223. Crisis Coverage w/ Byron Deeter – Why This is the Seminal Moment for Cloud and Lessons from 19 Unicorn Investments

223. Crisis Coverage w/ Byron Deeter - Why This is the Seminal Moment for Cloud and Lessons from 19 Unicorn Investments
Nick Moran Angel List

Byron Deeter of Bessemer joins Nick on a special Crisis Coverage installment to discuss Why This is the Seminal Moment for Cloud and Lessons from 19 Unicorn Investments. In this episode, we cover:

  • Background and path to venture
  • Stage and focus area at Bessemer?
  • You’ve said that many of the lessons learned from the 08 crisis are applicable today — what are the top 2 or 3 lessons that founders can directly apply to their business during the current crisis?
  • From a startup standpoint, how is this crisis different from the last?
  • What are your thoughts on the dynamics of the PPP and the role the government is playing amid the crisis?
  • We’ve seen significant volatility in the public markets, but Cloud has remained pretty resilient… what have been your macros observations on SaaS and Cloud businesses over the past couple of months?
  • Why is now “the iPhone moment” for Cloud? 
  • We’ve seen a number of business models gain increasing momentum, such as freemium, low friction and developer centric to name a few — what have you observed w/respect to evolving business models and which do you think will become more pervasive in the coming years?
  • You’ve talked in the past about the importance of channel scalability for SaaS and cloud companies, define channel scalability for us and what some red flags that may reveal a lack of this?
  • A lot of analysis that goes into these businesses and every situation is different, so I don’t want to over simplify… but have you found some general characteristics that separate the winners from the losers?
  • Trust is such an important part of a relationship between founders and investors, what’s your approach to building relationships, and do you have a specific example/story?
  • We saw substantial growth in the number of unicorns from the 2000’s to the 2010’s, what do you expect to see this decade?
  • How do you feel about the trend of companies to stay private longer?
  • From the 10 Laws of Cloud Computing… which are the ones most often absent from opportunities you’re reviewing?
    • Law 1: In the cloud economy, scale wins
    • Law 2: Growth at optimal cost
    • Law 3: Invest behind the cloud sales and marketing learning curve
    • Law 4: Product as a competitive advantage
    • Law 5: Master the 5 C’s of cloud finance
    • Law 6: Discover your secret KPIs
    • Law 7: Customer success is company success
    • Law 8: Impact through engagement or insights
    • Law 9: Tone starts at the top
    • Law 10: Map your fuel stops
  • In the last State of the Cloud report, you mentioned 5 predictions about the future of Cloud, can you highlight a few you’re most excited about? 

Guest Links:

Transcribed with AI:

Intro 0:03
welcome to the podcast about investing in startups, where existing investors can learn how to get the best deal possible. And those that have never before invested in startups can learn the keys to success from the venture experts. Your host is Nick Moran, and this is the full ratchet.

Nick Moran 0:23
Byron Deeter joins us today from Atherton, California. Byron is partner at Bessemer ventures in the leading investor in SAS and cloud. To date he has 19 Unicorn investments who, including 10 IPOs. Before joining Bessemer Byron was CEO and co founder at trigo technologies, one of the first global SaaS companies, which was acquired by IBM in 2004. Byron, welcome to the show.

Speaker 1 0:47
Thanks, Nick. Awesome to teleport in and join you and your crew today.

Nick Moran 0:51
You as well. Yeah, so talk us through your story. What was your background in path to the best one?

Speaker 1 0:56
Well, probably most relevant for this audience. I was an entrepreneur. In the early cloud days, I had worked at McKinsey and TA associates for a few years and got a taste for business and tech, but very much got the startup bug and jumped out in 2002, found in early software as a service business, what at the time was referred to as the ASP model. But very much single instance, multi tenant cloud delivered, became completely convinced that that was the future. And as we had some good fortune scaled up the business despite the craziness of two recessions ago, in the.com, collapse, we built that up to a fairly large scale profitability and global platform. We’re getting ready to go public, when IBM stepped in and bought us, I had been able to work with Bessemer, and a number of other top tier venture firms through that experience. And so I rolled over and oh five and returned to the venture world, join Bessemer and have been extremely active in the cloud world and in all things hypergrowth tech ever since

Nick Moran 1:58
any notable names that that the audience might know from the TA days or or the early days that were mentors for you.

