SPEAKER_01: tell me a little bit about secrets to recruiting you've learned uh the hard way you know people who look great on paper or hey they were at you know whatever company microsoft salesforce whatever they were selling all the stuff but it had more to do with that company and their product market fit than maybe the grid right of that individual salesperson and then also i think it's a really interesting topic of integrating people into the team and making them feel that they're part of the team even though you know they came from the outside maybe they weren't part of the formation of the company but you got to make them feel that they're really part of something it reminds me of

SPEAKER_03: kevin durant coming to the warriors who never quite felt like he was part of the core right

SPEAKER_04: so i had given away my secrets on these podcasts i've known you for a long time jason for example when i'm recruiting against a google okay i say to the candidate this week in startups is brought to

SPEAKER_05: you by linkedin ads for deem a 100 linkedin ad credit and launch your first campaign go to linkedin.com slash this week in startups notion notion combines your notes docs and projects into one beautifully designed space with ai built right in try it for free today at notion.com twist and

SPEAKER_06: cla innovation takes balance cla cpas consultants and wealth advisors can help you get from startup to where you want to end up get started now at cla connect dot com slash tech all right everybody

SPEAKER_07: welcome back to this week in startups very lucky today to have two of the legends in venture capital

SPEAKER_09: doug leone who got me my start in many ways in the venture business from sequoia which he ran uh for a couple of decades uh now my guy roloff and my friend alfred are running the show uh and uh you know some of his amazing investments new bank service now wiz uh just bought by google how are you doing

SPEAKER_04: doug wonderful yeah i i'm no longer a very active partner meaning i only do an occasional investment but i am on 809 boards for sequoia and i'm fortunate enough to have uh what i call a good backlog of

SPEAKER_17: companies for which and cyber security yeah what's it like uh going into retirement you're not the type

David Friedberg: who retires you seem just as busy and you told me you were retiring a couple years ago you're transitioning and then every time i go to the office you're there and it's eight in the morning nine in the morning

SPEAKER_21: yeah it's not retirement uh the 809 boards keep me quite busy uh i co-founded a biotech company

SPEAKER_04: something i had to talk about publicly but we just raised a series c for 200 million dollars uh to be one of the three founders so that keeps me quite busy so i've got a fairly full plate and if something magnificent comes across the desk and somebody wants me on a board uh and we can make an investment i'm happy to do it what i'm don't want to do is listen to 50 new companies a week uh so i'm

SPEAKER_23: not really retired i'm picking and choosing my spots a little more yeah and uh you brought one of your

SPEAKER_09: friends here today gilly ronan uh was at sequoia for a bit and uh now runs cyber starts that's a venture capital firm uh that's focused exclusively on cyber security is that right gilly absolutely right now famously you guys have been working together for a bit and you did i think the largest acquisition in google's history uh whiz which we just had uh happen earlier this year maybe you could tell me a little bit of background of how this company started gilly and and then how segway got

SPEAKER_35: involved i'd love to pending acquisition by the way but oh yes that's important um actually yeah you know

SPEAKER_37: whiz um is a company that uh both sequoia and cyber starts doug and myself were the seed investors and it's the second time we back the same the same team we were lucky uh to invest in that in the in the first company um ad alone in 2012 um i was still with sequoia capital in tel aviv and they were a typical young team coming out of the israeli intelligence forces what many people know as 8200 and

SPEAKER_38: and we backed them with a small seed um that company had a nice modest uh sale to microsoft three years later and then happened the real transformation you know these guys got a lot of um um responsibility uh and build a billion dollar worth of cloud security business within microsoft and then went out to start their own cloud security business and we were there waiting for them to to go for the for the this amazing journey doug this is a uh reoccurring theme

SPEAKER_01: second time third time founders if they still have the energy yes you just snap back them right like uh and then how do you know if this is like maybe their third or fourth company where it's a vanity play or maybe they're not really into it or if they still have that energy to lead a company which we

SPEAKER_49: both know is um just that's a large amount of energy you need to have so there are two funny stories i

SPEAKER_04: want to tell you prior to answering your question the first funny story is when i met asaf an adalom i went to israel i met asaf and somehow he got his wire crossed he thought it was dom valentine and it was he was very surprised that i was as young looking as i was 10 13 years ago for a 70 year old uh and so that's the first that's the first part of the funny story the second part of the funny story when we invested in whiz they did not know what they wanted to build in fact i'm now told they created a baloney presentation with poya the night before so they can pitch something and truth be known we had no idea what they were talking about we have a partner who's far more technical than i called bogomill and i asked them hey bogomill i don't know what these guys said you got to write the memo because i i can't write a memo based on what they told us it makes no sense of course it made no sense it was a made-up pitch but invested and now i'm going to answer your question the thing

SPEAKER_51: we look for is second time founders who had a modest mna exit it's one thing you've got second time founders who may be built a 40 billion dollars company and they have the summer house the third wife want to go play in la but second but second time founders who had a modest exit have gotten a

SPEAKER_04: little taste of success maybe they sold too early and the second time they're real serious and now look here the second time was an mna it's the largest mna in a for a private company ever done it's still an mna uh you know who knows what could have happened whiz if we had kept it uh private maybe would be much bigger but a 32 billion dollars with with uh with the founder and the board uh just motivated because it was a great price we decided to sell but we looked for the second

SPEAKER_23: time founders not who had a smashing success the first time but who had a modest success

SPEAKER_43: because yeah we had that modest success you still got a little fire yeah you sold too early a little

SPEAKER_01: chippy something still to prove but you got that taste yeah i liked it uh and it's worth pointing out don valentine uh for for those youngins listening for the program founder of sequoia from the bronx from brooklyn both of us went to fordham he uh yes i can't because new york yeah uh and uh he always had this amazing um four by four quadrant that he would explain to young folks at sequoia agreeable disagreeable competent not competent this uh where we make our money as venture

