0:00We have built an incredible service cloud [music] business. It's now almost 11 billion and the foundation of it was an acquisition.
0:07How do you describe Salesforce as [music] a platform today?
0:10At its core, it's delivering trusted foundation for all of your enterprise applications. [music] You can interact with it through Slack. You can interact with it through Claw Force. Software development is faster and more affordable than it's ever been.
0:25In this era of software, what is [music] worth actually buying?
0:30There will be a reckoning that happens.
0:32A lot of these companies have valuations that are not sustainable that they [music] won't be able to grow into.
0:36We've invested in more than 750 companies. We've acquired 29. So, it's still a relatively small number of companies, but I think if we ever see something [music] really exciting, we want to stay close to that company. If you were going to start a company today and it was going to attack Salesforce headon, what are the openings that you see fit?
0:57Um, John, it's great to be with you today.
1:01Thank you for having me. It's wonderful to be here.
1:04You've been at Salesforce now for over 20 years. Um, Mark uh Ben Penny off is a Mount Rushmore style figure for cloud software. You know, led the transition from on premise to cloud. Uh he is an incredible marketer. He uh you know at Dreamforce this year he uh frame mogged uh Jensen and Dario and Sam. Uh I'm curious. You've had a long career with
1:32him. What what uh what's it like to work with him?
1:35U well I would also add visionary to that that point as well. Mark is quite a visionary and he really I think can see where the industry is heading and so that's how he helps uh the company transform itself and when he thinks about growing the business he thinks about organic innovation but also inorganic innovation and that's really been the key to how we've grown the company and marrying the two together and so acquisitions play a huge role in
2:04that and uh when Mark sees that the world is moving in a certain direction, he will point me and my team to like go go figure out go find the best asset to buy in that category and um and come up with with those ideas uh all the time.
2:21Um I would say the other thing that's very unique about Mark is just his his level of curiosity and uh how he thinks about things with a beginnerous mind uh all the time. And so he asks that of us as well. And I think it's really helped us find some remarkable companies to bring into Salesforce uh and also some really exceptional entrepreneurs.
2:45With that in mind, I really like that idea of beginner's mind, the curiosity.
2:51Um how do how do the two of you approach uh you know acquisition and investment ideas together?
2:58[snorts] Well, I I think that one of one of the things we that's always been a hallmark of Salesforce is we listen to our customers quite a bit. And so we get a ton of feedback around what do customers want to buy from us? Where do they feel like our products are missing? Where are the gaps? Uh and we take that and work with our product teams to really identify what are the best opportunities. Uh and that's certainly for the acquisition side. On the investment side, you know, my my
3:26ventures team meets with thousands of companies every year and I think we have a get a very good sense of where is the traction, where is the interest, what what areas of technology are really growing the fastest and we can bring all of that feedback and learnings back into the company and I think make better decisions as a result. And you alluded to, you know, Mark as this, uh, you know, big visionary, uh, and of course
3:54he is. How do you, how do you and your team think about balancing Mark's like big vision mindset with, uh, strategic and financial discipline? Uh, maybe there's been times where you've had to tell Mark no on his big grand idea. I'm curious h how that all comes together.
4:14So what we uh what we have is a is an internal framework that we follow which um we are pretty disciplined about following and we look at sort of three elements. The first would be where is the strategic fit and how much customer success can it drive. I think the second would be can we accelerate the business?
4:35Will it fit into our technology stack?
4:39Will is there good cultural alignment with the team? do we see the the talent there is as people that will work well within Salesforce. Um and then the third part uh which is probably the trickiest in this day and age is how can we deliver value to our shareholders and to our customers and what is the you know what is the timeline for value accretion uh is the valuation reasonable and that's that last point is probably the
5:08hardest right now uh because everything is expensive. We're we're in a unique moment in time and we should use some time later to to chat on that. Maybe to take a step back. Uh Salesforce today really large company. You're much more than CRM today. Um how how do you describe Salesforce uh as a platform today?
