SaaStr CRO Confidential: How to Raise in Late 2022 with Jason Lemkin and Sam Blond of Founders Fund

One of our good friends, Sam Blond, most recently CEO of Brex, has joined Founders Fund as their latest partner. Sam, thanks for joining us.

Thank you for having me once again. I'm so happy to be here because you and I can have—

I'd love to have an honest conversation about a topic I'm passionate about, which is Miami. You're there at Founders Fund, which is, which is which has been very early on the tech move to Miami. As you know, we've been doing SaaStr meetups in Miami for 5 years. You've been to them. I love Miami. I will, if I had no other family or other issues, I'd move there right now. I'm no Miami crasher, right? I've been there since doing meetups since 2017. But I'm not sure it will become a B2B hub. I'm confident it's already a tech hub of some sort. But even our last Miami meetup, which you were at, it was great. We had 300 founders come. It was the B2B element. There's crypto, there's all this. So talk about us. Where— what do you think about the SF Bay Area? What do you think about Miami? You're in two worlds living in Miami with Miami behind you on the skyline for folks that watch this right now.

Yeah, well, so we'll talk about Miami first specifically and then can move on to Bay Area. So I moved here in November of last year. So I've been almost a year. The reason I moved was I visited in the first part of 2021. I reached out to Keith, who is sort of like Mr. Miami, or certainly Mr. Miami representing tech.

Yeah.

And I didn't want to leave. Like, it is a great place to live. All right.

So you're coming out of the bleak lockdown San Francisco. You meet Keith, you don't want to leave. I get it, right? Yeah, you don't want to leave. That's exactly right.

Here's— here is like, I am biased and I am biased in favor of Miami given I both live here and I want to see it succeed. But here, here's like, as, as objective as I can be in terms of what exists today. If we go back to 2020, when everything was in San Francisco, like maybe some exceptions, but like really everything was in San Francisco. Nothing was in Miami. And, you know, in a relatively short amount of time, I think Miami has attracted a lot of founders, investors, and tech employees. And so the sort of rate of acceleration that Miami is experiencing is impressive. There are several companies that Founders Fund is involved with that are B2B. And Miami is the best place for them to build. Keith has one called Open Store. There are some investments called Lula, Traba. There are others. And these are, you know, 50 to 100 employee B2B tech startups. Now, like, on a percentage basis, does Miami have as many as San Francisco? Like, no. But I think the acceleration is impressive and something that I hope to continue to happen here.

Got it. And where do you see— where do you come out? Where do you see SF for SaaS and B2B in 2024, 2025? What— you just spent some time out here, right? What do you think the pulse is?

So I'll answer that question. But just talking about San Francisco broadly, maybe. Yes. You have sort of a specific question, and maybe I'll—

Yeah, re-spin it however you want. This is how we do things.

Like the positive things about San Francisco. And by the way, I lived in San Francisco for almost 15 years, so most of my adult life. And, and had I not been in San Francisco, would not have been fortunate enough to have the type of career progression that I have. I was certainly like right place, right time and took advantage of that. So on the positive side, and this may, this may start to sound like a negative, Uh, but let's just take Founders Fund as an example. Um, at the beginning of 2020, uh, everyone in Founders Fund was, was, uh, in San Francisco. There may have been an exception or two. Um, and today in this office, uh, there's Keith, uh, Matthias, Delian, uh, myself as the investors. Mike Solana is a VP here, um, not on the investing side, but, um, 5 fairly senior people, all of which, you know, beginning of 2020 lived in San Francisco, now all of which live in Miami. And you, you see somewhat regularly, like all the folks from Brex, my direct reports at Brex, they had the opportunity to go remote. They don't live there anymore. This sounds like a negative. I'll get to the sort of like positive. All of that migration built in, there is still a unique talent density in San Francisco, unlike any other place. And I'm going to San Francisco tomorrow. And the people that I am meeting with, and certainly won't name drop, but just every time I go back, the calendar of incredible VCs, founders, people that still live there is unique. And I think that's a combination of my network and because I lived there for so long, but also just where it used to be 100%. And so even if, 50% of, which I think is too high, but even if half the people left, there's still 50% of all the amazing people that started in San Francisco. And so the talent density is incredibly unique. I'll pause there, but I have some other thoughts on San Francisco. Just feel like I've been on a bit of a—

