SaaStr AMA: Changing Landscape: SaaS Investments in 2016

Hey Saastr fans, I'm Gretchen Coo here at saastr. Excited to welcome you to the next in our webcast Ask Me Anything series called Lunch With. Every other week or so we are joined by a leader in SAS to answer all of your burning questions. The format is really easy. Tweet your questions in, join in live here on the Google and if you happen to miss it, we'll put it on YouTube shortly after we wrap things up today. These have been going really, really well. Some of them have thousands of views. So if you want to go to saster.com ama and check them all out, we highly recommend it. So today we are going to talk the changing sans in SAS funding in 2016 and if there's really anything to that, is it a series a thing, another series a crunch? Is it just for affecting the late stage private equity markets? What's going on? We've got two top leaders in SAS investors to answer all of your questions today. But it is an ama, so feel free to tweet in your questions about anything using the hashtag sasterama at any time. But try to get them in early so we have time to answer them. So without further ado, I am excited to introduce our guests today. We we've got two Jasons. The first is of course Saster himself, Jason Lemkin. Welcome Jason.

Thanks for having me, Gretchen, just this once.

And our second guest today, our special guest is Jason Green of Emergence Capital. Jason is a founder and general partner at Emergence where he's been investing in SaaS companies for 15 years and has seven, yes, seven unicorns under his belt and he's still going to start.

It's eight now, Gretchen, eight.

You gotta change your biother for a long time.

There's no humble brag. We just gotta go straight to the brag here. Right?

Otherwise known as the other I need to do it.

Well, otherwise known as the other Jason in sas.

So we'll just call it the battle of the Jason's today. It'll be awesome. It'll be like a repeat of when you were an investor in Equisign and you guys had board meetings.

It's.

That's just like the next layer of it for the next decade. So Jason, if you guys missed it in the sastranial 2015, he did a session on how shit really gets funded and you want to check that one out because if you're wondering how do I get Jason to invest in my company? He laid it all out there for you. He's in Slides and everything. So check that one out. And then also join us at Sasner Annual 2016 this year because he's going to be back on stage for round two. So all that aside, I'm really excited. Why don't we just get started and kick things off. Jason Lemkin, would you like to get started?

I do. There's a couple things Jason G. I want to make sure we chat about before we take questions from everyone else. But let's talk a little bit about steelbrick for a couple reasons. First of all, congratulations on another amazing exit. Right. You've got the Midas touch and Steel Brick. It was the end of last year, right? 2015.

It was the day before Christmas.

Yeah, day before Christmas. Okay, so let's call that the last signed. What's that?

Didn't close yet, but signed closed yet.

Right. All right, we'll keep our fingers crossed over at Hart, Scott Rodino and all that. I'm sure it will be just fine. So that was the last big acquisition of 15.

So.

So let's chat about some learnings. But first of all, interestingly you follow it even more closely than you. That was Salesforce's biggest acquisition since RelateIQ. Right. So it's not like we see a.

Trillion.

Mid nine figure exits in SaaS, do we?

Yeah, no, it's definitely. It was a meaningful exit. I think it's probably maybe the third or fourth largest that Salesforce has made in its history. Exact target I think was the biggest, but definitely meaningful, particularly relative to the stage of the business. Yeah.

So talk about learning. So a couple things. First of all, interesting company on many levels. First of all, you've got a second or third time founder in Goddard, right. In fact, someone that's been in this space before with big machines which eventually Oracle bought for about 400 million. So couple questions. Second time founders versus first time founders. What have you learned over the years with seven unicorns and all of that? Any thesis there?

Well, I've had success on both fronts, both with first time CEOs as well as second timers. The challenge with second timers sometimes is just do they have the eye of the tiger still? Do they have the passion and the ambition? But I'll tell you what's super nice is this was one of the best experiences I've ever had as an investor in terms of just getting involved and having a team that knows what they're doing and is executing well and likes to get help but knows what they're doing. It was a great dynamic, frankly with the entrepreneur but most importantly, it was just really a pleasure to watch a guy and a team that knows what they're doing. They had the benefit of going after a similar market in terms of the company that they started. They really knew what they were doing. It was just fun to watch. It only lasted, it was like 18 months or something. But we went from less than 20 people in the company when we invested to over 165. I think by the end of the year. It was a pretty rapid rise. Every quarter they beat their numbers. They just knew what they were doing and, and they knew where the customers were, they knew the value proposition, they had a great product. We helped them a lot on scaling the business a little bit more aggressively just because in their prior startup they had actually had a growth equity investor that was more about managing growth and EBITDA than they were managing aggressive growth in the business. For Godard, I think too, it was also a nice alignment of interest in terms of an investor that was trying to build a significant business together. So in a short period of time.