5:31Well, I think it's it's always been uh a a place where customers can go to buy technology to help them interact with their customers in new ways. And uh and that's sort of been foundational from the beginning. But you know how we think about it is that we we have a platform that is at its core it's delivering trusted foundation for all of your enterprise applications and then you can interact with it from different surfaces
5:59whether it's uh and and that's that's why we made Salesforce headless and so you can interact with it through Slack you can inter interact with it through cloud force uh and through other other places and I think it's it's just as broad as a company wants to make it uh a place where you can really deliver a lot of enterprise value.
6:20Absolutely. I mean, I think uh it has been really cool to see you guys leading the charge on the headless transition.
6:26Um I'm curious as you uh as we all enter this brave new world with AI and there's new interfaces. Um you referenced Cloud, there's obviously chat GBT. Um there's a broad swath of them today. um you're able to access Salesforce via them. Um maybe uh a good portion of your customers are aspirational about uh requiring fewer seats in the future because they're able to accomplish more
6:55work today uh with AI than they previously needed to. I'm curious um under this transition like how do you think about Salesforce capturing value uh in this new world? Well, first of all, I mean, I think we have different ways to price our products, but most importantly, uh, consumption is a big part of of how we price and so many of our products, they are consumptionbased.
7:22Like Mulesoft was always consumptionbased, for example. Uh, and so I would say, you know, what we what we try to do is make sure that as uh we're first of all, we want to be delivering value that our customers really appreciate and want to continue to pay for. and whether they pay on a perceipt basis or on a usage basis, it doesn't really matter. Um, but I think that the key thing is making sure that they're happy and successful and will come come back. And that's one of the
7:51critical pieces about where the technology industry has been uh moving is more towards outcomebased pricing where you're paying for resolutions. uh and this is what Finn does so well for example and um and versus just paying for uh a seat and I think that's that's definitely a trend that we are getting really behind and uh more and more of our products are going to be delivered that way.
8:17Yeah, Finn was uh certainly an an early pioneer in in the outcomebased more resolutionbased pricing and the re and by the way the reason they can do that is because the time to value is so fast. So Finn, you can get up and run running on average in 16 days and immediately start seeing um the agents take handling more and more of the calls that humans might have otherwise been uh escalated to handle.
8:45And so we we actually decided okay well why don't we just pilot Finn internally and see what it does for Salesforce. And um we found that we had it up and running actually in 14 days and on our help.salesforce.com salesforce.com website. Um it's now handling over 40% of the traffic.
9:04And it is um delivering 65% resolutions without going to a human. Uh so that is really quick time to value and that's kind of a hallmark of I think what a great acquisition looks like.
9:15Yeah. And and in with enterprise sales in particular, you're earning a larger share of the labor budget in your Finn example. uh you know that that could be customer support, a little bit of sales.
9:28Um and so in a Salesforce context at large, that can be my AI team is uh prospecting, it's finding leads, it's qualifying leads, it's following up, it's closing deals, right?
9:42And so as you're earning a greater share of that labor budget, sure your customers may be paying you quite a bit more than they did in the past, but their overall cost of selling has gone down. Absolutely. And qualified is probably one of the the great examples of what you just said. So that can replace your your sales development rep organization essentially where ba where basically it's taking all the traffic that's coming in through the website and
10:10answering questions with its Piper agent and it's a very human-like experience where you you're speaking to uh a very lifelike avatar and uh they can explain what uh what the products do uh and help set up meetings for you all autom automatically without touching a human.
10:31Uh, m makes a ton of sense. Uh, I mean, we just started to touch on a number of your acquisitions. You have a long history of acquisitions. I think nearly a 100red billion of acquisitions over the course of your tenure, 12 over over the last year. Um, really amazing. uh as you think about M&A as your strategy um there were the large ones like Slack and Mulesoft Informatica and then uh more
11:00recently you've gone to the AI native companies you mentioned Finn uh listen labs is another uh your framework for acquisitions you touched on like financials is the third component the second strategic and then first was what are your customers asking for and also how can we accelerate them accelerate with our distribution. And I mean, remember we have 15,000 sales reps. And so if you can plug one of these acquisitions into that really in the
11:30case of listen, you know, only a handful of reps, you suddenly make it available to your entire sales team, you're going to grow that business.
