Salesforce Part 2 | John Somorjai

Okay, why would companies take money from us? Well, 3 things. We give them tremendous access to our ecosystem of partners, to our executives, our product teams. We make VC introductions for them. We give them a lot of advice. We've learned so much over the years and made many mistakes, and we can help advise companies to make sure they don't make the same mistakes, help them think about their technology, scalability, reliability, all the infrastructure lessons that we've learned from the billions of transactions that we have to serve every day. And it's obviously a lot of— it gives a lot of credibility if you're selling into the enterprise and selling to our customer base to have an investment from us. As I mentioned, we invest all over the world. I've got a full-time head head that works for me in London who does our European investments and then one in Tokyo who does our Japanese investments. It turns out Japan is a great market for cloud computing, really, really high adoption for cloud, for mobility, for social technologies. And so we've found some amazing companies there, and that's probably one of the most— the best returns from our portfolio overall if you just have to pick a region. are actually in Japan, which probably surprises a lot of you. And we do most of our investing, though, in the Bay Area, 72 companies in the Bay Area. Why not South America? It's really because our business is not so big in South America. We try to piggyback off of the business of Salesforce as a whole, because again, we're about building that ecosystem. Ecosystem of partners and helping customers buy more. And our business just isn't as developed down here. And so—

Some people use Carrefour and other people use Sam's Club.

Yeah, well, they don't pay a lot of money for it. I think that's the thing is we— one of the big— here's one of the big lessons that we learned early on is we used to peanut butter our international investments all around the world. And we'd have a little of this and a little of that in every country. And we realized that it's pretty important to have scale. Like, you want to have a hub of activity where you have salespeople, where you have pre-salespeople, you've got your software engineers, where you can have marketing people, salespeople, and our executives would go. And so we decided to focus on 9 countries essentially, and we put, you know, 98% of our investment goes into those 9 countries. 9 countries. And those are the 9 markets that are the best for enterprise software. So that would be the US, Canada, UK, France, Germany, Netherlands, Japan, Australia. And I guess the Nordics would probably be next. But Latin America is not on that list. If there was a 10th country, it would be Brazil.

Brazil?

But we only really focus on 9. Yeah. That would be the 10th— actually, that would be the 10th country. But we really only focus on 9.

So—

Sorry, man.

OK.

So this was kind of cool. There was some research done on who's the most active VC in enterprise software. And we were number 4 on the list. Even with all these top-tier firms. So that was very exciting for us. But even more exciting is that we have a lot of potential IPOs that are getting ready, a lot of investments that we've made in companies over the years that we think will go public soon. And, you know, we think about investments the same way. It's sort of very similar to the chart I showed you on acquisitions.

Yeah.

is that we need an executive sponsor who will raise their hand internally and say, this company, this technology is really important, and I'm gonna help them. And then they sponsor the investment. And we have that for every one of these companies. And they're basically all, all these companies are tied to a cloud. We've done, as you can see, Because the bulk of our business is in sales, services, marketing. That's where most of our investments have been made. And then we have a series of businesses over here that are kind of less related to our company, but they might be built on our platform, or there's some important partner, or they're a very hot company like Stripe that we work with in some cases, and we want to have a piece of that. that. So, I don't know if any of you— did any of you see 60 Minutes last night? It was a great 60 Minutes on fintech, and Stripe was featured. But any questions on this slide?

Yes?

How do you determine which companies are investable rather than ones you guys would just purchase outright? That's a great question and one we spend a lot of time on. Every probably 2 to 3 times a year, I meet with one of the leaders of these business units that we call clouds. We talk about their whole roadmap strategy for the next 3 years and where they want to build, buy, or partner. When they think about the buy versus partner, they may not know. Like, it might be an area, it's a young area, we think it's important, the companies in the space, though, are all really small, and we just don't know if there's a lot of revenue there, so why don't we start by partnering with them and investing in them, and if they do well, then we can buy it later. We'll pay more, but where we are, one of the challenges that I have right now is that where we are as a company, $8 billion in revenue this year, If you're not buying a business that's gonna be $100 million in revenue very quickly, it just doesn't mean anything to the company. And so we really need to focus on making sure that we're spending our money wisely and that we're buying companies that will really move the needle for us. And this is one of the challenges you have as the company grows. When I started in 2005, we were not thinking about $100 million businesses. we were thinking about $10 million businesses. The scale was just completely different.

Are you investing in decentralized applications?

I'm going to— it's a good segue. This is kind of where we're spending most of our time investing right now. As I mentioned, predictive intelligence, machine learning, and deep learning is one area that we're really looking hard at. And it applies to every business that there is. Big data and data integration, this is hugely important for cloud services. So you need to have all these apps need to be able to communicate with each other and pass data back and forth between them in a very secure way. And the old legacy businesses that are all built on-premise behind a firewall, That's not where the world is going. The world is going in this direction where a company will buy hundreds of applications and they all need to integrate and move information back and forth among them in a very secure way. This data integration, this is a huge business and something that a lot of companies are trying to solve in many different ways. Also being able to mine a lot of data and extract valuable insights out of it is very important. We think every operation in the company is all moving to the cloud, so spending time there. Mobility is a huge theme for everything that we do, and so we always think about when we're developing our products of trying to be mobile first, and so we're investing in a number of companies that are helping mobility in different ways. On the business B2D side, which is business to developer, these are companies that create a messaging layer or a payments layer that every application can tap into so that if you're developers, you don't have to build it yourself. That's a big area of investment right now. And then verticals, lots of vertical solutions for companies in the cloud. But that's where we're spending most of our time.

Do you see Ethereum as a threat to your platform?

Can you say that again?

Do you see Ethereum as a threat to your platform?

Ethereum?

Yeah, blockchain.

Oh, I think the short answer is no. But I would say, you'd have to ask someone much more technical than I am that question. But I think we feel pretty good about where our platform is right now.

So what stage of company do you invest in?

Sorry? What stage do you invest in? Oh, let's see if I have a slide. No, I don't have that slide. So we typically will invest the first time at the Series A stage. And we always— our model is to co-invest with a VC. And so we don't do the early-stage, seed-stage investing. We'll come in at the Series A, sometimes at Series B, but that's 80% of our investments start at that early-stage level. There are a few companies that we've come in at the Series C and D level, but those tend to be larger, more established partners, but that's a much smaller percentage of what we do. And then in terms of investment size, we basically, because we invest off our balance sheet, And we worry about making sure we're not— if a company goes under and we've invested off of our balance sheet, we have to take a write-off for that company, that investment. And so we want to make sure that we apply the right level of risk to the right dollar amount that we're investing at this stage of the company. So for Series A investment, we're not going to go above $2 million. For Series B investment, we won't go above $5 million. For later-stage companies, we'll do larger investments, but then the risk is much less and the company has really proven itself.