Venture Capital Viewpoints

Hi everyone. Welcome to a segment called Venture Capital Viewpoints, where we talk to different VCs who are experts in enterprise software and technology. I'm Mia Wang. I'm on our special project team at Cloudflare, where I look after corporate strategy and M&A. And with me today is Shomik Ghosh, who is a principal at Full Start Ventures. Thanks for joining us. Thanks for having me, Mia. I've got lots of questions for you. I'm sure it's an interesting time to be an investor, especially in focus on enterprise. But before I start sending those questions to you, do you mind just telling us a little bit about your background and what you focus on at Full Start? Yeah, so thanks again for having me. Excited that Cloudflare is doing this. It's a really cool new model to hopefully bring more resources constantly to everyone in the infrastructure space and enterprise software space broadly. But yeah, so a little bit about me. I've been actually in finance throughout my career, but I've always had a passion for product and for enterprise software in particular. And so through that, I was able to actually, at my previous job at a fund called Top Tier Capital, was involved in investing in growth stage enterprise software companies. So that would be what's defined now as kind of, call it the Series B or later stage, when it's kind of like, call it $20 million to $30 million rounds of capital or larger. And so there, I was fortunate enough to be involved with companies like Anaplan, CircleCI, and ShapeSecurity. And then through that, actually, though, I found really my passion was getting involved with companies from day one. And so that's what led me to Bold Start Ventures, where we're really kind of the day one partner for enterprise software companies. We are, in fact, the first check literally into, I think, more than half of our portfolio companies, or we're the first round after the angel investors. And we focus only on enterprise software, truly solving Fortune 500 pain points. And so companies in our portfolio that folks may know of are companies like Snyk, which is helping developers use open source code securely. Big ID, which allows enterprises to map their PII and secure their PII. A company called Customer with a K, which is competing against Zendesk and Salesforce in the customer support space. And then also companies like Superhuman and Front, which are in kind of the new productivity and future of our space. Got it. Those are some pretty big, exciting logos to be in your portfolio. That sounds like you guys have had a pretty exciting track record and a lot of success as well. That's great. Yeah, thanks. We're lucky to partner with really good founders and teams, right? And then they make us look good. So that's part of the fun about venture capital. That's funny. You're very honest about that, which I appreciate. I'm sure in the last few months, everyone has been asking you, how has your investment thesis changed in light of COVID? How has, maybe even how your own team is operating a little bit differently, or even just about the future of work in general. So are there any thoughts you'd want to share with people watching who might be founders or operators or investors about how you think COVID will sort of impact enterprise technology in the long run? Yeah. So it was interesting. I would say back in March when COVID was really starting to hit here in the US, I think at that point what happened was really the capital markets started to freeze up a little bit. And so you had really growth stage investors start to sort of take a pause because the markets were diving and people were really kind of concerned, what sort of multiple should we pay on a business when we don't know where the multiple will shake out in the public markets. And so the growth stage started to, I think, seize up a little bit. And then that has kind of ripple effects to the earlier stages as well. Since then though, I would say it really kind of has rapidly turned. I think the stock market has gone back up to all time highs. And part of that is, for example, like Microsoft, Satya Nadella came out and said, I think it was something like COVID-19 has helped accelerate most of the cloud infrastructure businesses by like two years. And so roadmaps that CIOs and CTOs have these Fortune 500 companies, all of a sudden they're getting forced to adopt them immediately and right now. And so that's actually been a really big boon actually for a number of customers along. But I think what has changed and what may continue to be the case is what changes a little bit of the sales function. So you used to be able to just go out and you have a trade show, people come by your booth, you have maybe sales engineers there to talk you through, and then you get a bunch of leads from whether it was AWS reInvent or like Cloudflare's user conference or things like that. And now that's actually changed, right? You're having these digitally, but digital doesn't have the same feel to it. And so that sales motion has really changed from kind of, hey, we're going to get these leads from these large events to now, you got to be a little bit more tactical and almost deeper with your relationships. And so the way that we've kind of seen work is actually more of a consultative selling approach. So it's really kind of approaching your enterprise customer saying, for example, let's say they're making a move to a CDN or trying to think about that. Maybe you'd say, hey, well, we have a lot of expertise there, right? And so here's the steps that we've seen other customers take. Here's how we've developed it. Here's best practices that we can share. And by the way, you want to talk to maybe our head of product about how they've done it or different ways like that to really start to be more of a partner to the business rather than just kind of a vendor that's sort of just selling to them. So I think that's been a shift that will probably, I think, continue to stay. And really, I think startups should be thinking more about like these workshop models or sharing best practices with your expertise that you have to really help to grease those initial sales. So if, just to double click on that, if I'm, let's say I'm