Yeah, pretty short. 18 month run to 400 million or so. I know we were talking about moving to Chicago. So it worked out. You convinced him and it worked out great. Was that the answer?

Actually it did. We were just talking about that. He had some real reservations of moving, frankly, both his family and a number of the management team members.

Family's tough.

I think he would tell you that we got the best of both worlds. We kept a significant team in Chicago, but we also moved a bunch of the management team here and that kind of two tier location was a perfect combination. Low cost and high quality labor pool to tap into Chicago. And then all the business development and customer interactions they had here and obviously the acquisition I think also helped that they were frankly right next to Salesforce as well.

Does help, doesn't it? Whether it should or shouldn't it does help.

Does help, yeah.

And was a lot of the management team from Big Machines before, were they mostly new folks? Did you put some of the band back together?

Yeah, definitely. There was definitely part of the band coming back together for sure. We also tried to infuse it with some DNA from outside the Big Machines crew. So it was a nice combination. But these guys, they were just really culture first, I would say in terms of how they hired. Even though we hired fast, they were very consistent in terms of the quality and type of people that they wanted on board. And you can really sense that from the company. I mean, when you walked in there, you had that feeling that people really enjoyed working there. They were energized. They were passionate. You know, the physical, tangible feeling you get as an investor when you walk in the company and you just know things are clicking.

And I'm sure it wasn't a condition of the investment, but had you guys agreed that he'd move out to the Bay Area or did you figure that out after you invested?

It was a strong encouragement, I would say. It took a little time for Goder to get comfortable with it, but it wasn't contingent on that. I mean, he was a quality guy. I would have backed regardless if he was in Alaska. Frankly, I probably would have backed Goder, but for a lot of reasons, his. His capabilities plus being here and access to talent here was a great combination.

Yeah, I remember a long time ago at Internet time, but I met David Sacks right after you invested in Yammer, probably almost shortly thereafter. And I didn't realize. I was shocked. He moved the whole team from LA to the Bay Area to make Yammer after he had a little bit of success beforehand. Right.

That was interesting. Yeah, We've had some decent success finding companies outside the Bay Area and then moving them here. It's been an interesting. Sometimes you get these great bootstrapped businesses at other places that haven't been infected by too much of the raise too much capital too fast and really hone the product and the value proposition. Then you can infuse the capital and the go to market talent here in the Valley. Boy, it's a great combination. In fact, Steelbrook, to some extent, it was bootstrapped for a while by Max Rudman, the founder before Goder came in and partnered with them to really take over and take the company to the next level. So it had the same kind of characteristics, actually. Yeah.

And when you see companies like Qualtrics and Atlassian that kind of do it outside of the Bay Area and get real scale. What do you think about that as a SaaS investor? Do you want to find more of those? Are you a little bit jealous when you see the Qualtrics and Atlassians? They have nice tables too.

I think those are amazing companies. There has to be something really special about those companies to thrive the way they thrived outside of the Bay Area. I think more than half of all SaaS VC investment is in California. This is where it's much easier to build a SaaS company here in a lot of ways if you are thriving. Exact Target was built in Indianapolis. That's a great company. They had a great team and executed extremely well. And by the time they got capital, they were well on their way to being a successful business.

It may not be fair, but if you look at exact Target and Qualtrics and Atlassian and I haven't done the analysis myself, but they did take longer. They took longer to become unicorns and huge successes at some Zen level. It may not matter if you're committed forever. And as long as you don't decelerate, who really cares how long it takes to get up the freeway on ramp? As long as you. Long as you get there. But have you found that outside of the Bay Area, they take longer to scale?