SPEAKER_04: capitalists uh so i guess the punchline and i don't remember the quadrant was all the adjectives that people throw our founders irreverent doesn't listen those are things we look for uh and quite frankly those are the traits the sequoia partners have uh and so we look for those outliers we look for those people that are special in some ways uh they're outliers uh and they can be outliers in drive and intellect and knowledge in some ways and they're missiles and our job as venture capital

SPEAKER_51: let them do their black magic because that's the part that we can't do but then help them build a business take this incredibly raw asset and if you think of the people coming out of 8200 they're not only in israel but they're far away from the market and and they haven't been a commercial near a commercial enterprise it's not that they worked at a at a tech company for five years and have seen something and so the magic that they do we can't replace we we can't come close what gilly and i do is the mere moral stuff is that are the things based on many years of experience when you hire your first salesperson what does your first cro looks like when you inject product marketing those are the kinds of things that i think would become the very best in the world to do it and i and i put gillian along with

SPEAKER_58: sequoia hey founders i want to share with you an experience i love it's when i get an ad that is relevant and not some nonsense like the other day i got an ad for a fund management platform and it was like a new one i'd never heard of i clicked on the ad because well i managed four venture capital firms we scheduled to call with them and it was amazing how did this happen well i was on linkedin because i'd like to share links from the podcast this week in startups right on linkedin in fact we live stream to linkedin three days a week and we get a great audience over there and i happened to

SPEAKER_63: be presented with this fund management platform and it was a direct hit like i mean talk about hitting the bullseye if you're in business and you're making a product or service it's really hard to find customers in the business to business space and doing b2b advertising is hard but linkedin makes it so easy because you know their tools let you target people by job title industry company size and more so this fund management platform obviously was looking for people in venture capital who had a fund size and a number of people maybe 10 people maybe 50 people and they found me they got me they split the arrow boom right on target and there's two things you really need to know about linkedin going into 2025 first they broke a billion members and 130 million of those billion are decision makers and 10 million of the billion are c-level executives like myself where can you get to those people it's really hard and the second thing you need to know linkedin makes an impact b2b markers report two to five times higher return on ad spend or roas return on the ad spend you should know that acronym compared to other social platforms 79 of b2b marketers say linkedin is the best platform for paid media linkedin is going to let you build the right relationships it's going to drive results and you're going to reach your customers in a super respectful business environment it's not a place where people are dancing around saying inappropriate things or debating politics nope linkedin equals business business equals linkedin start converting your b2b audience into high quality leads today will even give you a hundy 100 credit on your next campaign go to linkedin.com slash this week in startups to claim your credit that's linkedin.com slash this week in startups terms and conditions

SPEAKER_01: do apply really these uh tactical strategic important parts of the playbook um these things founders haven't done in some cases so when they come to them they might if they're irreverent if they're a rule breaker they might want to reinvent it so maybe you could talk a little bit about that conversation of the founder wants to do something non-traditional but you don't want to squash the non-traditional but hey you probably don't want to get too creative with legal and accounting in the hr department and maybe on the margins they want to totally reinterpret things that you know maybe the sec or the irs don't want reinterpreted so maybe you can take us through some of those conversations you've had and and when to let the founder run amok and and innovate and when to tell them hey let's just do this one by the books and

SPEAKER_37: save the innovation for the the product yeah absolutely and uh as uh you mentioned i spent nearly

SPEAKER_68: a decade with uh sequoia capital before i started uh branched out at cyber and started cyber starts and one of the learnings i had was that you know we spent a lot you know specifically at the very early stage at the seed stage we spent so many calories on product ideas and technologies and markets that

SPEAKER_69: do not exist because within three weeks it would be something else regardless of what the founders have told you and then three weeks later it would be something else again so at cyber starts i became a

SPEAKER_68: complete purist on that and i stopped asking asking any questions about technologies product or market focused solely on the talent and wiz is a great example for that where you know they started with a

SPEAKER_38: different name for the company called beyond call different idea and you know within 60 days after

SPEAKER_69: having a series of conversations with security practitioners with chief information officers and

SPEAKER_70: chief information security officers they switched their idea to to cloud security and the rest is

SPEAKER_69: history and we had those conversations to begin with just to make sure that they are not locked on the

SPEAKER_38: idea uh and understand that we are locked on the team and but it doesn't happen you know there are cases where founders had had have been right with the idea from day one you know speaking about another terrific company doug and i uh invested in uh called island these guys uh came to us with the idea to build

SPEAKER_69: an enterprise browser and that was a shocking concept for us does the world need another browser and it

SPEAKER_38: turns out that yes the answer is yes so specifically inside an enterprise where that is the number one

SPEAKER_09: attack vector you can contain i remember hearing that pitch back in the day and i was like a new browser yeah that's necessary and it was it was a really great pitch yeah yeah so i i don't think there is a

SPEAKER_37: cookie cutter for that as long as you keep you know uh true honest conversation with uh with the founders

SPEAKER_38: and you you train them not what to do but what questions to ask and to keep their ear muscle flexed

SPEAKER_69: enough to to listen well and adapt i think that's that's the key lesson from those experiences

SPEAKER_77: you you see the founders are super smart and we learn from founders recruiting from google you know

SPEAKER_04: we we have all these lessons that we borrow from one company if you will we're inspired if you're in the jewelry business by one company and and we we bring it to another but the thing you don't want

SPEAKER_51: to do is pull the rug from under the founder so if we talk about the case of whiz the operating plan

SPEAKER_04: that was put in front of us was absurd or it looked absurd i mean revenue growth of that magnitude we hadn't seen it i hadn't seen it before so the deal we cut with the team is let's make sure we have linear

