It has been a great year to invest in our future at ScaleVP. Not only have we been adding a handful of exciting new deals to our portfolio, we have been active in making the most important investments that we can make – great additions to our team. We are very pleased to announce that Ariel Tseitlin has joined ScaleVP from Netflix where he was the Director of Cloud Solutions. As a Venture Partner, Ariel will join Andy Vitus in building our cloud computing portfolio which has been a focus area for ScaleVP for some time. Andy met Ariel over a ScaleVP dinner he hosted this summer at the OSCON open source conference and walked away impressed with Ariel’s depth of knowledge, which would be hard to match given his role at Netflix, and with the sense that he would be a good fit with the ScaleVP team.
Netflix is one of the industry’s pioneers in building a modern distributed service, making the bold choice to run entirely on a public cloud infrastructure. Not only have they led the industry in innovation but have done so in an open and transparent way to help others following a similar path. Ariel’s team created and released into the open source community many components of the NetflixOSS Cloud Platform that have enabled Netflix to build and operate a highly available, scalable and resilient system. Some of the more widely covered components include what is now famously known as the “Simian Army”, including the Chaos Monkey, which is technology that creates actual failures to ensure the systems running the Netflix streaming service remain resilient and reliable. Ariel speaks regularly, and will continue to, on trends and best practices within this market.
ScaleVP believes that this trend from traditional owned data centers to a shared “Infrastructure-as-a-Service” (IaaS) is a fundamental shift in computing architecture that will provide multiple investing opportunities and is still in its early phases. ScaleVP is looking to invest in more companies that are poised to take advantage of this shift and even help accelerate it. Recent cloud-related investments we have made include Boundary, PubNub and Datastax. That was the reason we focused on adding a best-in-class cloud operating executive like Ariel to our team.
Prior to Netflix, Ariel was VP of Technology and Products at Sungevity and before that was the Founder & CEO of CTOWorks, a software consultancy helping early-stage entrepreneurs deliver their first product to market. Earlier in his career, Ariel held senior management positions at Siebel Systems and Oracle. Ariel holds a bachelor’s degree in Computer Science from UC Berkeley and an MBA with honors from the Wharton School of Business at the University of Pennsylvania which he attended at on nights and weekends and where he got bit by the investing bug, making him a perfect fit for us.
Please join us in welcoming Ariel to the ScaleVP team!
One of the least intuitive aspects of a startup is knowing when and how to spend money in the pursuit of success. The answer is nuanced.
The first mistake startups often make is “premature scaling” meaning spending money before a company can use it productively. This was documented with some academic research by the Startup Genome, which should be required reading for any entrepreneur. Companies that spend money before being ready to scale will likely waste that money.
Read more of Kate’s thoughts on to when to scale at The Accelerators, a WSJ blog of startup mentors discussing strategies and challenges of creating a new business.
Never underestimate the power of a great collaboration!
At ScaleVP one of the things we care most about is collaborating with entrepreneurs about how to successfully scale their businesses to become the dominant providers in their sectors. When it comes to finding and helping the best companies grow, experienced hands are incredibly valuable. When that comes in the form of a technology leader we know well and enjoy collaborating with, it is even better.
We are thrilled to announce that one of our favorite collaborators, Zack Urlocker, has returned to ScaleVP as an Executive-in-Residence (EIR). Zack is helping us evaluate new investments and is also working one-on-one with a number of ScaleVP’s entrepreneurs on how and when to scale their commercial efforts. We met Zack at MySQL where he ran marketing, engineering and product before the company was sold to Sun. Zack joined us as an EIR in 2011 and focused on evaluating the early applications for Big Data and the development of NoSQL databases that eventually led to our recent investments in Datastax and Datasift. Zack subsequently joined Zendesk as Chief Operating Officer where he grew the customer base 6 fold and the user base 9 fold – to over 200 million users. Zack returns to ScaleVP with significant hands on experience transitioning companies from product introduction to market leadership. It’s a perfect match for our investing focus and a great addition to the conversation around the ScaleVP table. As he shared last week at RedMonk’s Monktoberfest conference for entrepreneurs, “scaling is an art not a science …but it can be mastered if treated like a discipline.”