Speaker 1 2:06
Well, on the personal side, I’ve got to say there were several of the partners there that I owe a huge debt of gratitude for just mapping out what the venture world should be like. So Kurt Jagger is Jeff chambers been involved in a number of those early managing directors and partners did venture right and mine UTA would invest one day in a mattress company one day in a software company in one day and some equipment company. So it wasn’t all tech and it was much later stage than my true passion. But in terms of just understanding things like founder liquidity, they were one of the early firms that said it’s okay to give founders some some cash, you don’t need to hold them captive until the very end. And in fact, if you take some pressure off, let them buy a house, let them you know, pay for their kids to go to private school or or get, you know, care for ILL parents. In some cases, people even push back on, they actually perform better. And that’s something that I think is a positive element of the venture world now might do it, it’s gone too far, in some cases, as most things do. But in terms of an early exposure to tech, Silicon Valley and the venture world, I really appreciate what those partners did. And then they were gracious and also being early seed investors in my company when I found out so it made it a lot easier to attract other investors when your prior bosses are supporting you. And writing checks the day you leave.

Nick Moran 3:26
Love the motivation there, I find myself it’s strange, but I find myself we have so many spendthrift Midwest companies that we’ve backed, and I just find myself encouraging our founders to take some salary. Finally, because they’ll raise venture rounds, and they’re still taking like 60k a year. And it’s like, guys, you know, I get it, that it’s a crisis, but you can at least, you know, not be eating ramen and feeding your family here a little bit. Absolutely

Speaker 1 3:56
you. There’s this frugality. That, of course, is critical. And many of our founders, like Jeff Lawson talks very eloquently about it. But the balance is you don’t want it to create pressures that cause unnatural decisions. And of course, the worst one is this dynamic where there’s pressure to sell because 99.9% of your net worth is tied up in this thing. And the first person that comes around with a shiny offer becomes seductive and overly compelling. And so I absolutely believe that that’s the role that a board of advisors kind of plays just making sure that they walk the balance. And there’s there’s benefits to Larry Page taking $1 a year salary. Obviously, he’s he’s making many large grants through equity. But to set an example, but other than that, you’ve just got to make sure that there’s enough to live by you’ve got to make sure that you can think long term because these things take a while and you don’t want those pressures to lead to sub optimal decisions.

Nick Moran 4:52
So Byron, I think many in the audience are familiar with you and your track record, but can you can you describe sort of your stage and focus at Esma in your own words,

Speaker 1 5:02
certainly, our aspiration is to work with real changing entrepreneurs as soon as we can find them. And there are cases where we’re fortunate to discover these entrepreneurs in the early stages with with Twilio, and Shopify and Pinterest and companies like that, as a firm, we were able to identify them in the seed or Series A round and become anchor partners early and in many cases, invest all the way along. At times, we’re not that good. And we end up maybe meeting with a company and not winning the deal early or not being visionary enough to really lean in. And so we also will invest in the later growth stages. And really think of our domain as all things private we have, we managed billions of dollars across seven offices globally. And so for these large market opportunities that can be deca, corn public companies, even investing in that billion dollar private round may still provide lots of downstream opportunity. And an example in that mid stage was actually in the in the 100 million dollar round at some like LinkedIn where we missed the early stage round, but my my partner’s David and Jeremy, we’re still big enough fans where we participate in one of their early growth rounds, and are very glad we did.

Nick Moran 6:15
Great. Yeah, I do want to address some of those investments in and get to that a bit later. But But right off the bat here, of course, you know, the pandemic is upon us. It’s a crisis, like we haven’t seen for many years, you said that many of the lessons from oh eight are applicable today. What are some of those major lessons?

Speaker 1 6:37
Unfortunately, we’ve got examples from Oh, eight and 2000, that I absolutely hope people draw from. And some of the most well attended webinars and discussions lately have been from entrepreneurs and investors that have lived through those trying to share and pay it forward a little bit in terms of maybe what they learned the hard way and applying it through here. I look back personally and believe the hardest part from that time period was deciding when to be on offensively to be on defense. And many companies, including us, when I was an entrepreneur in the 2000, time period, had to do some layoffs. And as a founder who had hired up all these people, that was the single hardest business decision, I probably had to be through as an operator was letting go of people that had had bet their careers on us. And that was excruciating. The flip was we needed to the rationale was that though we needed to do it to preserve the business, for our customers, for other employees, etc. And try to be strong, whether it and so making those decisions, the hard ones of where do you step back? And what product? Things do you cut because you just can’t do it do as much anymore? And what go to market efforts? Do you need to scale back because you’re not not able to pounce and the markets not as receptive? And then the flip though, and I think even more important and harder is your if you’re swinging pig, and most people listening to this are entrepreneurs who are absolutely have big ambitions, and you want to grow something meaningful, you can’t play defense forever. And so where do you make those bets? And where do you go all in, in ways that absolutely will shorten your runway and compromise the long term potential if you’re wrong, and those selected product bets and team hires, bring in those execs that can still bring you forward, even if you need to write the salary that will get them to leave a current position. And those trade offs I found were, were the game changers for the long term success. And the two things I took away were people in product that those investments, if you get them right will almost always pay for themselves, and will create space between you and your competitors, particularly in times when it’s volatile, and where the the waves are separating the leaders from the followers. And you’re gonna get rewarded long term when you come out of it. When customers are buying again, those investments will pay off and separate you from the competitors on very compelling way. Yeah, I

