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Google PodcastsJamison Hill of Base10 joins Nick to discuss Attacking Inequality with VC, How Ecommerce Infrastructure Competes with Amazon, The Future of Hourly Work, and the Body as a Platform. In this episode we cover:
- How Base10 supports HBCU Endowments
- Trends in Ecommerce Infrastructure, The Future of Work, and Fintech
- The Body as a Platform for Innovation
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Jamison Hill joins us from San Francisco. Jamison is partner at Base10, where he leads the Advancement Initiative, a $250 million dollar fund helping HBCUs invest in growth stage startups. Prior to Base10, he was a partner at Bain Capital Ventures and led growth investments at Attentive, Wealthsimple, OliveAI, Contentful and BlockFi. Jamison, welcome to the show.
Thank you so much for having me, Nick, really excited for this conversation.
Likewise. So I saw him saw your LinkedIn. Are you a fellow Illinoisan?
I absolutely am. Yes, IMSA. So for those who don’t know, is the Illinois Mathematics and Science Academy where I went to high school.
Amazing. So you’ve gone west and east. I know you spent some time in New York and San Francisco, you know, walk us through your background and sort of your path to venture.
Yeah, absolutely. So I like you said, Nick, I’m originally from Illinois, a small town called Libertyville. I went to IMSA for high school at IMSA is a rather unique take on a high school. So it’s a residential boarding school, but it’s public. And the entire concept behind the school was to create a bunch of mathematicians and scientists. And so we spent about half of our day focused on math and science, the other half focused on everything else. And so that’s really where I started to fall in love with technology, realize that probably never be a bench scientist. And so when I went to college, I wanted to sort of explore the other side of and that’s what caused me to concentrate in history and literature. And so I went to Harvard for undergrad focused on history and literature, and specifically actually focused on black history in early 20th century America. And so what I ended up writing my thesis about was the intersection of racial violence, particularly spectacle, lynching in the south, and photography, which was a relatively new medium at the time to kind of examine the ways that these photographs were constructed in order to inscribe very specific messages about white supremacy, and things like that within the photograph. And so while I was at Harvard, did an internship at Google, which was sort of my dream company, Google was one of the first products that I ever used, where I was like, this is truly magical. And so 2008 was lucky enough to be able to intern there realized also or wasn’t particularly technical. And so felt like after college, I needed to get a real business education that took me to Bain and Company for a few years there as a consultant, before joining bonobos, initially as an extern, from Bain and Company, but I fell in love with the company and stuck around for a few years building out their performance marketing organization, finance organization, before making the jump to Bain Capital Ventures about eight years ago, initially, as an associate, then seven years, they’re working my way up to partner and then joined Base10, specifically to lead this advancement initiative last year.
Amazing what a story. You know, I’m curious, when you were studying at Harvard, in thinking about a thesis and everything towards graduation, did you feel the pressure cooker that was going on the time that you were in school, and then leading up to some of these tragic outcomes that we’ve seen over the past couple of years, you know, with George Floyd and what not?
Yeah, the interesting thing when I was in school, and the reason that I wrote my thesis on this subject that I did was I was in the library, and I sort of ran across this photograph of a lynching. But you know, to any modern viewer is a horror. And then when I flipped it over, I saw that it was a postcard, there’s a postcard that been sent through the post. And you know, there was a message to a family member written on the back. And the fundamental question I had is, you know, how can someone see anything but pure horror in sort of looking at this photograph? How did a different audience sort of take that and view it as inappropriate thing to send a family member? So in trying to answer that question, and you know, really digging into the history of racial violence in the south, actually, across the nation, I saw really sad and disheartening, I would say, echoes from the past in the present. And you know, that’s why I think, particularly when George Floyd and Breonna Taylor happened in 2020, it affected me in a very profound manner. And so much, though, that I actually decided to shift my job to really focus on addressing inequality, racial, but also broader wealth inequality in the US. So it was certainly something that, you know, contributed to me wanting to lead and join the advancement initiative.
Yeah, so I was gonna save this for later. But maybe it’s a good time to jump into it now. So you know, why did Base10 launch the advancement initiative? In why’d you make the leap about a year ago from being capital to based on?
