Tech Deciphered

Episode 24 ends our trilogy on Silicon Valley and our “no bs” contextualization: from its history, geography and its most common and core myths. 

In this episode, we deep dive on our Silicon Valley loves (and hates) and finally address the elephant in the room: is there an exodus going on or not? Has Silicon Valley’s downfall started or is it highly exaggerated? Listen to our most contentious podcast yet.

Navigation:

Introduction (01:33)

Section 1: Hates (02:19)

Section 2: Loves (33:51)

Section 3: The Future of Silicon Valley (54:41)

Conclusion (1:13:09)

Our co-hosts:

Bertrand Schmitt, Tech Entrepreneur, business angel, advisor to startups and VC funds, co-founder at App Annie, @bschmitt

Nuno Goncalves Pedro, Investor, Managing Partner, Founder at Chamaeleon, @ngpedro

Our show:

 

Tech DECIPHERED brings you the Entrepreneur and Investor views on Big Tech, VC and Start-up news, opinion pieces and research. We decipher their meaning, and add inside knowledge and context. Being nerds, we also discuss the latest gadgets and pop culture news

Subscribe To Our Podcast

Intro (01:34)Nuno: So today in episode 24 of tech deciphered, we'll be finalizing our trilogy on Silicon valley. Our non bullshit view on Silicon valley, which started in episode 22, talking about what Silicon valley is and what brought us here, then continues in episode 23, with an episode specifically on the mythology of Silicon valley and our sevent myths of Silicon valley.

And today we will end with love, hate - our areas of love and our areas  of hate of Silicon valley and the bay area. And we will finalize with Silicon valley in transition. Is there an Exodus? Is this a mindset? Is this a geography? What will happen to this region? Bertrand?

Section 1 - Hates (02:19)

Bertrand: Should we start with things we love or things we hate? 

Nuno: I started with hate let's start with hate. And then we go to love. Yes.

Bertrand: Let's start with hate. That sounds very very harsh, but there are some reasons to be harsh about Silicon valley, not everything is the paradise you can read from far.

Nuno: Yeah. So maybe starting with the most obvious of them all, with crime safety, homelessness, and here we have to be very specific because obviously there's this situation for example, of San Francisco and crime and homelessness in San Francisco, which is pretty pervasive. And in some ways it's been a little bit amped up also with COVID as a lot of people left town and certainly are working more remotely.

But definitely there is a problem in San Francisco. There's a problem also elsewhere, Oakland, I think is having a little bit of what I would call a Renaissance. It's getting and becoming an exciting city and and solving a lot of its issues. But obviously we know the history of crime in Oakland is also a very serious one.

And then you have places that have obviously no crime at all, like Atherton, the richest town in America or the wealthiest town in America where, finding crime is probably difficult. So really a tale of two bay areas, so to speak or to Silicon valleys  

Bertrand: Sorry let's not forget east Palo Alto 

Nuno: Yeah.

You have these dichotomies exactly to your point Bertrand, where you have Palo Alto, which we know next to Stanford and where a lot of very wealthy people live like mark Zuckerberg and others which is in general, relatively safe here, and then just east Palo Alto, which is not as safe. 

Bertrand: The other side of the highway.

Nuno: literally the other side of the 1 0 1.

And so again, in some ways it's a little bit quintessential American, right? We know that from other cities like Chicago and in LA and other parts of the U S where you have certain areas that have  for a variety of reasons a significant amount of lack of safety and crime and all of that.

And then you have areas that are extremely safe and extremely  controlled in terms of crime as well. So I think the first hate we probably both share, there is a feeling of being unsafe in certain areas here in San Francisco. There's parts of the town where you walk through that,  depending on the time of day you're moving through, et cetera, it does feel incredibly unsafe.

Both of us moved here from Beijing and, that's definitely very different from Beijing.  And that's clearly a big hate on my list.

Bertrand: Yes, Beijing is definitely safe. I still remember one of my trips to San Francisco before living here and taking naively a hotel just four blocks west of the center of San Francisco, Union square and ending up in the Tenderloin, not realizing that it will be full of homeless people, needles, feels very scary at night.

So that was a mistake. You don't want to get a hotel in the Tenderloin.  For me, however, what has been amazing is that first it's such a great, beautiful city, world city. Right in the middle or very close to the middle, you have such an area of   somewhat lawlessness, but  it feels like it has extended across the years to the rest of the city.

And that has been something pretty scary. I've heard stories, anecdotes of people I know very well,  very close to me who got mugged at gunpoint. I know people very close again who have been beaten so strongly in the street for no reason that they ended up a week at the hospital. And I'm talking about people you will not think they will get beaten by anyone. I'm talking about very big, very large people who ended up being beaten on the street for no good reason.  In the middle of downtown, in the good part of downtown in a way, quote on quote.  So there is a level of lawlessness that, at least when I arrived in 2014 was not there at least not beyond the Tenderloin and it feels that it has expanded.

And as you talk about COVID one thing that definitely shocked me when you had so few people in the streets of San Francisco: it was construction workers, and homeless people. So it was very weird because you were used in some ways to seeing 10% of, I don't know, homeless people in the street 5% and suddenly jumping to 50%,  and obviously they were not wearing mask or anything.

Nuno:  The point on expansion, I think when COVID, as I mentioned with people moving around did amplify the areas of town where people were moving into. And also there were encampments and specific areas that were allocated for homeless people. So obviously there was a bit of a change in terms of the geography of it.

Homelessness in San Francisco has always been linked to a variety of things to drug abuse to mental issues, et cetera. But from what I know,  economic homelessness, so people that really don't have the money to afford the home, et cetera, increased dramatically pre COVID.  I'm not sure where it is with COVID but it does feel in some ways that there are a lot of parts of town   where you wouldn't see a lot of homeless people, and people that were without a home.

That those parts of town expanded quite a bit during COVID. We'll see what happens in the future, this is not an anti homeless episode. It's more like, it does feel at times, I think San Francisco is a particularly good example of that, that there's a lot of crime, that's you just wonder, how can one live and one of the in principle most prosperous areas of the world and deal with that complexity and deal with all of that.

And it's not about eliminating and telling homeless people, they need to go away or drug addicted people or whatever. It's more about how do you control crime in this type of environment.  And to a certain extent, it does feel unsafe. I do feel unsafe. So that's our first, that's our first one.

Bertrand:  we won't solve this question 

Nuno: It's a complex, it's a complex question.  

Bertrand: but for sure it doesn't feel right. For sure it's a problem that just got worse, as you say, encampments, tents, that was not something you saw much in San Francisco in 2014 when I moved. It has totally exploded and there are a lot of metrics to back that  and it doesn't fit connected in any rational way to what should be happening in this city.  And you know there are a lot of very weird stuff happening. For instance, I remember hearing that a lot of cities outside San Francisco are dropping the homeless in San Francisco. 

So I have heard stories about sheriffs or police cars from these cities dropping the homeless in San Francisco, because they will be taken care of quote-on-quote. You have a lot of subsidies that San Francisco is doing, spending money on homelessness that attracts people obviously and there are crazy metrics.

I remember one metric around the cost of homelessness in San Francisco. I think the city is spending $100K a year per homeless person. So basically they are spending more money on each homeless person than the average salary in San Francisco, which is probably around 80 K the average income of the San Franciscan.

So there are things that simply don't make sense, and that are happening  in this city.

Nuno: There's history behind it. so maybe to finalize this point, cause we don't want to hamper too much on it. It is important to understand the history of San Francisco.  Everyone thinks San Francisco is by nature, a liberal city, a very liberal city. And in reality, it became a liberal city as a reaction to being a very conservative city.

There's a great book called season of the witch by David Talbot which talks about that transition, but seen through the eyes of summer of love and the repercussions of that. But again, it's a wonderful thing to look into, as you said and rightfully so Bertrand, we won't solve it. I don't think we understand enough about it to be able to solve it.

And many intelligent people have looked into it. But it's definitely a big big hate 

Bertrand: Maybe to follow on some things that is a bit more specific to San Francisco versus the rest of the bay. It's also all the issues with permitting and education for people who follow what's happening in San Francisco....

In episode 23, we demystify 7 of the most common and core myths on Silicon Valley, from its laid-backness to “everyone is amazing”. 

Check out episode 22, where we explain what Silicon Valley actually is, talk about its history and geography. In episode 24, we will deep dive on our Silicon Valley loves (and hates) and finally address the elephant in the room: is there an exodus going on or not? Has Silicon Valley’s downfall started or is it highly exaggerated?

