Manish Patel of Nava Ventures joins Nick to discuss Lessons from Larry Page, Why Subscriptions Won’t Work in the Era of AI, How Enterprises Will Adopt AI, and the 3 Keys to Building Great Products. In this episode we cover:
- Challenges and Lessons at Google
- The Evolution of AI and Advertising
- Nava Ventures’ Thesis and Investment Strategy
- Investing in AI and Enterprise Sales
- Lessons from Scopely’s Success
- The Importance of Human Needs in Product Design
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0:18
Manish Patel joins us today from San Francisco. He’s the founder and Partner at Nava Ventures, an early-stage venture firm investing in companies that create new markets, change industries, and positively impact the world. He has invested in companies including Hydrolix, Union, Yurts, and Scopely. Prior to Nava, he was a Partner at Highland Capital Partners and worked in product management at Google. Manish, welcome to the show!
0:44
Thanks, Nick,
0:44
great to be here. Thank you for having me. Yeah, it’s
0:46
a pleasure to connect, sir. So I’d love to hear a bit about the backstory, and we know that you were at Google and stuff, but maybe walk us through your path in tech and the launch of Nava. Yeah, absolutely.
0:56
So I am definitely the accidental venture capitalist. You know, if you ask the 25 year old version of me, would you ever want to be a VC, I would have said, Absolutely not. I stumbled into the industry and just fell in love with it. It’s such a humbling job, a job of privilege, and it’s amazing what you get to do every day. So I started Nava about four years ago with my partner and good buddy, Freddie Martin Eddie. We had worked together at a different firm called Highland capital for many years, I was a GP out there, and we’d open Highlands West Coast office. They kind of were rooted out in Boston. But my journey to Tech really began 25 years ago. My freshman year at Stanford was 99 right after the first.com bust. And so it’s kind of a cool time to be in Silicon Valley. That opened my eyes to the world tech. You know, all these people larger in life, like Jerry Yang and others float around campus, studied engineering at Stanford, got lucky in life. After school, I joined this little startup that was fast growing, that was Google, as an early employee there, through the IPO, just awesome rocket ship ride, if you can do it. Do it. Join those rocket ships as a product manager. I built out a bunch of the key systems as the company’s growing up. I also got to work pretty closely with one of the founders, Larry Page, for a long time, running Google, Google’s OKR process, which is famous and infamous, depending on who you ask. But it was great to be in a fly on the wall in the room as the Google has grown up, and seeing the top down executive conversations and just having bottom up conversations as a PM shipping product. And then in my late 20s, I went to the dark side. I stumbled into venture capital, and just fell in love with
2:26
it. Love it. At what point in Google’s journey did they implement the OKR system
2:30
very early. So let’s see if we go in the Wayback Machine. There used to be this thing called top 100 where they basically just ask everybody, what’s the most important stuff to do. And you know, it was a small enough company, most people would kind of figure out, yeah, this is the stuff we should be doing. You know, about 80% everybody agree on. And then I want to say it was like 2003 four, something in that range, where they started really implementing it, thanks to John door. John door obviously influenced from Andy Grove, who’s legendary, was legendary from Intel, kind of this really cool management tool, which lets you, in a lightweight way, let smart people that are culturally aligned focus on what they need to do without being like overburdened as a manager. And so I had the privilege of taking over this task, which another great VC, Wesley Chan from FPV ventures he was doing. Sergey Wesley is an old friend and a wonderful guy. And then I got the dubious honor of it being handed to me, and I got to work with Larry on that when he took over that process. And it was awesome. I mean, just, you know, I remember sitting in the room with, you know, John Doerr and Larry and understanding what a OKR even was, you know. So it’s like a master class in that. And then I had the chance to work with some amazing people as I did it. She recently passed away, but Susan wojcie was deeply involved, and she was just such an amazing person. It’s kind of sad what’s happened. She passed away recently, but just such a major influence on my life. And she was sort of mom of Google, but she ran that process alongside me and Larry. And it was, it was fantastic. You know, as you when you’re like, 2122 whatever it was at that age, being able to just to, like, be in the room as Google became the Google Larry became the Larry Page. Susan, all these people were kind of blowing up, and to be around it was just so much amazing stuff being absorbed. And I tell you, the older I get, the realize how special that moment was. You know, it was just incredible. Yeah, what