Yeah, absolutely. So, you know, if we were rewind back to the summer of 2020, in sort of the midst of the Civil Rights Movement, you know, one of the very few things I think that actually was inspiring to me in that moment, was having a bunch of founders reach out to me reach out to other venture capitalists of color and say, We are horrified by what’s going on, we are horrified by the state of inequality in the United States, we want to do something about it. And more importantly, our employees want us to do something about it, and feel very passionate about these issues. But we sort of have no tool in our toolkit to be able to take action on you know, this very definitional problem of our time. And so that’s what you know, caused myself caused my partner’s TJ and RJ to sort of go away and do some real work and try and get to the root of inequality and really find places in which they inequality was extreme, and where we could use our job as investors and venture capitalists to really move the needle on that problem. And so Adrienne TJ, brought the concept of the advancement initiative to me, and the way that they pitched it was, you know, we want to build a venture capital fund that welcomes historically black colleges and universities into the fold as LPs and ultimately helps them to close the gap that exists between the size of their endowments and the size of non HBCU endowments. And just to give you a sense for how big that gap is, the average HBCU has $15,000 per student in their endowment. The average non HBCU has $400,000 per student in their endowment, the average, yeah, the average non HBCU $400,000 per student in their endowment. Wow, my goodness. So it’s a 30x difference. And you know, when you when you sort of think about Okay, so we’ve had this issue for decades and technology around, you know, how difficult it is to diversify the industry, why are we not seeing movement in terms of underrepresented minorities in positions of being a founder, even just you know, in working in technology companies more broadly, I sort of trace it back to this, we’ve got a huge number of, you know, not only black students, but minority students, students from lower income backgrounds, immigrants at the schools that literally have a 30th of the resources of their counterparts. And so that reverberates across the campus. You know, I think about when I was graduating Harvard, the only reason I got my job at Bain and Company is because Harvard had an incredible Office of Career Services, Bain and Company was on the campus presenting their business to us, helping us with case interviews, I had access to alumni and older students who had been through these case interviews I could ask them about, I knew which books to buy, like, there’s so much that those students services do in terms of setting students up for success. And so when you have schools that can’t afford those student services, it’s not a wonder that things are exponentially more difficult for their students, and particularly in breaking into what I view as the greatest wealth creation opportunity of our time technology right now.
Are there things on the HBCU side that need to evolve in order to break through on their model and change some dynamics for students and outcomes and successes and alumnus?
Absolutely, I would say the first and most important thing is just the capital. So you know, there are about 100 HBCUs. In the United States, the majority of them don’t have an endowment at all. And so doing a lot with very little those that do have an endowment, I think there are about five within dominance above $100 million, the median sort of endowment ends up being around $10 million. And so there, it becomes really hard to allocate meaningful capital toward private strategy. And on the other side of the table, you’ve got venture capital and private equity firms that have minimums that they’ve set, because that’s what makes sense for their business. If you’re trying to raise massive amounts of capital, you sort of have to be diligent about the smallest check that you accept, because that check may be just as much work as getting a much bigger check, right. And so that’s why I really think about this as a systemic failure, because it’s not really that there’s any individual sort of person trying to keep HBCUs out of being LPS in this asset class, but really like the way that the system has evolved in the way that venture capitalists think about their LP bases and think about growing their LP basis means that these folks have ended up being excluded Even today, when you know, sort of explicit barriers may have fallen.
And Jamison, can you give us some more detail on how the advancement initiative works?
Yeah, absolutely. So like I said, you know, the primary objective of the fund is to welcome these historically black colleges in the fold is LPs. And so that’s what they are, they’re investors in the fund, given where they are today, in terms of capital availability to deploy into these strategies, we designed the fund, so there’s no minimum. So you can participate. Even if you’ve only got a few 100k to put in, we welcome any HBCU into the fund, we don’t charge any fees, and we don’t charge any carrier. And so you know, already they’re getting a special economic deal that hopefully, you know, will translate into increase in returns down the road that we felt is a good start. But given that there’s this 30x gap in the size of endowments between HBCUs and non HBCUs, we felt like we really needed to do more. And so the more there is we donate 50% of the carry produced by the fund to the HBCUs, who participate in the fund. So in that way, what we have built as a growth stage fund from a liquidity and a risk profile, but with the potential for that early stage upside through the donation of our carry. And the final thing I’ll say is, you know, we donate the carry in the name of art portfolio companies, not in the name of base 10. And we think that’s really important because what we’re trying to do is really activate an ecosystem and activate an ecosystem to creating sort of a more inclusive technology sector. As a result. You know, we want students and these campuses to know that the folks who are driving value for them are these technology behemoths are To be technology behemoths, and hopefully then that translates into increased interest in the industry more folks going into the industry at the entry level and building really successful careers in technology.