Navigation:

Intro (01:34)

Myth 1 - Laid Back (04:25)

Myth 2 - Not Transactional (16:11)

Myth 3 - Self-Confidence and Assertiveness (27:22)

Myth 4 - Ton of Capital Available (37:29)

Myth 5 - Everyone is Amazing (47:31)

Myth 6 - Failure Always Rewarded (55:17)

Myth 7 - “Changing the World…” (1:00:49)

Conclusion (1:04:49)

Our co-hosts:

Bertrand Schmitt, Tech Entrepreneur, business angel, advisor to startups and VC funds, co-founder at App Annie, @bschmitt

Nuno Goncalves Pedro, Investor, Managing Partner, Founder at Chamaeleon, @ngpedro

Our show:

 

Tech DECIPHERED brings you the Entrepreneur and Investor views on Big Tech, VC and Start-up news, opinion pieces and research. We decipher their meaning, and add inside knowledge and context. Being nerds, we also discuss the latest gadgets and pop culture news.

Subscribe To Our Podcast

Intro (01:34)

Bertrand: Welcome to episode 23 of tech deciphered. This would be our second episode of our trilogy around Silicon Valley. If you remember how  previous episode, episode 22 was about what is Silicon valley, as well as what brought us there. For this episode, we're going to talk about the myth of Silicon Valley versus reality. And we are going to share with you seven myths that we have seen over these years, and we believe come a long way explaining how Silicon valley really work.

Nuno: This started in some ways  with an article I wrote, I think in 2016 and I have four myths in that article. So today we're going to expand on that. Bertrand has come up with a couple more and that whole story started  with two things, one with an entrepreneur that reached out to me and I used to have a lot of requests on LinkedIn via email  semi warm intros from friends about someone from another was coming to Silicon valley or was visiting, was going to come to Silicon valley to visit and meet with potential customers or investors.

But this particular entrepreneur that shall go un-named reached out to me and we had several people in common. It was a relatively cold reach out. And then he just sent me a follow-up message saying, I'm going there for a visit. Can you introduce me to Google, Facebook, all these companies. And I was like, why am I bugged by this? And as I started thinking through it I started actually taking it one step further, which was, I am bugged by it because people have this understanding of Silicon valley that is fundamentally wrong. And that's where this whole mythology came from.  In some ways we had people that we knew in common.

We had acquaintances, not even really close friends, but I did not know this person. And that was one of the first things that bugged me. It's like, why is he asking me for things? I introduced him to people why? I don't know this guy.  And so again, I started going through it, and the second trigger for me to write this article, the myths of the Bay area back in 2016 which is still on Medium  if you want to take a look at it, I was about to be doing a keynote for an organization that I was a co-founder of called west to west, which was really linking  Portugal to Silicon valley, the two west coast as we call them and really helping entrepreneurs figure out how to best go to market in the U S how to best connect with talents in US, customers, potential investors, et cetera.

So I came up with four  myths that really helped me frame in some ways, a little bit of my messaging back to entrepreneurs that are not classically from Silicon valley, but are coming here. And maybe we'll start with the first one, and go from there. 

Myth 1 - Laid back (04:25)

The first myth I really identified was that the bay area is laid back.

There's this clear notion from around the world. It's like people in the Bay area  are laid back. And a lot of this mythology is around for example, the way we dress that we wear hoodies that we have t-shirts that were pretty informal in how we dress, even in front of investors that we're trying to raise money from, et cetera.

Bertrand: Specially  in front of investors. 

Nuno: Specially in front of investors. And that is precisely the point to what Bertrand was saying, which is the Bay Area is laid back in a very precise manner, which is it's not laid back. It's just a different dress code. If you  show up for a meeting with an investor in Sand hill road, Silicon valley, and you're wearing a blazer, a jacket, et cetera, immediately, the investor will know you're not from here.

The reason by the way that we wear a whole lot of hoodies is  the bay a area is a bit of a strange  climate, depending on where you live. Like San Francisco is a bit drizzly and all of that. So hoodie makes a lot of sense in effect, right? Because there's changes of temperature that are dramatic during the day because you want to cut the wind.

And sometimes it's pretty windy because it's drizzly as well. It doesn't rain heavily, but it's drizzly. And so that's one of the reasons why we do wear hoodies and  somehow people got confused, they confused what we dressed and how we apparently talked to each other with fundamentally the mindset. I would say the Bay area is very intense in some ways.

If laid back, it is a laid back in a specific manner. I had a friend of mine who used to characterize it as aggressively laid back and what he meant by that is it's laid back in a very specific manner. If you behave in a different way, you're already strange, certainly in the entrepreneurial and VC space, obviously, as we've discussed in our previous episode, the bay area does have corporate world and does have the entrepreneurial world, which don't always touch.

But certainly in the entrepreneur and VC world the dress code and how we behave is in some ways a bit formatted. It is cool that I can wear t-shirts almost all the time. I think the classic way for a VC to dress is kaki and shirt. I sometimes break that as well, cause I'm a cool kid, so I will go t-shirt hoodie, and go in even a more relaxed way than most of my colleagues in the venture capital world.

But in some ways the dress code was what led me initially to this myth.

Bertrand: Yes. And if we stay to the VC side, of course you need your north face vest or, Patagonia jacket.  Yeah, it's pretty funny. It's when you start to see that at scale, how everyone  looks the same in the same category, so you can immediately guess who is a developer, for instance, they are the one wearing shorts and having a t- shirt  or if you are a VC we talk about the vest, the jacket, jeans.  And if you are the entrepreneur yes don't wear a blazer , don't wear a jacket typically that's not what you would do.  Personally that's one side I like that you  don't need to do too much to wear too much. It's way more casual. It's probably more connected to how people naturally live and dress, but at the same time, when it's enforced in some ways, that's when it starts to feel weird.

And I've seen that. I still remember 20  20 years ago, early in my career, when I showed up in France, actually in an investor meeting as an entrepreneur,  with  a jacket   one investor told me that I was not a real entrepreneur because I was wearing a jacket. And that was in 1999, maybe I forgot  but my point is when it's enforced that's when it start to be very weird and to be frank really wrong. But you have to be aware of the codes because if you are totally  out of what is typical and expected yes. You would just stand out and usually you want to stand out for the right reason.

Nuno: The standing out piece is if you have a very specific way that you like to dress and a very specific way that is  different and you stick systematically to it, that might work over time, people will get used to it. Kevin Systrom was  a great example. He was well-dressed most of the time  which in Silicon valley was almost a blasphemy and others have followed suit on that, which is a bit of a double pun there.  But in some ways it has to be part of your personality. I think obviously if it is part of your personality, you should do it. It shouldn't be just a gimmick. But you need to be careful to your point Bertrand

Bertrand: Yeah. And please be careful. Don't just dress up like Steve jobs  with your black pullover,  blue jeans. 

Nuno:  With a turtle neck.

Bertrand: Exactly the turtle neck. have seen some in China, some in Silicon Valley dress up like this and usually it didn't end up  very well for those that were just plainly copying Steve Jobs  .

I would say may he rest in peace and please just let him be, and don't try to copy, try to be slightly original because when it's too much, it's too much.

Nuno: Yeah, the second lateral part of the aggressively laid back, et cetera, is also attitudinal on how we behave here. That part's really important. I think a lot of people like, yeah, we're all very relaxed around how we communicate with each other,  how we show up to meetings, et cetera.

Actually, not really people need to show up on time, be it a call, video call in person. Responsiveness is pretty important in keeping  momentum. So if someone sends you an email, they're a potential customer and you want to show momentum. You should reply quite quickly, right? Even somehow showing effort in doing so.

Like for example, if you're European company and you get an email at 11:00 PM, you still saw the email, getting back to the person in Silicon valley, actually at 11:00 PM might be a positive thing because people are like, okay, this person is making an effort,...

In episode 22, we begin the second season of Tech Deciphered, by deep diving into what Silicon Valley is, what made us (and others) move here, its unabridged mythology and whether there is really an exodus (or not) going on. This episode is the beginning of a trilogy that is an ode to our love and hate relationship with the region.

Navigation:

Intro (01:34)

Section 1: What (exactly) is Silicon Valley? (02:23)

Section 2: What brought us (and others) to Silicon Valley? (32:15)

Conclusion (46:09)

Our co-hosts:

Bertrand Schmitt, Tech Entrepreneur, business angel, advisor to startups and VC funds, co-founder at App Annie, @bschmitt

Nuno Goncalves Pedro, Investor, co-Founder and Managing Partner of Strive Capital, @ngpedro

Our show:

 

Tech DECIPHERED brings you the Entrepreneur and Investor views on Big Tech, VC and Start-up news, opinion pieces and research. We decipher their meaning, and add inside knowledge and context. Being nerds, we also discuss the latest gadgets and pop culture news.