a first time founder, I started my company a year or two ago, and I don't have a big kind of enterprise or CISO network, right? And how, so how, how does a founder like that sort of build those personal relationships with the potential customers, with people that they might not have that relationship with today? Yeah. So a lot of it, I think, depends on your network, right? And so as a founder, maybe you don't know the CIOs or CTOs of the large fortune 500 companies, but you probably have a friend that's another founder that's sold into them, right? Or you have, either you have VCs on your, on your board or as investors that are actively involved who can help, or it's literally just kind of mapping your network. So going into your LinkedIn, your personal contacts, contacts, and then trying to see like, okay, I want to get in touch with the, you know, the CIO of Coca -Cola. How am I going to do that? Right. And, and literally kind of mapping out that list and taking the time to make those lists and then trying to see what are the nodes that connect that. And by doing that, you, you start to be able to engender, you know, warm intros with all of your, with all of your potential customers. And that's really, I think, what's been the most effective way to go about doing it when you're just kind of a founder starting out. It's also about identifying your early customer, right? So, you know, let's say you're an enterprise software company, you're building up, you're building a, you know, something in the infrastructure space. Most probably you will not be ready for Coca-Cola, right? Because they have legacy systems, they have on-prem, they have multiple clouds. There's so much stuff going on under the hood. So then you might say, Hey, you know, I don't actually need that, but I want someone who's forward thinking. So maybe I want to go and reach out to Cloudflare, or maybe it's actually a step below that, right? You want to reach out to a series B company that's starting to scale and has those similar problems. And so normally the founders have a little bit more folks in their network to help accomplish that. Got it. And that sounds like a piece of advice you've probably given in any normal situation, but in light of just how the world looks today, the ROI on that, or the importance of doing that is probably even higher than before, right? Yeah, I would say for sure. And, you know, I think the other way also that we've seen more and more companies do it, again, this is probably more of a, an infrastructure component, but I think broadly enterprise software, especially productivity software is happening as well, where you can kind of create this bottoms up product led motion, right? Where, where, you know, maybe you start with something in open source or you start with something that is free up to a certain level of usage. And so what you're, what's happening there is you're forming a really tight, close relationship with your customers from literally day one, right? And there's no friction or adoption hurdles to them using your product. And then that way you're starting to get one, you know, feedback to real time usage data on like how they're interacting with different systems. So you can start to build out your product roadmap. But then, you know, you also get these contacts, so you'll get, you'll get your first customer from doing that. And then you can ask that customer, Hey, do you mind, you know giving me, do you mind being a public case study for me or being a reference? And so now you can put up a public case study on your website, a new customer that's again, coming bottoms up starts to see, Hey, you know, the CTO of this company is using this here's, here's what they accomplished. And really that starts this cycle, right? And so that's another way that we've seen a lot of companies approaching this is really going more, thinking more about, you know, how do you get this, whether it's open source or product led growth model going versus where before it might've been more traditional top-down sales. Got it. That, that makes a lot of sense. It's sort of, you know, reducing the barriers or the friction for someone to just try your product a little bit. And just, just building that kind of top of funnel. So you have a wedge to start expanding those relationships. And, you know, if you're a startup, you would hopefully grow with your customers as well. Yeah. Yeah. I mean, and, and I think to, to even, you know, we, we call it the sandwich model, right. Which is basically like you have this, this bottoms up engine that is that is bringing you leads, that's bringing you usage, bringing you early customers. But at the same time that's not to say that you shouldn't be also pursuing, you know, a selective top-down model, right. Which is early on, there are a lot of forward -thinking companies. For example, you know, Marty Broadbecks, the CTO of Priceline. He is extraordinarily forward -thinking, especially in, in, in anything infrastructure. So he's actually really looking for early stage startups to partner with. So, you know, I just said, you know, Marty's name. Now, if you go and email him, maybe, you know, he will respond, maybe he won't. But again, you can map out your network, right. To figure out, okay, how do I, you know, how do I get to Marty? How do I get a warm intro? And then all of a sudden, you know, from, from Marty's perspective, what's really exciting is he gets to work with a new company, help mold that product from the beginning to talk about the problems that he's having as a large enterprise with, I think he has like 8,000 APIs or something like that, like just crazy scale, right. And he gets to help mold that vision and how the product is being built. So that's not just serving, you know, the, the typical SaaS companies, but it's also serving truly the Fortune 500. And I think that's the really powerful model. When you get that going, you only need probably like, especially when you're, when you're, you know, at, at the pre-product stage where we focus in the seed stage, you only really need like three of those. And that's enough, right. So that you've built out your product in a smart way. And then meanwhile, if you have this kind of bottoms up engine