SPEAKER_51: headcount increase you keep on making quarters we keep on doing this what looks like an absurd looking headcount and yet they made quarter actually they beat quarter after quarter and so retrospectively it didn't look so absurd uh you know the fastest company to uh whether it was a hundred two hundred million in bookings and so on but that was the courage and the vision of yet another way to do

SPEAKER_04: things and so to me you want to let the founder run unless it's something extremely silly like you said in finance we don't want creativity in finance uh but you want but here we have creativity in the

SPEAKER_81: speed of go to market it was really really fast what was that secret what was the the go to market

SPEAKER_51: it was great they discovered it vision exquisite timing and product market fit that's the only way you can get away with that because the product has to fly off the shelf uh but i insisted in linear headcount growth so we could have a check off every quarter so we we wouldn't hire 500 sales people i'm making up the number right now and find out that no one's selling and that we're stuck if you want to hire 500 sales people let's get to it by the end of the year but let's hire if you will a hundred a quarter again these are not the real numbers but it just make the case so so we can preserve cash in case we're off a little in case we didn't hit the bullseye in the case of whiz they completely hit the bullseye if you think of an arrow and uh and the bullseye they could not hit the middle any better uh but even some of the other company i would say that island has done that sierra which is another data security company uh they didn't hit the bullseye right away we had uh we we had the board meeting oh my god the business plan made sense but people don't seem to be interested in securing their data that lasted two quarters and then the world exploded everybody wanted to secure everything and but that wasn't one that from day one it it took 60 days for the market to come around or or

SPEAKER_04: maybe a quarter and a half for the market to come around uh and now that company's running extremely

SPEAKER_16: fast and so but the trick is let the founders do their thing and just install some guardrails so

SPEAKER_84: you can protect the company let's talk about product market fit how do you know gilly when you've got

SPEAKER_01: the start of product market fit and then all the way at the end is you're taking orders the phone's ringing the products flying off shelves you show up at the storefront and there's 10 people in line already you know you got the best bagels in brooklyn when people are there and you sell out by noon you know but it's it's a journey to get there so maybe let's talk a little bit about that journey and the iterative process and then when the founders actually know they're sort of tipping in from having to call a customer and convince them and do a long sale cycle to you know how many would you like

SPEAKER_84: and then you know eventually uh they just come running in the store and just self-order yeah

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SPEAKER_37: life today that's a great question jason because many people in even in the industry believe that product

SPEAKER_68: market fit is just a product exercise um i i call it company market fit because it's it's much bigger than just a product exercise um at those companies at tweez island sierra uh we have the founders uh run a

SPEAKER_38: process we call sunrise which takes 9 to 18 months so it's a long process where you go and ask all the tough questions about your company in a way you are going out and breaking your company every week and then fix it and break it again and you address questions like you know what would make people move faster to

SPEAKER_93: procurement with me not just what's their biggest pain or would they buy it would they spend money on it but what would make them run super fast with me you know what are the right channels how would they value in the product so in a way it's a simulation for the founders of everything that can go bad for

SPEAKER_94: this company the next three years but you do that in a very condensed time frame you know which is

SPEAKER_69: something like 12 months and if you do that right and if you ask all the the tough questions questions and and and you challenge yourself and you challenge your customers so in a in a typical sales

SPEAKER_93: cycle in a tip in a typical sales call you know you don't present your competitive products if the car you know if the prospect is happy you are rushing to get to get an order in a sunrise even if the prospect is happy you present the competitive product and ask them why wouldn't you buy from the competition for instance so you are breaking the company and then fixing it and the outcome are companies that are perfectly matching the market so a company like quiz can conclude that process and then go and and and really run as faster than any company has done before company like island or company like sierra you look at those companies they run faster than anything else than any of the other players in the market and the reason is that those companies not just the product are perfectly matching the market

SPEAKER_25: takes a little bit of courage on doug to ask wow you know what's going to kill this company

SPEAKER_101: what what where are the breaking points where our competitors actually better than us

SPEAKER_04: well so i i have a visual that i tell two founders i said your company's a river and there are rocks in the river and your job is to remove the rocks and let that water flow as fast as possible and we built a methodology at sequoia called the merchandising cycle that that goes from product management to product marketing to demand gen to sales and the trick is to debug this merchandising cycle backwards why is the sale going fast enough oh because we don't have enough leads that's the answer you get okay let's get some bdrs let's have some more bdrs well now they get the budget and you have

SPEAKER_51: the conversation you find out well you know it's not a matter more bdrs the product the story's not resonating ah okay let's keep let's debug into marketing now we're in product marketing we're

SPEAKER_104: the leader of and you go online and you type the category and data showed up on page one page two page three of google and seo well if you don't show up on page one you might as well being in the final scene of the raiders of the lost ark if you're old enough to know what i'm talking about the warehouse

SPEAKER_51: scene yeah your warehouse scene where you're lost forever sometimes it's product management and it's never engineering sooner or later the protocols work and it's often the vision but assuming the vision's right and the product works you've got to debug this merchandising cycle from sales on backwards so you can run like a bat out of hell so that that stream that water can come down as fast as possible and that is the exercise that we bring that we ask our founders to go do you know why is it that the plan is the plan why is it you want the the net new ar to triple next year why can't it be four times five x just as a thought exercise and truly it's market size it's cash it's unit economics on each sale maybe they're horrible and you don't want to go any faster and what it's often is is mandarin's ability to manage maximum growth because these are young executives these are young founders and so once we get on that beating the issue then how do we surround them with the right people so they can go faster

SPEAKER_01: and that's what we do as board members and this um process of understanding who the right talent is this is always a crucible moment uh for a founder gosh i brought a team together these are all my friends we went to college together or we worked on this previous two projects together but listen the this drummer is not able to drum at the pace we need we need a better drummer and this is where hard conversations that boards happen how do you manage that piece uh julio and then i'll come back to you or doug you