Sometimes I think they do, but as I said, it's like they kind of build really good foundational elements into their business before they actually hit the pedal. And in some ways, I think that has some really good characteristics for building something special really long term. I guess one other lesson for me, having seen companies like Salesforce and Workday and NetSuite and ServiceNow, like, the compounding effect of these businesses, if you're willing to kind of go for the real long ball here, is truly remarkable.

The real long ball. Right. Netsuite probably got really good 12 or 13 years into the ride. Right. I think. Right. It probably was only four or five years ago when they started to go up market and everyone started to start going. That's a long ride. Right.

Took a long time. But I think that there's definitely, I mean, Salesforce, even In the last five years, people forget, but it went from about a $10 billion company to a $50 billion company.

Yeah, yeah. That's the power law. Right. It took a while.

Project out. The next five years is pretty exciting.

So we were talking briefly about David Sacks before. You've made a whole bunch of great investments. But for touch points for folks that will watch this, let's talk about some celebrity founders you've invested in. Just two for fun. David Sachs and Aaron Levy as examples. But what made them outstanding to you? I met both early, too. But what made them jump out as sort of mutual touch points to the thousands of folks that will eventually watch this?

Yeah. So both of those guys are. First of all, they're extraordinary people. The characteristics are not like you're above average. They are like in the top 1% of the people I've met in terms of entrepreneurs. I mean, Dave Sacks, just from an intelligence IQ negotiating vision of where the world is moving and how to get a product into a place where people care about it, I mean, Marc Benioff has certainly fit the same kind of Characteristics. These guys really have vision beyond the obvious. That's quite remarkable, and an ability to articulate that and get others on board with it. That, plus the ambition factor, it's just like these guys are willing to do whatever it takes to win, and over long periods of time. I mean, anybody can do the sprint, but can you do that in a marathon? That's the hard part. And these guys, you definitely got a sense that there was just another battery, extra charge that they could kind of kick in. They're just extremely smart, extremely hardworking people with some really unique talents that they bring to bear. But what's so fascinating to me is if you line up a Goedard or a David Sacks or an Aaron Levy or Lars Dalgard or a Jason Lemkin, they're very different. They're not the same. They each have their own unique genius in the world. But the common characteristics are this high iq, incredibly passionate ambition and energy level that allows them to keep going.

And, you know, when you meet with. With Lars or David or Aaron, do you know within 15 or 20 minutes that they've met those criteria?

Yeah, you do. You kind of do. I mean, you get that sense, right? You're like, oh, wow, there's something special here about this. Obviously, we like to invest in more than just great people and ideas. We tend to like to have a little early product market fit, just so we know the whites of the customer's eyes are there and you can really scale the business. But you can tell. You can really tell. But that's one of the magical things about this business that's so much fun. It isn't a mathematical equation. You have to kind of project forward five years, maybe 10 years, and say, is this the kind of iconic entrepreneur that not just going to build a great company, but going to build an industry, build an industry around this person. I love finding those pretty diamond in the rough kind of opportunities, but when you find one, it's really special.

Maybe you haven't done an investment like that. Maybe you have an example when you meet someone at that level, but it doesn't quite fit the box. Maybe it's too freemium Y or too. Or you're a little nervous about the CAC or something, but you have this insanely great founder with an insane vision. Have you done one? Or how do you think about it when you know that they're amazing and they have the vision, but it doesn't quite stretch it your box? Or do you try and just kill it from a perspective of intellectual rigor?

What I like to test is to see whether or not they see any blind spots or they can take feedback on any blind spots they have. At the end of the day, it's about how fast can you learn? Because not everybody knows everything. Most of them have it nailed. But there's usually things on the edges where we can really help them dig in and understand where there's some potential potholes in the strategy or the people or the business model. And if they can take that feedback and run with it, then you know, you got something special there. I don't think anybody knows all the answers, but it's somebody who's the fastest learner, I think is the right person to bet on.

Yeah. Yeah. So let's touch for a minute. And I know everyone talks about it, but it seems like a topic people can't get enough of, which are sort of the markets overall. Right. And how it impacts startups.

So.

So let's step back for a minute. Has the sky fallen on the stock market? Is the world over, like some people. We've had a good run for five years.