No, no, I think that's a good insight. The, the, the, the world has changed. Miami is on the upswing. I love Miami. But even if it's half of what it was, the density of SF is unique, at least for B2B. It's certainly unique, right? For for B2B. It remains there, right? Your calendar is full, and I think that's something founders should think about, right? I think you could add whatever you want. I think the meta question— and this surprised me because, as you know, I've invested and worked with so many European founders, right? And back in the day, before all this, I really— I wasn't crazy about it, but I pretty much said you better come to SF, right? When I talk, I'm shocked how many of the European founders I invested in stayed through all of this in SF. And I think that's kind of like the meta question. If you were a founder coming from somewhere in Europe or Latin America or somewhere and you didn't care, you had no kids, you had no family, you had no, you had no GP partners and you're in B2B, what would you tell them?

If this were early 2020, I think the answer would have been like pre, you know, pre-Goldman.

For sure. What would it be today?

The answer would have been San Francisco, I think. I think today my answer is actually it's not one size fits all. Um, and, you know, talk to an amazing Israeli founder, uh, yesterday. They're opening their office in New York. Um, yes. And look, it could be New York, it could be Miami, it could be San Francisco. I, I think like today the reality is, um, it's just not one size fits all the way that it used to be.

Well, for sure. Yeah, it's a good insight.

And then just on San Francisco, one, um, and I'll try and take less time, but, uh, one, one, um, other positive and then one concern I have.

Yes.

So my background, I lived next to Salesforce Tower, downtown San Francisco, heart of the city. That's where I spent all my time. And in 2019, that place was buzzing, like buzzing everywhere. And then it went to the opposite, like, you know, depressing and nobody around. And I think in the last 2 months that has started to change. And it's not, it's not back to 2019 levels, but there are people in the streets, the restaurants are full. There are more people going into offices. And so I think that for the first time, really just in the last couple of months, that has really started to change. And specifically that part of town. The concern that I have— and this is, this is actually unique to San Francisco. So you're, you're down in the peninsula. I know a ton of people who have moved to the East Bay, not Oakland, but like the suburbs of the East Bay, Marin, up north. San Francisco, I think today is not a great place to live. And we don't have to go into the—

It's a challenge.

It's well documented.

It's a challenge. You have to be objective. Yeah.

And shout out to, you know, like the person that comes to mind is Gary Tan, who like that guy is just, you know, trying to will San Francisco back from where it is today, I guess, for lack of a better framing. But, you know, it's still— walking downtown, you— it's hard to say this is a great place to live. And I think that hasn't really changed. And so before— I think I don't see a trend of an inflow of people. It's certainly been an outflow over the last couple of years. Until that changes, I don't see a net flow of quality talent into the city.

Yeah, it's a good insight. Well, let's move on. I think my limited— in fact, you know, even better than me these days. I think if you go to the hotspots, the Second and Howard, it feels like 2016, 20— that doesn't feel like 2020, but it feels pretty good there. Right. And I think if you are a single founder, right, and young, you may, you may still love the vibe, even if it's, even if it's a grittier SF than it used to be. But it's, it's a good point. And you know, the whatever, the 400 AEs you had at Zenefits or Brex and SF, that's never coming back. We will never have floor after floor after floor of AEs and SDRs. So there's an element of all this that is just, it's never, no matter what happens, the floor of floor of AEs and SF, they can't afford to live there. They don't want to live there. They don't get the benefits, right? So that's never, the lay troops are never coming back, I don't think.

We agree.