11:37And so maybe like imagine I'm at the other side of the table uh and uh I am at Alfred, I'm at Listen Labs, I'm a really ambitious AI founder. Um, I get, you know, approached. I'm spending time with Salesforce and it sounds great to partner with your 15,000 sales reps and get me pushed through your channel. I would love that. Um, how do I think about partnering with
12:07Salesforce versus, you know, selling to Salesforce?
12:13Well, I think we um we approach partnerships in in a very open way. And so we we have probably more than 8,000 partners at this time that we work with.
12:25These are ISV partners. Um sometimes we invest in the partners by the way as well and that's part of the the role of Salesforce ventures. Um but we want to have an open ecosystem where we're bringing as many solutions as possible to our customers and they make the decision. They can buy a partner solution, they can buy a solution from Salesforce, but I think we I think the the hallmark of of our company is making sure that we have this as broad of an ecosystem as possible because you want
12:54to have as much to offer as you possibly can. So there are there are definitely ways to partner with us. We have multiple types of partner programs and a great organization that does that. Uh and so you know maybe like as I think about uh you know I'm an ambitious AI founder and uh selling to Salesforce.
13:16Why is that the like more ambitious choice for me?
13:21Well imagine having to build that distribution channel on your own and how long that will take to hire the reps, ramp the reps, enable them uh and get them productive. It takes a very very long time to build that at scale. Oh, and by the way, you've got to do that across small business, medium-sized business, and enterprises. Oh, and you also have to do that globally. It's a heavy heavy task for anyone to take on.
13:49And I think that, you know, entrepreneurs have to like make that decision. Is is this the right time to sell and and plug uh my technology into a company that already has that? uh or can I continue and go it alone and try to build it on my own and continue to raise money and dilute yourself further and further and further and um it's just many years of undertaking versus uh getting your your technology in the hands of customers as widely as possible
14:18and as quickly as possible and that's the decision you have to make.
14:22Fair enough. And uh as you try to integrate these folks into your culture um they bring a certain entrepreneurial spirit their own way thinking.
14:36And h so how do you think about uh bringing them in and integrating them appropriately so that that spirit can continue to spread and thrive while being a part of the you know larger platform. I think that's one of the most exciting things about what we do when we buy a company is is bring in uh this exceptional talent to help transform the company and and in many ways refresh us, you know, and make sure that like we're bringing in that entrepreneurial spirit
15:05into the company and thinking about new ways of doing doing things. um a key focal focal point of the integration team is on the people and making sure that they're successful in onboarding learning learning how things work within Salesforce um but also growing their careers internally. And we've had many many uh stories of people who have come in uh sold their companies to us and have risen to become our chief product
15:35officer. It's happened actually four times now. um and uh or people who have taken on big roles within our sales organization or other leadership roles. And so I think um I think it's been an important part of how we've grown the company too through bringing in new talent.
15:53Yeah. I mean you have 80,000 employees.
15:55I can imagine you bring in these companies, they they help like turbocharge certain areas. Is there an example of one of these acquired companies that uh you point to as having a a big impact on the culture of the organization?
16:10Well, I would say, you know, one one that that springs to mind is David Schmire's company, uh, Velocity. So, um, we didn't really have much of an industries bent within Salesforce. And yet, you know, so many, um, there's so many important verticals that are a key part of the growth of the entire software industry. And we now have 13 verticals actually.
16:32And um and that all really that sort of focus on the industries, focus on the specific use cases for that industry that came through that acquisition. And so David came on board, brought velocity in it, brought in six verticals. We've added another another seven since. And um and he went on to be chief product officer, now chief strategy officer. And I think he's definitely helped us think about uh selling to those industry
17:01verticals in ways we never would have otherwise.
17:04Uh that that's very interesting. And like one of the one of the pieces that's also been impressive about Salesforce over the years is like there are large companies built on top of you that are just focused on verticals as well like Viva and the like and CENO was probably another example of that and that was that was one of our our early investments uh in the ventures program and they they created an incredible um uh company just based in
17:31financial services. Um today as you're thinking about uh you know build versus buy uh you probably are told way more um that we can just build that. Uh software development is faster and more affordable than it's ever been. Uh and so a part of your job must be figuring out like when that's actually true. Um I'm curious like in this era of software
18:01um what is worth actually buying?
