Welcoming Natalie Sandman to Shasta Ventures

Today we are thrilled to share the news that Natalie Sandman is joining Shasta as an Associate on our Enterprise team. After years as a software product leader and a startup co-founder, she’s joining the Venture Capital community and bringing along her inquisitive attitude and extremely relevant product experience. We couldn’t be more excited.

When we started our search for an Associate to help us discover the next breakout enterprise software companies, our goal was to find someone who is curious about technology and passionate about entrepreneurship. We wanted someone who would understand what it takes to build innovative products at the earliest stages of a company as well as grasp what it’s like to be a start-up founder. Natalie brings all of this to Shasta and much more.

Natalie possesses a deep sense for what it takes to build great products and the experience and perspective in many areas of software — including applications, infrastructure, big data and machine learning. She joins us from Ravelin, a London-based payment fraud detection startup, where she led its product team. Previously, she was one of the first product managers at Zenefits building out benefits, payroll, and HR products during the company’s early and hyper-growth years. She also co-founded Dabble, a mobile shopping app. Natalie received her undergraduate degree in Mathematics and Economics at Harvard College where she was also an award-winning Varsity volleyball player.

Throughout all of these experiences, Natalie’s lived the ups and downs of building startups: from the excitement of closing the first customer, to the highs of explosive growth, and the hardships of layoffs. She can empathize with founders and operators alike, and appreciates the brick-by-brick work it takes to build epic products and amazing companies.

More than anything, though, Natalie will be a fantastic fit with the Shasta team and exemplifies our culture and commitment to unwavering partnerships. Her references describe her as humble and hard working. She shares our philosophy of working tirelessly to be the very best partner for entrepreneurs along their journey of building their startups. One of her references summed up her personality in a few words: “Natalie is fearsomely smart, organized and a pleasure to work with.” We think these attributes will not only make her a fantastic addition to the Shasta team but also someone who will quickly become a great partner to entrepreneurs.

Please join me in welcoming Natalie to Shasta, the Venture Capital community and back to the Bay Area. You can learn more about her here (https://shastaventures.com/team/natalie-sandman/) or send her a note here (https://twitter.com/natsandman)

Thrilled to Back Skilljar & Help Onboard Customers at Scale

Today, I’m excited to announce that Shasta Ventures has invested in Skilljar, a Seattle-based customer enablement platform. We’ve invested alongside our friends at Mayfield as well as existing investor Trilogy Equity Partners.

Investing in Skilljar was an easy decision. The reasons why shed light not only on my approach to investing in enterprise software but also something bigger—namely, how changes in customer behavior have created new challenges and opportunities for modern enterprises today.

4 Reasons Why We Invested

First, Shasta looks for top teams to get jobs done, and Skilljar met that standard and then some.

Co-founders Sandi Lin and Jason Stewart cut their teeth working at Amazon together. While running Amazon Marketplace, Sandi, who’s an MIT and Stanford Business School alum, noticed how hard it was to onboard merchants. If the merchants didn’t learn quickly how to use Marketplace’s core features, Sandi would lose them. Keeping customers requires training them, Sandi concluded.

Enter Skilljar. In 2013, Sandi and Jason left Amazon and launched the company as an advanced learning management system for the 21^st century. Its cloud-based software allows companies to create online courses and universities tailored for customers to learn their products.

And that’s where our Reason Two for investing in Skilljar comes into play.

Sometimes we invest before a team even has a product, but that’s for another blog (this one, actually). Often, though, we invest in great teams that have market-leading products. After speaking with customers of Skilljar, which were among the best I’ve done in 17 years of investing in software companies, I realized that’s exactly what Skilljar has created.

Reason Three: traction. Skilljar revenues grew 3X year over year in 2017. And despite little marketing effort, more than 100 companies, including Verizon, Cisco, Zendesk and U-Haul, are currently using Skilljar’s platform. These are large companies that need to on-board customers at scale. After evaluating the competition, Skilljar is their preferred tool. 

Reason Four: Rajeev.

Venture Capital today has a lot of sharp elbows, but cooperation between firms used to be a lot more common. Fred Wilson recently wrote about his own nostalgia for splitting deals, and I agree 100% with him about the benefits—shared risk, resources and networks. Yes, believe it or not, I still believe this industry can and should be a team sport. My friend Rajeev Batra at Mayfield and I co-invested and worked together on Marketo and Newscred, so Skilljar represented a great, new opportunity for us to repeat success.