continuing to give you leads, you really have a powerful go-to -market model that, that works well in infrastructure. That makes a lot of sense. I've spoken to founders sometimes where rather than sort of thinking about the enterprise market based on their network or, you know, which CISOs or CIOs are more forward-thinking and open to working in startups, they sort of think about it from like size of company, right. And that, that's not always a good indicator of how willing someone or a company is, is to work with a team of five people or three people without a product, right. So it's sort of about just being smart about who you spend time working with. And then once you do find people that are excited and supportive to try to work closely as closely as possible. Yeah. And, and, you know, again, we're in a digital first world, right. Like we're talking, you know, over, over a video right now. And so the really powerful thing is, you know, all these conferences are going online. So we don't know what will happen with AWS re -invent this year, but like you are having enterprise software conferences come online. And so, you know, another one is, is Dean Delvecchio. He's the CIO of Guardian Life. He actually keynoted AWS. And so now you can see, like, if you're, if you're looking online, looking at YouTube videos, he's literally divulging his, his roadmap and his, and what he's, what he's looking to do with with cloud infrastructure and products on stage, right. For anyone to see. And so when you see those signals, like that's how you can start building your, your target list of who to go after. Got it. Yeah. There's, there's with every conference being online now, there's just a lot more stuff out there. And if you're, if you're kind of clever and, and diligent and following all this, there's probably a lot you could, you could glean that makes up for, you know, not being able to have a bunch of in -person meetings or going to meetings and or conferences in person. That's super interesting. Is there, are there any observations related to sort of the security market in general, or, or actually specifically about security market, or do you think the kind of things, headwinds, tailwinds, affecting security startups are sort of the same as, as other, other enterprise companies? So, you know, I would say security is such a broad market, right. And there's so many different ways to approach it. And so I think, you know, one of the interesting things is, is CrowdStrike, for example, came out with their earnings and they have, I think, actually accelerated their, their growth rate. And what's, what's phenomenal about that is, is, you know, traditionally I think a lot of people thought about CrowdStrike as a very top down, heavy implementation, huge lift for your, for your IT team and for your internal organization. I think what they've done is actually built something that's more bottoms up, right. And, and, and easier to kind of spin up POCs, proof of concepts and, and, and start to have those early conversations. And so I think, you know, they're executing really well in the endpoint security market, which is incredibly crowded. There's point solution fatigue all over the place. You talk to any CISO, they're literally like, just like, I can't talk to any more endpoint security, right. Because there's just, there's too much. Right. And so as a founder, when you start to look at that, I think what's interesting is, you know, if you looked at the endpoint security market, you would say, Hey, there's CrowdStrike, there's Carbon Black, there's, you know, all these different companies out there. Do I really have a secret sauce or like a, an opinionated view of how the product should be formed such that it's much better than what's out there. And it will cause the current customers who are customers of those companies to actually shift and, and, and start to try and partner with me. Right. And so I think that's one angle of, if you're, if you're going into security right now and you're attacking a crowded market, that's one way you should be thinking. But what's really interesting is there's also a lot of white space. And so one of our companies, Sneak, like I said, let's, let's developers use open source code securely. But really, you know, what that flipped completely on its head is this whole trend of like DevSecOps, right. Which is that buzzword that everyone talks about, but really it's developers owning more of the security as they're just, you know, building out their code. Right. And, and that's, that's pretty remarkable. That's again, engenders a whole new business model. It also engenders a completely different product too. It's gotta be something that's frictionless to use. That's easy to adopt that, that customers really like. And it can't be a huge heavy lift, right. Because otherwise then, you know, those developers would not be adopting it. And so that's what gets us really excited. I think in the security market is you have this kind of shift left occurring of responsibility to these developers. And there's a ton of white space that's emerging out of that. And so there could be stuff like doing, you know, monitoring, monitoring vulnerabilities, creating dependency maps. There's a whole new ways of looking at, you know, containers and what could you do within containers to, to improve the security posture of those. Right. And so that's what really gets us excited. Security is like, there's CISOs are still looking to spend. They still have a ton of new attack surfaces that have opened up and continue to open up every day. But the way to approach it and the product that needs to solve that, I think needs to kind of be rethought for where the responsibility is starting to shift. Got it. And that there's probably sort of an uneven mix of, of how different companies look, right. There might be some really large companies that are, that have moved to become very, very developer first and kind of focus on their internal technology teams, even if it's not a technology company, right. They might rely on on their technology teams a lot, whether it's, you know, a retail business, entertainment, media business, they, they rely on their, their technology team a lot. Right. But