We've had a great run. We shouldn't batten down the hatches yet. I've lived through two downturns that were far, far worse than what we're experiencing today. And in some ways I think it's actually a healthy thing to get a little bit of the steam out of the system because if things get too overhyped and capital gets too aggressive, it kind of ruins things in some ways. 2000, the reason why the whole venture industry sucked for 10 years was because they raised $100 billion in that year and invested it more than the venture industry had invested in the prior 20. I think it's a healthy thing. What's interesting is this inversion between the public and private markets. Now the private markets haven't caught up yet. I don't think they will eventually. But to see what a Box trades at versus companies that were announced today that raised money in the relative stage.

Let's talk about Box for a minute. Box is doing like $300 million arrows project, I think.

400 million this year.

400 million. I wrote this piece on TechCrunch during the quiet period. Why Box will be at a billion in revenue before you know it. And people laughed at it. But it's just math. Right. You can't stop the freight train going at that rate. Right. Box is an iconic product with a great CEO we can talk about. Wish we had a bigger deal size or as competitive space. But this is an iconic Company, right?

Absolutely.

How do I think about that? ARR multiple or forward 12 months or pick it versus what I read about Crunchbase this morning. How do I rationalize the two?

Yeah, honestly, that one's a hard one for me to figure out, to be honest. I would say, look, Box definitely is still in that period of time where it's losing a lot of money as it's growing. So Wall street is looking for a little bit more comfort that these guys can get the cash flow positive and be profitable. Ultimately, while they grow, continue to grow, they're on that trajectory and the closer they get to that break even point, I think you'll see that multiple increase over time. But it is hard for me to digest exactly why Anaplan. I don't know much about that company. I think it's probably a great company. They just raised money at a billion one or billion two valuation. So those companies are trading at about the same value. To me, that doesn't entirely make sense to me.

To me, that means Anaplan has to be two to three times better than Box. That's the qualitative one I struggle to get my arms around. I mean, obviously you have to be growing much faster than Box and have much better margins and much better. Then it makes sense on some sort of analysis. But you have to be. To have a better multiple than Box or Marketo or HubSpot or Zendesk, don't you have to be a better company?

There's no question. There's definitely a cadre of companies that have higher multiples than average, and those are the ones that are higher growth and have better underlying characteristics in their business. I think with Box, they have the growth, they have an amazing CEO. What they haven't seen yet is the characteristics apply in terms of the operating leverage of the business. To compare Veeva, for instance, and box, you've got two amazing CEOs, high growth companies, really dominant in their category. But Viva is generating cash while it's growing very rapidly and Box is still burning cash. I think that's why Veeva has a multiple of whatever, eight times and Box is closer to four.

So you think if Slack can close its next round at 5 billion, that that's expensive. What do you think?

I think that is expensive. I'm all for the Decacorn, as you know. I think it's fantastic. We have companies like Slack out there that are paving the way and they're now trying to build an ecosystem of companies and it'll be mini slacks over the next few years. Starting to draft off of Slack's success, which I think is great. But yeah, anytime, I mean, I can speak as an early stage investor, it's hard to do the math on the return on a $5 billion investment in the enterprise space. I look at Salesforce as being kind of the metric that all others measure themselves against. And that company's taken 12 years to get to 50 billion. I think they did an extraordinary job over those 12 years. It's hard to see executing better than Salesforce, I would say, in the last 12 years. But that still leaves a lot of headroom for Slack if you have that long term approach. If you say 10 years from now, could Slack be worth $50 billion? Possibly.

Possibly. Right. To make all this work, we need many dozens of unicorns that go public with unicorn valuation out of this crop of SaaS companies to make the math work. But given how much bigger the markets are, it's not unfathomable for that to happen.

No, the markets are just massively growing right now too. Think about globally too. We've got a billion connected professionals going to 2 billion in the next five years. That's a remarkable number. Billions of end users. Even Salesforce has millions of end users still. Box has 30 or 40 million end users. There's a potential to go 10x that for some time.

Right. I think I was at a dinner the other night with a well known SaaS VC who was telling me how many SaaS companies hit 10 or 20 million ARR and then peter out will never get to 100. But I feel like for my class, my cohort and my learnings, the markets are so big today that if you get this head of steam going into a million, I feel like you should be unstoppable.