4:25
would you say is the biggest challenge that you worked on, you know, alongside Larry,
4:29
oh, so many Dude, that’s why I don’t have any hair left. No, I think the thing that, I think the thing is, like Google is was a place where management was always very light handed, and they let creativity run wild, right? So you’d have competing projects and just really big ideas and thinking and bringing sanity to the chaos. You know, sort of that expression of the inmates around the asylum by design. You know, it wasn’t this, like top down man. From an edict where, you know, Larry or Eric or someone is like, this is my view of the world, and you’re, you know, like a Steve Jobs style or Zuckerberg style, and kind of everybody audience around them, it was like, No, you’re brilliant in your own way, right? But do you get the culture? Do you get what matters? Do you get infrastructure? Do you get technology right? Do you understand those core tenants to go build? And I think the biggest challenge was kind of as Google kind of became a grown up company, transitioning into that, right? Because there’s all these other forces that come into play, and, like, I always call it the physics of big companies, right? So now you’re public companies, you’re accountable to other people, right? Even though Google has a unique kind of share class structure, the street still matters, right? Like now all of a sudden, Goldman, Sachs and these banks matter, how they write about you, right? So how do you stay innovative in this moment where you’re just becoming a public company? You have all these bigger ambitions, but you have this kind of ambition to go beyond search in terms of google.com, and how do you direct that? And I was so impressed by the leadership and sort of not just executive level, but the one layer down, and the empowerment it had, and then even me as a junior PM, the power that I had to go build these products that reached out and touched the world, which is pretty crazy, like, I think that, you know, it’s humbling to think, like, what they let 22 year olds and 25 year olds do at that time. You know, amazing.
6:19
Yeah, was it in the early days at Google? Was it commonly accepted that advertising would be like, you know, the main revenue growth engine, I guess, after the, you know, the double click acquisition before
6:33
that, even before double click, actually the direct ads on google.com I mean, that was the engine, you know? And I think that sometimes there’s this narrative that people like, oh, advertising is bad, that sort of thing. But I think the employees that really got Google, and were really of that early Google class, understood the power of advertising. It wasn’t this sort of like afterthought. It was actually by designs, right? That is another source of information. Google’s mission was to organize the world’s information in a universally accessible way burned into my brain and like, that’s another type of information, just like a book was, or a video was, or like a website was, and like, how do you organize that in a way that makes sense for the end user? And I think what’s happened subsequently, there was kind of this narrative of consumer companies that like ads are bad. It’s an afterthought. You know, let me just slap them on and make money, but they’re really annoying. And I think that’s unfortunate, because if you really think about it, from the abstraction of it, is information, how do you present it to somebody in a way that makes sense to them, and not that they’re being sold to? It’s just they want to find, you know, whatever that thing is they’re looking for, actively searching. Totally, totally, so. So I think that, hopefully we’re it’ll be interesting to see now, in this age of AI, and people are thinking about, you know, what world does ads play in AI, and how do you monetize all these next generation big research lab companies opening eyes of the world, like, what happens to the ads narrative? You know, what does that look like in this new world order?
