On SaaStr Episode 190 discussing the 0 to 1 enterprise stage and first customers

\I had the pleasure of speaking with Harry Stebbings for the second time on the SaaStr podcast released today. On this episode we took a different tact, focusing more on the zero — 1 enterprise stage and how to get your first referenceable customers vs. scaling post Series B. Please listen here if interested in how to grow and gain your first Fortune 500 customers — show notes below.

SaaStr 190: Why SaaS Founders Should Not Sell Their Products in The Early Days, How Founders Can Build Relationships with Enterprise CIOs and The Right Way To Think About Discounting and Pilots with Ed Sim, Founding Partner @ Boldstart Ventures


In Today’s Episode You Will Learn:
• How Ed made his way into the world of VC from one very meaningful high school lecture that changed his life and career path?
• What does Ed mean when he says “founders should not sell their product to enterprise in the early days”. Starting from the ground up, what can founders do to begin that relationship building process with enterprise buyers and CIOs? What can a startup do to establish that trust in the mind of large buyers? How much of a role does VC backing provide in comforting enterprise buyers?
• What would Ed advise founders contemplating the debate of going SMB up to enterprise or enterprise to SMB? What role should product play in this decision-making process? What are the leading indicators in testing the product that founders should observe for and guide their direction? Where does Ed most often see founders make mistakes here?
• How does Ed think about discounting? Would he agree with a previous guest that “discounting is now table stakes”? Rather than the financial element, what does Ed believe the founder should really be looking to get from the buyer in terms of commitment? How does Ed approach and asses pilots? To what extent should they be free or paid? What can be done to set the benchmarks for success and ensure closing?

  1. What does Ed know now that he wishes he had known in the beginning?
  2. Quality or quantity of logos?
  3. What would Ed most like to change in the world of SaaS?

Snyk, from first check to leader in dev-friendly open source security

We are thrilled to announce our investment in Snyk, which is a developer-first security solution that helps companies use open source code and stay secure. We couldn’t be more excited to be leading this new round of capital again with Canaan Partners and including Heavybit, FundFire, and Peter Mckay (Co-CEO of Veeam) (see Techcrunch for more coverage).

Our initial journey goes way back as we were investors in Guy Podjarny’s previous company, Blaze.io, which sold to Akamai in 2012. For the next few years we collaborated on several co-investments and what ultimately attracted us to Guy’s new company (along with co-founders Danny Grander and Assaf Hefetz), was their bold vision to create a new platform for securing open source components with a dev-first focus. At the time we seeded Snyk in late 2015, open source library usage was growing significantly and solutions were either security first which slowed down dev or dev first but not with enough security built in. With the movement towards continuous integration and deployment, it was clear a new solution was needed.

In a little over two years, Snyk has gone from “founder market fit” to “product market fit” and this new round will allow the company to build out is product offering and expand its Fortune 500 customer base.

With over 120,000 developers using the platform, 100,000 projects protected, 350,000 downloads per month, and notable partnerships with Heroku, JFrog and Microsoft Sonar, Snyk has proven it can get developers to fully adopt a security solution, and the importance of having the strongest database of known vulnerabilities in open source

Funding rounds are always a great opportunity to look back and see how the company’s initial thesis has held up and what has improved or changed. See below for Snyk’s initial vision from late 2015, much of which remains the same today; developer velocity increasing, security isn’t dev-friendly, how do you bridge the gap, esp. in open source world where much of it is third party code.

There have clearly been some tweaks to the model since then, but what is most exciting for us is watching Snyk go from idea and vision in a non-existent market to one where the question of how developers are securing open source components is becoming mainstream. And given some high profile security breaches like Equifax in Sept. 2017 where it was due to unpatched open source vulnerabilities, you can see why the interest in solutions like Snyk’s are gaining rapid adoption.

