🔑 Key Takeaways
- Emergence Capital invests in enterprise SaaS and develops their thesis by understanding their founders' businesses. Their focus on addressing negative implications of cloud applications is crucial in today's technology-driven world.
- Investing in fewer companies and utilizing tools like Maze to democratize the product research process can facilitate deep collaboration, streamline iteration, and create a scalable workflow.
- Combining productivity and collaboration can enhance job-to-be-done focus. Companies like Figma succeeded by dropping functional personas and prioritizing design. The challenge is in navigating a complex go-to-market strategy, but leveraging enterprise momentum can help seal deals.
- Ironclad and Figma exemplify how deep collaboration and cross-functional working can benefit companies by increasing effectiveness, spreading expertise, and streamlining tasks through specialized software tools.
- Deep collaboration in software development can be achieved by building productivity and collaboration tools from scratch or leveraging existing infrastructure. This approach helps in cohesive product-building and empowers individuals to take ownership over the process through direct involvement and iteration.
- Choose a specific job and gather relevant data for better machine learning insights. Be mindful of where the job begins and ends, and avoid being too generic. Data relevance is crucial for good outcomes.
- Combining collaboration and productivity tools can improve organizational efficiency. Emergence's focus on industry cloud, deskless workforce, and coaching networks bodes well for enterprise software investments. Successful breakout companies must address specific job-to-be-done and expand across personas within organizations.
- Zoom's potential as a horizontal platform can lead to the emergence of innovative companies in the second tier, while creating opportunities for enterprises to become profitable standalone businesses. The SaaS market has potential profitability if growth is regulated.
- Interest rates, cloud takeover, revenue growth, and TAM size are driving the valuation growth in the private technology market. VCs should consider revenue growth and TAM size when funding A-stage businesses, and entrepreneurs need to make choices for their company's future.
- Founders and VCs need to understand their level of involvement, the potential for hands-on support, and the right balance of niche interest to ensure a winning strategy. Beware of FOMO and remember that taking risks can lead to rewarding economic outcomes.
- CEOs should prioritize finding product-market fit before raising capital, and focus on effective capital allocation. Understanding personal motivations and values is crucial for successful leadership, and humility is key for responding to success in the investment world.
- The founders of the firm have prioritized collaboration and selflessness, which has fostered a supportive and inclusive work environment. They focus on supporting the Zoom ecosystem and strengthening relationships to become the most valuable partner for their founders.
- Founders must prioritize building a supportive peer group, establish guidelines, and maintain confidentiality. Embracing vulnerability fosters deeper connections and drives success through partnership dynamics.
📝 Podcast Summary
Emergence Capital: Investing in Enterprise SaaS and Addressing Negative Implications of Cloud Applications.
Emergence Capital is a B2B-focused firm that invests in enterprise SaaS. They began with horizontal SaaS investing and then moved onto industry cloud. They're responsible for investing in Veeva and Zoom, and Jake Saper is a General Partner there. Saper's portfolio includes Guru, a knowledge management platform, and Maze, a company that specializes in deep collaboration. Emergence develops their thesis by spending time with their founders and understanding what's going on within their business. They focus on two things: what they invest in and how they invest, and their most recent thesis is addressing the negative implications of the rise of cloud applications.
The Importance of Deep Collaboration in the Age of Information Fragmentation
Deep collaboration is important in a world where there is a massive proliferation of productivity and collaboration applications that creates information fragmentation and makes it hard to be in flow. Investing in few companies and focusing on them allows for spending more time with founders which is crucial. Maze, by democratizing the product research process, brings lots more people into the product research process, helps iterate much more quickly and makes it entirely scalable. By plugging into all of the prototyping tools and allowing users to go through a prototype and understand quantitatively what's going on, Maze enables deep collaboration. This is where the important concept of deep collaboration comes in.
The Rise of Deep Collaboration: Combining Productivity and Collaboration
The shift towards remote work and the evolution of collaboration tools have led to a need for software that combines productivity and collaboration to get specific jobs done. Deep collaboration involves embedding collaboration within productivity and focusing on the job-to-be-done, rather than functional personas. Figma is an example of a breakout company that dropped the persona mentality and focused on design as a job-to-be-done, making software easier to use and incorporating collaboration. The challenge lies in navigating the complex go-to-market strategy for such software, but leveraging internal enterprise momentum can help seal deals with companies.
The Power of Deep Collaboration and Cross-Functional Working for Effective Go-To-Market Strategies
Deep collaboration and cross-functional working can be an asset for companies in their go-to-market strategy. The buyer is often the person who feels the most pain from a task not being done well. Deep collaboration companies like Ironclad and Figma enable cross-functional collaboration around a specific job-to-be-done. These companies make professionals more effective at their jobs and spread their expertise throughout the organization. They provide software that allows companies to draft and collaborate on contracts internally and collaborate with counterparties externally. They also enable people to directly do user research themselves, increasing their bandwidth by letting other people commission studies and get it done faster and more directly.
