, etc. But then eventually the job is over, right? When you're a founder, you are leading a company and every moment that it's not succeeding, it's dying. Right? So any moment that you were not working for its success, you are presiding over its dying. I mean, these are ridiculous formulations in one way, but that's the kind of subjective truth that you experience. And you don't think about these in the early moments. There's this kind of excitement. We had this. It was 9/11. God Wire was started 2 weeks after 9/11. That was just, that wasn't, that was a horrific moment. But there was a kind of joyful creation and it was like, We're going to build something here and all the silliness of the dot-com era and this horror of this, you know, of this new terrorist reality that we're living in. What can we do as professionals? Well, we're going to build something that works. You know, that's all we can do. We're going to go to work and we're going to create something. And that felt great. And it felt great to create this document that defined all our values and the strategy that we talked about. And, you know, it felt great to just steel ourselves for this journey. All that felt good. But then you have to really do it. And then, you know, then you're getting rejected all the time. And then you're like, you know, no VC is interested in taking a meeting. And then you sign a customer and there's a moment of exhilaration and then they cancel on you. And you say, maybe we have nothing after all. And then, you know, there's this other kind of moment that happens after that, the thrill of creation, of authoring something new. And you realize what's going to be required. And you realize not only that it's going to be hard, but that you are attached to it, that you are linked to it. You cannot just say, you know, I don't feel like it today. It's a much more profound connection. And, you know, none of this is— none of this is really explained. You know, you have to experience it.

You— I think you had a good technique from when you were in your all-hands about keeping your team aligned to how hard the journey was. Can you talk about that a little bit?

Yeah, it was part of my personal brand. I think some people today call it anti-selling. I would anti-sell. We as a team would always anti-sell people when they came to the company. We would say, look, let's be clear. This is going to be very, very difficult work. We can't promise you— this company is never going public, by the way. It'll always be obscure. Your mother won't know it. Your roommate won't be impressed that you work here. We sell to insurance companies. This is, we do build accounting systems. This is hard. By the way, it takes forever to sell the software. It takes forever to implement it. Incredibly complicated and detailed data conversions, et cetera. So we can't promise you any, oh, by the way, we have a very austere office. We don't have free lunches. We don't have massages. We don't have all the other nice things that you might hear about at Google or wherever. Yeah, all that we can promise you is incredibly hard work. And you would say, why would anyone sign up for that? Right? But, and most people didn't, but enough people did. And that was just, it amazed me and then it moved me. And I felt I have to absolutely do right by the people who have made this calling. I said, because what can we promise you? We can't promise you any of the good things of that type, any of the rewards. I can promise you that I and the founders of this company are going to be working harder than we ask you to, or that you will ever want to. I can promise you that we treat software like a craft and that we build it with great integrity. I can promise you that you will always know the unvarnished, unpromotional truth about exactly where we are and what we're trying to do. I can promise you that everything that we ever tell our market or our customers that we pledge our honor to, and our word is our bond, and we will live up to it, you know, or die trying. You know, this is what we can offer you. And that the anti-selling worked because it screened out those who weren't in, who were there for the wrong reasons. And, you know, maybe then you would end up with a null set and there wouldn't be anyone. That was always my worry. But amazingly, we didn't. We ended up finding incredibly devoted professionals who wanted that and they were there for the right reasons. And that was how we succeeded.

Let's talk about the challenge, like a lot of challenges, but What is the biggest challenge you faced over the 18 years and how did you overcome it if you did?

Well, the hardest challenge is there's nothing that compares to the cold start problem that a company, you have to justify why do you exist? Why would we possibly work with this tiny band of insurgents here, of would-be insurgents versus all the other options that we have, including and this is a very real question these days, just building it ourselves, right? Enterprise software, right? And that cold start problem is very, very, very hard to overcome for a young company. And you can get— there's many levels of difficulty because first, just getting the audience to ask the question, getting rejected many times and then persuading them and then making sure that you don't get headfaked in sometimes their agreement to work with you. Because like how substantial, how deep is their actual agreement to work with you.

So you have happy ears and you're saying, oh, they want to work with me.