18:04[gasps] Um well I you know when we think about the you know do we build by partner I mean we go through a lot of analysis with the product teams around what their roadmap should look like for the next three years and um do they truly have the people that can build what they're trying to deliver? um do they have the internal expertise for it for example um and uh and or can they go out and easily
18:33hire it and you know how hard hiring um like AI AI engineers right now very very hard and so uh in many cases you can really speed up uh the the development process through an acquisition if you can find the right one and if you can integrate it quickly and that's that's also you know one of the the things that you have to consider Because a typical acquisition end to end from the moment you start with the idea to when it's
19:01actually integrated could be 6 to9 months. And so could you deliver something on your own much faster than that? And so those are the types of of calculations we we make and try to try to think about. But when the right asset shows up, you know, you really know it.
19:17You you can have a sense. And that was, you know, the case when Alfred and Florian came came to meet with Mark and demoed Listen Labs to us. I mean, they were just brilliant. And I think we had we thought the not only was the technology outstanding, but the the interface was so easy. It was so easy that my team started using it with, you know, no enablement whatsoever. within 10 minutes we had um we had a survey out
19:45and and and started and it was it just could not have been easier.
19:50Um is that how you diligence listens?
19:53It was part of what we did a survey on listen labs to their customers. Yeah, actually uh that that was incredibly effective. Um but we do by the way our diligence process is pretty rigorous and uh the customer element the customer feedback that we do is uh is one of the most important uh ways of really judging how good the product is and you know are these customers likely to renew.
20:20We're uh happy listens customers ourselves and use it as a diligence tool as well. Uh very cool. Um maybe on on this piece of like accelerating capabilities, uh another acquisition that that you were talking about earlier was Finn.
20:38Um you guys have long had a role in customer support.
20:43Maybe talk about what capabilities Finn brought to you all and maybe the story behind that acquisition. Yeah, and I think I think it goes back to uh what we talked about earlier, Mark's focus on having a beginner's mind. And so we have built an incredible service cloud business. It's now almost 11 billion in in AOV. And um and the business actually the foundation of it was an acquisition
21:10that we made in 2008, a company called Inster, which was Alex Don's company. uh another person that went on to be our chief product officer like amazing he's exceptional he's you know has as one of the greatest entrepreneurs to come out of France um and uh I think that um what um what's was very clear to us is that the whole uh movement towards native AI
21:39applications and the way that they were priced based on outcomes and the very fast time to value, how quickly you could get it implemented and up and running and having happy customers using it. Um, it just wasn't something that we could build quickly enough. And so, um, we had a a wonderful relationship with Owen who we had known for years. We got to know his AI team in Ireland who were just outstanding. Absolutely
22:07outstanding. Some of the best AI talent actually in Dublin, Ireland. and we we realized like wow this could just turbocharge what we're trying to do with ServiceCloud and uh and so we were able to to buy the company and it's it's really as I said earlier it's it's proving um to be quite a a very valuable acquisition for us. Yeah, I mean that that one's an amazing story from a rebirth of the company perspective too with you know the transition from
22:35intercom to Finn and uh you know him coming back as founder and he's having a big impact at the company like he is Owen is someone with a loud voice and he uh makes his views known and he's really and he's really trying to shake us up and that's that is another benefit to bringing these people in.
22:54Amazing. Amazing. Um, another product that, you know, I use every day, uh, certainly you do, is is Slack. Um, I'd be curious, uh, if you were to rewind the clock, like you had a rationale for acquiring Slack. Um, Slack's role today in AI is pretty important and different than maybe what you could have expected then. I'm curious like how you're thinking about Slack has evolved over the years. I think the core thesis for
23:24why we bought Slack holds true today, but it's even bigger than I think we all imagined because it is the perfect conversational interface for AI. And when we thought about it back in so we bought the company in 2020, so it's now been there's a there's a rumor out there that Mark only spent an hour with uh uh Stuart before the acquisition. And I don't know if that's typical, but uh a lot more time than that.
23:51Definitely. Definitely. And and I think we um no, we looked at it very closely.