Subscribe To Our Podcast

Intro (01:34)Nuno: Welcome to season two of Tech Deciphered. Today, because we like to do really long episodes, we will start our trilogy on Silicon Valley. This episode will focus on what Silicon Valley actually is. We'll go into the geography of Silicon Valley, the origins of Silicon Valley, the development of Silicon Valley. Then we will also talk about what brought us here, what brought Bertrand and myself to Silicon Valley.  In the next few episodes, we will go into the mythology and reality of Silicon Valley as well as other areas of love and hate , and we will finalize with Silicon Valley in transition. Is it a mindset? Is there an Exodus? Is there a no exodus?Bertrand: Thank you Nuno, good to be here with you today.  How are you?Nuno: I'm well, so let's start with what is Silicon Valley? Section 1 - What (exactly) is Silicon Valley?Today we start with what is Silicon Valley? And one could say Silicon Valley is a state of mind, but it's actually a region of the world with a long history behind it. Bertrand do you want to guide us a little bit through the long history of Silicon Valley and where we're at?Bertrand: Yeah, sure. So as you say, it's a long history, but that depends by which standard? Nuno: For someone from France and Portugal probably not very long, but yes.Bertrand: Or ChinaNuno: Long from a US perspective, I guess. Bertrand: It's one of these places where you don't have much standing that is more than a hundred years old, and one could argue, it might be because of earthquakes. But not just, I would say the modern California is probably and Northern California is probably 150 years old, started with the Gold rush.And maybe before I go to the gold rush, obviously California was  in some ways discovered by the Europeans  500 years ago Nuno if we go back  to the origins of California and Northern California, and it was a spaniard, a Portuguese?   Nuno: We will not have that discussion. And obviously it's not questioned whether it was discovered, it was here, and there were native people here and then.  The Spanish conquistadores arrived. There is some argumentation whether Cabrillo  was actually Portuguese or Spanish, but he was definitely working for the Spaniards.So we'll let them do that. We'll let the Spanish people get that.Bertrand: Yes.  So California  was interspersed by a lot of missions and that connected the main roads. Actually historically the main road in Silicon Valley, El Camino Real, Nuno you want to say what it means.Nuno: Yeah, the Royal way. So it was a way that was put there to connect the different missions. And it was the Royal way because the Spaniards were here at the service of obviously the monarchy in Spain. And that's why it was called the Royal way or Camino Real. So now, you know.  Bertrand: And so, that's for me interesting part of Silicon Valley to think that you are on the Royal way most of the time when you are going from city to city. And actually California became American after a fight between  some different powers from Mexico to Russia to France Nuno: Having in the first five minutes should avoid creating a geopolitical clash. So yes, there were people here and then there were other people here and then there was some wars and we don't have a view, we will have no judgment, we will just shut up.Bertrand: No judgment. And  so that was around 150 years ago. What happens then what started to accelerate very quickly after California became part of the US and one of the latest state was the gold rush. And actually  California is called the Golden state. Golden, not because of the sunrise, but because of the gold.  That's what started it all in the sense that's what started to bring people to California. California had native people, as you said, but ultimately not so many. And that's when started that big rush of people coming to California. And for me, that's an interesting story to remember, that in a way California was started with the gold rush, a true gold rush, but we are still even today in the middle of a gold rush with tech companies. So there has been a mindset for now 150 years of coming here, trying to establish something new, trying to build wealth and trying to do it quickly if possible.And people from all over the country or from all over the world coming here. When you think about it, people from all over the place from Europeans, Asian were coming already for that gold rush or at least were promised land of opportunities.Nuno: And one important aspect is obviously the building of the railway connection to the rest of the United States. And so the importance of not just looking for gold here, but also the importance of creating an infrastructure that connected in some ways, the country from one end to the other was pretty vital.And thus, we had all these different workers and, it was the notion of going West. That's where the opportunity was, where the new riches was the land was. And obviously ideally the gold was right. There was always this object at the end of the day of which was more valuable than everything else.But in some ways it does characterize the mindset, this notion of opportunity that we take a little bit for granted, of the American dream. It's actually very, probably best edified at the two edges of the coast, New York and here. And in some ways San Francisco was that. San Francisco was the polar center in many ways of that gold rush and that development.Bertrand: Yes.  and so after that, what we have seen is California being first farmland you had on some part, gold rush then you had farmlands, huge lands. One uUof the biggest estate was the one from Mr. Stanford, who ultimately gave some land to Stanford University.   Nuno: And being an alum of Stanford, I have to represent that this gentleman was a railway tycoon. So there's some argumentation on how he actually made his money, but the most edifying piece of it is, the fact that they decide to build the university and decided to create and give away the land and give his resources to it, and structure the land in a very special way.I don't know if you know this Bertrand but the land of Stanford really cannot be sold. So there's stuff today that is in Palo Alto that is actually owned by Stanford and it's really long-term leases, but it can't be sold. So it's not like the university can get rid of land just to pay for stuff. They actually can only lease it really over long periods of time.So very interesting you know how someone made their money out of this, literally this gold rush or this going West build of infrastructure and then decide, okay, I'm going to give it back and I'm going to build something that's bigger than me. And it will withstand the test of time and it has shockingly enough.Bertrand: Definitely has. Is one of the better names thanks to that act.  From there we got the development of the aerospace defense industry, as well as semiconductor and measurement industries. And it started probably just right before world war two.The late 1930s that we saw that growth in these technical science industries.Nuno: Yeah and actually the beginning of the 20th century, there was already quite a lot of things going on because of Navy and the presence of trying to communicate and doing transpacific communications, obviously Marconi had already done the transatlantic connection on the other side.So there was already a little bit of an impetus to have the military involved. And if we look at California in general, not just the Bay area there are still military bases in California, obviously San Diego having very significant native presence. And in some ways, a lot of people, when they talk about Silicon Valley, they always talk about later Silicon Valley.They don't talk about the beginning of Silicon Valley, which as you mentioned, rightfully so was really fueled a lot by defense contracts, the aerospace, the Lockheed Martins, et cetera of the world that were really building things that were infrastructurally very important in terms of the defense or the perceived defense of the United States.And then with the war and world war two in particular, that became pretty vital to the development of the American economy.Bertrand: And then in a way the Silicon Valley we all know  was really started with HP. Stanford alums  setting up shop close by. Building their first measurement tools and step by step developing quickly the business thanks to the war initially. And basically they also started this myth of the garage we might talk more about that. The business was started in a garage in Silicon Valley. And sadly so HP is not, at least HP enterprise is not headquartered anymore  in Silicon Valley. Nuno: They sold their measurement unit effectively. So Agilent was sold some time ago. It was spun off some time ago.Bertrand: Yeah I was talking about the more recent spinoff from HP enterprise ....

In episode 21, we will end our first season of Tech Deciphered, by taking  a look back at 2020 - spoiler alert: defined by something starting with a C and ending with a 9 - as well as what we expect to happen in 2021. We will share our answers on questions like: Will we finally get rid of this pandemic? Is there a bubble in the public equity market in the US? We will also share our own personal lessons-learnt. For a more in-depth look at the future and the 2020s, please listen to episodes 11, 12 and 13, and for a more detailed view on COVID-19, please also listen to episodes 9A and 9B.

Navigation:

Introduction (01:24)

Moment of Silence - In Memoriam (02:32)

Section 1 - Recap on 2020 (03:00)

Section 2 - Personal stories (26:11)

Section 3 - COVID-19 and Macro Outlook for 2021 (32:10)

Section 4 - Outlook for Tech in 2021 (42:42)

Season 2 Preview & Conclusion (51:24)

Our co-hosts:

Bertrand Schmitt, Tech Entrepreneur, business angel, advisor to startups and VC funds, co-founder at App Annie, @bschmitt

Nuno Goncalves Pedro, Investor, co-Founder and Managing Partner of Strive Capital, @ngpedro

Our show:

 

Tech DECIPHERED brings you the Entrepreneur and Investor views on Big Tech, VC and Start-up news, opinion pieces and research. We decipher their meaning, and add inside knowledge and context. Being nerds, we also discuss the latest gadgets and pop culture news.

Subscribe To Our Podcast

In episode 20, the last of our trilogy on recruiting, we share advice to candidates, from ideas and processes on how to best be visible to recruiters, to how to get the job of your dreams. Also listen to our episodes 18 and 19, in which we share our core principles in recruiting and detailed advice to recruiters.

Navigation:

Introduction (01:24)

Section 1 - How to get found (02:10)

Section 2 - How to get the first interview (04:08)

Section 3 - Interview questions (07:13)

Section 4 - How to get the offer (23:56)

Section 5 - Remote world (29:00)

Conclusion (39:59)

Our co-hosts:

Bertrand Schmitt, Tech Entrepreneur, business angel, advisor to startups and VC funds, co-founder at App Annie, @bschmitt

Nuno Goncalves Pedro, Investor, co-Founder and Managing Partner of Strive Capital, @ngpedro

Our show:

 

Tech DECIPHERED brings you the Entrepreneur and Investor views on Big Tech, VC and Start-up news, opinion pieces and research. We decipher their meaning, and add inside knowledge and context. Being nerds, we also discuss the latest gadgets and pop culture news.

Subscribe To Our Podcast

Intro (01:24)

Nuno: Welcome to episode 20. This episode, will conclude our trilogy on recruiting. 