Got it? Okay. So the HBCU LP will not pay any fee, right management or carry at all other LPs will pay a management fee and carry and then the carry that is produced, then 50% of that is donated back. That’s right. Wow. Okay, amazing model. And then what’s the balance of HBCU LPS versus non HBCU? LPS?
Yeah, so if you sort of have some HBCU investment in the fund, it ends up looking kind of like an anchor check. And so the majority of the capital comes from our mission aligned foundations and endowments and drive the carry donation, but the HBCUs, you know, are a significant chunk as they anchor the fund.
Got it. Can you give us the broad brushstrokes on stage and strategy?
Yeah, absolutely. So the fun strategy was very much an outgrowth of who our LPs are. And so what I mean by that is given the size of these endowments, our LPs, were clear with us in that while they would love to invest in early stage funds, it locks up capital for too long, our LPS have really high capital requirements relative to other endowments, just given the size of their endowments. And so we said, okay, you know, one of the things we want to prioritize is a fast time to liquidity to get those dollars back to them. And so we target companies called 18, to 36 months from going public. And so those pre IPO rounds, and we launched the fund last year, and we sort of realized, you know, I’d been in venture for nearly a decade, we realized kind of where we were in the market cycle, in that every single growth deal, particularly pre IPO companies were extremely expensive, relative to historical norms, even relative to the public markets. So we said, how can we operate in this environment where everything is very expensive. And what we said was, let’s make sure that we go after and get into the absolute best companies. And we actually think that the best founders out there are going to be really interested in what we’re building. And I’m, you know, pretty happy to report that so far that born out. So we very much targeted the cream of the crop, as we started investing the fund last year had been credibly fortunate to partner with a bunch of folks who we consider to be really best in class across the technology sector. And, you know, the reason that we were able to get into those rounds, and there were several rounds, where the companies did not really even talk to a roster of new investments. And, you know, our investment in attentive, for example, our investment in notion, it wasn’t like they went out and did you know, a big fundraising process, we sort of snuck in largely inside lead rounds. And it was exactly because, you know, founders would say, you’re doing something that we haven’t ever seen before, we’d love the mission behind the fund. And we love the unique financial structure.
Amazing. So how does one adapt to escalating prices in the late stage markets and increase competition in the tigers in the additions and the CO twos and whatnot, you know, how do you execute on that strategy? And has it cooled a bit with public market response? Have we seen a correction at the late stage?
It’s a great question. And so you know, first, I think it’s really important to pick the highest quality assets that you can in a really high valuation environment. And the reason for that is if you look historically, at technology markets, the vast majority of the enterprise value within a particular market will accrue to the market leader. And there are a bunch of very understandable reasons for that the market leader has an advantage typically, in recruiting, they can invest more into the into engineers into their product and build a compounding product advantage, then the brand helps with the go to market. And a lot of these businesses have network effects to where further out ahead that you are, the stronger those network effects are. And so really focusing on what are the absolute best companies in the most exciting spaces, and the biggest global mega trend, which is something that base 10 very much oriented around is to say, what are the absolute biggest trends kind of changing the way that we live and work? And how do we invest behind those trends? Because I’m speaking from my own experience, one of the most important things that I’ve learned over my investing career is that every business needs a really compelling why now. And so we think very deeply about what are those wine as and how can we invest behind them? So I would say in a high valuation environment, really make sure that you’re going for the absolute best assets, because you will realize that yes, you are probably overpaying when you compare it on out multiples basis from historical perspective, or from the public markets. However, you know, these businesses are generally growing fast enough where they should be able to grow into and beyond that valuation. So that was the sort of first step today, particularly after the turbulent few months that we’ve had in the public markets. I would say we’re seeing signs of softening within the late stage private market when it comes to valuations. You know, I’m seeing fewer and fewer of the kind of outrageous 100 times RR plus multiples being applied these businesses, it’s going to take a while for the impact to truly be felt through the market. And that’s just because there’s so much dry powder sitting on the sidelines in the private markets and hasn’t appreciably changed in the last two months. And so still a lot of capital chasing a small number of companies. And I think that you’ll still see those top companies command really exciting premiums. However, I think that if you’re a company that is not a clear number one or sort of lower down in the pack, I honestly think fundraising is bad become a lot harder. And you’re going to really see investors I think, focus on quality in late stage private market.