Yeah. I think in some ways I actually have seen more companies get to kind of the 20 to $50 million ARR range and then kind of top out a little bit. I think that has to do more with the nimbleness of the management team to expand the opportunity beyond that initial traction that beach had. That's to me the difference between an iconic CEO and a great or a good CEO.

Right. Yeah. I just wonder if you took scenario A that would have gotten you to 20 to 50 million ARR, say in 2010 or 2000, whenever. And the markets are five or six times bigger today. Right. Shouldn't you stall out at nine figures of revenue rather than there? Right. Unit work. Right.

Yeah. Potentially the numbers are getting awfully big. Here's the exciting thing is if you can do it in a more capital efficient way, which certainly is possible from a product development perspective. I think there's a whole set of new technologies and companies that are coming to bear that's going to make the sales and marketing a lot more efficient and compelling going forward. But think about if you could 10x the quota of a SaaS rep, like, what implications that could have on a business. That to me is the next big thing. It's not just the size of the markets, but if we can go order of magnitude better in terms of efficiency, that starts to get super exciting.

And a related point, let me ask you, it's something I've thought a lot about at companies I've worked with. Is is there even such thing as a magic number? I mean, it's different for every company, isn't it? And some companies can be, and there's different reasons. They can be amazingly efficient, others aren't. Is there even a Now that you think about so much of this as you invest and companies grow, is there such a thing as a magic number in terms of sales and marketing efficiency in SaaS?

That's a good. I mean, there's some rules of thumb, I don't think. There's certainly no magic to it, but.

Founders glom onto these rules of thumb like optimal burn rates and error to headcount ratios. And I feel like magic numbers are confusing ones sometimes.

Yeah, no, I think they can be confusing, but it's good from a benchmarking perspective just to see kind of how you lay out relative to other players in the market and whether you should be putting the pedal on or pulling it back a little bit. I've always thought of SaaS companies as kind of being this manufacturing plant where sales and marketing dollars go in one end and ARR comes out the other. And the magic number is all about the ratio of those dollars coming in the front end and the ARR coming out the back end. And the better that ratio is, the more efficient your plant is.

Yeah. So a couple other things and then I'll grab some wider questions, but let's just have some industry fun. Let's just talk about the industry in general. And so emergence was super early in building a brand in B2B. And I think some of it was very strategic and some of it was good timing as well, the combination of the two. What do you think about all this talk about platform and brands and stuff in the industry?

Well, at the end of the day, our customer is the entrepreneur, so we care a lot about what they think at the end of the day.

How many recruiting partners do you have?

We don't have any recruiting partners. We do have an operating partner that does A lot of great operating partner.

Great operating partner.

Alison Wagenfeld. So I've kind of seen this before. Back in 99 and 2000, we saw a lot of platforms being built in the VC industry and most of them were not done particularly well. First of all, obviously the timing was poor. The combination of those two things was a very painful transition out of those platforms back to classic venture capital. I think we're starting to see another raft of these companies building these platforms. I think they're doing it better in terms of execution than has been done before. I still think the law of large numbers in terms of fund size has significant implications on how successful do you have to be to generate great returns for your investors? My view is I want to generate great returns consistently over a very long period of time. And I think you've got to be able to do that in bull markets and bear markets all the way through. For me, that means honing down on a strategy and a focus for a firm where I know we can do world class work without having a huge, huge team to do it. That was our thesis starting the firm. I think we did get lucky in terms of the sandbox that we chose to play and it turned out to be an amazing sector, enterprise cloud. And it's just gotten more fun every year and bigger opportunities. So there are lots of other players in the market, but now we've got the track record and in the venture business, as you know, there's this beautiful, virtuous cycle of success as you have invested in great companies and great entrepreneurs. You get to cherry pick the next generation of great entrepreneurs and opportunities. It's fun. It's really fun right now.

I got to say, Chamath said yesterday on Quora that he wanted to take social capital public. Do you think we'll see crazy things like this happen in the industry or you think disruption is overstated a little bit?