23:57We had been using Slack. It was clearly a beloved product in in uh among its users and um and something that needed more distribution like it was just really it was losing to teams and they were really they were stuck. I don't know if you remember back in 2020, but there was like one bad quarter, stock went down and uh and that's really what triggered a lot of the discussions is that, you know, how can we bring these
24:24two companies together and turn Slack into what it really needed to be, which was the user interface for everyone and the collaborative tool where humans and and um and apps would work together. Uh and now agents.
24:39And now agents. Yes. And uh we didn't know the agent part that came later, but you can just see that it was the perfect interface for that. We also knew that it would be the the interface for all of our products. And so you can access all of Salesforce products now through Slack. And um and that was always uh you know one of the key strategic rationes that we had at the beginning. Um so since then uh Slack revenue uh is now
25:08almost three times from what where it was when we bought the company. Um and it is our fastest growing product. So it's it is taking off like wildfire fire in this day and age uh because it's just perfect for agents.
25:22Makes a ton of sense. I think I think of Slack in this current era as the unofficial org chart. like it knows who reports to who, how people talk to other people. It has all the context on how decisions are made.
25:37Um, and so it's a really important corpus for AI. Yeah.
25:42Um, but it's an interface product as you alluded to. And so, um, as other products are more headless, it can be the central uh, you know, repository central uh, like ground for decision-m.
25:57Absolutely. And and because it has all the context from all of your work, if you use Slackbot ever, like you can just get the mo the richest answers that you've ever seen from AI uh right there within your interface. And so it uh it just couldn't be easier and uh we're we're thrilled that we were able to buy the company and you know f it's been like five years and a quarter since we've owned it and it's it's just I think transformed Salesforce.
26:25Amazing. And maybe just to like hit on that, right? Like you said it's grown nearly 3x and you know a bit over 5 years. That's really strong growth at scale. What about that you know story that integration? What has gone so well with that one relative to you know other acquisitions? Yeah. And I I think you know it was it wasn't clear that it was going to go so well from the beginning especially when we were buying it during the pandemic and we basically negotiated
26:54the deal did everything all the diligence through Slack you know buy the company without ever you know having a lot of face-toface meetings and um and then uh you know it took a little bit of time for the integration to really hit its stride but once it did um it it has taken off And I think getting again it's like it's like great technology that was starved for distribution. And I think this is sort of the point I was making
27:22about in listen labs as well like this is the the benefit that an entrepreneur can get from uh a great acquisition partner.
27:32Um how many of those uh face-to-face meetings happen to happen in Hawaii?
27:38Uh not well it was it was a lot later actually. Was that was not the common ground in co times?
27:45Not no not not then. I mean there were so many restrictions on even travel to Hawaii then.
27:51But I would say um we Hawaii is very useful now. So you know I think about like Braze for example which is uh our most recently announced acquisition. Um, I think the the meeting that the two CEOs had in Hawaii was critical in terms of like jumpstarting that process and building the camaraderie and seeing the alignment and it just it Hawaii is a magical place.
28:16All good things start in Hawaii. Um, uh, so we we've spent a bunch of time talking about, uh, buying companies, uh, and partnering with companies. uh you have a third option which is investing in companies uh letting them run independently. I used to think of Salesforce ventures as you partnering with your ecosystem uh you know your close partners.
28:43Today it seems that you're investing much more freely much more broadly. So of course Anthropic Mistral close partners of the company uh fall um base power seems a little more you know out there from a you know strategic fit. curious to hear like how the um strategy has evolved over the years.
29:04Okay. Uh yeah, that's a great question because it really there's been an evolution for sure. Um but you know, when you think about it, the through line has always been the same, which is how can we uh make sure we're finding the companies that will be delivering enterprise value whether it's today or in the future. And so uh it started off in 2009 when we invested in companies like you know that were part of our
29:31ecosystem like docysine like Enino um and uh they should closely fit with your with your software.
29:38Twilio was another early investment.