New Economy. New Tools

Underlying all of these reasons, however, is how Skilljar fits into a new world of customer behavior—and into my investment strategy.

Over the last decade, both enterprise and consumer-facing software companies began shifting away from selling packaged software through a one-time license payment and moved toward selling a subscription continuously (i.e., they moved from a pay-for-product world to a pay-for-service one). You now rent software. 

Welcome to the Subscription Economy!

And, this isn’t a trend that’s restricted to software. The most hardware intensive of all industries—auto—has pivoted towards subscriptions. BMW calls itself a service company these days, and GM began trying a subscription plan for Cadillacs last year. The Wall Street Journal called it a $1,500-dollar-a-month “Netflix for Cars.”

This move towards recurring sales also means a seismic shift in the way companies advertise and market. For one, the relationship with the customer has changed dramatically. It’s no longer a one-time occurrence, it’s an ongoing, ever-evolving exchange. Accordingly, companies increasingly demand better tools to optimize customer success.

Skilljar focuses on the core aspect of the customer journey: getting customers engaged with products! After investing in many companies over the years, I know that the biggest determinant of customer success is how well and how fast customers are on-boarded. The trick is training customers quickly and easily – but at their own pace. Skilljar’s platform does just that. It integrates seamlessly with Salesforce.com, Marketo, Totango and other customer success platforms and personalizes tutorials based on the learning needs of its customers.

Skilljar offers the best new learning platform to help companies take advantage of the subscription economy and better serve their customers.

On behalf of Shasta, congratulations to Sandi, Jason and the entire Skilljar team! We’re looking forward to seeing Skilljar help enterprises better serve their customers and do it at scale.

Highspot: Why We Invested?

I am thrilled to announce that Shasta Ventures is partnering with our friends at Salesforce Ventures to invest in Highspot, the sales enablement leader.

For the past 15 years, I’ve invested in companies poised to become leaders in SaaS. Simply put, my investment strategy is to back world-class product teams building breakout companies in rapidly emerging categories. Over the past few years, we have been lucky to invest in category-leading SaaS companies such as Marketo, Anaplan, Zuora, Apptio, Glint, Spredfast and many others. Through their great products, go-to-market execution and high-performing teams, these companies each rose to become a leader in their respective markets.

We believe Highspot possesses the same characteristics as those SaaS leaders. Here’s why:

True Sales Enablement is Now Possible

When it comes to evaluating markets, we start by asking: Why Now? We look for markets where two factors intersect: 1) increasing demand for a solution that addresses a critical pain point and 2) the technological advances necessary to make a never-before-possible solution available and affordable. In these types of markets, there is a rising tide that floats all boats. (More background on these “Why Now?” markets can be found here).

Even though Sales Enablement software has existed for years, salespeople continue to struggle to find the right content at the right time. According to Sirius Decisions, sales reps at enterprise-level organizations use just 35% of marketing content, yet spend roughly 30 hours a month searching for and creating sales materials. That’s an hour and a half out of their workday — time that could be spent selling.

Solving this problem efficiently became possible only with the emergence and adoption of AI and Machine Learning. These technologies can analyze vast amounts of content and data, organize it based on user behavior and effectiveness, and tailor content recommendations for each unique situation.

Highspot has leveraged these new technologies to build its product that serves exactly the right content at the right moment to power salespeople and make them effective. In addition, Highspot’s product is easy-to-use and intuitive for salespeople.

It’s All About the Customer

In over 15 years of diligence on SaaS companies, I have made hundreds of customer calls. Our Highspot calls were among the very best in terms of customer love and passion for a product. Part of this is due to pent up demand for a solution after years of failed attempts with competitive sales enablement products. But, importantly, Highspot enjoys an adoption rate of over 80% by salespeople. Almost every one of the customers I spoke with said Highspot is a core part of their go-to-market technology stack — right next to solutions such as Salesforce.com, Hubspot and Marketo.

I thought it would be fun to share some quotes from our customer calls:

“I’ve put in a lot of Sales & Marketing tech in the past. This is one of the most impactful things that I’ve done in the past 5 years. If I left this role, I would call Highspot for my next company immediately”

“This is not just another tool. This is a core part of what we are doing.”