And you have to believe, you want to believe, but you can be, you can be, it's not because of malice or, you know, desire to make your life miserable, but because it's, you know, they just, your attach is not quite as deep. Their attachment to the idea is more superficial than, or maybe you're particularly good at selling, but they don't really want what you have. Right. And so by far the hardest in our case, it was, It was difficult because we had to sell something we didn't have yet. And it would take a long time to build. And it was a very challenging order of operations or chicken and egg problem because there was no way we could build a good enough product without having customers that were working with us to get it right. And there's no way they would get it right. Like, how would we get them to work with us to get it right when we had no credentials for them to believe that we would ever have a product? And how would we get capital to give us money to build a product to sell to a market with a product that didn't exist. It just seemed like this absurd kind of, I mean, we had to laugh about it at times. We wanted to try to, this triangulation between 3 things that had to happen simultaneously. It was not possible, right? So it's, but it turns out you just like nudge each side along a little bit and you try to hold them all together and then hold it together just long enough that you can start the chemical reaction. That's what it, in our case, it was very, very hard. And especially because capital was so scarce. you know, and so, you know, just so afraid at that moment. We were smart guys. We went to good schools. We had good jobs, but none of us were like a credentialed rockstar founder or anything like that. Um, and we didn't have connections in the industry or that we were the end market that we were trying. We didn't have any of those assets. So it was only just through, just through sheer punishing repetition that we would eventually, you know, found enough of those of the equation to get, to get, you know, to pull it together just barely. And, you know, I thought in the first year or so, you know, I might have thrown away my career here and trying to— well, I might have made a mistake in trying this. And then even 10 years later, even after with many customers and the company had tens of millions in revenue, it still felt very fragile. And I still thought maybe even now I might have thrown away my career trying to do this. Because whether or not we can ever build something substantial enough was, was an open question.

You ran into a situation a little bit different, but something I think a lot of people are dealing with today of a very big company.

Yeah.

Um, really trying to slow you down. Um, and I think that is what a lot of people are now scared of is, you know, we're going to go build this thing and then Claude Spil is going to get released that does all of this. Um, or this person, OpenAI, is going to come after us and shut us our access down. Do Can you talk about what that was?

Yeah, so in our case, I'll tell you about, reiterate what happened to us in our case, but then I have thoughts on the more general case. You know, for us, we started out competing with Accenture. They were the enemy, this huge global, you know, they were maybe $40 billion in revenue, I think, even around that time, it's what we always described them as. You know, they seem to have all the resources. Their ads used to be in every airport in America. There would be Accenture ads. And they had, you know, huge relationships with the biggest insurance companies in the world, at least a few of them. And, but this is where we get back to strategy. We thought there was a flaw in their strategy. There was a flaw in their premise and they had a flawed premise. And the premise was that you could custom build, that the right way to build this functionality was essentially a custom build on a set of components. And they even called their product Claim Components, right? And we said, this is just wrong at a first principles level. That the way to build a proper piece of software is that you need it to have its own kind of design integrity, its own stable data model. You have to have a definition of what is configurable and what is base. It has to be upgradable software, you know, et cetera. There's a whole set of kind of architectural attributes that we know they didn't have. And we said, and this will prevail in the fullness of time if we do everything right. Right. So we, we believe that we had the right strategy relative to them. And I can tell you now, 20-some years later, we were right. We were completely right. But 10 years in, they didn't like this. And they were losing in the market, including to some of the companies that they thought were their entitlement to own. And they sued us with an intellectual property lawsuit. It was completely meritless. It was based on— people don't talk about this these days, but they're called business method patents. And the idea is that you could use a patent, you could take some practice and just say this general thing that people do, this is a method that is our patent. It's our idea. Right. And so their business method patent was on the idea that you could have a, it sounds so absurd, but you could have a claim folder, which would have all the data about a claim and it could be divided into different sections. That was their patent. It's actually that stupid. Yeah. And, and it's, it's, there's something that's deeply wrong with our, our patent system. It has the opposite effect of actually protecting innovation. And it's, it's quite perverse. But anyway, they sued us. We were completely shocked by it. It never occurred to us. It was a blow from, you know, from the blue. And they nearly killed us. We didn't sell software for, you know, over, well over a year. And, you know, we thought it was actually game over, you know, that it was, that it was, it was almost a fatal, you know, and because our customers would tell us, you know, we know this lawsuit is meritless, like it doesn't really make sense, but we're insurance companies. We get sued all the time on meritless lawsuits. And sometimes the jury awards it to, you know, to the guys who staged the accident. So, you know, why don't you get it resolved? And then maybe we'll consider working with you. But we couldn't resolve it because Accenture did not want to come to a settlement. Of course, they were using it as a blow to kill us. And, you know, the injustice of that moment where it said, how could it be that there is a way to lose in the market? but then to still club your opponent over there. It's like, let's play a match of chess and then I lost and then I, you know, I hit you across the head and say, well, I still won here cuz I'm the only guy standing. Like this can't be, this can't be the way that the world is organized. And, but it felt like it was, and that felt, you know, profoundly unfair.