SPEAKER_112: can take it if you want the hard conversations about talent yeah so i'll start and and gilly should give

SPEAKER_51: the long answer to me it starts with the founder equity split because i tell them you don't get that right somebody's going to leave the company because the other founders are going to get upset about it so have a very honest conversation on what you all bring to the table and get that equity split right

SPEAKER_104: because if you all go uh the kumbaya third a third a third it's never a third a third a third in talent it turns out one person usually has you know maybe two people have talent we often see two founders 50 50 where it makes sense but the moment you have more founders where n is three or above those equity splits are usually off and we ask them to think about that good and hard so we can retain these founders because there's no faster way than a founder to be removed by other founders to have a huge equity share and not carrying anywhere that level of load so we ask them to be thoughtful at that point among them

SPEAKER_114: it's not for us to opine and then there's everything else people in the company that gilly can address

SPEAKER_116: that yeah it's kind of interesting it turns out the uh steph curry doesn't get paid the same amount as

SPEAKER_01: the five players on the bench on the warriors yeah they all have different salaries based on their performance but a hard conversation to have i think uh gilly because people go socialist hey yeah we have

SPEAKER_117: three founders that's 33 percent each or it's four of us it's 25 percent each and clearly that's going to rub some people the wrong way when the fourth one doesn't show up for work you know when i was

SPEAKER_68: when i was much younger doug taught me one uh you know one lesson which is you know there are many uh

SPEAKER_37: ways to to hell but there's more than one way to to heaven which means in this case that i'm not sure it is a one great way to to address it um you know take for instance uh whiz you have four equal partners and amazing partnership and you know wonderful company and we had the portfolio companies where the founders departed for whatever reasons i think it all comes back to having true partnership with with the founders it starts in in day one and in the same uh transparency and and honest conversation about products about markets you know goes uh also uh to to the essence and the core of of of the partnership uh among the founders and if you if you have

SPEAKER_38: established that level of trust with with the founders and that what early stage investors like doug and myself you know practice if you if you establish that level of trust with the founders you know you could you can resolve any situation and you know whenever you have people you'll have social situations that you need to resolve there's there's no way to avoid yeah humans are human and

SPEAKER_25: they're going to do human things but i love the idea of like hey let's talk about the equity split

SPEAKER_01: because now the entire formation of the company doug is being the foundation is performance and what do we get if we perform as opposed to everybody just gets what they get it's it's just a math equation as

SPEAKER_130: opposed to a value-based equation yeah one of the themes we talk about over and over again on this week in startups is making sure you do your chores i'm no expert on these things i have some experience stephen estes from cla is an expert let's talk about being cash efficient tell us about efficiency and what you see in the in the top tier startups in your practice we're seeing kind of an interesting

SPEAKER_132: trend out there where companies aren't needing to raise quite as much as they had in the past you really have to be careful as a founder to only take on as much money as you really need you've got to do the forecasting you've got to do the modeling and you've got it dialed in and get it right otherwise you're going to end up either not raising enough capital to get to where you're going and you're going to have to go get venture debt or go back have an extender to the round

SPEAKER_133: or you're going to give up too much of the company because you just didn't recognize how much money

SPEAKER_135: actually needed yeah very important to get this stuff right folks and that's really a bummer when startups don't do things in a button-up way always have a great partner a good partner to have on this

SPEAKER_139: adventure while things change my friend steven over at cla visit cla connect dot com slash tech and don't forget to mention that your boy jacal sent you that's cla connect dot com slash tech start today

SPEAKER_04: yeah look the the things get interesting more when you start asking questions of who do you bring in when you know what should your salesperson look like and the answer the short answer is never suits the the short answer is this catching talent on their way up and higher higher for uh uh smarts higher for a hunger uh and a bit of experience i'd rather have that than a whole bunch of experience and all the downsides that go with that but but plugging in this outside talent imagine you are four founders even in whiz just imagine you have a close circuit by definition you have four people that are like brothers that we're at alum now how do you integrate outside expertise to that so they feel part of that team that takes conversations that takes skills that takes the board being aware of that issue that

SPEAKER_51: takes the four founders being aware of that issue trust between the founders of the board because

SPEAKER_23: that is not an easy thing and when you make a mistake you recognize it quickly and you move on

SPEAKER_25: and it's really that simple i think unpacking there's like an important piece to unpack that you said there doug which is and having been on a couple boards here and seen this movie

SPEAKER_01: there's some incredible salesperson they look incredible on paper they show up they've had four

SPEAKER_17: you know top tier jobs they've got the cuff links they've got this polish but they're not hungry anymore they're negotiating their exit package on the way in that's their focus but this is critical like the person is coming up they've got enough experience they've got but they still have the hunger

SPEAKER_01: and they're not kind of just uh delegating work and uh maybe more concerned with the accoutrements

SPEAKER_04: of the executive position yeah so i've been shocked by people that can sell eight million dollars a year at a major tech company and can't sell five hundred thousand dollars a year for a startup that is one of the problems the other problems of people that have sold widget versus solutions a widget is a straightforward sales a solution you have to understand the bigger picture i've been shocked at that uh and so those are the mistakes that we tried not to make and the other thing is what does

SPEAKER_51: your first vp sales or head of sales as we call them early on look like is he someone that has managed 200 million or someone that's managed 30 million you can't get the person that's managed 200 million because that person you have no customers you may have three customers maybe and so there are these uh there are these steps you take you know at snowflake the first person they hired who who was a fairly low level sales manager ended up running ended up running all of sales uh and he rose and it's our hope when we hire these people that they go all the way but often they have to make a stop and become a regional manager maybe stop there to get some experience we hire someone over them so those are the things we we get to do uh and to convince our founders that's how you should build a team uh and we do that often