I am also pleased to share that we have added a new Associate, Gregory Silva, to our investment team. Gregory was most recently an analyst with Piper Jaffrey & Co, helping evaluate the technology landscape and strategic alternatives for growth technology companies. Given his strength in following tech trends, he has hit the ground running. Gregory is busy evaluating a number of new companies and sectors within our focus areas and is a great addition to our team.
Welcome Zack and Gregory to the ScaleVP team…great people times two!
You want to launch a new company, but where do you start? Most entrepreneurs logically focus on product design and engineering first, but I urge you to think again and start with marketing instead. How do you start with marketing when you don’t have a product yet, you ask?
“Big M” Marketing, which means listening to your customers, begins well before you’ve even started your company. You want to hear their needs, issues, aspirations and problems so you can make your product the best fit possible. You probably reach those customers through your own network, and the goal of this outreach is to listen and learn. What is their pain point? How are they addressing it now? Is your idea a better solution? Be customer-centric from the start.
Read more of Kate’s thoughts on to effectively market your startup at The Accelerators, a WSJ blog of startup mentors discussing strategies and challenges of creating a new business.
Given our name, we’re biased, but the ScaleVP partners think the scaling phase of a startup is as important as the product you have built. Our experience with hyper-growth companies that achieved multi-billion dollar outcomes — Omniture andExactTarget, as well as a new crop behind those — has colored our thinking.
Read more of Kate’s thoughts on to effectively scale your startup mentor at The Accelerators, a WSJ blog of startup mentors discussing strategies and challenges of creating a new business.
Mentors can be very powerful allies in your business career but perhaps not in the way they are classically portrayed. I have never had just one mentor — I have had many of them, and they form an ever-changing “Composite Mentor” for me. Many of them might even be surprised that I think of them as mentors since I don’t formally put a name to the relationship I have with them.
Read more of Kate’s thoughts finding a startup mentor at The Accelerators, a WSJ blog of startup mentors discussing strategies and challenges of creating a new business.
ScaleVP closed our latest fund, Scale Venture Partners IV, L.P., last week and not exactly in the way we had envisioned….we raised more and more quickly than any of us would have expected. While we are confident about our strategy (enough to double our GP commit in this new fund), we also assumed that it would realistically take us 6-12 months to finish. We published our PPM in early February targeting $250M, the same size as our current Fund III. We were pleased to announce that Fund IV closed last Friday, May 3rd at the hard cap of $300M.
We understand that a successful fundraise is not our primary goal but rather to generate great returns for our investors. But this milestone makes me sit back and ask, why? Isn’t capital only going to firms that are now into their tenth fund or more? Having listened to our investors, I have a few observations about the venture fundraising environment that impacts us all.
Of course, the ticket to the ball is to deliver cash returns to your LPs. ScaleVP pursues investments in early-in-revenue technology companies just beginning to scale. We are pleased to see this strategy yielding consistent exits, including the recent ExactTarget IPO and the sale of Vitrue to Oracle , and we have a great crop of companies yet to go, including RingCentral, BrightRoll, Box, Docusign and Hubspot .
But while good returns are necessary, they are not sufficient…so what were the other elements at play here?
First, despite our performance and our interest in putting slightly more dollars to work per deal, we targeted the same size fund that we had before, and set a hard cap that was only 20% above that target. That size limit and consistency appealed to investors who have seen other firms increase their fund size, sometimes significantly, once they have achieved success. This brings four questions to mind for the LP: Can the team profitably deploy a significantly larger amount of capital? Will they need to hire a lot of people I haven’t met yet? Are they doubling the size of their funds for the fees? Is there an alignment of interests? By keeping to a similar fund size, we took these questions off the table.
Second, we benefited from the interest in smaller, newer managers. LPs know that, while they want to stay with the proven names, performance is not 100% persistent. In fact, to maintain returns, they need to selectively refresh their portfolio with a handful of next generation funds, which is why peers like First Round, Foundry, Shasta, Spark, True, and Union Square have also been successful at attracting capital.