While the need for dev-friendly open source security may seem obvious today, especially with the stats above, how did we frame our initial investment? Here‘s what got us excited back then, much of which has come to fruition in the 2 years since:

  1. Solving a huge pain point in an emerging but potentially massive market — we were witnessing the move to continuous integration and deployment spreading to the enterprise combined with the growth of open source and third party components; the thinking was that if you could make it dev-friendly then it could be a massive business
  2. Dev first business model with budget from security — we love bottom up, organic models but always question where the bigger budgets are coming from, and what we saw in Snyk was an opportunity to go bottom up with developers and then access the security budget for bigger dollars.
  3. Founder-market fit — GuyPod previously was Chief Architect at Sanctum/Watchfire Security, developers of one of the first web-app firewalls, ultimately sold to IBM. Danny Grander had significant security engineering experience starting in the IDF where he met Guy and into Skybox Security and as CTO of Gita Technologies. Assaf had a Sr Research role at Skycure which Symantec bought last year. This team had the technical and product skills and understanding to go after this opportunity.
  4. Repeat founders — we are always thrilled when founders we backed previously give us thefirst shot to invest in their new company. In this case, we had backed Guy before when he co-founded Blaze.io which was sold to Akamai. He eventually became CTO of the Web Experience Unit at Akamai.
  5. We like to work with founders well before they leave their current roleand start a new company. In Guy’s case we had regular dialogue over a couple year timeframe to both brainstorm and also vet the idea with our Fortune 500 relationships. We also introduced Guy to fellow founders like Tom Preston-Werner from Github (see blog post on Snyk) to help refine the story.
  6. Time to value — incredibly easy to get up and running, authenticate via github, bitbucket and Snyk starts scanning, monitoring, and suggesting fixes
  7. We love being able to help accelerate time from “founder-market fit” to “product-market fit” to which we accomplished by helping Snyk secure some of their early on-prem Fortune 500 customers.
  8. We are purpose built to double and triple-down in our portfolio as they hit milestones and scale their GTM team.

Once again, we couldn’t be more excited about leading this new round of funding and look forward to continued success for the team.

Also on Medium

Thoughts from RSA and the Climate for Security Startups The year ahead in security tech and VC

Just getting back from a few days at RSA. We kicked it off Sunday night with a boldstart founders and execs dinner where we talked about what’s next in cybersecurity with some of our portfolio companies like security scorecard, bigid, snyk, stealth co and many friends from the industry representing strategic partners and IT buyers. After a couple more days of straight security talk with lots of new vendors, VCs, strategics and CISOs, I wanted to share a few observations. Many of these are not earth shattering but important to cover nonetheless.

  1. There are way too many cyber security startups. A record $3b went into these companies in 2016 and $2.5b in 2015. Many startups are features or products and not businesses. Each category and mini category used to only have a few vendors and now you can expect up to 10. Lots will struggle and go out of business and industry consolidation is ahead.
  2. That being said, cyber security budgets keep increasing! Banks like JP Morgan spent $500mm on security and yet they are still not secure. While many large cos will still buy from best of breed startup vendors, the landscape is changing as Palo Alto Networks and Symantec keep incorporating new tech and provide an integrated seamless stack.
  3. Which leads me to my next point. One CISO of a large bank told me that his team met with over 300 vendors last year. Large companies can’t possibly integrate all of these disparate technologies and the more you have, the more false positives you have.
  4. Rise of Nation State attacks – more sophisticated and deadly – many are targeting the largest financial institutions.

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our journey to an oversubscribed fund iii for first check enterprise boldstart closes $47mm fund iii for first check, enterprise founders

This is a story about starting an enterprise seed fund called Boldstart in 2010 and our journey in enterprise since 1996. Despite our firm being a little over 6 years old, our individual stories go further back. We each independently fell in love with enterprise software 20+ years ago as seed investors (cos like gotomeeting/Citrix, greenplum/EMC, livperson/IPO LPSN) and founders (workmarket, onforce/Adecco, spinback/buddymedia/salesf0rce) and are now benefiting from the ecosystems, knowledge and network that we’ve collectively developed.

What seemed like a big bet in early 2010 was only us pursuing our passion. Our goal was to be the best first check partner for enterprise founders, bringing the value add of a VC firm while moving with the speed and conviction of an angel investor. We set out to build boldstart at the height of mobile app mania and viral growth and were faced with questions about our focus on enterprise and NYC. At the time there were only a handful of micro-VCs in existence, and despite going against the tide, we felt that the opportunity to build the first and best enterprise seed fund was a dream worth pursuing.

Today, we are super excited to announce our final close of $47mm for fund iii. This was oversubscribed from our initial target of $30mm

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One VC’s take on NYC and Enterprise Tech enterprise tech in NYC on the rise!