29:41Makes complete sense and um and we integrated with them. We partnered closely with them. We also did a lot of services uh uh investments as well to build out our whole ecosystem of of services partners regionally and um and those were were very successful. We then um ventured more into uh new areas where the industry was heading like companies like Snowflake that was a very very critical uh investment that we made
30:08um uh several rounds and then the IPO round. Uh we also invested in cyber security because we could see uh how um that was going to become a massive problem for the industry and we needed to stay current. So whiz was one of our investments. Um and then uh you know I think when AI became so obvious as as the the next wave of the industry, we wanted to be very very big in investing in the best companies there. We created
30:38the billiond dollar AI fund at the beginning of 23. But uh but in addition to Anthropic, we also invested in Mistral and Coher. Uh in a in several companies that were more at the at the um infrastructure level. Um we've invested in voice with 11 Labs. We invested in video with Runway. Um and now we're actually venturing into physical AI too which I think is really
31:05a new fun and exciting area and very you you can see um with the improvements like with with in robotics with dexterity and mobility this is going to be a huge future for um for the industry and so we want to be there.
31:21Totally makes sense. I mean very broad mandate you know it seems to cover all of technology wherever there there is growth in in in the sector at large. How are you spending your time personally?
31:34Um I I divide my time uh between uh finding new new companies to acquire uh the working with the integration team and making sure that the acquisitions are successful uh and then the ventures program. And so I'm I'm split uh a lot.
31:52I as I said to you, I've never been busier than I am now. But I think that's sort of a hallmark of how just the rapid evolution in the industry and how how quickly technology innovation is happening these days. You just have to move faster and and however fast you move, it's not even fast enough.
32:08Um what uh in all these areas on on the venture side, what are you most excited about right now?
32:16Um well as I you know I think the robotics companies are are just fascinating to see like I I absolutely love that I have we have an investment in figure AI and humanoids. We've got investments in physical intelligence um uh Dina Robotics Skilled and uh and a variety of other companies. We have Zipline which does drone delivery for example. So we're we're venturing off.
32:43We love many of those companies.
32:44Yeah. and we're so we're doing um um things in new areas that aren't just about software um but it's very clear they're going to be really important to the industry and and so I'm I'm enjoying that. I would say I also um we have investments around the world and so we're seeing some really interesting companies in um Japan for example um we invested in a robotics company there called Mugen which is like really really big in logistics and um in the in the Japanese
33:14market and uh we have investments in um many in Europe in Israel um and uh and in other parts of Asia and Australia for example and so I I think seeing the the globalization of technology has been a real uh interesting vantage point for me for uh the robotic side. I I agree it is really we're we're starting to see you know the early signs of scaling laws within robotics which is really exciting
33:43and then uh a bunch of these companies have gone a bit more vertical on their go to market and so we're starting to see revenue start to scale up which is which is really exciting as you uh think about your investment aperture uh how often are you looking at companies and thinking hey potentially one day they could compete compete with Salesforce and would you invest in a company that that might take that position?
34:12I think actually we probably should like it's it's good to stay close to where uh the technology is going and maybe that company may turn into an acquisition target someday. So, you know, one of the things just to give you some numbers, we we've invested in more than 750 companies. We've acquired 29. So, it's still it's a relatively small number of companies, but I think if we ever see something really exciting that, you
34:40know, maybe it's an acquisition target in the future, maybe not. Maybe it's just a great partner, you know, we want to stay close to that company.
34:48Yeah. And I mean, you mentioned a good portion of those 750 are in areas that you wouldn't say are core strategic areas. like robotics today doesn't strike me as, you know, the next thing in line in the Salesforce roadmap. Um, but we want to be partnering with them, but you want to be partnering with them.
35:07How did how do they think about the value proposition of partnering with Salesforce ventures? I think the the biggest value ad is probably how we can help them access customers and you know we have we have the broadest set of enterprise customers that are interested in buying technology and so we help our portfolio companies get in front of these customers.
35:29Uh I think we also provide a lot of meaningful advice uh from an operational lens around what is it like to build a business in this particular area. um and uh having you know been been through so many uh stories we can really help these entrepreneurs uh grow their businesses.
35:48If you were going to start a company today and it was going to attack Salesforce headon, what are the openings that you see fit?
35:56What I what I would say is I don't know why there continue to be new CRM companies at this point like it just it is interesting like how and and why do you feel that way? There are a bunch of AI native CRM. There's Lightfield, Monaco.