Nick Moran 9:02
think just from personal experience, we only have 25 ish portfolio companies. But I’ve just noticed the level of creativity and ingenuity and some of these founders since the crisis broke has been pretty inspiring, depending on the type of company. Byron, you know, we you mentioned volatility, we have seen significant volatility in the public markets. Surprisingly, at the moment that we’re recording this on May 8, markets are up and staying pretty high, which is kind of shocking. It makes me kind of happy that I’m not a public market specialist. But Cloud has remained fairly resilient so far. What have been your macro observations with with regards to cloud and SaaS businesses over the past couple of months?

Speaker 1 9:47
Yeah, so let me share your bewilderment on the larger indices. The s&p is down just under just over 10% for the year when we’ve got this All these macroeconomic signs that say we’re headed to chaotic times, and the NASDAQ is actually flat on the year. I don’t understand those in an absolute sense. And so to your point, I’m very glad I’m not a hedge fund investor, I’m sure I would have gotten my book handed to me in this time period, because I don’t get it. And I think the only justification there is people are believing the government will fund all the way through this and just throw money at the problem indefinitely, which I think is hard to do, right. But let me talk on a relative basis, because the cloud stuff we do understand quite well. And as our emerging cloud index is up 23% on the year, relative to the s&p That’s down 11%, I do think you can justify that separation. And the reason why these cloud companies are outperforming. And what I’m referring to that Bessemer, and NASDAQ have partnered in the emerging cloud index, it’s the BVP NASDAQ emerging cloud index, literally, I’ve got it on my phone, you can punch it into one of your trackers, it’s m cloud, EMC, l o u d. And it’s the basket of all the pureplay public cloud companies. And what that reflects is the separation of really what’s happening in this work from home era is an acceleration in the cloud name enablement, trend. And the businesses out there that were considering multiple tech solutions, maybe we’re trying cloud in one department or one business line, and still using their on prem stuff, and another that is flipping over and mass right now. These businesses are depending on Cloud for business continuity. And this pandemic work from home situation would be very different. If we were 10 years ago, or 20 years ago, trying to run tech enabled businesses. It’s just a game changer. Whether that’s communication, the fact that you and I are having a chat like we would for sitting at a coffee shop with video and voice and the like, through to how you’re Collaborating on documents and E signatures and call centers that could be stood up in days, Twilio gave several examples on their earnings call. And recent reports were legacy businesses that had on prem call centers were forced to go sell their employees home. And they stood up virtual call centers in days that allowed them to take customer service calls, still make outbound sales calls to do a lot of things that were critical for business continuity. And I think in many ways, Cloud is the Savior of the economy right now and keeping things going. Because you have this ability to stand up these systems, you’ve got Shopify stores that are turning online for merchants that had to close their physical retail store. But now can ship online, you’ve got toast app, doing restaurant takeout restaurants that never did take out before, but because they’re using toast product, because they could sign up for it quickly, could suddenly turn turn on a to go business and still employ employee labor and serve food and those types of things are absolutely game changers. And that’s why these companies in many cases are reporting bumps in their earnings and and beating plan because of this, this flight to quality and flight to tech. Whereas, of course, many businesses even in the non directly hit sectors are feeling the pullback from the unemployment from the furloughs, and from the general decline in GDP. You

Nick Moran 13:08
know, Tom Tonkinese, was on the program last week. And he he mentioned that he’s noticed a trend of some corporates that have made a decision to keep some of their data and some of their compute on prem now, due to various control reasons. Have you witnessed that as well.

Speaker 1 13:30
So I have there, those are different trends of those. So back when I was launching treebo technologies and trying to fight SAS, had headwinds, the CIOs would say, I don’t find it as cloud stuff that can’t be secure. The browser’s can’t work for access. How do I manage permissions, all these objections, one of which was data privacy of those lower on the list. Now, those headwinds are become tailwinds. People realize, generally, these apps are more secure in the cloud, because you’ve got a dedicated team running attack vectors on a single app. And a lot of those other things have been addressed to now most businesses are becoming cloud first in their mind. However, there are certainly still applications where performance matters when you get into very CPU intensive or IO intensive applications around big data around, you know, some CAD modeling those sorts of things where performance matters. And then the other is data control, where you get maybe national interest state interests, the French military is unlikely to allow their data to sit on AWS servers and the US and the China us stuff is real these battles are happening. And under the covers, you’ve got massive tech implications. And part of the reason why you don’t see us based cloud companies having a lot of success in China is because they don’t want it to happen. And you’re going to have a strong domestic cloud market emerge there because of these nationalistic issues. And so I think that is less a tech issue with the corner case. exceptions have very high performance computing needs. And it’s really a political and a security issue that will have some modest effect in the cloud revolution. But what it won’t slow overall the spread, what it will do is sheer, the regions in which companies are built and the types of companies that are built to service that.