Approaches to Deep Collaboration in Software Development
Deep collaboration in software development can be approached in different ways, such as Full Stack native, leveraging existing communication infrastructure, or leveraging existing productivity infrastructure. Full Stack native, like Figma, involves building the entire productivity tool and collaboration functionality from scratch. Leveraging existing productivity infrastructure, like Ironclad, involves adding job-to-be-done specific productivity functionality around existing software and then adding collaboration functionality around it. Leveraging existing communication infrastructure, like ClassEDU, involves building job-to-be-done specific productivity around communication platforms like Zoom. Deep collaboration enables product-building in a cohesive manner rather than doing it in silos and empowers individuals to take ownership over the process through direct involvement and iteration.
Focusing on a specific job-to-be-done for effective machine learning insights.
Focusing on a specific job-to-be-done with a smaller data set can lead to more effective machine learning insights. Generic tools, such as productivity and collaboration software, contain a lot of irrelevant data, which can limit the relevance of insights generated. Companies that choose to focus on a specific job, such as Chorus and Luma, can gather more relevant data and provide better insights. However, it is important to consider where the job starts and stops, as it is a moving target. Starting narrowly and expanding into adjacencies can provide opportunities for growth, but eventually, being too generic has downsides. Machine learning is only as good as the relevance of the data entered in the data set.
The Intersection of Collaboration and Productivity Tools
The integration of deep collaboration and core productivity tools can create a seamless and efficient experience for users in organizations. The Salesforce acquisition of Slack is a move towards this direction, despite concerns about successful integration. In terms of investment, Emergence focuses on three priority themes, including industry cloud, deskless workforce, and coaching networks concept. Both vertical and horizontal bets can have huge potential in the enterprise software market, as shown by Emergence's successful investments in both Veeva and Zoom. The future success of breakout companies in this market will depend on their ability to address specific job-to-be-done and expand across personas within organizations.
The Potential of Zoom as a Platform for Vertical-Specific Applications
The hope is that Zoom becomes a major horizontal platform upon which vertical-specific applications can be built, like ClassEDU and Luma. This could lead to a new wave of innovative companies in the second tier, such as Shopify and Twilio, who can make interesting acquisitions because big tech may be more nervous about regulatory concerns. The TAMs for enterprise businesses are much larger than previously thought, leading to more companies going public and becoming viable standalone businesses. While the SaaS market may seem frothy, the majority of these companies are unit profitable with high gross margins and could be profitable at a moment's notice if they chose to stop growing so quickly.
The Driving Factors Behind Valuation Growth in Private Technology Market.
The valuation growth in the private technology market is being driven by more capital chasing a limited number of great companies, with interest rates being a significant factor in the influx of capital. The trend of cloud taking over, with revenue and market share moving from physical to cloud, is also contributing to the high valuation of public SaaS companies. It is important for VCs to consider revenue growth when funding businesses, even at A stage. The size of the total addressable market (TAM) for many technology companies is bigger than initially thought, and this trend is here to stay. Entrepreneurs need to make a choice in terms of what they want for their company.
The Importance of Self-Awareness and Niche Focus in VC-for-Founder Relationships
Self-awareness is key for both founders and VCs to determine the level of involvement needed from each other. For some great founders, passive investment may be the best choice while others may require more hands-on support. Being the best at a particular niche is a winning strategy and it's important for both VCs and founders to figure out what is big enough to be interesting but small enough to have the chance to be truly great. The fear of FOMO can be a challenge in venture but it's important to remember that prices increase when investors are willing to take more risk, leading to a bubble of conversation around the economic equation of paying for risk.
The Importance of Product-Market Fit and Capital Allocation
Raising capital before finding product-market fit can be detrimental to a company's success. It leads to poor capital allocation, lack of urgency, and a loss of focus. CEOs should be judged based on their capital allocation skills and their impact on the world. As a leader, it's important to understand what motivates you and institutionalize those values. Emergence's investment in Zoom generated enormous returns and demonstrated the importance of humility in responding to success. Santi, who led the investment, will be considered one of the greatest VCs in the world, based on this return alone.
Creating a Collaborative and Selfless Culture at the Firm
The founders of the firm have set a precedent for selflessness, collaboration, and graceful transition, which has created a we-all mentality in the firm. They have not let the money and success change their behavior and encouraged the firm to seek more foundations and endowments to invest in them. The firm has spent three months figuring out the causes they care about and want to have the access to the asset class. The Zoom episode has led them to focus on supporting the Zoom ecosystem and providing more value to their companies to become the most important partner for their founders. They have invested in strengthening interpersonal relationships through hiring a facilitator and sharing vulnerabilities.
Importance of a Vulnerable Peer Group in Business and Mental Health
Building a supportive peer group with whom one can be vulnerable is crucial for mental health and company performance. Founders should seek out such groups, set guidelines, and maintain strict confidentiality. The commitment to vulnerability allows for a deeper level of connection, which enables playing it at a much deeper level beyond the main job. Institutional LPs will tell you that partnership dynamics are everything in a venture firm. Partnerships are not just transactional, but the commitment to vulnerability and sharing interpersonal issues enables partners/team members to recommit to the underdog mentality collectively and think sharply about how to adjust their strategy and dynamics to replicate success.