SPEAKER_00: tell me a little bit about secrets to recruiting you've learned uh the hard way you know people who

SPEAKER_01: look great on paper or hey they were at you know whatever company microsoft salesforce whatever they they were selling all this stuff but it had more to do with that company and their product market fit than maybe the grid right of that individual salesperson and then also i think it's really interesting topic of integrating people into the team and making them feel that they're part of the team even though you know they came from the outside maybe they weren't part of the formation of the company but you got to make them feel that they're really part of something it reminds me of kevin

SPEAKER_03: durant coming to the warriors who never quite felt like he was part of the core right yeah absolutely

SPEAKER_37: and you know i'll take even a step backwards and and and mention that many of those cyber security

SPEAKER_38: all those cyber security companies that doug and i invested together and i think those are seven companies by now they all started in tel aviv with an office that's mostly r d so for for for many companies when you build an office you build actually the dna you know you have a center of gravity for that for that company and you build your dna once and once you you have 50 maybe 100 maybe 200 employees most of them in the office you've got the company's dna for those companies that coming out of tel aviv you have to do to do this dna uh build up twice because you build the dna in tel aviv maybe you've got it right but then you know you need to build another office maybe in new york maybe in san francisco maybe another location so you've got to go through that exercise twice which makes it you know riskier and and definitely more difficult uh and there are many reasons why i've seen uh new hires that have done amazingly well in in previous lives and didn't do well you know maybe they they were younger and hungrier maybe you know they work with a different set of founders that brought different set of qualities to the table uh i think when it comes to you know to hiring especially you know the the first line of executives it goes back to to first principles you know how um high energy you know energy is so important uh for for early stage company

SPEAKER_70: you know because you are going to fail a lot you know you know early stage is all about failing

SPEAKER_38: learning learning and fixing uh so high energy and high intelligence and terrific teamwork and if you go back to those first principles you'll do you know you have a higher likelihood to do well

SPEAKER_04: yeah okay doug you want to add something to that yeah so i hate giving away my secrets on these podcasts i've known you for a long time jason but for example when i'm recruiting against a google okay i say to the candidate my god working at google is fabulous i said the food have you seen the food

SPEAKER_51: at google it's even ranch meat have you seen those colors it's always red yellow they have those beautiful colors they have bicycles the campus is a blast they pay a lot better yeah and not a thing

SPEAKER_04: you can do to drive that price of that stock by one penny you're you're a small cog in a large machine

SPEAKER_104: let me tell you about our company in our company the food stinks it rains when it's sunny and outside it rains even indoors at times we don't pay that well yeah you're going to get stock but if you have an

SPEAKER_51: idea at 10 o'clock we could implement it at 10 30 and you can change the course of the company so go look in the mirror and tell me what kind of human being you are and if you're interested in a job come talk to us again and that's i recruit against the big companies i force these people to have it come to

SPEAKER_104: jesus with themselves whether they're just are done in life basically or they want to do something

SPEAKER_116: missionary yeah or mercenary yeah like if you're just going there for the food and the steak and

SPEAKER_01: you know getting your rsu's they really have it's so interesting how big tech has created this rest invest culture you know even lampooned on the hbo show silicon valley with the hooli company it's like and google was such a intellectual powerhouse but when things get big it is to your point like how do you make an impact if you're going to go work at facebook for zuckerberg he has to offer you these crazy incentives as ai versus going and working for elon or you know some other company that's

SPEAKER_17: got grit and is just starting you know from the beginning yeah yeah that's exactly right look a new

SPEAKER_51: hire can shift the trajectory of one of our little companies uh for the better or for the worse uh but

SPEAKER_01: they'll have impact yeah i i want to talk about revenue quality i know it's like a kind of a boring

SPEAKER_17: subject but it is one of the things i've seen is so profound we have these companies that appear to be rocket ships they're getting elevation and looks like they're gonna get to you know orbit and then all of a sudden it explodes goes off and you're like what happened and you look at the revenue quality and

SPEAKER_169: churn not profitable etc doug how do you assess the quality of the revenue of a company and if that needs to be fixed you know at the early stages and i see it today with ai and i think we saw it with apps for a little bit people would sample a lot of different products but they didn't actually use them and ai i'm seeing this all over the place people will spend three or four hundred dollars on an ai product for the year put it on their corporate card and then they never use it

SPEAKER_04: so there's many answers to that first of all there are transient markets like we saw with these apps

SPEAKER_104: where things exploded the internet got so big you have enough people trying things that that look like momentum uh and you and if you probably had an ai engine analyzing the quality of revenue you probably would have been told that uh but but even if you had a brain you could have known that the other

SPEAKER_51: though that we found in the enterprise where gilly and i spent a lot of our time is these companies that sold to other little tech companies the company formation was so rapid for such a long time that companies got revenue by just selling to all the other little companies and as long as the venture investors were funding and so on now superimpose that to the fact that you start usually at the low end the mid-range and then you get pulled up market in order to sell to the enterprise you have to earn the right to sell to the enterprise and to me revenue quality uh starts being interesting even if you start a lower end by now you get dragged up i remember when we looked at

SPEAKER_104: figma figma yeah it all started with credit cards people buying it but now you saw people saying i want 5 000 licenses can you set a sales rep over holy cow we didn't have a salesman it was plg you know uh we better hire some enterprise sales reps and so yeah you've got to be careful in the enterprise of the low end selling to other tech companies or people trying things for the heck of it and you've got to look for those leading indicators you know a few companies sticking their neck out and wanting to to spend a lot more money and then you know that you have something and then the low end becomes a legion vehicle it doesn't become revenue it looks like revenue but it's really legion for