Nick Moran 15:21
Yeah, if anything, I think recent events are only going to encourage more cloud, both application and infrastructure. But Byron, you mentioned that you believe now is the iPhone moment for the cloud. Why?

Speaker 1 15:36
Once you see that, it couldn’t be better, you don’t want to go back. So you’ve got these call center workers who were working on this crappy, you know, almost green screen like product that was built by some custom system integrator years ago. And every time something needs to be changed, it’s brutal. And yet, and they’re sent home, they turn on a Twilio system, or Zendesk system or some next generation cloud based product that’s faster, better and cheaper. And there’s no reason to retreat, when they go back to their offices, assuming most of them do, and this work from home environment stays, you know, at hybrid for a while, and then we ultimately do go back to our offices, they still gonna want to use that product. And that’s the the benefit is that most of these crisis situations, accelerate pressure points that already existed, some of those are going to be unfortunate, some businesses that were already struggling, are going to be put under more pressure and probably will go out of business, the positive transformations that were happening around e learning around telemedicine around distributed access for businesses, those are going to stay. And as consumers and as executives, those trends will probably be meaningfully net positive. I love the idea of being able to do telemedicine with my doctor. And I’ll go in, of course, for the the injection and important checkup. But the ability to do the 30 minute consult, on demand over video on short notice is a game changer. It’s a better experience for both sides, and those types of things will remain.

Nick Moran 17:05
Yeah, no, I agree. I had never done an MD telehealth appointment, and then ordered some new contacts, you know, had an allergic reaction to them. And I mean, within 20 minutes, I’m on a call with a doctor. And I mean, it’s just amazing how quick and seamless and painless it is, you know, versus going into an office while scheduling the appointment, of course, going into the office waiting, driving there, you know, back and forth.

Speaker 1 17:35
Federal travel exposure. And by the way, the risk of getting something else sitting there, we’ve got friends indirectly, who got COVID, while going to get a COVID test, don’t go don’t have it, and you’re exposed in the process. And so there’s these dynamics where you just just the act of being around other sick people isn’t good for you or them. And so it is a better experience. Of course, many things have to be in person, including today, the COVID tests, but now the ability to drive through tests, the ability to do drawers that are quick. And even at remote centers, those will all be great hybrid ways of doing this, much like hybrid communications will result where I think we will still prefer in person meetings for a lot of things, I still very much want to be in board meetings in person and meet with entrepreneurs in person, but the ability to do the quick communications and you know, we’ve got slack and box and, and zoom and DocuSign and all these apps up all day and we’re living in them because of the collaborative powers. And in many ways those things are better processes and take out friction that otherwise existed in the impersonal world. It’s

Nick Moran 18:40
kind of funny, because I feel like part of what made us special and unique in the early days is you were willing to get on planes and go visit companies outside of the valley when a lot of people didn’t want to.

Speaker 1 18:53
Very true it’s funny that one of the early insights was that the world wasn’t flat that Silicon Valley didn’t have a monopoly on innovation. And and I very much wanted to go wherever in the world the best entrepreneurs were and I was willing to do it. And so many of my first IPOs were Cornerstone ondemand in Santa Monica, curtail in Paris Eloqua and Toronto SendGrid. In Boulder Instructure in Salt Lake City, these are great businesses, multibillion dollar public companies, most of them and yet probably 80% of the firms that should have been interested just never put in the time they never showed up at their doorstep. And from my standpoint, one I love tech and I’m just fundamentally am curious by nature, but two, I think this is maybe my rugby instincts or what have you. I just I I want to go find success and how to driver and aggressive and so if it requires that extra hustle, then I’ll make up for fewer IQ points or resume length or whatever. It may be by being scrappy and trying to be entrepreneurial, to, to get out there and connect with these these great founders wherever they are, and work with them. And, and that’s a lot of fun of the job is just finding, finding great people that really want to learn from other great people in Silicon Valley in New York and Paris, and where, wherever, and bring that expertise together and help accelerate your path.