what about for, for companies, let's say on like financial services or something like that, where their product isn't necessarily a piece of software or, or, you know, some of them might be, might be still running on, on fairly old systems. How do you think a startup could also serve those types of customers? And, and is that from a security angle or just general? So that, I think that goes back to what I was saying earlier, which was, you know, this blend of designing, not only for SAS customers in mind, but also for that fortune 500. And a great example of this is like, if you design for Netflix, you know, Netflix has a, an amazing infrastructure, right. They're distributing loads and balancing it all over across the globe in multiple regions, right. It's, it's truly amazing what they're able to do. So if you're selling to something like them, like, like Netflix, you can build a really complicated product. It can be super technical. Maybe the documentation, you know, will have to be really good, but you won't have to explain certain technical concepts because that will already be known by, by Netflix. Now, if you go to a larger bank, right, like you know, any, any of the large banks out there, it's, it's a bit different, right. They, they have, they have developers all over the world, but the skill levels of those developers are all different. And also they're all working on so many different systems. They have their, their, they probably have something written in COBOL, right. And then they also have, you know, the modern system that is, is competing with the neobanks of the world, right. And the modern interface and it's, it's on Kubernetes and all this sort of stuff. Right. And so the complexity there is a lot more challenging. So if you're going to sell into them, what you have to really start talking about is, is the buzzword that everyone talks about digital transformation, but what digital transformation really is, is helping a customer go from where they are currently to where they want to go. And that includes a lot of integration work, a lot of like even just mapping work, like what are the dependencies that are occurring in, in my in my software architecture? A lot of these things, like they may not know because one knowledge transfer may be, you know, siloed because it's a hundred thousand person org. And and then also it's just you know, maybe they don't have the tooling to do that or, or the, the COBOL programmer is the only person who knows it and can't shift that over to others. And it's funny, cause we, we, we talk about like, oh, COBOL is so old, but you know, New Jersey was trying to send out the, the funds, you know, the stimulus funds. And they literally had to put out like an RFP for COBOL programmers. Right. And so like, that is crazy. And so when you, when you're designing for these large fortune 500s, that's really, I think what's the exciting part of what, what bolts are, where we get excited is really like, you know, it's not just knowing go or knowing Python, but it's also knowing COBOL, how those systems interact, how will that interact with your code and really having that baked into your design from day one. Right. And so if you can do that, you can build massive, huge businesses. And, and, and we think it's just really exciting. That's super interesting. I'd love to sort of go, go back to the point of, you know, DevOps, DevSecOps and just selling and building products for developers. What do you think is, is sort of the, like you guys are investors in a couple of really great companies that, that fit this example, but what do you think is sort of the magic? Is it focusing on sort of the experience? Is it focusing on reporting and governance functionality, or is it finding ways to make sure that it integrates with other things out of the box? What, what's sort of like the, the, if you had to force rank kind of what's, what's important in those products, what, what would that look like? Yeah. You know, I would say, and again, this will be kind of more from a pre -product very early stage lens. I would say it's very hard to say like, Hey we're going to have to prioritize integrations, or we're going to have to prioritize this from the beginning. Really what you're going to have to prioritize is that initial entry point. Like what's that one pain point that you're solving that nobody else is solving right now, and you can solve better, faster, cheaper, more efficiently on any of those dimensions. Right. And so that takes a lot of time because it takes a lot of talking to different customers, synthesizing their feedback, and then realizing like, okay, here's an area where, where there's a clear pain and we can deliver a solution there. That's really helpful. Now, the interesting thing is once you figure that out, then like your life gets a bit easier. It's still really hard, but, but it gets a little bit easier. And the reason for that is, is all of a sudden your customer will start, will start telling you, you know, Hey, we, we have you know, we use GitHub very extensively. So we need the ability to integrate with GitHub and pull stuff out and merge into there very easily. Right. And so so, okay, cool. That's one thing to keep in mind. Right. Then somebody else will be using it and say, Hey, you know, speed wise this is, this is, you know, this could be a little bit faster and that would really increase my, my workflow by, you know, 10 X or something like that. If you could make it a little bit faster. Well, you know, people really don't think of features in terms of, you know, they think about, you know, how we're shipping a new product or we're shipping this integration or whatever. And that's like a new feature that you're shipping. Right. But speed itself is also a feature. And so if you could create something that's super fast, that's super performant, that can also abstract away a lot of the need or a lot of the early need for integrations because you've delivered such a better experience to them that it's helped them. And so, you know, that's super humans core essence is actually, they're just like the fastest email experience out there. You can't get any faster. And so, you know, a lot of the stuff that they're working on integration