In episodes 18 and 19. We've discussed a variety of topics. We introduced the element of recruiting. We shared our own core principles around recruiting, and in the last episode, episode 19, we gave advice to recruiters. 

Today, we will be discussing advice for candidates all the way from being found to how to be recruited in a changing remote world.

Bertrand: Let's take the other side. Let's think from a candidate perspective. What could be our advice for candidates. And obviously there is probably a lot of advice we can give. 

Section 1 - How to get found (02:10)

Nuno, do you want to start on maybe how to get found?

Nuno: Yes, and just to reframe this, this is not just based on third-party knowledge in the last decade, because both of us, have not been candidates, cetera, . I certainly have been reached out by a number of organizations. I've explored things beyond my own realm. And there's obviously a lot of lessons learnt here that I think are still very fresh. The first piece is how do you get found, right? Who finds you and how do you make yourself visible in the market? 

definitely LinkedIn, your profile needs to be clean. It needs to be clear and sharp about what you're able to do or not. My LinkedIn profile is awful for that, just to be clear.

So please don't look at my LinkedIn profile to get any great clues on that, having clarity in what you've done and what you're an expert on and what are your achievements have been Turning your LinkedIn into a richer type of resume is very powerful. If you're an engineer, Github Gitlab and other tools also convey a lot of these elements of being found in the market. 

so that's the beginning. It's almost like your advertising systems and services that you want to be present on for recruiting

depending on the area you're in. Obviously you should explore. Having some warm relationships with recruiters. And particularly as you get more senior and you moved to a middle level ranks or senior level ranks. knowing your recruiters and having them, having your mind. I believe that recruiters in Europe and Asia, I've shared this with many of my friends, external recruiters in Europe and Asia are less transactional than in the US and because of that, they normally keep warmer relationships with candidates through the years.

I certainly have warmer relationships. With some of the recruiters that I interacted with in Asia and in Europe and maybe in the us, this is again, a simplification obviously it varies very much with the recruiter and the individual, himself or herself. but definitely understand where the recruiters are, what's being done, et cetera.

And then the final piece around being found is if you're looking for a specific type of job, you need to find a job and you need to figure out the angle to it. 

Section 2 - How to get first interview (04:08)

Which maybe leads us a little bit to how to get through and get to that first interview and jumping through the hoops. But certainly there's a lot of elements of being proactive, reaching out to companies. there's a lot of amazing stories which are not just urban myths on. I remember Tristan Walker, I believe on how he got his gig. at I think it was at Foursquare early on and how he reached out to Dennis, and I always send him an email and said, I'm just fascinated by you guys. I'd like to join you. I hope I didn't get the story wrong, but that's for me. a really cool example. And so certainly if you're coming out of an MBA, maybe if you're a little bit more junior to mid-level, you can get away with a lot of this stuff. If you're more senior navigating your network, pushing forward. Saying this role would be really interesting.

I'm in the market and being a little bit more forthcoming towards warm pieces of your network or warm nodes of your network. As I normally call it is a really good way to get through that first jump of resumes. into First interview. 

Bertrand: That's a good point, I was smiling, when you talk about this person, that Foursquare, because  I've heard similar stories with Uber for instance.  I forgot who at Uber, but maybe employee number one who reach out directly to Travis and got the job reaching through Twitter and when you read the story, it's pretty amazing outcome for both of them because it worked out very well. I think you should not hesitate to reach out directly to a CEO, depending on the position if it's high level enough in the organization . The CEO usually will follow up and make sure that people are going to follow up inside the organization.

It has to be high enough, obviously. You cannot have every request from everyone, but I know myself I'm always careful when a candidate reach out.  

Nuno: Basically  I've seen a lot of people recently, , being a venture capitalist that reach out to me saying, Oh, this person, or you invest in this company, or I believe you have some connection to this company. And in many cases, they are senior people and they saw a position that's super exciting to them.

They reach out, can you reach out to this person? What I always say is warm is better than cold. Warmer than less warm. And what I mean by that is if you're going to ask for an intro, the two things you need to make sure is one that my connection, the person that you're asking to make that connection.

Has a warm connection to the other side and you're looking for the warmest possible collection. So if it's a portfolio company that's very warm. If it's a VC and it's not a portfolio company is less warm. So you have to assess a little bit the type of relationship. And the second piece is the relationship to yourself.

So if the person that's in the middle, that's making this intro, actually has never worked with you. they can't vouch for you. If they have worked with you, then that's a super-duper vouching piece. So it actually gets you ahead. So again, it's gradient, it's a little bit fuzzy logic.

It's not a. Black or white piece, but do make sure that you have the right person to do that intro the right channel to do that intro. That is the warmest possible intro to the table because that gets you not only the first interview, but it gets you a lot of credibility throughout the process. Yes. 

Bertrand: That's a fair point. People ask for one reference and you barely know them, and what's the point ? There's no point.

Section 3 - Interview questions (07:13)

We wanted to show a list of interview questions from First Round VC. Who had a very good list of some of the top interview questions. And obviously, that's very useful for recruiters, but obviously candidates would want to prepare on that.

And maybe we can go into some sort of rapid fire mode to share some of the typical question, but also what people are really looking for ultimately, because behind a question, there is always, an angle about  what you are expecting in term of: are you expecting something directly in the answer or are you looking for a thought process? Or are you looking for indirectly some proof points? But it's not always as obvious as it looks when  you hear the question. Do you want to start a few of the first ones?

Nuno: Yes. and I'll share a few that align with some questions. I also ask. but I would say

the powerful element of all the questions we have here is normally they align with three core areas that you should be asking questions around. One is depth of knowledge and depth of what you've done in the past, which is has this person really done this.

What skills did they really have, et cetera. And if you look at some of the questions, there is hidden questions, they are open questions that show you that the second piece is value system. What values do you stand for? What is the type of decision-making and ethics that you have? How do you work with other people on your team, et cetera.

And then. The third piece of the puzzle is really around, how do you see yourself fitting into this? And it's more than cultural or value based, it's really the element of passion and why us, right? Why would you join us? and, I think very little time is spent actually on that.

It's very interesting to me. So just highlighting some of the questions .  I actually was smiling when I was seeing some of the questions. Some of them I've been asking for a long time, definitely the, how do you see yourself? in this case, it's three years down the road. In my case, I asked, how do you see yourself?

Five years down the road? What sort of role will you be in? What skills will you have developed that you don't have right now? There's a lot of elements around that position yourself in the future, but they'll also show what you have today. they show your aspirations, then they show how you will fit into the organizatio

In episode 19, we share detailed advice to recruiters, sharing views on job descriptions, finding talent, interview process, good and difficult interview questions, other hacks, as well as our own “pet peeves”. This is the second episode on recruiting. In episode 18, we framed the discussion and shared our core recruiting principles, including in compensation, and in the design and development of the recruiting organization. Episode 20 will end our trilogy, by focusing on detailed advice to candidates.

Navigation:

Introduction (01:24)

Section 1 - The Job Description (02:00)

Section 2 -  Hacks & Tools (10:19)

Section 3 - Finding Talent (15:04)

Section 4 - Interview Process (18:14)

Section 5 - Other Hacks (31:52)

Section 6 - Pet Peeves and Dislikes (39:17)

Conclusion (41:27)

Our co-hosts:

Bertrand Schmitt, Tech Entrepreneur, business angel, advisor to startups and VC funds, co-founder at App Annie, @bschmitt

Nuno Goncalves Pedro, Investor, co-Founder and Managing Partner of Strive Capital, @ngpedro

Our show:

 

Tech DECIPHERED brings you the Entrepreneur and Investor views on Big Tech, VC and Start-up news, opinion pieces and research. We decipher their meaning, and add inside knowledge and context. Being nerds, we also discuss the latest gadgets and pop culture news.