When Willie Sutton, the prolific bank robber, was asked why he robbed banks, he answered, “because that’s where the money is.” When asked by investors in early 2010, why we were starting a seed fund focused on enterprise and leveraging NYC, I answered with Willie’s quip but also said, “because that’s where the customer-driven talent is.” One of the key criteria for successful enterprise investing besides team, product, and huge markets is ensuring that you invest in a “must-have” and not a “nice-to-have” solution. When companies are born out of real pain, more often than not this criteria is wholly satisfied!

I bring a unique perspective to this conversation having been a VC based out of NYC for the last 19 years (wow — am I dating myself!). While I have had my fair share of failures, I have also been a first round investor in many enterprise successes both in and outside of NYC, including leading or seeding the first round in LivePerson ( NYC, current market cap of $650mm), Greenplum (sold to EMC, now Pivotal), GoToMeeting (sold to Citrix, now Citrix Online doing over $600mm+ revenue), Divide (NYC, sold to Google), blaze.io (sold to Akamai), GoInstant (sold to Salesforce.com) and a few others.

Necessity is the mother of invention

As I think about common characteristics of great enterprise startups that I have had the pleasure to work with in NYC, I think about entrepreneurs building companies based on great pain, a deep understanding of the customer problem because they are customers themselves, and from that, using their computer science backgrounds to engineer a better and more scalable solution. Many of these great founders are simply hidden in larger companies, developing software for non-tech firms and functioning where tech is more of a support role versus front and center in terms of driving revenue growth. This is much different from entrepreneurs leaving established software vendors wanting to create a bigger, better, and cheaper mousetrap with a “great technology in search of a problem to solve.” While starting with a customer pain is great, the big question for many of these startups is whether or not this pain is a one-off or a market problem that is massive enough to attack.

Success Breeds Success

Divide

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When we first met Andrew Toy and Alex Trewby in mid-2010 they were VPs Wireless at Morgan Stanley and experiencing a huge pain point — employees were bringing in their iphones and android devices for personal use while still using their blackberrys for corporate purposes. Like any great entrepreneur, they asked the question, how do I solve this problem with software and allow companies to have the peace of mind and security policies needed for them while also allowing employees to use their existing devices. The challenge was to create a separate sandbox that could be easily used and understood. Rather than forking off android, Andrew and Alex built an App, something consumers could easily understand and yet make it easy for huge enterprises to deploy. The big bet in 2010 was that we would move to a BYOD world and that Android would become a dominant mobile platform (at that time, it was a big bet!) Hence Divide was born and 4 years later sold to Google and now branded as Android for Work with a stated goal of being on a billion devices. Pretty cool for two ex-technology execs at a financial services firm!

Security Scorecard

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We first met Alex Yampolskiy and Sam Kassoumeh in-mid 2013. They were both formerly Chief Security Officers at Gilt Groupe and were experiencing major pain in their day to day jobs. They were in charge of auditing the security of every vendor that touched the Gilt platform and all of it was done manually through intensive Q&A and when in doubt, via an expensive security audit from a consulting firm. As Alex and Sam spent many cycles on this method, they asked themselves if they could continuously scan the security of their partners in a non-intrusive way. It was already clear that software was moving to the cloud but less certain was the belief that a company is only as secure as its least secure partner and continuous monitoring would be imperative. From this, security scorecard was born. SecurityScorecard provides precise global threat intelligence and risk awareness continuously and non-intrusively so businesses and their partners can collaboratively predict and remediate data security issues. Fast forward 15 months from the initial seed round, and they have landed several large customers and closed a $12.5mm Series A with Sequoia Capital, founding investors in some phenomenal, multi-billion dollar security companies — netscreen, palo alto networks, and fireeye.

I could go on and on about many other great enterprise companies in NYC, but you get the point — find a massive pain that you are experiencing and living with first hand and create a software solution around this. It is this unique understanding of the customer that we will see time and time again as new enterprise-related startups in NYC are launched. It is also this deep domain expertise and understanding of the customer that will allow many enterprise startups in NYC to flourish, especially as we live in a cloud-based world where switching costs are not as high as they once were.