SPEAKER_01: everything else yeah gillian it seems like founders sometimes they run learn the wrong lessons they're hackers and uh you know i won't mention any specific you know startup accelerators etc but i remember we had to learn this lesson as pre-seed investors when they would show us their first 10 companies we'd be like oh that's pretty promising then we said well can you just in the google sheet when you send us the 10 companies what date they started you know where they did they use the product and how did you source them and you know we had one company was like yeah these seven came were our in our accelerator and these three were our fraternity brothers and like have you tried to sell to somebody on linkedin like a cold email or did anybody google you and find your product and yeah so the sources of the company like

SPEAKER_09: the the customers was how we unraveled this little gamesmanship that was occurring but maybe some

SPEAKER_68: thoughts on the quality of revenue gillian so maybe i'll add two two insights to that um because i thought that doug's the answer was perfect uh one is um

SPEAKER_38: um most of the companies all of the companies we we invest in in cyber security are b2b software companies um and they're all approaching new markets solving new problems so you can go up market

SPEAKER_69: down market enterprise smb you know everything is open and our recommendation is always to start

SPEAKER_38: with the more difficult uh longer um a journey which is to sell to to larger organizations so just go

SPEAKER_69: right to the pain go right to the hardest task go to the most sophisticated buyers and users because

SPEAKER_38: if they buy it and if they use it everyone else would follow and that's why you see the first deal of sierra it was a company that bought it for 400 000 the second deal at whiz was a million dollars uh the third deal island was half a million dollars so those are large organizations sophisticated users and they do a lot of diligence before they they add a new product to to their arsenal and that is terrific for the founders although it looks more difficult on the surface and it's great for investors to build confidence in the team and in the product the other insight is that in many of those those companies once they get to 10 20 logos so it's not about the first few days but once they get to some number of deployments you know arras at the board is that first slide would be usage not ARR show us usage and if you see you know if you see the usage graph going like steady not growing

SPEAKER_70: that's a major red flag so usage adoption stickiness uh in that stage super important we have a company

SPEAKER_04: we have a company called zafrin that uh the first few customers are all four five hundred thousand dollars a lot of it happens because it's the founders who sell those deals and then you start bringing the mere mortals the sales reps suddenly you may see then the next 10 deals being 150 because now the found you know one of the things that we look for is a repeatable sales model

SPEAKER_189: when is the first deal the founder doesn't have to be involved and it turns out the founders are

SPEAKER_116: often the best sales people yeah the there's an authenticity and a transference of enthusiasm when

SPEAKER_01: the founders in the room explaining why they made something that you feel the enthusiasm just go right across the table or in nowadays the zoom to the customer where they're like i want to be part of this i want to be part of this new paradigm yeah and how do you get sales people to have that same level i want to talk a little bit about sort of our jobs as investors and the game on the field the number of uh and it seems like it's because of ai but obviously cloud computing over the years uh we work and and office sharing everything has made the cost of starting a company go down um and the the skill levels going up and the ability to to get the first product at the door so what are we seeing in terms of team size gilly and what it takes to stand up a product today versus 10 20 years ago but even in the last two years with ai and these ai solutions coming it feels like my lord

SPEAKER_81: some uh companies are are getting to their first million with just a handful of people at the company

SPEAKER_69: so are you seeing that as well game on the field look i think we are still really early on in the cycle

SPEAKER_38: and but the trend is there and we would see companies getting to

SPEAKER_69: milestones like the first 10 customers the first million dollar the first hundred million dollars of

SPEAKER_38: arr with lower number of um employees and it would not just be for for you know building products

SPEAKER_69: it's it's everything around that it's the you know the design uh the customer success support uh bdr and maybe five years into the future says so i think that the day where we would see uh

SPEAKER_93: the one employee company with a million dollar arr is very very soon i think that time we would see

SPEAKER_195: maybe the less than 100 employees company with a hundred million dollars of arr is probably yeah

SPEAKER_01: it's happening yeah some of these are catching fire it's behind the corner yeah some of these co-pilots like cursor had hit pretty crazy revenue numbers with even more than a million dollars per person doug

SPEAKER_116: and you've got enough history in the business to have watched this trend you know google microsoft facebook youtube just instagram you guys were investors in that as well you know large number

SPEAKER_09: of users large amounts of revenue coming in with a small number of employees yeah yeah maybe that's

SPEAKER_04: gonna happen in consumer uh and we've all heard what toby at shopify said i won't give you any tech head count unless you can prove to me can't be done with ai but that's a mature company i actually have a contrarian here yes we can do more with less cost of cloud computing blah blah blah but we also have to run a heck of a lot faster than we ever had to there used to be a time i don't want

SPEAKER_51: to update myself here uh where we could build a product get our first few customers take our time hire two sales people get the us profitable maybe we'd go to europe can't do that anymore because if you do that it's going to take you three years you'll have 23 competitors the speed of company building has gotten so fast that we have to high high count and also if you're selling to the enterprise the enterprise is not interested in a in a one-man vendor the enterprise wants to see bodies wants to

SPEAKER_104: see support try dealing with purchasing you know like after you've sold your product now you've got to go fight another war with purchasing try doing that with an ai agent and see how far that goes so i

SPEAKER_51: think we've got to segregate the b2b and b2c i think we're going to see some of these smaller companies in b2c before we see them in b2b and yes once you reach the scale of whiz or sierra now we can talk about efficiency in engineering in r&d you know and so on but when you've got the first three guys

SPEAKER_23: working until midnight trying to build a product i don't think an ai engine is going to help you that

SPEAKER_208: much that that's just my view yeah uh let's talk a little bit about this concept of uh overfunding