36:16I just think it's very hard to first of all, there's so much great CRM technology in general. Um, and we are continually improving our products. It's just very hard to build something that's particular particularly specialized and niche in that area right now. And so I'm not I I uh I have yet to see something that's so novel that it's going to turn into a large multi-billion dollar
36:45company in that space.
36:46Yeah. I mean uh my perspective would be maybe there's an opportunity down market from where you're tradition I know that you guys play in SMB too but uh in terms of getting up and running quickly bottom maybe more very down market. Yes. Um there could be you know it's still but it's still a small a small area and like v you know venture and the way we approach it is we only invest in big opportunities and I think
37:15most VCs look at that and so just to invest in small niche opportunities that might be a little different than what the incumbents are doing I just don't get it.
37:25Fair enough. I uh I the parallel story might be you know Stripe started with you know small companies and was able to grow with a lot of them over time and I imagine that these startups might have similar aspirations.
37:40I I just think there too many of them there too many of them. There's too much funding going into them and uh and I think the VC community should focus on like really new important areas that haven't been done before. And um as you think about the VC community at large, uh we're uh in a unique funding moment in time. I'm curious like what you make of it, how how you're making sense of uh valuations these days.
38:07I think there's a lot of irresponsibility going on. I I think that um there is uh there's the valuations are of course way too high, but um but also just the the buyer universe is so small. the you know how when you think about investing you want to think about what are my exit opportunities and not every company is going to go public in fact very very few companies go public probably 1% or less
38:35and so it is um so the exit opportunity is critical you want to think about who could be buying it and once you get above $10 billion for example the buyer universe is so small and yet how you're seeing so many of these these enormous multi-billion dollar valued companies out there and there simply is going to be there will be a reckoning that happens. I don't know when, but it is um it it is inevitable because there a lot
39:04of these companies have valuations that are not sustainable that they won't live in they won't be able to grow into and are also I think going to be bad for their employees. And so this is this is why I say it's a it's irresponsible and uh and unfortunately uh you know you try to have this dialogue with entrepreneurs and they they have you know they just want the highest valuation that they can possibly get but that is not the best decision usually.
39:32And do do you think uh so much of it is a result of just like power law thinking like you know anthropic is likely to go out at a valuation north of a trillion. Let's just say obviously SpaceX at 2 trillion.
39:47Those companies grew to those valuations in you know certainly in Anthropic and then OpenAI's case in a relatively short period of time right and those are generational companies and they're very very rare and when you when you find one of those they're amazing and that's why we invested in six rounds of Anthropic um because it was clear it was clear from the first meeting we had with Dario and Daniela that these were special people.
40:12They were some of the most brilliant minds we'd ever met and they were going to build something great. And so from that vantage point, it made sense to keep investing. But those companies are rare. And I see a lot of sort of mediocrity in in um in entrepreneur entrepreneurs and their ideas that are not going to become those generational companies. Uh and they shouldn't be commanding the 10 billion plus valuations, but yet they get them. And
40:40so that's where I I feel like um a little bit more discipline is warranted right now.
40:46I I a I agree that in certain pockets of the ecosystem uh that exists. Um I think part of my optimism comes from like what a top 1% outcome was 10 years from now. Uh 10 years ago is very different from what a top 1% outcome is today. Even on the M&A side, you mentioned whiz earlier, cursor. Um, so there have been these these larger outcomes that drive the returns for the ecosystem at large.
41:13Definitely. And I, you know, and I'm an optimist. I could not do my job if I wasn't an optimist. But just know that I see the thousands of companies every year that don't make it because they all come to us to try to be acquired. And so we we see we see that um part of the industry that, you know, you don't read about in the press. The press doesn't like to cover those stories. And uh and so it's just an important fact when when when an entrepreneur is thinking about raising
41:42money, what's the right valuation, what's the appropriate way to build this business. Uh you know, they have to think about all of that.
41:51You've been involved in some of the largest enterprise software transactions. Um sometimes those deals go south and don't happen. What kills deals?