Subscribe To Our Podcast

Intro (01:24)Bertrand: Welcome to episode 19. This is the second episode in a trilogy of episodes on recruiting that started previously, with episode 18. In this new episode, we are going to focus on the recruiter side: writing a job description, the tools and approach to find talent, the interview process, global differences, the evergreen approach to recruiting, closing candidates. And we will conclude on our pet peeves and dislikes.Section 1 - The job description (02:00)Nuno: And maybe switching and going into the weeds a little bit on advice that we would specifically have for recruiters and starting with the job description.  The job description is normally this painful thing that someone has to do that involves some copy pasting, hopefully if there's a template or some Googling in the middle, to define what the job looks like.I think this is absolutely the wrong approach, just to be clear. A job description, I think has two sides to it. There should be an external job description, which is manifested to the market. That can be used with external recruiters, that can be used with candidates directly. And that should be sharp and really conveying what hard skills are being looked for, what soft skills are being looked for, what is the value system of the organization, and obviously a brief description of the organization, and finally, a little bit on how that position would fit in terms of roles and responsibilities within the organization. Those four or five things need to at least be there.It should be sharp, it shouldn't be a three page job description. I've seen seven page job descriptions. I'm like, why?Bertrand: No way.Nuno:  Is anyone gonna read that? And sharp should be one page, very clear, there should be a lot of attention to the words that you use and the clarity on it.And it should really be appealing. It is a marketing material. I'm not saying it's not, but it should also be clear in filtering people that have certain skills versus others, people that have a certain value system versus others, et cetera. Then there's a little bit the internal job description, which also should be very clear. Which is, who is this person going to report to, what are going to be the day to day of this person, the complexity of it, et cetera.I'm not sure that needs to be manifested in a very formal way. But there should be clear understanding around the table, from the hiring manager all the way, maybe to the CEO early on in the company, to the person that's managing the recruiting process so that there is clarity on what works and what doesn't.If there are some unwritten rules that are not in the job description that is shared externally, it should be there. It should be clear to the team what actually are we looking for here. And so again, for me, the job description is an incredibly important tool of framing to get the right talent, so again a marketing material, to frame that talent against the rest of the market, and also to be used as an internal play on these are the flags that we have in mind. And this is what we're looking for. The final point I would make on job description is, sometimes job descriptions are incredibly prescriptive. I'll give a stupid example. Someone who has a tremendous amount of experience in doing partnerships, for example, in the financial industry or the financial services industry might not have been someone who was in business development for the last 15 years.It might've been someone who was doing something else around that industry for the last 15 years. And so sometimes I feel that if the job description is badly framed, it also frames really badly the type of talent you're looking at, in particular if you're using external recruiters, that's even worse. Because they're looking for a very specific type of profile, and that means you're formatting everyone that you're recruiting in this industry. I remember having a discussion with someone a few years ago, a very large tech company that's well-known was hiring a VP of Corporate Development and someone had reached out to me about that position.And as I was having that discussion, I met someone who used to be the VP of Corporate Development, maybe two cycles before. And that person just shared with me, "they're going to hire someone from Google or Facebook". And I said, "why?" "Because that's what they do". And so again, this cycle of formatting, right? Where you have people that run around with the same playbooks. If you are looking to change fundamental your playbook, you shouldn't go and hire someone who's been doing the same playbook for five years, right? Unless maybe that's the playbook you want to follow, but you should have someone that can recreate a playbook from scratch and maybe the right talent is not on paper getting someone from your direct competitors. Maybe it's getting someone that has that skillset, but has grown through the ranks in a startup or someone who was CEO of a startup that very heavily skewed towards that role. Again, very important job description, but it needs to be used as a tool to frame the hiring, not as a copy paste exercise or a Google exercise.Bertrand: Actually that was actually going to be a discussion for me on my pet peeves. And that's an issue I have seen again and again especially in Silicon Valley, where in some ways, you have so much depth of talent that you end up with, "I want this person who has done this specific experience, has done this MBA, has done this engineering school, and has worked five years at a big corporate, and has done this, and has 20 years' experience in databases".And guess what? Actually, you can find people with all these criteria , they exist, at least, in Silicon Valley. But then, you end up with a situation where you don't bring up-and-comer, you don't bring people with varied experience, you just bring ultra, super-deep expert who actually might not be that interesting, because in some ways, they might have spent too long in big corporates for their own good. And I'm always surprised to see that mindset and approach, where in so many other regions, you simply have no one who has more than 10 years' experience in a specific industry or space. And guess what? It actually works well enough. You might not need that 20 years experience. So I think that's something to be extremely careful. And, yes, a good job description can help you not to go in that direction. And personally, I prefer someone who deeply understand the game, but is also very hungry, to achieve, to succeed, to go to the next level, versus someone who has been there, done that for way too long and is not excited anymore,  for whom this is just another job, more or less like the same, versus someone who really want to make a dent in the universe.Nuno: And very, very early on in my career, I applied for this position, I still remember, that required five years of experience as a project manager in an engineering environment, what we would now call engineering manager and five years experience in technical sales. And I literally had been working for three and a half years total, where I'd moved from being a developer to  basically an engineering manager and then a product manager.And I'd never done actual sales in my life and I applied for it. And it's very interesting 'cause I went through the whole process. This was a long time ago, so I think I can mention it now. It was back in Europe with HP when HP was really cool some time ago. It's very funny the hiring manager, for some reason, liked me and it's very interesting. They actually made me the offer. I didn't join, which is sad because the salary. It's one of these things you do when you're young. I took some other job that paid much less and didn't have the same responsibility. It's just, I went to after some stupid dream.  And that's the one that sort of got away in some ways, but I once asked the guy, "Why did you even look at me?" And he's like, "there was no loss in just at least having one interview with you. And you had an interesting background, you were, you started working very young through college and I was like, there's something about this guy. That's interesting. Let's just check him out. And as we went through the whole interviews, the whole team thought you had all the core capabilities to excel at this play, to excel at the role that is required from you. And you have one third of the experience, literally, but we thought you could excel at it." And those hires normally, again, I didn't join this organization, but those hires normally I think,...

In episode 18, the first of our trilogy on recruiting, we start by sharing our core principles in this space. We delve into high-level principles, recruiting organization and compensation. In episodes 19 and 20, we will share detailed advice for recruiters and candidates, respectively. On the recruiter side, we share core principles that have worked for us, as well as hacks: anything from good and difficult interview questions to some of our “pet peeves”. On the candidate side, we will share ideas and processes from how to best be visible to recruiters, to how to get the job of your dreams.

Navigation:

Introduction (01:24)

Section 1 - Core principles (04:59)

Section 2 - Recruiting organization (18:34)

Section 3 - Compensation (26:13)

Conclusion (31:05)

Our co-hosts:

Bertrand Schmitt, Tech Entrepreneur, co-founder and Chairman at App Annie, @bschmitt

Nuno Goncalves Pedro, Investor, co-Founder and Managing Partner of Strive Capital, @ngpedro

Our show: Tech DECIPHERED brings you the Entrepreneur and Investor views on Big Tech, VC and Start-up news, opinion pieces and research. We decipher their meaning, and add inside knowledge and context. Being nerds, we also discuss the latest gadgets and pop culture news.

Subscribe To Our Podcast

Intro (01:24)

Nuno: So in this episode, 18, we focus on recruiting. We will discuss on the recruiter side, our core principles that have worked for us along the years, as well as some hacks and some advice for recruiters. On the candidate side, we share ideas and processes from how to best be visible to recruiters, all the way to how to get the job of your dreams. Looking forward to this episode.

Bertrand: Yes, and actually we have so much content on Recruiting, that we will have 3 episodes focused on this topic: this episode 18, as well as episode 19 and 20. 

Bertrand: I'm very excited that we talk about recruiting, probably not much is more important than recruiting when you're starting a company, running a business, running a startup. And it's recruiting of everyone from your co-founders, to your execs, to your developers, to your sales people. So recruiting is literally the lifeblood of your organization and obviously not just recruiting but keeping people and having people happy and successful at your organization. But it starts at the end of the day with recruiting. So it's exciting to talk about this topic in this episode.

Nuno: Indeed. And let's start with framing our experience as recruiters, to give a little bit of credibility to whatever advice we give during this episode. I'll start with my side, I've recruited or help recruit hundreds of people, all the way from recruiting for my own teams as either a line manager, CEO, managing partner, helping recruit peers to myself in different organizations. Helping some of my clients as a consultant recruit their own people. That was also a lot of fun. And I participated in everything from, one-on-one interviews to panel interviews, to group interviews and everything under the sun. I would also add as a candidate, that my experience is still relatively fresh. A lot of people would look at my background and say, you haven't been a candidate for a long time. You did your own venture firm, et cetera. But in all honesty, I've joined boards of directors, both for profit companies and nonprofit companies. And that goes through its own recruiting process.

I've tried to be recruited by a bunch of companies in the industry along the years. And funnily enough, because I'm a bit of a nerd. I actually sometimes go into these processes, even though I'm not necessarily thinking of moving on. And I've had some really interesting processes with some of the best known companies in the industry. And hopefully we'll also share some of my lessons learned around it. Last but not the least, I've been very close to the recruiting space, through a bunch of people in my own network that are very close to me. And so I've seen the hazards of recruiting very up and very up close and personal.

Bertrand: On my side I've stopped counting how many people I've recruited directly or indirectly. App Annie that I built over eight years directly as CEO, we have, four hundred people today, so over the years  we probably have recruited a  1000  people. Unfortunately, people leave, directly, indirectly we've recruited a lot of people from execs to direct team members at different level of the organization. And of course, other experiences. At App Annie  I've recruited also people all over the place, from China, to Japan to Europe to US. So I also have some good perspective to share on a global basis. And there are obviously some pretty big differences on one side and and at the same time there are some principles that stays the same across region and even across levels.