Nick Moran 20:22
You’re too humble, sir. But as someone in the middle of the country, I very much appreciate that philosophy. You know, I want to talk about business models a bit. We’ve seen a number of new business models gaining increasing momentum, such as freemium, low friction, developer centric, you know, what have you observed with respect to evolving business models, and which do you think are going to become more pervasive in the coming years?

Speaker 1 20:51
The amazing thing is, in many ways, the old sales model is truly dead. And this has been a wonderful byproduct of internet search and discovery. And in some ways, open source and certainly freemium were the best products are finally winning. And this was an immense point of frustration for me in the first years of my career, both as an investor and as a founder and CEO, was just trying to get word out on products and trying to break through the Oracle Sales Machine or, you know, the old Siebel repair metric reps, who just could outsell people, even with lesser products. And ultimately, as you get more informed people making decisions and able to self serve, and more of that best practice and knowledge sharing happening, products are getting pulled through. And the burden then is shifted to product dev engineering and architecture. It’s not like one, one way is massively easier, harder, it’s just a different type of hard. And what this means is you can’t bullshit anymore. Like you have to have the world’s best product out there or you will get beaten and your customers will find one that is and so you’re not spending as much on the heavy, six legged sales calls where you’re backing up three people and they’re spending two days there and you’re doing POCs and those things, but and you’re having faster sales cycles, but you’re getting very informed buyers, where are BDR is Meski. Ours are getting on phone calls where the customer has tried it, they’re using it, they’ve got these three issues, and they want to know what he resolving them, and what’s the timeline for it. And I absolutely believe that is a positive legacy of this SMD orientation, and they’ve lower friction sales model orientation, that’s putting pressure on the other legacy sales vendors, and software vendors. And this will carry through. And I do think that it is a different way of thinking about customer acquisition costs, and a different way of thinking about the funnel as really never ending and this loop of customer success management and upsells and renewals that is ongoing.

Nick Moran 23:00
Yeah, talk about warm, qualified leads, right? If you’ve got a Trojan horse with a product first business, and you can go bottoms up, get people using it versus, you know, going in cold with a top down enterprise focus. I mean, it’s just the former just seems like a no brainer approach if, if you can do it if you can productize and get something in, and people using it in a way that demonstrates the value.

Speaker 1 23:28
Absolutely. If you’re citing a DocuSign document, or you’re invited to do a file and Box or Dropbox or join a zoom call, or, you know get invited one of these collaborative tools, you see it as a consumer naturally, then your unaided recall for when you want to be the host, or the sender is so much lower. And those things are massive advantages. And people are talking a lot about the are not of COVID and the unfortunate virality and the true viral coefficient. But these companies all aspire to have some r&r of their own. Seldom is it north of two. But if you can get it north of one, then you can entirely anchor around that model. And for even enterprise sales motions, if you can get some viral coefficient in the distribution. It’s a game changer in terms of customer acquisition and customer sat in many cases.

Nick Moran 24:21
Yeah, just as you’re mentioning those I’m thinking through our own stack of tools here at at add new stack and it’s zoom of course started as freemium. Now we’re paid users streak for our CRM, same thing. Calendly Trello, unroll me for email, I mean, all these things. I saw the value

Speaker 1 24:41
that have, you probably don’t even have a server on site. And then that’s an amazing thing, because you literally do not need to stand up a server room for an entire business. And that’s the standard for our companies now, and that is totally different from 10 years ago, we raised $10 million for trigger technologies and spent five of it on internal tech, Sun servers, Oracle licenses, you know, Cisco Systems like you just you had such high capex fixed costs, it was a deal breaker for a lot of businesses to be founded. And we were slow and, and slow moving in many ways because of that. Now, you’d be crazy not to move at all to variable constantly have the best tech, and have the flexibility to be nimble and responsive as a business.

Nick Moran 25:28
So Byron, you’ve talked in the past about the importance of channel scalability for both SaaS and cloud companies. Can you define for the listeners, you know what channel scalability is? And, you know, what are some of those red flags that may reveal a lack of channel scalability?