Interesting. Want to get your take on some sector trends, and some other sort of investment trends that you’re seeing in investing around a decent place to start would be future of work in labor? The first question would be, you know, are you observing some new trends amidst a very tight labor market, that it’s mostly an employee’s sort of market, right, and we’re seeing talent retention and hiring become more of a challenge for companies, just some general thoughts on trends and opportunities in the labor market?
Yeah, I lead investment in a company called Shinola. They are a temporary staffing marketplace. And probably I lead that investment back in 2018, their Series C. And it’s a really interesting business and a very interesting way of kind of looking at the labor market, because what they do is they connect folks to short term opportunities within the light industrial environment. And so generally by shift on a ecommerce pick and pack line would be a classic example of what they do pre pandemic, as with all marketplaces, and you know, particularly labor market places, when you’ve got sort of two different sets of users, you’ve got your businesses, and then you’ve got your workers, as you’re building the marketplace, the sort of power in the marketplace will shift from your demand side to your supply side. And so it’s this constant balancing act and making sure you’ve got enough businesses on the platform so that you have the right demand for workers so that when workers sign on to the platform, they can see a wide range of job opportunities. And on the other side, making sure that you’ve got enough workers on the platform, so that employers are actually getting jobs picked up and therefore keep coming back to the platform as a source of hiring. And so we constantly have this tension back and forth. And before the pandemic, we were very much focused on the demand side, the business side window, and that was scaling really, really nicely. And from a product perspective, and from an energy perspective, a lot of energy was how can we serve our enterprise customers better by building more software? How can we build stickier relationships, the pandemic has sort of rapidly swung the pendulum the other side. And so what that has meant is now we think a lot more about, okay, well, what are the set of products that workers need, and that will keep workers on the platform for longer and continue so that they continue picking up jobs and continue working for the enterprises on our platform. And you know, one of the great things about Lenovo, and the reason that I invested in so excited is the team, there has always been laser focused on creating an amazing worker experience. If I can say what the north star of that company is, it’s really serving the worker as best as they can. And that is really now starting to pay dividends right now, because the entire way that they built, we know has been very worker centric. And now we’re in this moment where the most worker centric companies are the ones winning. So I actually think that this is not going to be sort of a temporary only through the rest of the 2022 kind of phenomenon. I actually think that we’re in this period now where we will see workers with more and more power. And as a result, those companies that serve workers really well doing better. Also, you know, we’d see that on sort of the the office worker side too, and their eyes were in board meetings with our companies. I think the striking thing is those companies that have gone full remote, far fewer hiring problems, then those companies that have sort of stuck to the office base model. Oh, so we’ve got Yeah, certainly some companies I’ve invested in and said, Look, you know, post pandemic, we very much want to be in the mode that we were before having a centralized office and having a majority of our workforce in that office, they have found it really difficult to hire now to bet on the retention side. You know, on the retention side, I would say that his hit startups, I think a little bit more evenly, kind of regardless, I think probably remote companies are doing slightly better and are able to use remote as an incentive for staying around or have seen companies kind of proactively saying, okay, rather than leave, let’s just let you stay remote. But I would say the bigger impact that I’ve seen it had is really on recruiting versus retention.
Interesting. You have been talking to a range of our companies, I think we have 38 portfolio companies, and you hear a lot of different things. But one of the challenges with a pure remote environment, especially if you’re not ready for it, or you haven’t figured out how to build culture, yes, the relationships can feel more transactional. And people bounce around more often, right? They join easier, but they leave easier. And so it’ll be interesting to see what evolves in terms of best practices in culture with regards to remote first companies over time.
Yeah, that’s right. And you know, the thing that I think we born out during the pandemic before the pandemic, we all knew that being co located in the same office work and during the day And then I think we bore out that everyone doing remote works. The future, I think for nearly every company is some kind of hybrid bottle. I don’t think that every company is going to go 100% remote anytime soon, nor can every company, even technology companies that may not have, you know, physical locations, I just don’t see that as kind of the the ultimate end state, but I do see is the ultimate end state is a hybrid workforce. And so that means folks in the office having more flexibility on whether or not they’re in the office or remote, that means an openness to hiring people in locations where you don’t have an office. And that I think is still untested. And I think this next year, as folks, you know, start to return to the office in earnest, we’re going to see that model really tested and perfected. And, you know, one thing that I chat with my founders about a lot is, we should treat this as figuring out a new model, and not just as an extension of what we were doing when we were all virtual,
Couldn’t agree more. Jamison, I’m glad you mentioned Manolo and hourly workers, because we’ve had a lot of folks on the podcast that talk about sort of the the trends that have evolved from remote work with regard to the knowledge worker, not many that have called attention to the working class, and folks that often their jobs require them to be in person. I’m curious if you have any thoughts on the persistent and sustaining trends and or impacts that will evolve for the working class coming out of the pandemic?