And how did you overcome that?

Well, it's a kind of long story, which, but I'll keep it, you know, super brief. Like we just fought back using the tools in the law. One of them was to file some patents of our own and assert them. We would never have done that. It was just a defensive necessity. It turns out that they had engaged in some questionable practices along the way that gave us other leverage in the negotiation. And eventually, most importantly, we found a customer who just stood up for us and just said, this is nonsense. There's nothing that should be patented here. And he would tell— it wasn't that important that he told us that or the judge that. He told other customers that, other prospects, and said, said, yeah, we, you know, my company looked at this. There's no merit in here. We think this is the best software. We're going to proceed. And I think that you should too. And, you know, in a sense, he saved the company because it was then the next one and then the next one. And eventually, amazing. Eventually we won. Yeah. And we were able to settle the case. And then a few months later, the company went public and, you know, it all worked out.

So I want to transition to you being an investor.

Sure.

But I want to just understand you were doing so well. I mean, the business was doing well, going public, growing, and then you decide to step down.

Yeah.

Was that something you had planned for a long time? Was that something that came to you one day? You said, I just can't do this anymore. Like, what, what happened?

Yeah, I haven't talked much about this publicly, but I'll share this. I— my intention was to kind of die in the saddle, you know, just to go the entire distance. I think I was good at that job.

Clearly.

And I think I was probably better at that than I'll be at anything else in life, probably, including being an investor. I hope to prove that wrong, but that's a very real possibility. It was very unnatural for me in the beginning, but I grew into it. And then I ended up doing the job, at least when I, the job itself intrinsically, I did it joyfully and I felt I was born to it. However, as I said, I put everything on the altar. And I drew on every line of credit that I had, not so much financially, but in every other sense in life, you know, as a son, as a husband, as, you know, as a father, as a friend. And I reached a point of kind of exhaustion and of a kind of breakdown in every other facet of life that I said, this is— there's a chance that I'm going to succeed at this and continue to succeed at this, but fail in every other way. And I have to— I have to make a life change, including my health was also in question. You know, I flew something like 250,000 miles a year for most of those— most of those years. And most of all of that domestically, because of course, insurance companies are all over the world. And even in the US, they're not all conveniently located in New York and San Francisco. They're, you know, they're scattered in lots of places. And I made a big point of being there in person for a lot of them. And so I was traveling, you know, two-thirds, you know, half of two-thirds of the time, many, many red eyes, many all-nighters all the time. And I felt that was necessary. Today, people don't do that to the same degree. I think COVID changed the world in one way for the better, that it was much more business acceptable to be remote. And I don't know, I kind of took the principle too far. So I reached a point of really severe exhaustion and unhappiness, and it had to change. In hindsight, I think actually I had more resources than I thought at the time. And now that I have a lot more lateral view of many, many other companies and what others have done, I realize there was also a lot of frustration with my board and that with investors. And that's its own kind of, that's its own separate story. But it does inform, you know, your question about now becoming an investor in how determined I am to be an investor that I did not have, you know, that has at the most fundamental level a kind of empathy, a kind of support for, you know, what a CEO, especially founder CEO, goes through.

Did you seek out this job at Battery or a job as an investor, or did it Did you know that was gonna be the next chapter? Did you start another company?

I know the default plan all along was to start another company. You probably have felt this yourself, David, that, you know, the dream, the Silicon Valley dream is, you know, you work for one good company, you learn some things and you start a company, but you're poor. So other people have to fund it. So it's not really your company. And then that succeeds. And then finally, finally, at some later chapter, you get to start your company. And I thought, okay, that's gonna be my story. And I'm gonna get to chapter 3. But, you know, a lot of life passes between now and then. And as I was considering that, you know, COVID also was a very surreal time where it's a weird time to try to start a company or think about one. After I sort of reconstituted myself after this 20-year exhausting journey, and I discovered, no, I have just as much fierce motivation as I ever have, but it's not going to be what I thought. It's not going to be my company. And then I was invited to join one and then another. you know, different venture firm. And I started to explore that and I realized maybe this is a chance to, it may offer a few things I haven't had along the entrepreneurial journey. One is I get to spend more time with founders. That was happening in kind of a random fashion, but now maybe do it in a systematic fashion. And then secondly, you know, I've been so single-threaded through one idea, one set of problems, you know, for so long that maybe I get to learn new contexts, new things. And so that's what was attractive. And then Battery is, it's a very distinctive firm. It's been around for a long time through, you know, it's a very unglamorous firm. I say that with pride. You know, it does not seek headlines. It does very fundamental underwriting. It's very loyal to its, you know, to the founders and operators and CEOs it works with. And it has been through many technology cycles. And, you know, these attributes I said, maybe I've seen, I feel like an intellectual and I kind of values home in this firm. And that's what led to my joining.