Bottom Line

The idea of NYC enterprise startups succeeding should no longer be a laughing matter. We have great entrepreneurs, companies, talent, and investors ready to capitalize on Willie Sutton’s vision — NYC is where the money is (see Jonathan Lehr’s great overview on NYC Enterprise Tech). We at boldstart ventures feel quite fortunate to be invested in a number of enterprise related startups in NYC like security scorecard, divide, truly wireless, handshake, yhat, and bowery.io and are excited about the future of enterprise tech in NYC. We have seen more success stories in the last 3 to 4 years versus the 10 years before that, and we expect this rapid innovation to continue. While many of these companies are engineers coming from large Fortune 1000 type companies here in NYC, we are also increasingly seeing founders leaving the more established tech companies like Google, OnDeck Capital, and Gilt to pursue their dreams.

As I write this I am wondering who the next entrepreneur will be that is hidden in the bowels of a more established company, feeling massive pain everyday, and ready to launch the next unicorn like MongoDb. Is that you?

(reprinted from my post at Medium)

Startups and Intellectual Property (IP)

Lately questions about Intellectual Property or IP have been cropping up left and right.  Eliot Durbin (my partner at BOLDstart Ventures) and I had a long discussion this morning in preparation for his panel today about IP and patents.  Last week, we met with a company and when we asked about their core IP, they launched into a 5 minute discussion about the various patents they filed.  Do startups really think patents are going to make or break their business?  Yes, having core tech or IP matters but patents are a different question altogether.  Your best protection is continuing to focus on building your business, your product, and getting market share.  So what is my and BOLDstart’s stance on IP and startups.

1. We look at the team and the product and market first

2. We like to think that all of our investments have IP.

3. IP does not mean patent.  IP in our mind is your “secret sauce” for doing what you do better, cheaper, and faster than anyone else. Its great if you filed for a patent but that is a long process taking 18-24 months and by the time you get a patent the market opportunity may have already passed you.  Focus on building your product and market share, not on patents.  That is your best protection and competitive advantage.  Waiting for the patent office to tell you that you have a patent is a nice to have, not a must have.

4. Even if you have a patent, it takes tons of time and shitloads of dollars to defend.  Trust me, I’ve been there, and it seems to me that the only person making money in these cases are lawyers.  In addition when defending patents you will inevitably fight with the big boys with billion dollar balance sheets so that is not a place to spend your time and money.

5. Don’t start a company where there is already a patent battle brewing like email on phones.  We are looking for innovations, the next big thing, not yesterday’s way of doing it.

Hopefully that gives you a good perspective on our view on IP, patents, and startups.

What entrepreneurs can learn from Jeff Spicoli you don't have to have all of the answers

I know I may be dating myself here, but over the past few weeks I couldn’t help but think about the movie Fast Times at Ridgemont High and one of the standout characters, Jeff Spicoli.  When asked by Mr. Hand, his teacher, why he keeps coming late and wasting his time, Spicoli answers, “I don’t know.”

In several meetings with entrepreneurs during the past few weeks, they would have been better off answering like Spicoli rather than giving me some hollow bull shit answer.  I want to make it very clear that I don't expect entrepreneurs to have all of the answers to my questions.  In fact, many questions I have may not have an answer today so "I don't know" will be your best answer. My one caveat is that the "I don't know" is followed by a how might you figure out the answer or a when might you figure it out.  This line of questioning is really just another way to test how you think and determine how our working relationship might be were I to invest.  I would rather have the honest "I don't know but I'll figure it out" then a made-up answer that will never allow you or your investors to really understand what is driving your business.

Reflecting on passed investments important to look back and discover patterns on your decision making

Every 3 months I dig through my “passed company” folder to look at what investment opportunities we passed on and why.  Inevitably, there are a few companies that are near-misses, but we end up passing on for whatever reason.  Did we pass because we didn’t think the team was great or because we didn’t believe that they could get a product launched?  Did we pass because of lack of traction in the beta release or because of concerns on valuation?  Looking at my “passed company” folder gives me an opportunity to test our reasons on passing and to see 3 months later if the entrepreneurs could actually execute or prove our concerns wrong.

While many times I find doing this reflection further confirms our reasons for passing, I also find myself from time-to-time sending up a follow up note to check in on these near-misses or doing a quick Google search to see how the company has progressed since our last communication.  Inevitably, there will be a few that “got away” and seem to be doing quite well.  No one is perfect and looking back every quarter gives me an opportunity to better hone my investing acumen and further refine my understanding on what separates a potential winner from a loser.  Many times we are so busy that we can only look forward to the next new thing or next hot deal, but I encourage you to occasionally take a step back, look in the rear-view mirror, and learn from your past history.  I promise you that this reflection will only make you a better investor in the long run.