Yeah, the founders may be back. They're different. And so it's just, we don't know. So it's a good conversation. Okay, so Founders Fund, you're at a unique time. We chatted about this a while ago. It's special because you've been angel investing for a while, you have an incredible track record, but you're not locked up on 100 boards. You're not trying to deal with 5 ones that have 6 months of runway. You can be a bit objective about things, right? You're always objective, right? Um, are— where are we? We see things on Twitter that, um, growth is way down, um, valuations have plummeted. What's your objective view? What have you learned on the ground at, at an aggressive fund, right? Not a conservative fund, an aggressive fund. What are—

what do you—

what are you seeing and smelling in the venture markets today?

Yeah. Um, well, so, so to qualify, this is, um, I'm a little over 5 weeks in. This is my—

yes.

Um, I started, uh, just after Liz Truss started. And so relevant for today, given it was a resume.

It's terrible. I can't believe it.

Yeah. And so Founders Fund, what we're seeing— so I'd probably separate it into two categories. One is more growth stage. On the growth stage side, many of the best companies raised a lot of money last year. And given what's happened in the public markets, it's difficult to justify, certainly in up round, and maybe even the valuations at which those businesses raised. And many of the best ones are very well capitalized, so they don't need to raise. Um, and, and so growth stage, uh, investing has, has really slowed or, or almost, um, been non-existent. There's, there's a couple sort of potential outliers. Anderol is, is one that Founders Fund continues to put more money in.

Yep.

Um, and Rippling did a round, uh, uh, earlier this year that, that, um, uh, Founders Fund participated in also. And so those are sort of outlier, unbelievable quality, uh, companies, but, but not much activity there, uh, because of, of the dynamics that I just mentioned. On the earlier stage side, um, deal volume has, has definitely slowed. So the number of deals that are happening, uh, is lower. That said, um, we— and this may be obvious— but are always looking for great founders and great businesses, uh, and so deals do continue to happen on the earlier stage side. I think there's just been a general— this is true with both Founders Fund and maybe, um, the industry broadly— that there's been a general flight to quality here. And that's why the number of deals getting done, uh, seems lower. But still, if you're a fantastic founder or team and you have a good business, you will be able to raise money. And, and I, I would love to partner with you.

And let's talk about the interesting point you made, because I think Founders Fund is probably more honest when they reflect on their portfolio than others. Did we lower the bar during the boom? Did we lower the quality bar a bit for investing?

Yeah, well, I won't—

Not valuation. That's different than high valuations. They're not exactly the same thing, are they?

Yeah. So look, I won't say Founders Fund lowered the bar. I actually wasn't here during the boom. But I think generally speaking, almost definitionally, the bar was lowered. There was so much more capital being deployed in so many more companies. Um, last year compared to this year at every stage.

Yeah.

And so, um, I, I think, you know, there were a bunch of new funds, there was a lot of new capital, uh, and so that money needed to go somewhere and more deals were happening. And so, um, you know, I think, I, I think because of that, there will be a lot of, um, companies that were able to raise money last year that aren't forward, aren't able to raise going forward.

Yeah, it was. There's a lot of talk about how valuations were high, right? Which maybe we'll talk a little bit more about or not. But what I think people miss— and I wrote this post right when things were taking off, right during the lockdown period— I call it the Postmates effect. And it was after I talked with a partner at a top venture firm, at one of the very best. Right. And his point was, look, before COVID we wouldn't have done Postmates. And what did he mean by Postmates? He's like, well, Postmates is number 3 or 4 in the market. With a great company, but with no path to being number one. No argument. There's no argument that RAMP will beat Brex or Brex will beat RAMP or whoever they are. I don't even know if they directly compete, but you see my point. His point was valuations got so big that number 4, number 5 in any market could be a unicorn. And that was true on paper last year. And so we lost— we used to always think you had to be number 1 to make any real money. Number 2 would make a little bit of money, and then it was hopeless for 3 through 5. That changed during the peak. And so, so many companies got funded in so many spaces, right? The 5th and 6th and 7th competitor, just because they could be a unicorn too. And I wonder, I, that's the biggest quality to— I'll put it in quotes, even though for folks that are listening to Klein, I saw— is that if you are number 4 or 5 in your space and you got a good round, you may be unfundable, even if you're sitting on a low valuation. Just the world changed. It doesn't mean you're not a good company. But I think we're back to only wanting to invest in number one in the space, aren't we? Or at least number one in a segment of the space.