And now that you're an investor, you've made a bunch of investments. What do you look for in the founders that you meet with?

Well, as we started this conversation, I, you know, talking about, I look for the strategic coherence first and foremost. Like if it's not, really comprehensible and lucid. And moreover, if the CEO is not completely comfortable and intellectually facile in engaging the questions around that strategy. So it's not just that they can articulate a strategy, but how much challenge and cross-examination can they withstand and how enjoyable do they find it or do they resent being asked? That's the foundation. Then there's a whole level of human underwriting, which is, you know, what is the character? What are the motivations of this leader and of the co-founding team? It's rare that it's a 6-person team, you know, but usually it's, you know, 2, maybe 3 co-founders. What are the sources of their motivation? What is the evidence in the journey that they've taken to get to this point that they have the, you know, that they have the perseverance, the self-awareness, the drive, you know, the kind of demonic hunger in order to make this actually succeed. And that's a hard— as well as, of course, the ethical foundation. And the thing is, it's hard to tell that just through conversation. You get an impression, of course, it's very hard to know. I have a colleague who says, you know, humans are rationalization and deception machines. You know, we're very good at, you know, at persuading each other, like we're kind of evolved to do that. And all of us overestimate our ability to really appraise and really know. So I've become more and more self-aware about my own limitation in that, that the fallibility of my own impressions. And so we try to triangulate every way we can, you know, obviously people who have worked with the founder before and you see how the founder also comports themselves through, you know, through the process, you know, do they show up on time? Do they answer questions? Consistently? Do they admit when there are gaps in their knowledge? You know, basic things like this. And how detail-oriented are they? You know, how, what is their, what is their responsiveness? Even in a short window of evaluating a, you know, the deal engagement, you can, you get to actually see quite a bit about that. And then you try to talk to as many people as you can find who have, you know, who've worked with, with them.

Um, what is your engagement post-close? Because you are, you at least at a general sense, you are unique in that you are a successful founder and more than founder, operator. You've scaled a huge business, gone public, all of that stuff that is unique in the venture world. So are you more active with these companies than a usual Venture investor or?

I am extremely active. I say my goal at the highest level is I want to be the investor I didn't have, as I said, but it's more that I'm married for the journey of it, however long it takes. If I am not the most active, the most involved, the first call, as people like to say, then something has gone wrong. We've mis-underwritten each other because that's my aspiration. Now the problem is there's only so many hours in the day, et cetera. I was going to ask you. I'm on 10 boards right now, which is a lot. I have colleagues who are on 20 and one is on 25, which is almost like really stretching it. But it's a very, very weighty promise. And in fact, I wait, like the fact that it's a slot, it is a sleeve of time going as long as it takes into the future that the opportunity cost of that, I weigh that as heavily as the fact that I am committing the capital.

It's maybe more in some ways.

In some emotional ways, yes. In terms of my professional duties, but I say it's equivalent. Because it's a very, very consequential choice. And, you know, it's not the only way to invest. There are very successful investors who, you know, they do all their underwriting up front and then, you know, they just say, here's the check, call me when you need me, when you need me, and I'm going to check in a couple punctuated moments and that's that. But I, in general, talk to, you know, every one of the CEOs that I'm involved with, you know, weekly or sometimes biweekly or biweekly. and, and tremendously more on, you know, ad hoc as needed. Um, and that's, I think, I think the only way that I can really fulfill the promise that I've made to them.