Section 1 - Core principles (04:59)

Nuno: There's obviously been a cost of acquisition, so to speak and, or a cost of recruiting, but definitely move to the next level. So two sub layers on my principles. One, when I say A, A plus players, the right people for the job. And there are some jobs that require a tremendous amount of creativity. There are some jobs that require a tremendous amount of intellect. There's some jobs that require tremendous amount of focus on execution and operations.

There are jobs that are what I call "Why / what" jobs, which are more strategic, more about thinking more about rationalizing, more about defining and designing elements. There are jobs that are more around the, how, how to execute, how to get something done. And so  when I say I'm recruiting an A, A plus player, I'm not sure only recruiting CEOs, I'm recruiting people that fundamentally can do different tasks in different jobs.

And it's a little bit of  an issue I feel in particular in Silicon Valley sometimes. You're always looking for what I call the rockstar hire. And sometimes rockstar hires, we will come back to pet peeves later on, but sometimes rockstar hires are not very good at certain things. And so I've had people that I've hired that on paper don't look amazing in terms of their intellect, ability to contribute, and really strategic thinking. But they're incredible at executing. They're just machines, people that really love executing and vice versa. People that are probably not great at executing, but they're amazing at framing thinking. And getting things designed.

So that's what I mean by A plus players. And finally, again, to come back to the point on, hire slow, fire fast, I don't mean being too aggressive towards people. Everyone should get a second chance. You should get a chance to show that if you're not performing, you should get a chance to improve your performance. I believe in performance improvement programs, I believe, that people should be given very specific feedback in how they move forward. Which goes a little bit beyond our recruiting type today, but certainly,  I'm not a big fan of developmental feedback, I'm a huge fan of, strengths-based feedback. But at the end of the day, if it doesn't work out, if there's really misalignments around values, or if there is a misalignment around job description and what needs to be done to execute on a job, or skills, then that should be pretty evident pretty quickly. And I don't think you should lose time, because that time will cost you a lot of money. It will cost you motivation on your team, et cetera.

Bertrand: I think I am in agreement on a lot of your points, quality of hire is key. I guess we all know the story if you start hiring B players then the next round these B players are going to hire C players. So putting the bar at A players is quite critical and obviously the definition of an A player depends on the position. But you want people that are going to be really successful and you want the best for the team. So it's pretty critical to be very careful. I still remember the story when Larry Page stopped reviewing some candidates at Google, but they were thousands of people I believe. So I think it's a key part of the game. 

Hire fast, fire fast. I'm also not a big fan, I think you can have an organization that's designed to move fast, but for good reason because the process are well oiled, are well optimized. But if you're not sure on the candidate, you want to be very, very careful, because especially the more senior they get, the more it takes time to understand if you made a mistake or not. And the more damaging it will be inside the organization  if you pick the wrong people. At the same time at the end of the day, once you know you have made a mistake, and if you start asking the question yourself if you made a mistake, you probably know the answer: you made a mistake and it's time to fire fast.

So yes, in agreement overall with these points. I think in term of recruiting there are different stages in a startup life and you have to be careful of recruiting the right people for the right, stage of the business. Someone who can be a fantastic head of engineering at series A might not be a fantastic head of engineering at series D and the same in sales. So you want to be very careful about finding candidates that are going to be excited by the opportunity in front of them. Candidates that ideally would be stretching themself, for this new position, new role. Specially early on people who are going to demonstrate, their talent and quality. But step by step things will change. You will want to have a different approach.

At the later stage, it's actually a very different game. As you alluded to, when you're hiring execs at later stage of the game, you're expecting them to hit the ground extremely running. You expect them to teach you a shitload of stuff that you did not know. And you expect  very fast results, that's really why you're paying them so much. And of course, all of this comes with risks. What's your take on these, different stages, different candidates, different   recruiting processes?...

In this, the third and final episode of our SaaS Primer - or “everything you wanted to know about SaaS” - we look into Financing/Fundraising, share findings on Benchmarking/KPIs, as well as end the discussion on Lessons Learnt and Predictions. Do listen to episodes 15 and 16, in which we had a SaaS Overview, looked at Business Models, as well as Sales and Pricing.

Navigation:

Introduction (01:24)

Section 1 - Financing/Fundraising (02:01)

Section 2 - Benchmarking/KPIs (16:08)

Section 3 - Lessons Learnt (29:07)

Section 4 - Predictions and Conclusion (46:19)

Conclusion

Resources

Please check below to download our SaaS Primer PDF deck, serving as reference for our episodes 15-16-17

Our co-hosts:

Bertrand Schmitt, Tech Entrepreneur, co-founder and Chairman at App Annie, @bschmitt

Nuno Goncalves Pedro, Investor, co-Founder and Managing Partner of Strive Capital, @ngpedro

Our show: Tech DECIPHERED brings you the Entrepreneur and Investor views on Big Tech, VC and Start-up news, opinion pieces and research. We decipher their meaning, and add inside knowledge and context. Being nerds, we also discuss the latest gadgets and pop culture news.

Download Tech Deciphered SaaS Primer PDF Deck

Subscribe To Our Podcast

Intro (01:24)

Bertrand: Welcome to Episode 17 of Tech Deciphered .  In this episode 17, our third and last episode of our SaaS Primer, we're going to talk about financing, benchmarking, lessons learned, and our predictions, to conclude, about where is going the SaaS Industry. For further reference, please have a listen to our previous episodes, episode 15 and episode 16, where we started this SaaS Primer . Nuno, let's start today with financing.

Section 1 - Financing / Fundraising (02:01)

Nuno: In financing, our first analysis is around equity capital raised by ARR. So Annual Recurring Revenue that has been achieved by the company. Not a huge amount of surprises, but maybe the sole surprise is that companies are raising more equity capital at earlier stages. Definitely, it seems pretty capital intensive that we have, for example, companies generating less than 1 million in ARR, 10% of those companies having raised $5 to $10 million. 6% of the company's raising 10 to $20 million. That seems like a very hefty bar to start generating such little ARR, in companies that are generating a lot more ARR, so above $50 million, 65% of companies unshockingly or not very shockingly will have raised more than $50 million by then.

And then very few, I'd say 12%, 12%, 12% will have just raised anywhere from below $5 million, $10 to $20 million, and $20 to $50 million. It seems to be no man's land for above 50 million, seems to be 5 to 10 million. So no companies that are raising more than 50 million will have raised only 5 to 10 million, which is again, an interesting counter-intuitive realization.

We will come back to the point around how much money do you need to raise, to actually generate significant ARR. The reality is, the later you are in the ARR curve, the more ARR you're generating, the likelier you are to be in the midst of basically blitz-scaling your organization in particular sales and marketing organization, we've talked about it in previous episodes. And if that's the case, then at that point, it's the time where you raise a lot of capital. So it seems a little bit counter intuitive. A lot of people would say, once I get to 2.5, 10 million in ARR, I need less to get to the next level. Actually that's, in many cases, when you need more to get the next level, cause you actually need to buy yourself into the next wave and that way to buy into the next wave is to hire a lot of people around sales and marketing.

Bertrand: Yeah, I think that, as we discussed in the previous episodes, there are big expectations from a lot of investors, in term of how fast you're growing the business. And definitely, one way to grow fast is to invest cash,  so that you can grow faster. There is definitely a race if your space is considered hot enough and by hot I mean , that's the right time to scale this industry, the right technologies, then definitely, you won't be the only one, as a company trying to win that market, you will have competition. And one way to outpace your competition, or even with less competition, to just generate the type of pace, investors have been expecting for now a decade, then you have to get some financing. 

Obviously, if your space is smaller, if there is less competition, you might be in a situation where you might be needing less cash. And actually, you should be careful, about burning too much cash in these situations. But definitely, when companies tell you they're going to get at break-even at some point relatively quickly. No that's rarely what's happening, if your space is hot, and if you can keep growing the market pretty fast, there will be a premium to that. 

Nuno: On the activity around B2B funding, this is a really interesting analysis. If you look at the numbers and the 2020 numbers, just to be clear, our numbers as of end of first half of the year, so June 30th, 2020. It seems like there's very little slow down, I mean if you extrapolate the numbers, maybe we're going to have a slight decrease on deal count. Although we know ends of year actually increase deal counts. So maybe we will come closer to the deal counts of the previous year. But in terms of deal values and what has been deployed, we're more than past half of last year. So last year, $61.3 billion were raised for B2B companies. And this year we're talking about 34.2  billion dollars already raised in half a year.

This for me is very surprising. We will come back to that in the next few charts, because there's a couple more surprising findings. What it leads me to believe is that Software as a Service and B2B enterprise software, actually in some cases, it has been positive correlated to what's happening with COVID. With more remote work, companies that had very strong on prem IT functions might actually need to move more and more to the cloud and actually more rapidly than they had estimated.

So somehow, it seems like we're seeing a relatively positive effect, at least that's how I would read most of the financing analysis that we see on this in the section. What are your thoughts, Bertrand?