Yeah, I think, I think in a competitive space, the ones that aren't, aren't, you know, the best, to use your description there. So if you're number 5, number 6, number 7 in a space, it's going to be much more challenging to raise funding today. I also think there were a lot of businesses that were funded that just aren't that great of businesses. Um, like, regardless—

that too. Yeah, yeah.

Regardless of what space they're in. And so there are, there are these— I, I hate to use the, uh, term, but like, I can't think of another one— but like, sort of like zombie businesses that exist out there that were able to raise funding, but, um, they aren't a great business, and ultimately they're not going to be able to raise funding anymore. But they still, they still have a lot of money. And they're still going. Um, and so I would argue that, um, this— let's call it a correction— that is happening right now is probably healthy for the ecosystem broadly because, um, you know, there are, there are likely great people at some of these companies that, uh, aren't going to make it. Um, and so distributing some of them to the best companies is, is a net positive.

It could. Yeah.

Am I not being politically correct enough?

No, no, you're being— you're just, you've just become a VC, that's all. You're exactly right in in terms of zombies, distributing the top talented zombies to better portfolio companies is a good thing for VCs. Um, some of those founders— sometimes, uh, some zombies, if the founders are great, turn it around and build something really huge, right? Um, you know, like Slack started off as whatever, a gaming company, right? It was a zombie, right? But, but, but, but, but, but Andreessen told him to keep going. If he said, I quit— and he didn't quit, Stewart didn't quit— but it was a zombie, right? It was a zombie with a lot of money. Um, so there's different flavors of zombies out there, that's all. Yeah.

That's totally right. Like, yes. Um, and it doesn't mean that there aren't businesses that are taking longer to take off, or, you know, Figma took a long time and they just sold for $20 billion. And I'm not saying, um, Figma ever was perceived as a zombie company. I'm just saying, like, you know, different, different companies see success at different stages of the business, and sometimes they take longer and those sorts of things.

Well, let's transition to that. Let's talk a little bit about that relationship, and maybe let's talk about two last topics, which we have some time on, then we can wrap up. Before we get there, I might have done it out of turn. Talk to us. This is always a question I ask almost any VC when I meet them. Not that we've met for the first time, but tell us what your sweet spot is. What are you looking to invest in if Founder Fund folks want to reach out to you? And I know you have flexibility. What are the different check sizes and stages? So sweet spot and check size and stages.

Yeah. So my, my background, I joined EchoSign with you, Zenefits, and then Brex, all around like between 10 and 20 employees. and relatively little revenue, so less than $2 million of ARR, um, and left those businesses when they were much, much larger. Uh, and so based off of that experience, um, my, my sort of sweet spot would be companies in, in similar stages. I think, uh, from a fundraising standpoint, that's going to be something like seed through Series C. Okay. You know, anything like pre-seed where they don't have a product is probably too early, and anything that is like true growth stage, we're already many hundreds of millions of dollars in revenue, I think my experience is is less directly applicable to, um, that business. And then we've spent a lot of time talking about it, but, um, B2B software, uh, like, uh, EchoSign, Brex, Zenefits, and where I've spent most of my career.

Um, so B2B software from 10 to 50 employees is probably a sweet spot, but you can do later check sizes too, right?

That's right.

And what's the smallest and the biggest check you would write, just to frame it for folks?