Yeah. What is your view today in the market with what's going on and the crazy valuations and the crazy amount of money and then the crashes, SaaSpocalypse while this is going on? Like, what is your—

Oh, that's a big question. Uh, this is a very, very strange time. Overall. I don't have the, you know, I don't have 30 years of investing experience to, you know, to contrast this to, you know, my most of the last, most of my 30 years were spent as an op, you know, as an entrepreneur. But, you know, as an investor, I can say this is a very, very strange time. Let me start with number one. It's always the case that, you know, the most venture investments fail and they don't meet their target return. I think that's, you know, to an extreme degree today, you know, of the, you know, the number of decacorns that would have to be formed every year in order to, in order for the amount of venture capital or risk capital now to make its IRR is obviously ludicrous. There are different ways I've seen this calculated or tried to do the math myself, but it's, you know, like 20 a year or something, something that's just obviously impossible and not going to happen, right? So that's, that's, there's more, there are more firms more institutions, more capital than ever. That is kind of a collective delusion that all of that's going to find its venture-scale return. So that's point one. That's a weird thing. Two, the kind of disconnect between public and private market valuations is extreme right now. And I don't know how that gets reconciled. It's been the case for a good while right now, but the fact that you could have companies, forget the ones that are pre-revenue and, you know, are science projects with, you know, the founders, those are in their own class. But, you know, even very rapidly growing companies that are, you know, sub $20 million in revenue that are, you know, billion-dollar valuations, the disconnect between that and even if you extrapolate that in any way for a couple of years and the way the public market, the public software companies trade is is, it's like a quantum divide between them. I don't know how you can't really reconcile those things. And that's again, a kind of collective repression of like, what does this actually mean? Three, there's this very disturbing possibility of like winner-take-all scenarios. You talked about Claude and, you know, is there only one software company in the world? You know, I've heard that question asked most partially as a joke, but, you know, but people look at each other a little nervously, like that might be the case. So What room is there for individuating value at levels, or does AI sweep all that up? I have my own opinions, but no one knows definitively what the boundary is on progress. There was a period where it felt like, okay, we're living in a completely science fiction era, from GPT-3 to 4, and the scaling law may take us to superintelligence. Then there was a good 18 months when it's like, okay, that's been overstated. Scaling alone won't get us there. There are these natural limitations. There's only so much data in the world, et cetera. And then now we are in another chapter where it's like, well, wait a minute, maybe these coding agents are so powerful and so capable that maybe even if they aren't like recursively self-improving themselves, which isn't happening, but they have just, they just take the cost of development to a completely different level, you know, and as one of my, one of the CEOs in my portfolio says, it's like, you know, the developing is just typing at this point, you know, like, you know, and it's That's an astonishing statement, but he meant it and he's a very technical founder himself. So these are three very surreal kind of unsettling facts. And you have an industry where people are kind of feverishly excited about the possibility of world-transforming technology and yet profoundly insecure about how that is converted into equity value and what that means for this you know, this industry that we call, you know, venture capital.

Yeah. I think the interesting thing that I see is having gone through that 2021 kind of craziness, that's right, the ZIRP era, yeah, the ZIRP era and people raising at 300 times ARR and, you know, you're doing $100 million, but you raised at $16 billion because you could be the tool that when everyone works remote for the rest of the history of time, you're the one that they're going to use. But now those companies, fast forward 5 years, are—

Yes, upside down.

Upside down. And it's very bad. And those are the founders that when I talk to them, they are so stuck. And they hate— they are linked to the company and it has the big valuation, but there's nothing to do.

But they can't fulfill it. And I've tried to discuss this when valuation comes up with founders. I said, you understand, I know why. You want the highest possible valuation because most obviously, if capital is all a commodity, you want to take the cheapest form of it. And secondly, it's a kind of, it's a marker, it's an index for your achievement. And yes, it's a signal that helps you get talent. And there's all these reasons why you want the highest valuation. And it's just not often, it's not understood as it should be, the terrible price when that's not fulfilled. That when you take a high valuation, when you take any valuation, but when you take a high valuation, It's not a prize. It is a promise. You have now made a commitment that, or you have participated in a contract that aspire, that for which success means a multiple on that high number for your counterparty. And if you can't fulfill that, then you are now married to a dissatisfied spouse, someone who feels—

That's a good one.

Who has said, this is not what I was promised. Now, doesn't mean that I'm going to take you to court, but it means I am— this promise has been unfulfilled here and I'm unhappy, right? That's what you have signed up for. And the misery of being in that kind of relationship over, over years, you know, board meeting after board meeting is a horrible price that is vastly worse than the dilution that was so obsessively preoccupied— that was your obsessive preoccupation. At the time of this negotiation, right?

But founders don't, they do not.