Third, we further benefited from a broad investing trend (consistent with our own) of LPs building portfolios that are sufficiently diverse but also relatively concentrated. They expect that “buying the index” in venture by spreading small amounts of capital across many names will not get them the multiples they require out of a high risk, high return venture portfolio. When our LPs started our early Fund IV conversations by announcing that they were pruning their portfolios and investing more per manager, we cringed, fully expecting to hear that we might be cut next. We were fortunate that instead, we had a number of investors who, having watched us through our prior funds, wanted to increase their allocation, and in a handful of cases, more than double it.
Finally, LPs want to do a lot of due diligence and want to have the time to do it. If they are going to be selective and invest in larger increments, their investing decisions get a lot of scrutiny by their investment committees, as they should. That focus on detailed due diligence included our returning investors, who started from scratch by doing on- and off-list reference calls, site visits, increased organizational & compliance due diligence in addition to a detailed review of the numbers.
Well, how did we accommodate that level of due diligence in 92 days?
The answer is advice I got when we raised for the first time…never stop communicating with investors, even if you are not fundraising. It starts by staying in regular touch with your existing investors, and not just at annual meetings or advisory board calls. See them or call them one-on-one as often as you can. Connect with them when there is good news, and more importantly, connect with them when there is bad news. We are in a long-term, high-risk business, and LPs are investing in us on a blind pool basis. The more they understand your decision-making and team dynamics, the more insight and confidence they have in your partnership. We stress the “partner” in the term “limited partner” and are incredibly grateful to have them, in turn, be so supportive of us.
Take the time to get to know prospective partners early. The best time to start that process is right after you close your last fund, when you clearly are not fundraising. With this new fund, we were able to add a handful of new investors, who had been following us for at least 5 years, and who we met with at least annually. Over that time, they not only got to know our team, they talked to our co-investors and even met some of the CEOs in our portfolio – and on an “off-list” basis, so they knew they were getting the straight scoop. Just like when we invest, they want to know a team over time to see if they do what they say they will do. For our new Fund IV LPs, the last 92 days was the end of a multi-year process, not the beginning.
The Scale Venture Partners team is fully aware that the most important focus for us is not to raise the capital for our next fund, but to deploy it profitably on behalf of the pension funds, foundations, family offices and other institutions who have entrusted us with their confidence and their capital. We will be working hard over the next 3-4 years to make sure that our LPs’ decision to invest in ScaleVP was a good one. It is the heart of what we do, and our efforts are fully focused on finding the best management teams in the highest growth markets to meet that goal.
There is no one formula for product pricing, although it will be one of the most important decisions you will make. As with anything in business, you need to start with a deep understanding of your customers and what they value.
Read more of Kate’s thoughts on setting a price for your startup product or service at The Accelerators, a WSJ blog of startup mentors discussing strategies and challenges of creating a new business.
For B2B startups, LinkedIn is where you need to be. HubSpot research reported that LinkedIn was 277% more effective for lead generation than Facebook and Twitter. That makes sense since LinkedIn has more than 200 million professionals, with 4 million of those focused on IT.
This doesn’t mean you should ignore other channels, but focusing on LinkedIn means you are investing precious resources (including your time) on the social channel that delivers the best return.
Read more of Kate’s thoughts social media strategies for startups at The Accelerators, a WSJ blog of startup mentors discussing strategies and challenges of creating a new business.
The question of which business model to choose for your app is something Scale Venture Partners considered, so we did some direct research with the students at the University Venture Fund in Utah. We looked at the top 400 apps over a six-month period. The research netted several interesting conclusions about business models, pricing and the impact of the iPad.
What we found was that freemium works best when the mobile app is an extension of the web app. The web app can then serve as an up-sell opportunity for the company. Most successful business-productivity apps employ this strategy. Popular examples include Box, DocuSign (full disclosure: ScaleVP has invested in both companies), Dropbox and Expensify.