SPEAKER_01: companies it it happens every five ten years new entrants come in venture tourists doug they start dumping money on top of you know companies that we've you know really been thoughtful about building and founders of course look at and go hey doug gillian i've been offered this crazy you know check with no board seat no information rights i've never heard of this firm or maybe they do public socks and now they're dipping into privates um and that created quite an overhang in the sas space yeah gilly like where we had maybe companies get overfunded uh and then you have you know some members of the board who invested at you know two billion dollars and the other ones invested at 200 million and the companies in between those two uh sort of realities uh and then it becomes a lot of

SPEAKER_116: hand-wringing and pain yeah and suffering maybe where are we at in that part of the cycle gilly seems like people are getting super excited again just this year yeah my view is that the venture business

SPEAKER_69: is is a complex business and if it was easy uh then everyone would do that so um the the some of the complexity is is to keep the balance between the need for speed and and then not you know throwing too much money on a company and and that's a fine balance because i i my experience that is that is that in order to build a large important sustainable business definitely in cyber security which is my focus that's an expensive exercise it's expensive you you need to build massive amount of code and products army of people uh to to sell and support the product it's it's an expensive exercise

SPEAKER_38: so money and sufficient capital for the company early on um that that's really important um but you're

SPEAKER_69: right there are tourists uh there are all kind of unhealthy situations and again it goes back

SPEAKER_93: to to the same elements i've touched earlier which is you know having a honest

SPEAKER_38: transparent conversation with the founders um and they may have all type of temptations um

SPEAKER_69: and you simply address that through a conversation and if you've built the trust

SPEAKER_78: and if you are fair uh as an investor you know the founders would listen

SPEAKER_217: doug we've uh seen this movie over and over again so you're gonna find my answer uh sarcastic uh first

SPEAKER_51: of all the sham of the scam that is called venture capital let's take a look at this we get paid we we raise money for which we get paid fees for the pleasure of investing the money if we lose the money so what and if we make money we get to key somewhere between 20 and 30 percent you wonder why the balance between greed and fear always lean towards greed a much more fair review would be here's the money no fees and you have to match dollar for dollar what you raise with your own money now you would see the greed and fear balance so already you have this this proclivity to lean in because of the compensation structure point one point two we have seen every generate and by the way i know my partners or certainly in sequoia marketing won't be happy that i said all that but who cares uh you know i'm old enough that i can say that second uh we've seen every wave to be stronger and stronger if we just look at the internet wave 1995 when netscape goes public 1999 two great companies get built then oh my god the internet is a fraud nine ten years death and then here we go again mobile there wasn't a 10 year gap there was a two to three or four year gap between the head fake and reality and i think ai is going to give us even a smaller head fake so i think the opportunity in front of us is huge so you have a a proclivity to lean in by the money and the fact that we know each wave is bigger is is quicker and quicker and bigger and bigger uh and so i think we're in for quite a show actually and the trick is to pick them though right because if you invest in everything you're going to get nailed and so like everything else it's a pick them business and we do know that if you pick them right chances are it doesn't matter which round you came in but i'd also urge all your listeners to think about our all the dead fmv all the dead companies that exist think about the thousands of companies that have revenue run rates 30 million growing to 33 million who are being carried on their books maybe at 120 million value and they're really worth nothing and so as you think about leaning in and doing something silly like some venture investor did four or five three four years ago i won't name any names who who had a what a theme investing in everything you're going to get nailed and so there there's all these great forces uh and the trick is just just being the right one there's two or three or three or four investments a year that matter and being those and you'll do just fine yeah and that

SPEAKER_116: is over indexing on the companies that lose even though your reputation is kind of built with those

SPEAKER_01: founders right we talked earlier about second time founders kind of a sweet spot you know and sincerely investing in teams your reputation in some ways is made equally by the companies that don't make

SPEAKER_84: it but obviously the power law defines you know by definition is one or two companies per fund

SPEAKER_187: determine the fund success look the real tough thing is do what gillian i do and that is pick them early

SPEAKER_51: find them early i mean it's easy to find whiz at the 10 billion dollar round you know it was a made company and the question on that point was am i going to make twice our money or six seven times our money and nobody knew and and you buy yourself either a poster or a small return and a poster uh the real

SPEAKER_231: trick is getting there as early as you can yeah and that is a function of how your reputation your

SPEAKER_232: deal flow and how many companies you meet with and your ability to actually identify talent yeah doug

SPEAKER_51: yeah it's and i might add a little luck you know uh a little luck does help uh you know i made a trip trip to israel yes i may have been a fake don valentine but that trip to israel is what eventually got asaf to say i'd like doug on the board uh so there's all this serendipity that has happened throughout my life the ron conway call on google you know ron and i became friends god knows somewhere we share maybe one glass of wine white wine too many but that led to google and so these things happen

SPEAKER_114: and you just got to do the right thing for years make sure you you you do the right thing by others and if you do that chances are you're going to get some calls at the right time it really is like

SPEAKER_116: your reputation and the effort you put in saying yes to a couple of random things works

SPEAKER_17: i was at a party once uh not to make it about myself and somebody said you got lucky investing in uber and i said yeah you're you're right and travis was standing next to me and he said uh i'm gonna stop you right there you don't know this but jcal helped me on my first two companies scour and and uh red smoosh and uh whenever i needed help he was always picked up the phone and he

SPEAKER_169: always took me out to dinner and talked to me about my companies all of that is why he got that investment

SPEAKER_237: exactly and you just don't see it and you and i jason that's how we build you needed a little help i

SPEAKER_114: gave you two hours of my time maybe an hour and now we have a relationship and uh that's the way it's and and gilly the same way yeah you know gilly and i are now friends but that friendship was built by

SPEAKER_116: helping one another out it's uh i want to talk about firm building specifically because you know i have