wise calendar stuff, things like that, you know, that, that will come in the future, but for now their users are really satisfied just because it helps them get through their inbox so quick. Right. And so again, that's defined that entry point. And then you can figure out pricing, you can figure out monetization, you can expand the product from there. I'm smiling because it almost feels like I asked you to say all that because when, when I think about kind of Cloudflare's philosophy with, with our products, it's delivering speed, it's delivering reliability, delivering performance without having to sacrifice security or sacrifice any of those things. Right. And so there's a lot of things we provide that, you know, we're not, we're not the first, we didn't invent the product, we didn't invent the category, but we can deliver it faster and you don't have to sacrifice on other things and it provides value right out of the gate. Right. One thing you mentioned actually on the point of integration. So when, when you have some of your portfolios come, portfolio companies come to you asking, you know, should I partner with this company? Or, you know, it'll take six months for me to build an integration with this company. Like, is it worth doing it? Or, you know, this company wants to distribute some of my products. How do you sort of guide them through, through that process? Or if they say, you know, I have M&A interests, like how, how do you typically advise them on that? So let's take that probably in two segments. So first would be on the customer side and the integration and stuff. So a lot of that one comes from, you know, previous pattern recognition, right. Or, or just working with other startups. So for example, there may be a customer that is, that requires a lot of work upfront. And and so if we've heard about that from two other portfolio companies, then you know, we would probably advise our companies, Hey, just to let you know, this is a pretty heavy lift. You're, you're going to have to, you know, spend a lot more resources that you'd probably like at this time. And it's probably not best to work with that customer, right. Just because that's probably when you have a little bit more resources, maybe after you've Series A or something, and then you can go and work with that customer. Right. So the trade-off is always between, yes, a big customer may give you a lot of revenue and also references and all that stuff, but also you're going to have to do a lot of work to get there. And so what's the opportunity cost of that work for that large customer where you could have maybe been shipping more features, making the product more performant, making it faster, improving the user experience, whatever such that you could actually, you know, improve sales in the future. So that's on the customer side, on the integration side, it's a similar sort of thing. It's if enough, if enough of your customers are literally like beating at you and like, you know, they're sending you Slack messages all the time. It's like, why don't I have this integration? Then you probably need to prioritize that integration. So, you know, in some cases, we as investors, again, may have that knowledge from the portfolio of like, Hey, the software that you're designing will really need to integrate again with like GitHub or whatever. Right. And then in that case, we may suggest prioritizing that sooner, but really a lot of that should be coming from customer pull. I think on the M&A side, that's a really interesting discussion. I'm actually curious on your viewpoint on this as well. But, you know, from the way that we look at partnerships are a little bit hard to do with large companies sometimes in the early stage, because they can take a lot of time. They also could unlock a lot of value. And so really, again, this is a much more of a relationship thing from our side, which is like, we're hopefully building relationship with the corp dev teams, the special projects teams of these companies, so that, you know, we know them already, we know what they're interested in, and we can kind of grease the wheels a little to get that to happen. But it's always something we're mindful of. I'm curious on your viewpoint, you know, I think, in a lot of ways, not a lot has changed in terms of how I tell my friends who are founders, and what I tell them to do and think about. A lot of it is back to your point about relationship building, right? Like if you've known this big company, that might be a potential acquirer in a few years, if you've known them for a few years, you've maybe dabbled with on partnering together on integration, you know, some blog posts together, if you've known them for a few years, once it comes to the point where you're either ready to exit, or you know, they're interested in acquiring you, it's a much easier process of figuring out if it's a good fit for you or not. What's hard is, you know, when you don't have control of that, right, when you're sort of forced to figure something out, and you have limited visibility, you don't know if, you know, your product and your team will be prioritized in the new home, a lot of that can actually be figured out pretty early on. And so, you know, maybe this is self serving advice, but I spend a lot of time talking to founders, and of course, so you and then usually what I tell them is like, there might be a good way to partner together, or, you know, we're not a very acquisitive company, I'm transparent about that. But, you know, it doesn't hurt to spend a little bit of time getting to understand each other, getting to understand what our infrastructure looks like, what theirs looks like. And just like, it doesn't hurt to do a bunch of relationship building, right, like that, that'll never hurt. And so I think in many ways, it's, I probably double down on that. But in a lot of ways, that hasn't changed much either. Thank you for doing this. If people want to reach out to you and, you know, tell you about their companies, how can they find you? So I'm at Twitter at ShomikGhosh21. And then also, you can email me too, shomik at boltstart.dc. And happy to talk to anyone that would like to. Yeah, thanks again for being on with us. I'll talk to you soon.