Speaker 1 25:44
Certainly, and what I would openly admit is the channel pressures have been one of the hardest and most confusing, go to market trends. And it’s actually been one of the areas in our 10 laws of cloud computing that we update, usually annually. And now we’re on our 11th year, it has changed the most. And here’s why, as these business models move, and it actually ties back to our sales model comment before, the old model of enterprise software used to be very much channels base where if you were Siebel systems trying to enter the CRM market, Anderson Consulting would would carry you to the promised land, and they would make $3 for every $1 You sold, they would be there. But you’d, you’d have high gross margins, no ongoing burden, you drop it on the doorstep and leave, everyone was happy. Now, when Salesforce comes along, or SaaS companies today, the beautiful thing is your customers don’t need those services, people nearly at that level, and the ratios are oftentimes flipped, where it’s the services will be a fraction of the SAS subscription. And days in and out often. The problem is that those people aren’t making money anymore on you. And the hardware vendors are you’re purchasing directly. So they’re not making the attached revenue in the same way. And so those channels and those ecosystems that used to support software sales, for selfish capitalistic reasons, now have a very different relationship, which means that you need to have a different value proposition and either become extremely lean, and work with those high speed, low cost implementers. And there are many out there, that can be a little bit of a channel for you, or you need to find different channels. And really, when we talk about channels today, it’s more of the latter group, which is different ways to market through other ISVs that are complementary, it’s through trade associations that have a vested constituent base. It’s through online channels. And it’s really talking about online methods of acquisition that are some are earned, some are paid, some are influenced. And really thinking about it, like the modern CMO, which is very financially driven, looking at acquisition costs by Channel and detail versus the old creative cmo stereotype, which was creating the ad copy and thinking through the marketing campaign, which is frankly, just less compelling and less important these days in this product, first era, where your customers are going to be finding you before you find them. And your job is to influence disciple along the way. And so those are the channels that really are driving success and lower cost acquisition for our CEOs and CMOS these days. And those are the ones that are focused on.

Nick Moran 28:34
You know, in the state of cloud report, you’d mentioned five predictions about the future of cloud, can you highlight a few of those that you’re most excited about?

Speaker 1 28:43
Certainly. And every year, we tried to do that one part of the state of cloud report is the look back. And so we just published Bessemer is 2020, schedule cloud report. And it’s online on our website at bbb.com/cloud. You can see it, and you can hold us accountable for our predictions in prior years to see how we’re doing. And this year, we published several that talk about the mega trends. And these are legitimately probably six of the 10 most active areas that we’re focused on within Bessemer. So we hold a few back that are still incubating early or what have you. But if I was an entrepreneur today, these are the areas I would be looking at to build a business. And as an investor, these are the areas that I’m looking at to invest in a disproportionate way. And of course, we’re opportunistic and looking at other sectors as well. But but these are of particular interest. The first anchors around this trend that we followed for a long time of the work from home era, obviously, it’s accelerated by COVID. And I do think a lot of these trends will be lasting, but it’s the enablement layer of tech. And we steadily are looking for that next generation of product now that will allow collaboration and more of the coordinated brainstorming and strategic part of interaction that we’re still missing from this remote work. and try to bring the best of both. We talk in some of the others that we talked about around privacy tech and solutions. We talked about the globalization of cloud, where we absolutely believe that Western Europe is finally having a moment the sun on Cloud, Asian economies, particularly China will start to have more successful cloud. We talked about b2b transactions, both in terms of vertical SAS, but also marketplaces as a Connect, connected to product. That’s a very active world, the API economy, and then automation at scale, which is really how you think about AI and ML finding its way into products and tech and markets. And we have a whole market roadmap where we talk about areas that we think it’s going to hit first, and we preview a little bit of that in the state of cloud report, and have probably 100 slides behind that we use internally to do the market analytics.

Nick Moran 30:50
Yeah, it’s just really a must read if if you’re in the business in your investing adventure. Byron, you know, lots of analysis goes into these businesses. And every situation, of course, is different. So I don’t want to oversimplify. But have you found some general characteristics that separate the, you know, the winners from the losers? Well, revaluation,

Speaker 1 31:12
let me first confess that this is still an area where we are steadily evolving and learning and we have a long anti portfolio on our website, to, to flag that we get this wrong a lot. And so quite seriously, if you buried in the Bessemer website, somewhere is an anti portfolio and talks about the ways we blew it. And important, the important element there, of course, we make investments that don’t succeed. We don’t want to highlight those some of those are our bed support. Some of those are, you know, team or product base, but most relevant for this are the ones that end up being great businesses that we missed, that we just don’t get or don’t understand. And so those are the ones that torment us, the chances we had to work with great companies and great entrepreneurs that we blew, and so steadily we’re looking for, what is the heuristic, to to learn from that and to get better. And time and time again, it’s trite, but it does compact it to the founding team and the leaders at the top, where the skills that often stand out are unbridled energy and passion and drive to go just conquer something. And massive success in something historic. And this doesn’t need to be a tech business that they built up to public scale and and in sold or took public. In fact, it’s seldom is it that, but it is its academic success. It’s its creative success. It’s it’s athletic success, it’s something that shows that they’re a winner, and that they’re they know how to win, and that they won’t stop until they do. And oftentimes, we see that profile, that combination where someone’s got an unfair advantage to go after a market. And they’ve got that that drive and that history of success that leads us to believe they will succeed. And the the unfair advantage is really a superpower about going into the market where they’ve got some product insights that came from another customer business experience. It’s a channel relationship, maybe that’ll fast start it. So it’s that combination of you’ve got a founding team with those dynamics I describe. And they have an insight or an unfair advantage that allows allow them to quick start. So at least they’re going to, they’re going to go hit a target in the early days, they know what they’re running against from the get go. And then it’ll evolve 100 times from there. But the entrepreneurial spirit of the team will get them through those changes, which inevitably come about, you

Nick Moran 33:44
know, you’ve highlighted trust as critical in the relationships with founders, I’d be curious to hear about your approach to building relationships. And maybe if you have a specific example, or story.