Well, I think Chamath is trying to do something different there. It's not just a venture firm. I think he's trying to build a multi asset management platform and I think we've seen companies like Blackstone and KKR and Carlyle take those companies public. So it's certainly been. I think the reviews are still out on whether that was a good idea or not in terms of those companies. But I personally would never want to run a public company as a venture investor. I think we are the lumpiest least predictable business on the planet. And that is usually not a good. The reason why SaaS companies are great is because they're consistent and predictable.

Right.

If you want to build a great long term public company, it should not be a venture business.

That's true. One let's talk about for fun because I'm sure you thought, let's go back to Atlassian, that's our most recent big IPO in the industry. Interesting mix of revenue streams. Old company, it's got recurring revenue, non recurring revenue maintenance, professional services, on prem, off prem. Does it matter?

Well, so we've taken a little bit of a religious point of view on this in terms of we just think it's better to be pure on this one.

Yeah, it's a good company. Right.

It's a great company, super company. So no criticism of the company. I think what they've done is remarkable. But certainly what they've done is harder than if you have a pure play. I think the beauty of the whole multi tenant approach and one subscription kind of revenue stream is it's just easy to predict the business and grow the business and figure out these metrics. Think about all the metrics we talk about, whether it's magic number or quota achievement or all those things and then you apply different business models on top of that and then different. I mean the complexity is just kind of mind boggling. So you really want to create some metrics that you want to track and know where the leverage points are in your business. Keep it simple. Keep it simple. Life's hard enough in my opinion. Warren Buffett has a great saying which is you don't get paid for complexity in business, you get paid for results.

It's true. And Atlassian's been around for a long time, so I think there's history to it too. Right. But sometimes the customers drag you a certain way. Right. I think what we'll see in big enterprise deals more and more is we'll see more private cloud deals, we'll see more segmented customers that are willing to pay seven figures for a cloud product. But I want my data hosted in, in a private cloud.

Right.

And you say no to that deal. But sometimes the customer drags you interesting places.

Yeah, sometimes it's interesting and sometimes it's horrible. Right. I mean, so I think Salesforce had an opportunity to do a seven figure deal early on. That would have been a private cloud.

Yes. But we didn't have OpenStack and all. It was harder to do back then.

It was harder to do then. Now you got Docker and all these other things, by the way. The other thing is these new privacy laws that just got passed in Europe could have significant implications as well in terms of that. So there may be no choice in terms of this multi tenant approach to have a couple different private cloud options for companies. We haven't yet to see the full implications of that. I'm hoping it doesn't have a huge impact on how you can sell and support these customers globally because it's just a lot easier to do it from a couple data centers.

Let's talk about one interesting recent thing that people have been tweeting and talking a lot about. Let's talk a little bit about winner takes all marketplaces and I want to talk in general what you think about winner takes all in SaaS. And then I want to talk about specifically how it impacts the psyche of founders at different stages, like 0 to 1, 1 to 10 and 10 and beyond. Because in some cases, even if it's true in a market, there's only so much you can do. Right. So have you guys done any analysis on Obviously Winner Takes a Lot is true adventure. How do you think about that when you do SaaS investments?

I think there's actually very few markets that I've seen that are winner take all markets in SaaS. If you can find one, they're phenomenal if you can pull it off. What I have seen is that there is a power law curve though in terms of market leadership and that occurs in every SaaS market. I think it was David Sacks that kind of characterized it best for me, which was he thought that the least risky thing to do was to be the most aggressive player in his market.

That was a great story at Sales Stack. Yes, great insight. The least risky thing to do was to raise all the money and be number one.

One. That was the least risky thing to do. I kind of appreciated that mentality. And now we encourage our companies to think about market leadership because the spoils that go to that market leader are 10x right. The next guy. And so why would you want to be number two or number three in the market? It makes no sense. The only SaaS business, in some ways, LinkedIn may be one of the few SaaS businesses that I think has somewhat of a winner take all, this network effect associated with the fact that the usage of the product and the profiles that they're gathering create this almost endless moat for the business that they can monetize. We have a couple companies that have some characteristics around that, but it's Pretty darn rare in general, I think it's just hardcore heavy lifting, great product, great sales and marketing execution that differentiate the winners from the middle of the pack.