Bertrand: Yeah, I think that, definitely, at least on the late stage side, there has been some positives: one is, businesses moving even faster to a more efficient solution / cost pressure. And of course, SaaS is a great answer to optimizing your cost, buying different SaaS software. Two, it's a question of also helping you transition to this new world. And again, you will find some great SaaS solution. If it's time to move from regular commerce to M-commerce, or E-commerce, you will have to buy some new SaaS products. And the last point is that, definitely, the stock market has been doing pretty great. Actually, amazingly great, surprisingly enough. I think that does help, close, larger  late stage deals. And maybe one last point is that, I guess a lot of VCs have tried to either provide bridge financing or pre-empt the next round. Because, during that situation of COVID, obviously, there is a premium to investing in companies you already know, while you're already an investor, versus trying to invest more early stage in companies you don't know as well and where you have not even be able to meet face-to -face the founders and the exec team.

Nuno: Very interesting indeed. And maybe the next chart starts giving us a few hints on what's actually going on and why there is a higher volume of capital deployed versus deal count and why we're seeing some interesting dynamics around the space. The next chart basically states and rightfully so that's early stage B2B deals, receiving smaller portion of VC dollars, and not only that, but actually if we look at it, late VC is for the first time, it's having its highest percentage of deals that were done in late stage, is happening now in 2020 and we're going back as far back as 2006. So there's a tremendous amount of capital being deployed in late stage rather than early stage or angel and seed, which justifies some of the numbers we're seeing around investment in B2B deals here. 

Also interesting is, as you were mentioning Bertrand, how much of this is existing investors preempting the next round, doing bridge? So doing what we would call classically follow ons versus investors are coming in with new investments. We don't have that analysis, but that would be interesting. My hypothesis would be, that a lot of these investments are actually still being driven by follow ons. 

So a lot of inside deals being done at this stage and maybe some larger rounds with new investors coming along the way, but maybe a much higher percentage of follow ons being done right now than ever before versus what we've seen in previous years. 

And if we look at, maybe the most fascinating number of all these charts is actually in this analysis, which is the medium following recent growth trend analysis, that shows that basically the median in terms of US VC B2B tech deal sizes, slightly increased this year versus last year to 3.8 million. But if we look at the average, it's gonna up by a lot, it's now 18.7 million versus 14.6 million last year. And again, this resonates very much with the previous analysis we were just discussing, that there's a lot more late stage venture capital going into these markets. So while the median staying more or less around the same number, the average is being dramatically skewed because it's a late stage market versus an early stage or angel market right now that we are observing. 

So this 18.7 number again, linking really well with the fact that we're seeing a lot more late stage VC investments, rather than anything else. One other thing that I've observed in the market as a venture capitalist, we are seeing a lot of companies that are probably on th

In this episode, the second part of our SaaS Primer trilogy, we deep dive into Sales and Pricing in the Software-as-a-service space. For further context, please listen to episode 15, in which we did an Overview of SaaS and its intrinsic Business Models. Please look out for our next episode that will conclude our Primer, with deep-dives on Financing/Fundraising, Benchmarking/KPIs, Lessons Learnt and Predictions.

Navigation:

Introduction (01:24)

Section 1 - Sales (01:52)

Section 2 - Pricing (20:40)

Conclusion (36:58)

Resources

Please check below to download our SaaS Primer PDF deck, serving as reference for our episodes 15-16-17

Our co-hosts:

Bertrand Schmitt, Tech Entrepreneur, co-founder and Chairman at App Annie, @bschmitt

Nuno Goncalves Pedro, Investor, co-Founder and Managing Partner of Strive Capital, @ngpedro

Our show:

 

Tech DECIPHERED brings you the Entrepreneur and Investor views on Big Tech, VC and Start-up news, opinion pieces and research. We decipher their meaning, and add inside knowledge and context. Being nerds, we also discuss the latest gadgets and pop culture news.

Download Tech Deciphered SaaS Primer PDF Deck

Subscribe To Our Podcast

Intro (01:24)Nuno: Today in episode 16, we will have our second episode on our "software as a service" primer.For further reference, please also listen to our episode 15, where we started this discussion.Today, we will talk about sales and pricing, and we will go a little bit in depth into these topics. And we will see where the discussion heads. As always, we always get very verbose when we get excited, as you guys know.Section 1 - SalesBertrand: Exactly. Let's start today on the sales side. The sales motion, the sales process is obviously a critical part of any business. But, SaaS has its own approach to sales, and it's very tightly connected to the financing, obviously, we'll talk later about financing. What do we see as a benchmark of percentage spend of sales and marketing, as a percentage of ARR? What we can see, and we are leveraging some slides from Openview Partners, is that across the range, you are at the lowest, around 30 percent of spend in sales and marketing early on, below the $2.5 million ARR barrier. And then it goes up, 35, 40, potentially 45 percent of spend, on median. From $2.5 million, to 10, to 20, to 50, beyond 50. This is a median, so we see a pretty wide range, plus or minus, 15 percent of these numbers.So if I were to take a different stage, we can see that the wider range would be from 15 to 60 percent being spent in sales and marketing. So widely different range, and usually it depends on the business model. If you have a more product-led growth, you will spend less in sales and marketing. If you're a more traditional, I would call it old-school, SaaS approach, you will usually end up with higher sales and marketing spend. Nuno: And I would highlight two interesting pieces of this chart. One. It seems once you get to a certain critical mass of ARR, let's say about $15 million in this case that the costs will start reducing as a percentage of your ARR, which makes sense. You can start optimizing you have a certain scale and a certain brand, and there's a lot of things you can do.The second effect, which might actually correlate to that as well is in many cases, companies are growing really fast to get into the 50 million ARR or a hundred million ARR. So they are spending way into the market, and we discussed it in our previous episode, they're doing a land grab type strategy.And so there may be overspending on sales or on marketing overall for customer acquisition. And therefore, once they taper at 50 million or 100 million, they might actually then optimize their sales and marketing costs. Also underlines at some point, let's say the a hundred million mark, 120 million mark , would you want to go public as a company and therefore at that stage, you definitely need to align your sales and marketing costs so that the markets are like, okay, this seems like a good the amount. So again, I don't think there's anything, shocking about this chart, the next chart, which is sales and marketing spend by dominant sales channel for me was a little bit more surprising.Certainly indirect, seems to have the lowest spend as percentage of ARR, which makes sense in a certain way, because you're really going through a channel that should be the valuable channel that it takes away some of your marketing and sales costs. The part that I think was a little bit more counter intuitive to me, certainly that self service actually still has very significant, sales and marketing spend. And I would assume that a lot of is driven by marketing rather than sales, but it's still very significant. And from a median perspective seems very similar with, for example, field sales, which for me is almost mind blowing that they would have such similar cost basis again on a combined sales and marketing basis.What do you think Bertrand?Bertrand: Yes, I think, it's what it is, it's combined sales    and marketing, if I take some situation like self-service, self-service without freemium, it's a lot of marketing actually to convince people to go to your site, to come and use your product, and pay for it immediately, without a chance to have a proper trial or free usage of the product, build the trust step by step. so you are going to spend more. so i am actually not surprised that on the freemium side it's probably where you have the opportunity to spend the less in combined sales and marketing, and at the same time if you are self service only or field sales, you have an absolute minimum to spend that is significant enough in sales and marketing and we are seeing that with a median of 30%, the minimum is actually 20 percent It can go as high as 60 percent spend in sales and marketing for self service. What's interesting for  me is also indirect business model can be actually quite efficient. Based on these numbers nearly as efficient as a freemium business model. But we also know, that indirect sales business model is usually coming with a slower growth on one side, and also less controlling the way on your future. So I always have some suspicion on the indirect business model. I think some companies manage to do it very well, like Shopify. But for some others, I'm not sure about that indirect business mode, channel based approach, was really the right decision.Nuno: What about inside sales? it seems to be the least efficient by far, is it because it's a hybrid dimension, there's marketing costs on it and there's a lot of sales costs on it as well. It seems to be the most inefficient if you look at certainly as a percentage of ARR, is it because it's a mix of both? It's aggressive mix of both?Bertrand: It's a mix. It cannot be as efficient as freemium, where it's coming from the product. It cannot be as efficient as self service, because you have sales people  to really pay, and sales people, ultimately it will always end up being the mass, make it worse than a marketing lead growth, like you would have in self service. I'm not totally surprised, and usually inside sales is focused on a very small business with a lot of churn.It's a game where you keep putting bodies. So I'm not totally, surprised, and field sales is a more traditional enterprise approach. And this one has been optimized for I would say a long while. And we know that there is less churn in enterprise business model. So all in all, to see that freemium is probably the most efficient model, followed by self service and field sales, I'm not totally surprised. For me the surprise is more on the indirect channel. But again, I think if it looks efficient, if we were to look at other metrics like growth rate, indirect might not look as exciting as it sounds.Nuno: Exactly. Which is the next slide. Maybe not that exciting.Bertrand: Exactly. so this next slide is actually, pretty good, because it's showing a comparable of how fast you can go depending on how much you rely on external channel partners. And here, what we can see is that your growth efficiency is actually, much better if you don't have indirect sales channel. The number is 1.39, if you have zero percent going through sales channel, and keeps going down to 0.48 if you have more than 25 percent of your customers acquired through sales channel.And what it means is the growth rate also is halved the more you go through sales channel. And having some experience with that, it's not surprising, because when you have to manage conflict between external sales channel, your own sales channel, very few companies just rely on indirect. You have to manage conflict, you have to train partners. Partners might talk a lot, but ultimately, don't deliver much. There are some industry metrics, where only one third of your partnerships actually deliver value.I'm not surprised. It's a lot work, a lot of management to deliver something that is truly efficient. My take is that if some like Shopify manage to be very successful with this approach, is that it was not a traditional channel partner approach. It was more a freemium type of, partner approach, where you let the partner do, some little work, some advertising, some convincing. But ultimately, the partners were close to irrelevant beyond advising the product to the customers. Everything else could be done, by the SaaS business Nuno: Moving to sales commissions. I was actually quite surprised by this chart. Obviously in median initial contract sizes above $250K we do see obviously a drop around the sales commissions, where the median there's between 10% and 12%, so 10% for direct and 12% for fully loaded. But overall it seems like the medians are between 10 and 13%.Again, 10% for direct, and 13% for fully loaded. Very surprising to me because actually, there's some variance here in the middle, in these smaller contract sizes,...