“We wanted to see 75% adoption after 30 days. We were at 80% and now focused on 90%.

“This is a must-have. Sellers would freak if it disappeared. I will protect budget for this and cut other stuff”

“Doesn’t feel like a start-up. Feels like a true enterprise-ready company”

“The field is using it — highest adoption we’ve ever had for a tool”

“They shine as a vendor”

“Product gets rave reviews from sellers”

“#2 most important component of Martech stack after Hubspot”

“I am in it all day”

The following G2 Crowd graph captures this amazing customer satisfaction. Generated by authentic customer reviews on the product, Highspot received the highest satisfaction score among sales enablement providers with 99% of users rating its solution at 4 stars and above. In fact, Highspot received the most 5-star reviews among the competition. (Note: Highspot is the blue logo on the far right)

World-Class Team

A “Why Now” market, cutting edge product and happy customers represents only part of how we evaluate a potential partner company. In the end, it was the experience and quality of the team at Highspot that drove our decision to invest in Highspot. Co-founders Robert Wahbe (CEO), Oliver Sharp (VP of Services) and David Wortendyke (VP of Product) each worked at Microsoft for over 15 years before Highspot and, more importantly, worked together as a team for more than a decade. With 50 employees based in Seattle, Highspot has a strong and positive culture. One of my favorite lines from a customer: “There is not a person at Highspot that I wouldn’t hire in a minute if I could”.

Finally, of course, traction matters. We are super impressed by Highspot’s success in the market. They increased their customer count by 300% in the past 12 months and are seeing tremendous unit economics and retention rates for their customers.

We look forward to lending our help to the Highspot team as they deliver the value of AI and machine learning to the sales enablement software market.

Creating Great Presentations is Hard. Beautiful.ai’s Founder Mitch Grasso Can Help.

Understanding the full promise of Beautiful.ai's new visual presentation product requires understanding Founder-Market Fit. Let me explain.

 Visually presenting information is a vital part of functioning in our knowledge economy. For a lot of us, it doesn’t come easily.

It means late nights and a lot more time than we’d like designing slides, sizing boxes, drawing circles, aligning text fields or finding relevant visuals. Worldwide there are some 500 million PowerPoint users, most of whom don’t enjoy creating presentations. They’re just thrilled to get them done.

Starting today, thankfully, there is a great new option.

Beautiful.ai’s new product  - launched today at the SaaStr Conference - harnesses artificial intelligence to help regular business folks communicate their ideas better and faster. And, yes, more beautifully.

Its value proposition is really that simple. And the user experience is amazing.

Beautiful.ai’s Design AI technology is the first AI-powered design presentation tool ever launched. It lets anyone build clean, modern, and professionally-designed slides—quickly and easily.  

At Shasta, we couldn’t be more excited to lead (alongside our friends at First Round Capital) Beautiful.ai’s Series A round - ahead of its product launch. And here’s why.

Betting on the Founder

In Silicon Valley, Product-Market Fit is a widely understood concept.

Young, promising startups (a.k.a good investments) need to have a high-quality product that addresses the needs of a market, preferably a very large one that’s growing rapidly.

However, as early-stage investors at Shasta, we don’t always have the luxury of waiting for a potential investment to have a great product and paying customers —or even a clear concept of what that product might ultimately look like.

Sometimes, we simply make a bet on a Founder where we believe there is extraordinary Founder-Market Fit.    

Having Founder-Market Fit means backing one of the top people in the world to solve a distinct problem. It often means a founder whose entire career has culminated in starting a specific company solving a huge problem and building a product that only that founder could build.  Usually, that founder has a special view on how to solve a problem, and the unique ability and skill set to build a game-changing product to tackle that problem.  

For example, when Shasta backed Nest Labs in 2010, the home automation market was unchartered territory. There was no equivalent of the iPhone, or iPod, for the smart home. No company had yet created anything close to it.

However, few entrepreneurs anywhere in the world were as capable of envisioning and then building that device as Nest co-founder Tony Fadell, the former head of the Apple iPod division who is considered one of the fathers of the groundbreaking device.

The same calculus drove our investment in Marketo.

When Bruce Cleveland and I invested in 2006, the marketing automation software startup didn’t have customers, or even a product. But Phil Fernandez, Jon Miller and Dave Morandi’s experience convinced us they could deliver a game-changing product. Their work reinventing B2B marketing at Epiphany was so relevant that we bet they would build the leading company in the market. And they did.  