That’s right. Well, you know, the big trend, I think, is using more technology, I would say in the job search process. And so one other area where we’ve seen tremendous growth during COVID Is all of these sort of nursing marketplaces. And it’s not terribly surprising to understand why is we were already in this situation, where before the pandemic, where we have fewer nurses than we would ideally need in this country. And then given the workload that has been placed on nurses over the past two years, that has only gotten worse, as our needs have increased exponentially. Healthcare is the number one employer in the United States from a worker perspective today. And I think it’s been that way since 2018. And I don’t think that’s going to change anytime soon. So there are a bunch of marketplaces that work to connect nurses to jobs either on a temporary basis or on a full time basis. And we’ve seen absolutely explosive growth there. The the way that I would sort of see things changing for the kind of hourly workforce out there is pre pandemic, I don’t think they had a great set of solutions defined work. LinkedIn is very much purpose built for the office worker, right, the central kind of unit on LinkedIn is the resume and the resume is very much an artifact of the office environment. Yep. There were tons of entrepreneurs who wanted to build LinkedIn for other types of work for blue collar work and things like that. Historically, it’s not gone very well. But I do think now we are in this moment where finally digital technology is starting to enter the mainstream when it comes to finding hourly work and beyond just job boards.
Awesome. Yeah, look out for that trend. We’ve seen many verticalized, LinkedIn over the years for working class and in a variety of different sectors in person work sectors, and could be something to look at more closely.
I also think it’s very exciting, the ability to actually take control of your health and like, have it be metrics driven and data driven. Like, I just think that’s so cool, I wear an aura. And, you know, it’s caused me to change a bunch of my behaviors, I see your design, you know, I think these are great, I also think the body’s probably going to be the next big platform, like if I think about computational biology, if I think about, you know, these wearables and things like that, all the data coming out of our bodies, you know, I think that in the next decade or so, we’re gonna see things that truly kind of feel like they’re from science fiction in that area.
Any idea on what will be the massive company or the super app in the body as a platform space?
So it to me, it’s the company that can make data collection across a bunch of different, you know, vectors of your health, dead simple, and, you know, sort of set it and forget it, which is one of the reasons that I like aura is just as long as my ring is charged, it’s on my finger, it’s collecting data. That’s the first step. And I think there’ll be really powerful applications kind of, I do think they’ll eventually be an application layer on top of this data coming from wearables, and other kind of parts of our body. And in that application layer, you know, you can imagine really exciting things like, you know, for women, having an application focused around pregnancy and taking all the data coming out of your body and helping you to have the most successful pregnancy that you can have. That’s sort of the future that I see. And I think it’s pretty exciting one.
So over/under Apple buys? I’m going to put it at two years. You’re taking the over, the under, or never?
Oh, I am going to take the under under two years. I may be under two years you know, I I think that it makes all the sense in the world for Apple to get into this space or is it beautifully designed product and I think, you know, that meshes really well with the Apple DNA, you know, I can just see the things that they’re building into the phone and then you know, building those things into a ring I can you see that data being so already complimentary, but being able to have that all within The same ecosystem. I’d be super excited to see what Apple could do with that.
All right, we’re gonna have you back on the show in a couple years and we’ll exactly, we’ll see what happens. Jamison, you’ve got some expertise in a couple of the sectors that have produced many unicorns over the past decade. Ecommerce and fintech specifically wanted to touch on those briefly. Do you have any thoughts on E commerce infrastructure in E commerce that has not yet been served? Right? We’ve seen a lot of players build sustaining large brands in the E commerce space. But I’m curious for you know, the areas within that sort of market map that have been underdeveloped.