8:02
How about on the the unit economics front? Right? Like classically, Google had such a capital efficient method of serving up results and monetizing, but you know, the open AIS and the Bard and, you know, all these other models, it’s, it’s very compute intensive now. I mean, are we in an eventual dynamic that where this new LLM paradigm is just going to be much more difficult from a unit economics, in a value capture standpoint, or do you think that that kind of gets our down and and over time, you know, the training and all the other things involved in that computation, you know, decrease,
8:47
yeah, great question. I think we’re in a moment now where it’s too expensive to serve those queries, right? Google is highly optimized to do queries like, you know, pizza. Palo Alto, what’s let me, let me order a pizza down the street, whatever it is, right? They own that it is hard to beat the infrastructure that Google has built to dominate that experience. Right? It’s so cheap, so fast and so good. Frankly, the quality is really good. You know, I think beyond the cost of serving the queries of an LLM, whether it be open AI or a bard, or what have you, there’s the type of queries I want to do, right? If I’m just looking to, like, make a restaurant, restaurant reservation, like, I don’t need an LLM responding to that, right? Maybe there’s an agentic workflow that makes it for me, or whatever. But, you know, the queries that I do in these llms are much more kind of, what I think of as kind of mid tail queries. They’re stuff where it’s like a research problem, right? Like, summarize this paper for me. Like, tell me an opinion about this, you know, and that stuff’s a lot harder to monetize because it’s not like, I’m going to take action on it, but I’m actually learning it’s kind of, it’s substituted away my Wikipedia experience at some level, right? Um, so I think the question is, like, on the unit economics side. How are they going to monetize this stuff in a way that makes sense, because the web was built on this idea that everything is free as a consumer and ads monetize. It mainly direct advertising, and then, because of the rise of double click and YouTube, kind of branded advertising, right? But it’s very different than sort of today, with a lot of these LMS, where it’s like, well, I’m taking all the publisher content, I’m going to sort it right there on the page, and now you don’t even have to leave my property to go to New York Times or go to Wikipedia or whatever it is. So I don’t, and I don’t think subscription businesses are going to rule today, you know? I don’t think consumers are going to be willing to pay, because for the last 20 years of the internet, I’ve not paid for information, you know? So I think it’ll be interesting. I think there’s a moment now, though, where these models can be reinvented, right? But I would not underestimate sort of the ecosystem that’s been built. And I think that was one of the things. I always think it’s better to be lucky than good in life. The time at which Google was born, the web was still being molded, right? There wasn’t necessarily entrenched behaviors from consumers. But, you know, I teach at Stanford, I think about my students that were born in 2000 right? They grew up with a certain type of web experience, right? Yeah, and so now you’re going to tell them, you got to pay for content like, I don’t know. I don’t know. Well, it’ll be interesting to see what happens over the next two or three years. Such an interesting
11:18
insight, right? Because I immediately went to the cost side, but the revenue side is big question mark as well. You know, before we transition, I’d love to just hear like, what, what was the greatest lesson that you learned from Larry Page?
11:31
Yeah, so many wonderful learnings of just being in the room. But the one thing I really appreciated about him, which I appreciate now, kind of as a venture capitalist. It sounds cliche, but it’s important, I think, of like the idea of really thinking big, but not on top of the house of cards. And let me unpack that a little bit. So I think everybody’s all saying, go big, go home. All this kind of stuff. You hear these narratives in the valley, right all the time, but are you really building on the right infrastructure? Are you really building on a strong foundation? And I think that’s the thing that I was always impressed by. We’d have this thing on Fridays, which was all the PMs would pitch new ideas to Larry and Sergey. It was called like a founder’s product review, and I got to be in the room for a lot of these, and you see a pattern belt. And one of the things I thought was really cool was Larry would always encourage found PMS who are essentially like mini CEOs at that time, because we’re building all these different new products, from photos to apps to, you know, different things, like, think bigger, that was like a consistent piece of feedback, right? Like, who cares about 20 million users? How do you get to 2 billion users, you know and like and that embedded in that was not just like growth, but what system are you building that can touch out, reach out, and touch millions and billions of people and make a difference, right? And what is the infrastructure you’re being built on Google data centers, which is some of the most advanced in the world at that time. How do you take advantage of this amazing infrastructure to do something useful? One of the things I think that was unfortunate that I’ve seen Google do, and maybe many big companies do this, they started building things which really were more suited to startups, you know, like a photo sharing app that should be done by a startup, right? That shouldn’t that is not something that should be done by Google’s infrastructure, you know. And I think sometimes folks lost their way and started doing these other projects and things because it was, like, exciting, or you see startups doing it, and you’re like, oh, we should do it, versus going back to first principles. And wait a second, I have some of the best infrastructure in the entire world. That’s super fast. What is like a world changing problem I could solve here, right? Big, you know,
13:35
leverage your greatest
13:36
asset totally. And I think that’s the thing that sometimes gets missed as companies grow and there’s like new generations of engineers and product managers like what’s exciting to them, versus really understanding what made the company, the company amazing.