SPEAKER_01: this podcast for selfish reasons i love to talk but it's also a great way to learn and i here i am i got my own firm i'm for four funds in and uh we're all seem to be getting earlier earlier seems to be the focus it seems to be getting very crowded obviously series b is bonkers series a also getting very crowded people want to take the whole round so we're all moving earlier sequoia has experimented with arc i'd like to hear how that's going uh i know gilead your firm you do some incubation maybe what have we learned about going earlier and maybe creating some programs for folks

SPEAKER_69: gilly i'll start with you so first of all we don't do incubations okay we are dedicated to investing uh seed investors we are we are the first check with amazing teams that we believe we can build uh important cyber security companies um and the you know we started you know started cyberstarts you know in 2018 it was super small super super humble fund we started with our first fund was 50 million dollars really small solo gp and then you know and invested in i would say nine teams out of those 50 million dollars and many people thought that my approach is complete craziness because you've seen a grown-up writing large checks multi-million dollars checks to young fellows without asking them what do they do um and and then three years later um the world found out that that those nine companies value that over 25 billion dollars that was a major branding event for for cyberstarts so that's really

SPEAKER_93: helped cyberstarts accelerate and and and build into a bigger operation and today we have uh four gps four general partners on the ground in israel and two operating partners in in the us uh we've raised

SPEAKER_249: multiple funds more than 700 million dollars talk about how did you get those first nine and then how

SPEAKER_250: do you get deal flow now i mean one of the things i've read is that early success in venture capital

SPEAKER_116: is a predictor of later success because the founders and the lps all chase the people who have early success so there's some manifest destiny there i guess or some some self-fulfilling prophecy but

SPEAKER_01: the first nine how do you source those companies and then today i'm sure the success of wiz and island

SPEAKER_251: and other companies drives founders to come to you because they want to have the investor who did with

SPEAKER_37: yeah yeah and again keep in mind that in in in our business uh we are always as good as our next

SPEAKER_38: investment so having a wonderful portfolio that's great no complaints but you always you know if you feel too comfortable you already lost the game so um the you know at cyberstarts the first batch of companies we you know it was simply through the network of entrepreneurs i've already i knew by by then you know spending 10 years with nearly 10 years with sequoia and being a entrepreneur and founder of two

SPEAKER_37: cyber companies beforehand uh but they were mostly younger guys and girls out of 8200 looking to build

SPEAKER_38: their first business and they they weren't you know 2018 keep in mind cyber security wasn't cool no it was this the opposite you know boring office within i.t you know no nobody cared about cyber security so if you were you know a 25 27 years old uh individual with a desire to build a cyber security company and you had a vague idea idea what you like to be you didn't have many options so they found me and i helped them to build those businesses now it's a little bit different uh and you know we we are very lucky to to get um many entrepreneurs call us but we still you know as i said we we don't get ourselves too comfortable we work uh really hard to get ourselves

SPEAKER_251: in front of uh amazing founders doug maybe you could talk about this uh getting earlier and earlier

SPEAKER_116: sequoias got a reputation of backing people before the product launches doing series a's and obviously later stage funds now um maybe a little bit about the arc program and and just how getting earlier is important today uh maybe it's always been so many roads to heaven uh you can make money

SPEAKER_04: at every stage we vertically integrated we had a c fund a venture fund a growth fund and a public market vehicle seed we've done number of seed pow alta networks was a seed door dash was a seed uh and many others series a whiz island uh and so on series b sierra kind enough gilly gave me the call

SPEAKER_51: and so many others growth just quickly uh you know zoom snowflake and uh and even public shopify

SPEAKER_04: we made as much money in shopify in the public market we held that thing for you know we made a ton

SPEAKER_51: but when you get there early you have a shot investing in every fund one and two you have a shot of really helping the founders set in the right footing unfortunately the venture people the venture industry has a lot of people not everybody but there's a lot of people that are don't really have as much experience as you'd like let me just leave it at that so we we do want to go early the arc program uh has worked quite well for us uh we've decided to limit it though not to go and mass not to have hundreds of companies because at the end of the day uh you know they all have your brand those are all founders that expect your help like like you can't say to an art company okay we're only going to give you an hour and a half that conversation is not a brand augmenting type of conversation that destroys your brand and so we keep it tight you know whether it's 15 20 companies a class but that's worked well but we do try to be the first money in uh the first of seed or otherwise and if we can't meet that then we want to be the first series a money uh because once you get to series b now the ownership comes down look the ownership has come down already a whole bunch we used to own 30 percent then 25 then 20 now series a may get you 15 points uh and so it's really brutal the it the venture industry was a niche business now it's a broad-based business and everybody in and their mother and father is a venture investors and so the thing we know is is to ingrain ourselves in the entrepreneurial tap community and get there either as i think of it through a sales force our own partners or an indirect channel you can tell i'm a go-to-market guy you are direct channel jason you call it things gilly's an indirect channel and so we have both a direct and indirect channel and we try to get to as many things as early as we can and when we either miss them or make a mistake at the series a we try to pass in the most elegant ways because we may want to catch them uh one round

SPEAKER_116: later uh and so on amazing all right listen uh great job gentlemen uh let's do it again in a year i'm going to book you both and we're going to check in uh both on your uh very uh modest retirement

SPEAKER_17: doug this isn't retirement you're working just as hard you're just as engaged that word it's yeah you're just as engaged and look you know uh i don't you you you look young and you look energetic you look vibrant i think it's great uh that you're still in the game i don't know about this like it's so weird that a lot of the firms have this like forced retirement at a certain age or these weird rules because we're all living so much longer and and your cognitive function is is continuing on

SPEAKER_09: i don't know uh this and there's all this wisdom to be passed down so i just love the fact that you're still in the game gilly it's great to get to know you and uh i'll look forward to seeing you in the region the next time i'm over there and we'll see you all next time on this week in startups bye bye