Yeah. So let me ask it a related hypothetical because I think a lot of founders will struggle with this. Let's imagine you have a thesis investment. You want to invest in a space, which isn't always the case, but you've got Startup a and the CEOs are both the same, which is never the truth. But Startup A is at a million ARR, growing say 15% month over month. Startup B is at 3 million or three and a half, growing 8 or 9 and still great by any historical metrics. We would have loved that deal five years ago. Right. And neither of them have broken out. They're not going to own the market at one or three. Right. But one is three times the size and growing. Very good. One's a third the size. But pre hypergrowth, which one do you take as a decacorn hunter?

You pick the best entrepreneur. Right. I mean it's too.

Don't try to distinguish between that at that phase. Right?

Yeah. Who has the most headroom in terms of building the business. Right. I mean those are still early days. I mean, now the real harder question is if you have one company that's at let's say 15 million ARR and another one at a million ARR and you think the company with the million dollar ARR has a better CEO or more exciting opportunity, what do you do there? What do you do there? Yeah, that's a tough one. I think what we would do is bet on the earlier stage company because our goal is to be early and be the most important partner to these companies. That's our ambition. So I'd rather take more risk and bet on something like that than just frankly pile onto a company that's looking successful already. That's our DNA and our preference. But I don't think it's an easy decision. I think part of it is your own personal preference.

If it's 1 in 15 and you want to bet on the entrepreneur, does that one have to grow at an even more outstanding rate? Do you really have to see this approaching 20% month over month to justify the risk in the market, do you think?

Yeah. Or they have to have a very unique and differentiated approach to the market. They can't just follow the guy ahead of them and say we're just going to out execute them. That's problematic. You've got to have a differentiated approach. Either a new segment that you're going after a way of leapfrogging from a product market that perspective, something different. Yeah.

So let me take this is a great discussion. We'll run out of time before you know it. Let me twist one question we got around for Twitter to make it a little bit broader. So the question's on growth versus ebitda. But let me twist it around a little bit. How should founders think about growth versus dilution? And it's easy to say raise all the money and the David Sacks story, but sometimes we don't all get the David Sacks valuation. Sometimes dilution is punishing. Getting diluted to 4 or 3% ownership is non trivial if you don't have a unicorn exit sometimes even if you do. Any Zen advice on this question? Because dilution does matter and it matters for VC because you get diluted as well by those rats.

Look, I mean I think Box is an amazing investment of ours, a wonderful company. But when I compare our returns at Veeva relative to Box, two orders of magnitude, and that's because of dilution that came from raising lots of capital, having to raise lots of capital. But I do think the single best thing that an entrepreneur can work on is becoming a great fundraiser. Because if they can, that allows them to attract resources and talent and be more aggressive in the marketplace. The dilution is a function of your ability to raise the capital. So Uber has raised I don't know God how many billions of dollars, but they've raised it at $50 billion price tag. Their ability to continue to be aggressive and take modest solutions is pretty remarkable. Now the other side of that coin though, is the downside, which is once you have all of these preferences, and we saw this during the last bubble, if your business isn't growing aggressively and you hit any kind of bumps in the road, boy, it's super painful. It's super painful for the entrepreneur and the employees because the investors sometimes get some fraction of their money back, but there's not much value.

New technologies or whatever are terrible. You raise less than what's raised and no one makes anything. But do you think people talk about.

This issue a lot?

But my Zen view is do you think there's so many elective cases in SaaS and B2B? I mean, do you think there's so many companies where we didn't need the money to hit the plan and we weren't sure and we raised all this horrible, terrible money to not achieve our goals? I mean, I don't think good. Probably had no choice. It's a super Competitive market with a 15 year old platform. My guess is given the quality of the team, they needed every nickel they could get. Is this really a false choice in some ways?

Well, I think there's some. It depends on the market to be honest with you. I think it's really important to get clarity on. Veeva is selling to very, very large customers. They can generate millions of dollars of ACV from every customer. For me, having a super powered small sales team is far more valuable there than raising lots of capital and hiring lots of people. On the other hand, something like Box which requires they're selling to SMB mid market enterprise, they've got to have a machine and whoever has the best machine wins.

And it has competitive space too. Competition drives makes it more expensive as well.

Absolutely, absolutely.