Yeah. So when I started in venture sales and marketing technology, particularly for E commerce was all the rage. And I remember in sort of my time, Scott Brinker used to produce this fantastic Mar tech landscape. And it was market map and every sales and marketing company out there. And when he first started putting them out, I think it was a few 100. I think his latest had 1000s, you know, five or 6000 companies. And so, when I got into venture, you know, that was very much at the beginning of the bloom of all those companies. And so everyone was very much focused on okay, how do we leverage the internet in order to do sales and marketing better. At the same time, if we think about the E commerce giant in the United States, Amazon.com, has not changed very much over the last 20 years, the thing that has changed with Amazon is all on the supply chain side. One, click Checkout, Amazon Prime, all of those are fundamentally supply chain innovations, the sales and marketing innovation, I would say, pales in comparison to the Supply Chain Innovation that Amazon has had, you know, we’re starting to see more and more folks tackling supply chain issues, certainly because of the pandemic, even before the pandemic because they wanted to give those capabilities that Amazon has built to other retailers, other e commerce vendors, that’s really I think, where we’re going to continue to see a ton of innovation is really on the supply chain side, we’ve already started seeing a lot more, but relative to kind of the sales and marketing front end, I think you’re going to actually start seeing a lot more innovation on the back end. And companies, you know, fundamentally trying to bring that Amazon capability to the rest of the E commerce market of it.
And then over on the FinTech side, an area I’d like to hear your thoughts on, because I know that you’ve got some unique viewpoints would be in the area of sort of democratization of finance. Yeah. How do you think about that in future opportunities for tech startups and venture?
The most exciting thing that I really see there is taking financial products that have been designed for high net worth individuals and using technology to create a mass version of that product. And so you know, one space that I’ve been particularly interested in recently has been kind of the digital 401k space. And if we think about, you know, a 401k, as the evolution of a pension plan, 401k has had the most penetration within the enterprise. And that makes sense, because the analog way of delivering these 401k is, is actually quite expensive, right? Like plan configuration, setting up with the 401k provider. These are not trivial tasks, and typically from an economic perspective needed to be delivered in a services model. And that sort of means that there’s a floor on your cost, and you need to be of a certain size, then in order to be able to offer that there have been you know, a number of really interesting companies guideline in human interest, sort of the two leaders that have taken 401k has taken that services process, abstracted away the complexity using technology, so they can reduce the cost to serve and then actually offer 401 Ks to small businesses who don’t need to then spend days and days and days setting up because guideline in human interest if you use technology, in order to make that process so much simpler. I kind of look for analogues like that just cross FinTech and well, tech, because I think those instruments have been designed that way for a reason, and that they generally have tremendous benefits and building wealth for consumers, but historically have just been too expensive for the vast majority of us to access them.
Even as a small business owner myself, it’s yeah, it’s tough to find HR tools and other things to offer employees that are kind of easy and off the shelf, you know, like gusto came out, and that was a revolution for small businesses on the payroll side. Now, there’s other players, of course, but yeah, having a 401k solution that’s easy to use, and not this big, lumbering thing that was purpose built for the enterprise, trying to apply it to a small company and paying, you know, an obscene amount of money for it is, is definitely necessary. That’s right, Jamison, you know, when it comes to the founder side, I know that you have to test for testing whether a founder is a good fit. Can you tell us more about the heartbeat test and the 10 minute test and why they matter to you?
Yeah, absolutely. I think within investing, it’s both, I think, an exercise of the head and the heart. And often when I talk to other investors, you know, I think that the heart part sort of gets abstract. Get away from that. And so, you know, I sort of have these two tests in order to remind myself that that is also a part of this job. And so the test that I use the heartbeat test is sort of checking in with yourself and realizing when you’re talking to a founder, how fast is your heart beating, because I think that that’s a really good proxy for how excited you are to be. And I think in the cases in which you invest in a business that you’re not passionate about, maybe it’ll work out, but it’s unlikely to right, you’re unlikely to do the work and to do really the investigation that you need to do in order to like, make an informed investment. So it’s important to have passion. And that’s what I try and elucidate through this example of the heartbeat test is making sure that you’re excited and passionate when you’re meeting with this entrepreneur. And then the time test is another way of getting at that. And that is, you know, when is the first time that you glance at the clock, and you glance at the clock, 10 minutes into a conversation, it’s not going well, you got two o’clock, 10 minutes over when the conversation is supposed to end, then, you know, you’ve been very interesting. So, you know, I say those tests, they are not my entire underwriting process. But I think, you know, they’re an important piece into it. And I think particularly with early stage founders, that’s where this stuff really matters. Because the other, you know, side of it is, I think about myself as a reasonably intelligent person who’s, you know, managed his career to the best of his ability. And so if I’m sitting in front of a founder, and I don’t feel very compelled, then how is this founder going to go out and recruit employees, for the company, recruit other investors? How are they going to sell customers? So actually, like having being able to tell that story in a way that is exciting to someone, just hearing about your business for the first time, is an incredible skill that the best founders have. And you know, those two tests are, I think ways of as an investor checking in with yourself to really see if that passion is there.