Speaker 1 33:57
Yes, and this comes up a lot actually in our internal discussions, and it’s hard to describe, but these are very distributed, high speed high performing high stress relationships, where you just have to be on the same page with your founders. And you have to have deep and authentic, crackly friendship, and in most cases, and certainly trust and respect so that you can get rid of a lot of the BS that would come from normal business conversations. Like you just you need to be on a different level where you know, the late night text or quick call or note or whatever, where you’re helping each other be better. And that is the hard part about this this COVID time right now because a lot of that comes from just spending some personal time together and having common connections and doing strategic whiteboard sessions and going for a walk or a long dinner and just saying like what do you want to get out of this beyond business success and just understanding the goals of each other so you can help with that. But I’ll tell you that that is absolutely bharden. My favorite part of this entire industry is that the people are great. And I will give credit to my co investors and other service providers in the industry, I think we have a very high quality high caliber group of folks, for the most part in the ecosystem that I enjoy working with. But most importantly, it’s the entrepreneurial teams, I just, I get so much energy out of these discussions, we sit down, and they lay out their visions and dreams and how they’re going to do it. And dammit, many of them end up accomplishing it. And it’s such a rush, and it’s so exciting. And if you have that relationship where you’re able to help each other and where, you know, my founders call me, anytime, day or night, I’ve been woken up at 230. In the morning, when a CRO does something inappropriate and off site needs to be fired or where we’ve had a DDoS attack from anonymous and we are minutes from the business being taken down. And in those are the moments where like, you know, you’ve got the trust, you’ve got the support, you know, instantly who to call, you’ve got people on planes, or you’ve got, you know, a group call set up within minutes, and you’re solving it together, and then you move on. And those things are great. They’re awesome. And that’s, that’s why I do this is just the ability to have those interactions as well as to go, you know, go have a drink with one of our founders or go for a bike ride or down a ski slope or something. Because these these folks end up being some of my best friends long term and absolutely are to this day.

Nick Moran 36:28
You know, Byron, we’ve we’ve seen this substantial growth in number of unicorns, a number of large exits, you know, from from the 2000s to the 2010s. You mentioned DECA corns before I mean, what do you think that this next decade holds from from an exit standpoint?

Speaker 1 36:46
The numbers are going to continue to get bigger. And that’s the amazing thing is our frame, volume and size? Yes, our frame reference needs to adjust. And I think that’s what caused people to make some suboptimal decisions early on. And and of course, in hindsight, hey, I wish we would follow it on and done, you know, every round of every one of our competitors. And if we done, we’ve invested in, done twice as much and every one of them, we would have been better off. I mean, just these trends are massive. But when you think about it, we now have 86, private cloud unicorns, and 53, I believe it is public companies in the public cloud index. And I think 51, or 52 of them are unicorns. And to put that in perspective, you go back 10 years, we only had one on the private side, and just a few years before that, that was LinkedIn. If you go back to like, Oh, 708, there was zero, there was zero in the history of technology, there had never been a private venture backed company worth over a billion dollars. And we have hundreds now worldwide and 86 and cloud alone. And my point is, it’s deserved. And there will be more, I think there’s a time we do a thing every year with Forbes called the cloud 100. And the Bessemer, Forbes cloud 100 Very soon may be comprised only of unicorn companies at the entry to make it on that list up over a billion dollars, which is a staggering concept. But the tans for these markets are just exploding because they’re consuming hardware that consuming services. And they’re consuming these adjacent markets. It’s not just the software market now that’s being consumed by cloud. It’s also tech and it’s parts of GDP that are becoming software enabled and mobile enabled and connected. And so I absolutely believe we’ve already passed the $1 trillion mark for the cloud index constituents. And this trend is continuing. And so we’re gonna have this dynamic where you absolutely are going to see this explosion of outcomes and value creation, that is hard to compute. It really is exponential growth, when you look at it relative to the era that where I was an entrepreneur, and where where a billion dollars used to be that aspirational outcome. And the homerun IPO story three years after being public, you know, that’s, that’s a funding round these days. Right.