No, I've—

First-time founders, first-time founders—

I have completely failed in making that case. I'll just say I've never persuaded a founder to see it that way. They just, they say, I hear you. We don't need to take the absolute highest valuation, but multiple times I have experienced being, I've even been told, hey, you're exactly the investor that I would love to, the fact that you've walked the walk, that you have such clear empathy with exactly what we're going through. You're asking the most insightful questions. But, and then if there comes, there's a moment of truth and it says, yes, all of that's true, but this other guy's offered me 25% higher. And that's okay. That's your prerogative. But I think it's not, it's just not appreciated. And it really only can be once you've experienced it, you know, this, the terrible price of—

But is it terrible when you do experience it? It is probably, cause you, it makes you stuck.

Yes.

And maybe today people take secondary or something like that. But actually, if you look at those 21 days, they were, but not as much as today. And now you end up with this huge valuation with no one that wants to buy it for that or even 50% of that.

Yes.

You have no way to liquidity because at that point.

Exactly. And then now you're enslaved by this preference stack, which is another subtlety that most, most founders don't think about. And then there's all these terrible consequences for employee compensation.

Oh yeah.

All the, the, uh, the mispriced equity and people who are upside down. And then there's the kind of unfairness of the fact that people who join later and have taken less risk are now getting equity that is worth more at a lower strike than people with more. And everything's upside down. It's a disaster.

And so, but there's gonna be thousands of those companies in a very short, in 5 years there's gonna be another set of hundreds or thousands of those companies.

Indeed. Yeah. And then how does it all get worked out? Well, just time eventually unkinks it all. And some venture firms are punished for their reckless or whatever. And it all takes a long, long time, right? Which is, you know, I take a pride in working for a firm that's just been through many cycles of this. It has seen that and can say, we know the dangers of that kind of recklessness. Nonetheless, I feel this pressure today as an investor, like we have to participate. We're in the market, right? And, you know, we don't get the luxury of standing on the sidelines and saying, oh, you guys are all fools. No, we have to participate and we have to do our very best nonetheless. But I think it's difficult when I contrast it to, and I was not an investor then, but when I contrast it to, you know, the early SaaS era, or let alone the era, you know, well before that in the early to mid, early to mid-2000s, you know, those were the glory days to be, you know, to be a VC, I think, where you could be discerning, you had all the power, all the information asymmetry was on your side. And, you know, the founder, we were like the poor Motown singer that was ready to sign away our careers just for the chance to, you know, for a nice, for a steak dinner. You know, I, I was that, I was that, I was that founder. Um, but it's okay. You know, it all worked out.

Yeah. Um, awesome. Well, um, last question for you.

Sure.

Knowing everything that you know today, going back to the very beginning of your career, going through all this journey, what is the one piece of advice you would go back and give yourself at the very beginning?

When you say advice, you mean to do something differently than I, I got to do? Because, you know, my life has been a privilege. You know, when I think about the good fortune that I've had, you know, through all the difficulties and frustrations, you know, the good fortune to be born in this country, to have the opportunities I've had to be, you know, I was given, my co-founders and I was, you know, were given, I had a world-class education, you know, that my parents couldn't have otherwise afforded it and was given $4 million to try to build a company. You know, it's no other place in the world, no other time in history would have I had those kinds of chances. And I'm, I've My first thought when I reflect on my life is just, is really, and I don't just say this as an empty platitude. I mean, it really is wonder and gratitude. And when you travel, the more that you travel around the world, the more you see this is not something Americans, certainly those of us who get to live in certain places with certain opportunities, none of us should take this for granted. Sorry, that's a verbose preamble to my answer. The main advice I'd give is just to not have been so hard on myself the whole time. You know, I felt through my education and then, you know, through the years as a founder, I just felt like it was all on the line all the time. Every day was like, if we don't succeed today, it's a disaster tomorrow. You know, there's a kind of catastrophizing anxiety that I brought to it. And on the one hand, you know, it gave me a certain energy, you know, to work with crazy intensity. On the other hand, it ultimately undermined my longevity in the role. And some of the CEOs I really admire, I see that they bring a greater serenity to the job. And if you can be intense and serene at the same time, then you really have a superpower.

That's hard. That's hard. Markus, thank you so much for doing this with me. I'm really excited we were able to do it in person. Yeah. Hope everyone enjoyed the episode. If you did, please share this out with your networks and we'll see you for the next episode of Not Another CEO podcast.