Yeah, I think, um, On a seed deal, you know, like we would like to get like the 10% ownership of the company as sort of a minimum. And so that's, I think, like sort of $1 million would be minimum check size. And then at least within Founders Fund, the sky's the limit in terms of the check size. I mean, we do—

well, just to help folks listening, like it sounds like for you, because a lot of folks will— I would take money from Sam, for folks that are listening, for a whole bunch of reasons. I trust him. I've enjoyed working with them, and there's only so many CROs out there. So if you're a sales— notwithstanding Parker's comment, which we could, we could go deeper into— my view of venture is there's only so many slices. You are going to sell your company, and you might as well at least find the VC that can add the most value, even if it's limited value. That's a lot better. I tell you, it's a lot better than no value. Here's the point. I love Parker too. Here's the point he's missing: a little value is much better than negative value, and you'll find on your board it's a lot better, better than no value. You'll find, right? So I would pick Sam. But so it sounds like $1 million checks at the seed stage, $10 million, you know, you can do a $10 million check for an A deal, right? Or whatever we're calling it this day, and up to $20 million for bigger deals. You're flexible on those sizes, right? Um, it just to give folks where they're at in those different stages, right?

You nailed it. And thank you for the, um, uh, nice commentary around working with me and, and those sorts of things. I, I am I think my background is unique, and I am excited to partner with amazing founders and try and replicate much of the success that we were able to realize at the different companies that I've worked at. And I think there's a lot— there's a— there's— we can talk about if you want, but there's a lot that I am seeing founders continue to make mistakes on, or at least continue to ask questions on.

Yeah.

Where I think I positively influence the trajectory of the business through, through sort of conversations and working together.

Yeah. Let me be even more like— maybe we can riff on this as our last point. I've been investing for 9 years. I guess I would say every single board I've been on, and I try not to be on too many boards, I'm the only one that knows anything about sales or revenue. No one. No one. I don't even care where they were. They don't know. I'm always the only one. And you typically spend— board meetings are not everything. They're very niche, which goes to Parker's point. There's so much work to do as a founder, and dealing with your investors is important, but it's just a small slice of your life. But none of these people know what they're talking about, ever. They may have invested in 20 unicorns, But they don't know. They don't even know what makes a good VP of Sales. They give horrible advice. And whenever you're talking about growing the company, they have no effing clue. And so, look, I'm not saying that you or me can add— I think I've added some dramatic value to a few investments, but I'm not even saying it's dramatic. What I am saying is, if you're going to sell 10% of your company or 20% or 15%, figure out today what type of background can help you the most. Number one is who you trust. That's number 1, 2, 3, because putting someone you don't trust is the worst. I trust you, Parker from Rippling trusts you. That's reason enough to pick Sam for anyone listening. And then 2, what type of value do they add? Are they like— some folks do have an amazing Rolodex. It's true, right? And you do. But some folks literally, they don't know sales. But the one board I was on with John Doerr, like, the Rolodex was pretty good. I got to give John Doerr credit for this. Like, in the board meeting, if you wanted to be connected with the CEO or COO of anybody, they would respond during the board meeting. I don't think you and I could get, could get the CEOs of Apple or Intuit to respond to their email in real time. So that's one thing, right? But most of us want help in B2B. We want help scaling revenue. And if you're sales driven, there aren't that many CROs that can write you a check like Sam, right? There's a handful at best, right? And so I would pick that like because you can get help, right? And why have an investor that can't help at all?

Yeah, I strongly believe I can prevent mistakes from happening. Yes. And you're on boards and you've seen probably a lot of what I'm thinking of right now. And I believe that I can dramatically accelerate the growth of the business and through recruiting, hiring, outbound process, and so much more. And so again, excited to partner, partner with founders and grow really big businesses.

So Sam, thanks for catching up and thanks for doing this series. And thanks for everyone for being with us.

Thank you for having me, Jason. Awesome to see you. And thank you for everyone that's listening. Talk to you all soon.