A Rare Entrepreneur

Enter Mitch Grasso.

Before launching Beautiful.ai, Mitch Grasso founded SlideRocket, a company that offered a groundbreaking cloud-based presentation product attracting millions of users. It was such a success that VMware acquired SlideRocket in 2011. But Mitch didn’t stop there. He kept thinking about how to make the process of creating presentations easier, better and more beautiful.  

Mitch is the rare entrepreneur that possesses several skillsets - equal parts product visionary, designer and engineer. Mitch can envision the right solution, design it beautifully and then build it.

For someone to create a breakthrough product, especially in the presentation space, you need all those assets. Mitch is that founder. He not only envisioned Beautiful.ai’s presentation tool, he built the complete product nearly entirely on his own.

Like the founders of Nest and Marketo, Mitch has the unique perspective and experience along with the energy, enthusiasm and dogged perseverance necessary to bring his vision to the market and succeed.

I couldn’t be more proud to support Mitch and his vision. See it for yourself here and you’ll understand why I believe in Founder-Market fit.

Welcoming Marketo's Phil Fernandez to Shasta

I couldn’t be more thrilled to welcome Phil Fernandez, co-founder and former CEO of Marketo, as a Venture Partner here at Shasta. As Venturebeat noted this morning, Phil is a luminary in the technology industry who, along with co-founders Jon Miller and Dave Morandi, built Marketo into a billion-dollar public company. There are very few in enterprise software with Phil’s experience and expertise in creating category-leading software-as-a service (SaaS) businesses.

In his new role, Phil can fulfill his goal of giving back to the entrepreneurial community by sharing product & go-to-market strategies with SaaS founders and our firm’s portfolio companies. Phil is an ideal fit for Shasta Ventures’ well-established enterprise software team. We’ve invested heavily in entrepreneurs building best-in-class enterprise application and infrastructure companies—both areas where Phil’s experience will serve as a powerful asset. He allows us to double down on supporting our enterprise investments including breakout companies like Anaplan, Apptio, Glint, Lithium, Leanplum and Zuora, among others.

Over the past three decades of his career, Phil succeeded in numerous roles including entrepreneur, engineer, product leader, marketer, and CEO to name a few. The depth and variety of his expertise is unparalleled – not only spanning operating disciplines, but also covering the many and varied stages of a company’s growth. Phil and his team built Marketo into a significant platform company that fundamentally transformed the Marketing industry. Prior to Marketo, Phil served as President and COO of Epiphany, a pioneering marketing software provider.

Bringing Phil on board is exciting for me personally. I met Phil and invested in Marketo back in 2006 when it was three founders and a Powerpoint deck.  For me, serving on the board of Marketo with Phil has been one of the highlights of my venture career. There aren’t many enterprise software companies out there that have grown to more than $250 million in revenue – ­which is exactly what Marketo has done. Phil is one of the few founders who has taken a company all ­the way from idea through hundreds of millions in revenue, an IPO, and a successful sale. He has lived and managed through all the stages of a startup’s growth, which makes him an invaluable resource for any startup.

Phil is a great fit for Shasta because we look for entrepreneurs with unique market insights and the ability to build a highly differentiated product and user experience. Now in his new role, Phil can help entrepreneurs to navigate their own startup journeys.

The greatest reward as a VC is the ability to back a talented team and be a part of their journey or, even better, to watch them become successful and then back them again in their next endeavor. Working with Phil at Shasta now takes this to the next level. It’s the ultimate honor. 

Growth vs. Profitability? Choose Growth

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The startup and venture funding environment is experiencing a dramatic shift. Especially in SaaS, public stocks are down 30-60% and private companies are struggling to raise capital.  As a result, we are all reading blogs with survival advice for entrepreneurs.   The advice boils down to the following: raise money if you can, preserve cash, reduce burn rate, let go of under-performing employees, and focus on profitability.  I think all of this is advice is rational and I am giving similar counsel to the companies I’m involved with.    