I love I love it. You know, we’re talking about this on our team recently. And it’s not always an indictment of the founder, rather, we have different interest areas on the game. Like I’ve got my own background, and so show me a really boring legacy enterprise SAS startup, and in my heart is beating fast, you know, I’m like, super excited. Whereas we’ve got another guy on the team that just, you know, loves a good marketplace, startup just gets wildly excited. And so yeah, it’s funny how you we arrived at a very similar place, we started timing ourselves, and usually within the first eight minutes, you either know, you’re really interested or not.
That’s exactly right. That’s exactly right. And, you know, often I find, when I make a sort of missteps, it’s not trusting myself, right. And letting myself get a little bit too cerebral, where it’s like, if I think about a bunch of the misses that I regret, it’s almost all of the flavor of this was an outstanding founder that I really thought incredibly highly, I was super excited to meet and had a really compelling vision. But I talked myself out of it because of the space or, you know, the market size or something that in hindsight, I’m sort of like just the founder, and you know, if we find someone who’s really special invest in that.
Amazing. Alright, Jamison, this question is called three data points, I’m going to give you a hypothetical situation with a startup. And you can ask three questions for three specific data points, let’s say your approach to invest in a series B, b2b, SaaS startup companies based in New York, the sector is enterprise automation, they have 4 million of ARR are growing 15% month over month. Again, the catch is you can only ask three questions for three specific data points to make your decision. What three questions do you ask?
I think first, I would ask, what is your demo to close? Right? Because I feel like once you, you know, that’s an indication to me of Once a customer sees a product, how excited are they to actually convert, and every sales pipeline is a bit different. But within Enterprise software, you know, generally speaking, there is a demo and there is a close. And so looking at other things, you may find errors in the way that you’re qualifying certain companies or, or opportunities or something like that. But to me, I think there’s a real source of truth in that demo to close right. The second thing that I would ask would be average contract size. I think that that tells you a lot about sort of what’s the market segment that they’re playing in, it tells you a lot about if you’re talking to customers, that are billion dollar companies, and you’re getting $1,000 from them, either they’re not necessarily receiving value from your solution, or there’s, you know, the opportunity to really increase price. And so I think that’s a really important thing. And then the last thing that I would say is net retention, I used to think a lot about grocery tension in that, you know, every customer that you get, you want to try and keep them, I think we’ve moved into this new moment within software, where it’s not necessarily about retaining 100% of your customers. It’s about being able to identify those customers that can really grow with you, and then leaning into them and making them as successful as you can’t on your platform. And so and I think that’s kind of a result of our movement toward product led growth, versus kind of like the traditional enterprise selling, and so you’ll have a lot of folks who may try your product You may have a lot of folks who say, hey, this isn’t for me. But if the people who stick around really love the product, they grow with the product, you’re able to capture that value. To me, that’s a really strong signal that you’re onto something.
And then when it comes to like benchmarks for each of those, you know, close rate, contract size, net retention rates, I know it’s gonna vary by type of business and sector, but can you give us directionally what’s a good demo to close?
Generally, I would say, I get really excited when I see anything above 50%. And that’s because you know, the majority of customers that are seeing that, see the marketing for your product, or to hear the sales pitch, decide that the product is for them, actually, then end up purchasing the product, I start to get a little bit nervous. And again, you know, it will very much vary by type of business. But when you start to see demo to close rates are kind of under 20%. That’s when you start to say, hey, either, we’re giving demos to the wrong, folks, because the vast majority of them 80% of them are deciding not to convert, or is there a really strong competitor? Or do we, you know, lack urgency in our sales process? Or in our value proposition?
Love it. Yeah, I know, from my own efforts, raising capital we have, we have over 110 LPS now. And typically, if I’m not pre qualifying and qualifying correctly, then that demo to close rate, so to speak, you know, drops way down. But if I’m doing the right qualification, and targeting the right sort of folks that can be really good fit partners, then the rate goes way up.
Yeah, I found the same thing.
Amazing, anything on contract size or net retention that you’re looking for?