Nick Moran 39:06
You know, and speaking of which, how do you feel about this trend of companies staying private longer?

Speaker 1 39:13
You know, I think that is over overplayed, unfortunately. And there’s good reason why some companies absolutely need to stay private, beyond the point that their financials are, the model would suggest, but it’s sort of like the, you know, the NFL quarterback who sometimes they need that extra senior year that the point guard in the NBA, you know, they need that additional college year to round out some skills or learning something to prove it out. But for the most part, like, they want to get to the big leagues. And I think that’s true for for tech as well. And on the consumer side with these unpredictable business models and volatility and those things. It made more sense and really those companies started this trend. But if you look across the cloud During which we were just talking about, absolutely 50 of those companies could be public today and be strong, predictable, consistent performance in the public market. And many of them probably should. And I think that’s a trend that will swing back, I think that we will see more and more of these companies that are going public in the the billion dollar plus side. They’re not going to push it out at 400. But they also don’t need to wait for 4 billion and take control of their destiny more. And I think that will be a net positive for those companies.

Nick Moran 40:30
Byron, what resources have you found particularly valuable that you would recommend our listeners? I

Speaker 1 40:37
am constantly doing short form content consumption. And so for me, it is its podcasts, its Twitter. Its online articles. I mean, I’ve got immense respect for several of your prior guests, including Tomas and others in the industry, Jason Lemkin, Sastre and what he’s done, it’s been fantastic. I do think that there’s this really content rich world of cloud right now, where people do want to share and pay forward. And I, I absolutely try to attend. Well, I do attend sastra. Every year I attend Dreamforce. I attend the TED conference. I love those online talks. And that’s probably the one Mind Candy event I indulge my allow myself to indulgent each year for the mind expansion. And then I certainly would steer people to online sources, we put up a lot of white papers. So hopefully people visit bdp.com. And then you can see there the lot of the content out there. But I’m appreciative for those who have gone before me and blaze the trail and absolutely try to consume that and share it back out. When when we get information from our founders that is relevant for others.

Nick Moran 41:50
Byron, what do you know you need to get better at

Speaker 1 41:53
a lot of things probably outside the box, Frontier tech, bold, scary ass investments. I steadily want to push myself there. Love

Nick Moran 42:05
it. Do you have a favorite rugby Movie or Documentary.

Speaker 1 42:11
So the anything around the All Blacks is absolutely my favorite. They have a code of conduct that I’ve got printed out on my wall. And just just one all mentioned for you is a sweep the shed. And it’s the idea that at the end of every match, the captains route the ship. And it’s this idea of servant leadership was what Samir Dholakia calls it our SendGrid now, Twilio, CEO, where it’s this idea of you set the tone from the top. And then all everything else falls in line where when you when the leaders are working the hardest. No one in the org can complain and everyone looks for ways to help and and I think athletics inspires teamwork and leadership. And I’ve learned a ton from the cow rugby team. And I also have a sign in our, in our basement here that says grateful for everything entitled to nothing, which is the motto of the cow rugby team. And that’s the mindset every day, which is you know, it’s a gift, what we have whatever it is, is a gift. We’re grateful for it, we’re entitled to nothing and you better go out and work for anything else you expect.

Nick Moran 43:16
Well, I don’t know why it’s not bigger in the States. I spent a lot of time in South Africa and right after a lot of time in New Zealand, and just became like obsessed with rugby for a while. It’s such a great sport

Speaker 1 43:27
sevens. Rugby is going to be back in the Olympics, and the US is a gold medal contender. So I hope we’re gonna have more attention around it.

Nick Moran 43:35
And then finally, Bayern what’s the best way for listeners to connect with you?

Speaker 1 43:39
So Twitter’s easiest just at B Dieter, and then email Byron at BVP. And then our online resources bvp.com/cloud. And for the great entrepreneurs out there with bold vision track me down. I’d love to learn about it.

Nick Moran 43:53
Well, 19 unicorns to date. Maybe next time we have you on the show, it will be more than 30. You’d never know with Byron. It’s unreal. But thank you so much for the time. This is great. And I look forward to the next one.

Unknown Speaker 44:06
Always fun. Thanks for having me on. Keep it up.

Speaker 2 44:13
That we’ll wrap up today’s episode. Thanks for joining us here on the show. And if you’d like to get involved further, you can join our investment group for free on AngelList. Head over to angel.co and search for new stack ventures. There you can back the syndicate to see our deal flow. See how we choose startups to invest in and read our thesis on investment in each startup we choose. As always show notes and links for the interview are at full ratchet.net And until next time, remember to over prepare, choose carefully and invest confidently thanks for joining us