Do you think Aaron had any choice other than to raise the amount of capital he did? My guess is no. My guess is that was the necessary strategy with this product in this market at this time to win.

I think that plus his decision to focus on the enterprise, which I think that was absolutely critical, that focus plus a lot of resources going after that opportunity I think is what led to that team really executing well. Obviously the market hasn't fully realized that value yet in my opinion but we'll see. I think box, if we look at forward 10 years, presumably they don't get bought by somebody is going to be one of those iconic companies.

I think so. My gut, you analyze it more carefully. My gut is that Aaron raised a third the capital he did electively. The box wouldn't exist today in any material form. I don't think he had any choice. It's not like maybe David Sacks made an elective choice. Looking at chatter which didn't end up mattering and jive, but it seemed like they mattered at the time. But it was slightly elective. I think Aaron made the perfect choice in probably the world's most competitive market. Not necessarily at a sales level but at a product level. I mean everyone is file sharing. Right. And I don't know that he had a choice. I think he played learned over a decade how to win.

Yeah. In some ways the bigger the market opportunity you're going after, the more resources are required to win. You pick a big ambitious market that's kind of a broad commodity market that's going to touch every business in the world. You're going to have some serious competition in today's market.

Because this point, because founders and others, it seems to obsess people. Do you really think that anybody's screwing anybody over here, our founders stupidly raising. Forget about B2C. We don't do that stuff. Right. Forget about negative gross margin businesses.

Do you really think make it up on the podcast?

They're raising horrible amounts of money. They shouldn't with 5x liquidation preferences. And these are trying to get these terrible terms to wash out. I mean, everyone's just trying to do what they can to build the biggest company. I don't think any of these. I think all this stuff's a bit of a myth that there are these great trade offs, isn't it?

Yeah. I don't think there's a conspiracy out there. I think everybody's fundamentally acting in their own interests. And there's a system that's put together that does create some pretty hyper growth companies. Done. Right. But I think you have to make smart decisions. You have to pick your partners, not just for the capital, but you're marrying these folks. It could be an 8, 10, 12 year run, potentially with your investors. You want to make sure you're comfortable with them, that they're adding more than money to the table and hopefully they'll help you make that trajectory as successful as possible. But it's a fun thing to do, as you know, nobody in their sane mind would ever start a company.

No one in their sane mind.

It's an insane decision to start. So you might as well have insane ambitions. Right. To do it and pick people who are equally insane to ride along with you.

Yeah. So let me squeeze in one extra question, then we'll ask you the last wrap up question because I'll put you on the spot because Emergence has such a great brand. So I'll have fun with this. Firm or partner.

In our case, it's both.

No, you got to pick. This is like Reddit. You got to pick firm or partner. You don't have to talk about Emergence. You can speak in generalities. Firm or partner?

Well, I think the partner that you choose to be on your board is super, super important. And if I had to choose, I would pick partner over firm. But both can create damage if it's poorly selected.

All right, so let's talk. We'll talk for 60 seconds about the Saster Annual. What are you most looking forward to at the Saster Annual?

I'm looking forward to meeting the next David Sacks or Lars Dalgard or Jason Lemkin in the mix. They're out there. We see a lot of great companies, but we don't see them all. And you've built a great community of folks. I was actually in the Ukraine a couple years ago talking to an entrepreneur, and he said his favorite blog was Saster. I knew you finally dominated the world, Jason, when I heard that.

All right, next up, 10 million views a month. All right, Jason Green, thank you. This was outstanding and super fun. Terrific as always. We'll see you up on stage and everywhere else at the SASJ. February 9th, 10th and 11th. We will be Fire Marshal Limited. We are terrified of attendance because we're already almost out of space and actually only 25% of our attendees from the Bay Area. So if you have not gotten a ticket yet and you're from the Bay Area, do not be mad at me or Jason Green or Gretchen when, like last year, the fire marshal shuts you out. It's not our fault. But we'll still squeeze you into the party on Wednesday night if you can't make it. So, Jason Green, thanks again, and we'll see you in a couple weeks live.

Jason, thanks so much, and thanks for what you're doing for the SAS community. It's a real treat to be here. Thanks.

Thanks, my friend. Talk to you soon.

Take care.