Yeah, you know, so if you’re an enterprise business, we would expect to see, I think, ACBS in the six figures, if you are an SMB business, and this is certainly changing, but you know, in order to really build an efficient economic engine, generally speaking, you’ve got to get at least a few $1,000 from your customers every year. And if it’s too far below that, then you’re never going to really get your your go to market model working in any kind of reasonable perspective from a payback period, or from a lifetime value perspective. And then, you know, to your final question around net retention, you know, for every business greater than 100% is always the goal. And historically, you know, we didn’t see very many businesses that serve SMBs get close to that, that has changed. And so even businesses that serve SMBs can get to 100%. And even go above that. The more enterprise your businesses, the higher the net retention, we’d expect to see, I think best in class are sort of the snowflakes of the world that have, you know, unbelievable, we strong net retention in the 120s 130s.
Jamison, if we can feature anyone here on the show, who do you think we should interview? And what topic would you like to hear them speak about?
You know, I’ve got a ton of respect for Mercedes Bent, who’s a Partner at Lightspeed. And I think a lot about the future of work, she thinks a lot about the future of education, I just think, you know, has super smart ideas around how to take the infrastructure, the educational infrastructure that we have in the United States, which she was also a part of his actual kind of education experience before coming over, you know, to being a VC, sort of see what the next step in that is. And so even though, you know, I tend to focus my investing more on you know, the future work, the future education is very much kind of tied up into that. And I just think she’s one of the smartest thinkers about the future education out there.
I’ve got a young child here in Chicago schools. And if if she can invest in anything that gives us a little more flexibility to leave Chicago during the cold months, that would be a huge win.
I love that. I love that. Last couple questions here. Jamison, do you have any tools or hacks that are a secret weapon?
You know, I spend a lot of time probably more so than your average venture capitalist paying attention to public markets, and specifically in reading earnings calls and analysts reports. And earnings calls, actually, I would say, are an underutilized resource in investing more broadly, I always recommend, particularly to younger investors who are coming out, the way that you learn what a great business looks like, is by studying other great businesses. And earnings calls are a really great way of doing that. Because and this was even surprising to me, you can get a real sense for Team quality, just from reading a transcript, or listening to an earnings call. It becomes you know, after a while, and you read enough of these, it just becomes incredibly obvious kind of which teams are performing at, you know, that elite level versus which teams are just kind of plodding along. And I found that it even helps when I’m looking at pre seed and seed opportunities, even though you know, again, we’re decades away from being a public company, I found that it’s even useful there because you can start to see within founders, you know, those things, those qualities that you know, really talk to your CEOs in the public markets have and like part of that is storytelling, I would say is one of the biggest things is, you know, CEOs are so good at public markets. He goes in the best public market CEOs are so good at telling a story, laying out a vision, getting folks excited, and then bringing them along for that vision. Think about it. You know, Amazon is kind of a classic example here, like, you know, very low profit margin for years and years and years, and now is the most iconic business, you know, probably in the world. And the only way that Jeff Bezos was able to build a business was by telling a story around, hey, we’re not gonna make profits for a very long time. But when we do, you know, believe you meet, this is gonna be a really special company, and a bar out. And so the best founders, you know, have a really good storytelling ability, you can see that when they speak, you can see that in in earnings calls, you can kind of dial that back to, you know, even when they’re in the pre seed and seed stage.
Love it. And then finally, here, Jamison, what’s the best way for listeners to connect with you and follow along with Base10?
You know, I’m on Twitter at handles @JamisonH, you can shoot me a note Jamison@base10.vc on the Base10 website. You know, one of the things that we really hold key to who we are is our research process. And so we kind of have this phrase internally research like a hedge fund out by like a private equity fund invest like a venture fund. And you can see that in in the research that we put out on the Base10 homepage. And so I would definitely recommend, you know, if you’re interested in Base10, and learning more about us, that research page is fantastic. If you want to follow along with the advancement initiative, you know, certainly following us on Twitter, LinkedIn or following my Twitter will keep you posted on everything that we’re doing on that front. But yeah, I would love to interact and connect with folks who are interested in what we’re building and what we’re trying to do.
Well, Jamison, thank you so much for for joining us today. You know, congrats on all the efforts with the advancement initiative. And what you are a TJ and the team of Base10 are doing for diversity and just for VC in general, sir, was a great pleasure. You represent Chicago and Illinois well.
Thank you so much, Nick, wanted to come on your show for a really long time and I had a great time doing it and connecting with you and having this conversation. So thank you so much just for the opportunity to to be on.
Thank you Jamison. Appreciate it.
Transcribed by https://otter.ai