But, there is another piece of advice that I am not hearing enough.  And, that is: KEEP GROWING!  Once again, the debate between the merits of growth vs. profitability is underway.  My take: I don’t care what environment we are in, the startup and venture capital game is all about growth.   As others have said about startups in the past, if you aren’t growing, you are dying.  Of course, it is also wise to focus on unit economics, efficiency and to establish a “path to profitability”.  It is also okay to slow down growth (e.g. grow 60-70% with strong unit economics vs. 100% "at all costs").  But, keep growing.  And, regarding profitability, I believe that most early stage venture-backed startups are not able to grow rapidly AND be profitable until nearing IPO or soon after.  

The current public market is not rewarding high growth unprofitable companies.    As you can see in the chart below, it is the high growth unprofitable SaaS companies that have fallen the hardest.  In fact, if you look at the grey line (high growth unprofitable) and the dark blue line (low growth profitable), there is literally zero premium for being a high growth company without profits.  The premium comes for high growth profitable companies (the yellow line).   The yellow line is the desired state that all entrepreneurs should be striving for when public.   

I believe that the market for early stage, private companies is different.   As venture capitalists, our job is to back high growth companies that can eventually become profitable.  That’s what venture capital is for.  The role of venture capital is to fund a company to become the leader of a new category.  In the early years, growth is the primary goal, not profits.   But, by the time a company is nearing or newly public, profits AND growth are the key to a premium valuation.

So, my advice is to keep growing.  My bet is that by the time you are looking to exit or go public in a few years, the market will be rewarding growth again.      

The Pendulums of Venture Capital

The venture capital industry, like most investing asset classes, is subject to pendulums of sentiment and emotion.   As we are all witnessing, the pendulum of risk tolerance & valuation is swinging violently at the moment.  For the past 5 years, the pendulum has been pegged at the far end of the spectrum where investors discounted nearly all risk and, as a result, valuations were irrationally high across all stages.   In the past few weeks, that pendulum has swung wildly to the opposite end.   I believe that the public markets have over-corrected on tech valuations but that is a topic for another blog.   In this blog, I’d like to explore some other pendulums in venture capital that I believe are also in motion at this time.  Not surprisingly, these pendulums are all interconnected so it makes sense that they would move somewhat in unison.

Growth vs profitability

One pendulum that is clearly tied to the risk and valuation pendulum is the focus by investors on growth versus profitability.  For the past 5 years or so, investors have encouraged startups to invest aggressively to drive growth, often without concern for efficiency or unit economics.   And it has worked.   With cheap capital, we have all witnessed Hype Cycle Growth, where companies raise money, hire aggressively, grow revenue and then raise more money to repeat the cycle.   Interestingly, the very same venture capitalists who encouraged companies to grow at all costs are advising startups to cut burn rates and grow more efficiently.  This chart from the Wall Street Journal clearly shows how the pendulum of growth vs. profitability has manifested itself in the public markets for IPOs over the years. 

Young vs. Old

Another debate that has gone on for years, especially in Silicon Valley, has been the relative benefits of youth.  In the past 10 years, largely driven by the success of a few notable young founders, the pendulum in Silicon Valley has been pegged on the belief that youth is the key to success.  And, unfortunately, that older people cannot contribute.   There is even the belief that a 45-year-old can no longer practice venture capital.  To be sure, young people bring amazing new ideas, perspectives and risk tolerance to the table and have created incredible successes (and will continue to do so).   But, as this current hype cycle ends, I believe that the pendulum is swinging back (based on the success of many older members of the silicon valley community) to a more rational position where the contributions of older executives, entrepreneurs and VCs will be increasingly relevant, recognized and respected.  

Operating VC vs. Generalist VC

I admit that I bring some real bias to this particular debate (and, yes, the age debate as well).  Over the past few years, the belief has been increasingly accepted that only those with operating, technical or product experience can be successful venture capitalists.  For several years, VCs who were hiring would only consider (usually young and sometimes very junior) product executives coming out of Google, Facebook, Snapchat, etc.   Many of those hires will become fantastic venture capitalists, including a couple that I've been lucky enough to work with directly.  Of course, many will not.  I’ve seen many highly successful operating executives never make the transition to investor.  On the other hand, I’ve seen many venture capitalists who didn’t have operating experience rise to the top of the Midas list.  All you need to do is look at the backgrounds of Peter Fenton, Bill Gurley, Mike Moritz, Fred Wilson, and countless others to realize that successful venture capitalists can come from a variety of backgrounds.  I believe that the pendulum for this has rightly swung back to a point of equilibrium to take this into account.   

What other pendulums do you think are swinging right now?