13:48
So big tech and VC are very different businesses. Yeah, right. What would you say is the biggest difference between sort of your strategic approach, you know, at Google, and the way you run your venture firm.
14:04
I mean, I think a few things. One, with Google, you were always thinking about solving problems though you had unlimited resource, right? Like, if that’s going back to this narrative of, like, think big. You know, if you do, if you have unlimited resource, what is something that can truly shape the world from a very narrow perspective, which was technology, not necessarily even product, but technology first, right? Google search is great, not because of the product side, but because the technology it serves really fast all the stuff behind this very simple home page, right? The product’s pretty lightweight, you know, compared to, like a Facebook which is very product oriented on its surface, right? And so I think at Google, the way to win was technology, code, infrastructure. And I think in venture there are many different ways to win, right? I think that was one of my learnings. And I have to really reshape my mind when I went from becoming a operator to a venture capitalist, of like, oh, there’s all different kinds of ways to win, right? Right? Like, Facebook was built on PHP, right? It’s not, it wasn’t like this low level language, like, but it still won. It won the social network game for sure, right? And they keep winning. It those types of things of like, all the different ways to win. And I think about my practice adventure, it’s really, when I look at startups, you know, obviously you want them to go big, obviously you hope they kind of change the world in a great way, all that good stuff. But it’s like, what is I always ask founders, tell me a secret. Tell me that unknown, unknown about a market, about what you see. And if I’m pretty open, I’m like, if I know more than you, I am not investing. You think about this problem for 1000s of hours. If I think about it for like, 20 hours, you’re the expert on it, you know. Tell me the thing that I could not agree more, you know, couldn’t agree more, yeah, so that’s what I look for. And like, when I think about the differences, right? Google won in a very particular way. I want my founders to tell me, how are you gonna win this? And like, what is your special sauce that no one else in the world gets? You know, love it. Love
15:57
it. So, okay, perfect segue. Tell us what is the thesis at Nava, and why do you win? Totally, well, the
16:04
thesis is, make money. Actually, it is funny, you know, yeah, we should
16:10
all be serving, you
16:11
know, I tell my we have a young team here, or a team of seven people. You know, sometimes I’ll tell people, you know, what is my job? At some level, it’s to sell money, right? Like, because everybody’s money is green. Like, why do you want to take my money, right, as a founder? You know what’s special about us? And then, you know, I think it’s like, Yeah, you better have a strong point of view for us, our fund, our first fund was 175 million. We only do series A I think that’s a really special place in sort of the venture ecosystem. We can talk more about that, and it’s really important the way we operate to be high conviction, thesis driven investors. I think lot of different ways to win in venture. You can kind of do the spray and pray model, touch a lot of companies, and then build positions, etc. For us, I would say we’re not reinventing venture. It’s kind of vanilla from how we like to operate. But having very, very strong points of view when we invest, we couldn’t be wrong, by the way, but really having opinions about why the world should look this way, thinking about the markets a lot as well. Because I often like to talk to founders and say, you know, I hope you have a B plus product, but it’s an A plus market, because at a Series A your product is developing, right? If you’re telling me you got to build like the space shuttle to make this thing work, I am not invested, right? You have to hit perfection out of the box, and you’ve only raised a couple million bucks. That’s tough, right? What? I like it when founders are like, hey, my product kind of works. But let me tell you about this problem. Let me tell you about this thing that’s happening this market where the pain point is so high that, like some giant organization, wants to use my little better mousetrap, you know, even if it’s really rough around the edges, and I’m like, Oh, that’s interesting. Tell me more about that. So that’s how we like to look at deals. And I think, when I think about our edge, you know, I think it’s about a