42:03I think uh when when you go through the diligence process, first of all, it's really important that you're ready and you're organized so that the data is flowing and it doesn't look like you're having trouble getting access to data. I think one of the things that we found is um a lot of times customer uh companies don't um have strong controls over their financials or they don't have data on
42:31their customer contracts. They don't really understand what customer attrition really is. And I think one of the one of the mistakes that a lot of um founders are making these days is they focus on one metric alone which is ARR.
42:46And AR is a wonderful metric, but it masks um attrition. And you really it's really important that you think about what um what is the and that you understand the attrition of your customers and you do something about it.
43:00Um because that is when you have a when you meet with a company that has very high attrition, that usually means that there are a lot of not just unhappy customers, but there might be some product quality issues as well. And so it is um one of the big red flags that we look for. I think another area is how are you handling um your data privacy?
43:22Um how are you handling your security?
43:24So security is the one function uh in all you know we have 14 functions that we work with on all of our diligence processes and security is the one function that can hold hold up the red flag and say I'm killing this deal. And so if you have built your technology stack where it's easily um open to hacking uh that's going to be a real problem for us. And so what you also want to do and be prepared for is you know try you know red teaming your um
43:53your your technology stack and see what happens before you go into diligence because we're going to do our own penetration testing and find the problems and you definitely want to identify the vulnerab vulnerabilities before we do. Um but so you know nothing nothing goes better in a process when a company is totally buttoned up and when they have all their data accessible when their tech is secure um then the diligence process moves really really rapidly and we can get through it
44:22quickly and and painlessly but when they don't that's when you know deals can die. Is there a an example at the 11th hour of a deal not going through and can't of course you can't name names but like maybe a painstaking anecdote for you or for the founder.
44:43I think that it usually doesn't happen at the 11th hour, but it'll happen, you know, after after the term sheet is agreed and you've negotiated, you've negotiated price and and and ma the major terms of a deal, but then you get into the deep diligence process. you know, we we have um we have found problems where I'll one example was we were uh our p when we did the pen test uh we were able to not just access um
45:12all their source code but even get into the CEO's laptop and get information about their employees and so it was all when you shared that back and we shared it back of course we always share back what we find and try to help them fix the problems But it was so bad, like some of the worst that we'd ever seen that it was unreoverable.
45:34We've had other, by the way, security incidents that are recoverable and you can identify sort of what are the P 0 problems, P1's, P2s, and have as a condition to close or maybe it's a condition of signing even that we won't sign until these are fixed. We won't close until these other others are fixed. And so, um, it all depends on how bad it is, but you've got to have your house in order when you go through one of these processes.
46:00Makes sense. There's, uh, an amazing photo of you and your mother online, uh, representing your father in 2023, uh, for his, uh, Farmy Award.
46:14Um, your father was an extraordinary figure. He uh you know survived the Holocaust, fled Europe, uh you know came came here and uh had a incredible scientific career at Berkeley. Um would love to just close with uh your experience growing up with your father, what he thought of your career. Um you know h how he shaped you.
46:39Um well my father wanted me to be a chemist to be clear. So he you know he founded you came pretty close. He founded a field of chemistry. Well, you could you could argue M&A is a lot of chemistry in what we do. But um uh but yes, he founded a field of chemistry called surface chemistry and uh and also uh spent a lot of time in catalysis. Uh won many awards. We got to go to the White House when he won the National Medal of
47:06Science. It was very uh it's it was incredible to grow up with a man like that uh and and and meet with his colleagues too. And we had some of the most incredible uh minds in the world come to our house for dinner. My mother uh loved to host these incredible dinner parties. And so that was what life was like growing up. And it was um one where you were really um uh encouraged to be
47:36curious uh and also think about the future. And so that was um that was really part of of the way I grew up and I think it's really shaped who I am today. Yeah, that I mean that does seem to have a lot of parallels to what you do and uh you know maybe those dinner parties and hanging out with the chemists had some similarity to hanging out with the AI researchers of today.
48:00That definitely and and I also you know had a father who loved to teach all the time and he would teach at the dinner table, he would teach in the car rides, he would teach when he was driving me to school and so it was uh you were just flooded with with information and knowledge all the time. So, it was he's he was a remarkable man.
48:18Amazing. Well, thank you so much for uh spending the time with us today. This was really fun.
48:23Yeah. Thank you, Alex.