In this episode, we start our Primer on SaaS - Software-as-a-Service - a trilogy on everything you need to know about SaaS. We will give an Overview of SaaS, as well as discuss the intrinsic Business Models. Please look out for our next episodes that will deep-dive into Sales, Pricing, Financing, Benchmarking/KIPs, Lessons Learnt and Predictions.Navigation:Introduction (01:24)Section 1 - Overview (04:39)Section 2 - Business Model (17:59)Conclusion (45:19)ResourcesPlease check below to download our SaaS Primer PDF deck, serving as reference for our episodes 15-16-17Our co-hosts:Bertrand Schmitt, Tech Entrepreneur, co-founder and Chairman at App Annie, @bschmittNuno Goncalves Pedro, Investor, co-Founder and Managing Partner of Strive Capital, @ngpedroOur show: Tech DECIPHERED brings you the Entrepreneur and Investor views on Big Tech, VC and Start-up news, opinion pieces and research. We decipher their meaning, and add inside knowledge and context. Being nerds, we also discuss the latest gadgets and pop culture news.

Download Tech Deciphered SaaS Primer PDF Deck

Subscribe To Our Podcast

Full transcription: may contain unintentionally confusing, inaccurate and/or amusing transcription errorsIntro (01:24)Bertrand: Welcome to episode 15. In today's episode, we will talk about SaaS. What is SaaS?What does SaaS mean? SaaS means Software-as-a-Service. This is, and we will talk more about that later on, but this has become over the past decade, one of the most successful way to distribute and monetize software. Why is that? We'll talk more    about that, but in a nutshell, SaaS is really a new philosophy and approach to software, that emerged around 20 years ago, as a way to deliver, a centrally-hosted application over the internet, as a service.In the past, you had to have your own server. You have to install your server. You have to upgrade and maintain your server, and you have to install software on every user laptop or desktop. It was very complex to maintain, to manage, but also on the pricing side, in the past, you would pay a very big license fee for your server, for your desktop license, and you would keep paying, a smaller amount, a maintenance fee, every year, usually for technical improvement. But you will have to keep managing your software server and clients side, for years. And it will become very difficult and complex, and you would have to keep up with improvements in the software. And it was difficult to keep up.What SaaS enabled, software-as-a-service, was, you don't have to manage the server side anymore. It was pioneered by companies like Salesforce, like Netsuite. So no more central IT costs to manage all of this, and the software would be distributed on the internet through your browser, so no need to install a specific software. And pricing was also changed as a result, no need for a big upfront license cost. You would pay every month, every quarter, every year. You could stop any time, or once a year, using the service, suddenly become much easier to consider trying a new service. It would become much easier to distribute that new service, and more important, much more alignment, between customers and supplier.Why? Because suddenly, the customer can leave anytime. Or at least once a year in most cases. And what this means is that it pushed suppliers to make sure their software was of really good quality. And on top of it, usually, much more focused on satisfying end user and consumers, not just making sure they check boxes with central IT.So it has been an evolution. It started 20 years ago. It started to ramp up with the last financial crisis in 2008, when companies decided it's time to give it a try. There was at the time, still some worries around storing your data somewhere else, not controlling your server equipment, infrastructure, and while there is still that worries, there is probably an acknowledgement today that these guys, the SaaS providers, are more certainly doing a better job than your own IT to manage this type of service at scale, and safely. That's in a nutshell what is software as a service.Section 1 - OverviewNuno: Today's primer, we're going to go through a variety of slides, which we will publish. These slides are coming from a variety of sources. So we're acknowledging all the sources we're taking this from, well known venture capital firms that have been looking at this space for quite a long time and a few other sources.So please do take attention to our resources where we will find some of the background around our discussion. Around software as a service actually, my time and in development as a computer engineer in developing systems and as an engineering manager was in the early days of what we then called application service providers, wireless application service providers, and some of these actions mutated into what we know as software as a service today.And it's funny cause some of the systems I developed are still in production today two our products and one was a custom made system. And if we were to really deep dive, around some of the pain points, Bertrand as you mentioned, actually even installing something like this was a pain in the neck, sometimes the drivers are missing in the computer, et cetera.So the world of the internet, and the sandbox of the browser has really brought us, a very appealing, unified way to deploy software, which is very powerful. So maybe moving agenda a little bit to the overview of software as a service in the space and what we're seeing happening, today.Bertrand, do you want talk to us a little bit about, and this is based on Battery slide on the five forces of software's accelerating role.Bertrand: Yes, let's start with a big overview about what's happening, why is it happening, let's focus first on the big picture of SaaS. And why is SaaS accelerating in term of growth?One first point, that's true that over time software markets are growing. There was this famous saying from Marc Andreessen, that software is eating the world, and that's true, software is eating the world, everywhere for the past, few decades.Two, when you keep growing so fast, and going everywhere, at some point you start also getting into every niche market possible. Every niche market is having more software involved.Three , software is actually displacing hardware, we used to have to run internet services for instance in the past, very complex advance servers, but this has changed. Now, the approach pioneered by Google, has been actually to put very basic hardware, and put all the smartness in the software, because your software is much easier to change over time.So we have a situation where software has also been displacing hardware.Fourth point, software is also displacing services and labor, software is replacing human work, usually it also creates new opportunities for human work, but definitely the most basic part of what was human work, is now being replaced by software.And maybe one last point, every company is becoming a software company, even very traditional businesses, are moving on the software side of things to improve their business.Nuno: If I were to move around, Software as a service and cloud, and what's happening in this space over the last two decades. one really powerful slide is a slide that shows us we had really one private cloud unicorn around 2010 and hundreds of private cloud company.Whereas around 2020, we now have by any accounts, close to a hundred private cloud unicorns and thousands of private cloud companies. And if we look at this movement, it's really coming from two angles, we'll discuss them a little bit later. We'll talk about horizontal  versus vertical SaaS, whereas horizontal in many cases is more functionally driven "software as a service" companies. So companies that are trying to serve a specific need across industries or sub industries. So for example, a company like Gusto and a disclaimer, I'm an investor in Gusto, is a company that focuses on HR management, payroll, et cetera, and does so across industries. Whereas vertical companies normally are very focused on a specific industry that they're serving. Either with a specific functional focus or, normally more broad appeal to that industry. And we see, for example, companies that have done really well in software as a service in very old industries, like oil and gas, healthcare, I call it an old industry, certainly in certain parts of the world seems like an old industry energy and others.Bertrand: Yes, it has been a fantastic rise of  what could be considered the successful cloud companies over the past 20 years. So one reason we have seen an acceleration is, actually, the time it takes to go from one to a $100 million in ARR, has actually been shortening. We have these interesting slide that shows that it used to take 10 more years, 15 more years, to go, from one to $100 million ARR, while some of the most recent companies, like Twilio, took only five years, Slack took only three years, to go from that one million to $100 million ARR.There is an acceleration, and this acceleration is due to a few things. So first, every professional has access to a desktop or a laptop with a powerful web browser, there is wide acceptance in term of business model to use a software as a service provider, there is no more question about, "Does it make sense? Is it safe enough?" And so that means that, basically, there has been an opportunity to accelerate. And the last point, around that, has also been the financing. In the past, it used to be difficult to get financing for a SaaS business, either a private SaaS business, or even to be understood by the public market. Acceleration of financing has helped a lot to move faster  and to achieve these growth rates. So that's the combination of all these points that make it that we are moving from what used to take 15 years, to now it can take just a few years,...