couple things culturally, you know, what we like to operate on? There’s three things that drive us as a firm kindness, truth and hustle. Kindness is kind of a funny one. You don’t hear that in venture capital a lot. I think it’s really important to be humble as a VC and realize it is the founder journey. You can help along the way and through a culture of kindness, you know, hopefully you can become your best self. And my job as a VC is to help founders, particularly at that series a stage, become their best selves, because it’s their journey. I want them to lean in that quirky point of view, that weird thing that no one gets because this other thing I’ve seen happen, which is really interesting, early stage founders have really strong points of view in life, right? The more money you raise, sometimes the more diluted that becomes. You start listening to like the banker. Start listening to the growth equity guy. You start thinking, I don’t know. Maybe I need to think about my multiple more whatever, versus like, let me take it back to basics, like, what is it I’m building? Why does that matter?
18:43
What are the ingredients of an A plus market?
18:45
I think a few things. One for startups in particular, if we use the lens of startups as an A plus market, one, I think it’s a market that’s growing. It could be a market that’s small today. I think I actually really like investing in companies where it could be a smallish market today that that company can start to dominate and become a big position, but over time, can grow into a massive market, right, riding that wave. Because I think you there are companies that go and grow just by taking market share. But I think the best companies go from market taking to reshaping the market, redefining what that market is, you know, and I think that’s really exciting. There’s so many good examples of this, whether it’s Uber or social networks or what have you, Airbnb, etc, etc, and an awareness of that from the founder lens. The other thing I think that’s really important about markets is, you know, is there staying power? Is it something that’s going to be a flash in the pan, or is it something that really is fundamental to how the world works. And I think, you know, really good founders are also great systems thinkers, and they kind of understand even either intuitively or explicitly, why this market matters, why the world is going to be shaped and influenced by this thing. You know, if it could even be something like Airbnb, right? Amazing company like there’s. An underlying human need there to, like, travel the world, be entertained, have fun, whatever it is, and they tap into it in a really important way. It’s not just sort of the JP Morgan kind of Goldman Sachs, like, here’s the multiples, here’s the TAM analysis of the market. Everybody can do that case. It’s the other side of it, right? Those latent human needs which kind of cause people to spend time in these services and products which make big
20:23
markets. So, Manish, you talked a little bit about series A and what you’re looking for, but, but why Series A? You mentioned you think it’s the best place, the best stage, you know, within venture wise, yeah, yeah.
20:36
Obviously I’m very biased, because that’s what I do, but I think the series ace is kind of unique thing in company life, where, if you look at pre seed and seed, you’re also selling a dream. By the way, let me start with that. Every round of funding, you’re selling a new dream to a new set of investors, right? Even when you go public, you’re selling a dream to retail investors and otherwise, right? So pre seed and seed, I think it’s like a couple folks, maybe a little bit of a team, some slide where maybe you have something that compiles and works a little, who knows, right? In the seed stage, I think, sorry, the series a stage, you actually probably start to have a little bit more of that product. Maybe it’s not fully defined, but you have a shape of it, right? You have a little bit more of a shape of it, but you build a foundation, which I think is really important. And I think there’s so many founders that are incredible founders that I would argue can will themselves to 1020, 50 million in AR. They’re just like, you know, amazing salespeople. They just have that grit and grind. They will get there, right? And I think the series a stage is exciting, because that’s where you can build this kind of foundation and decide, am I building a house of cards that hopefully will work? I just got to keep beating and raising and beating and raising and get to scale that kind of narrative. Or are you building a foundation where, if you start to get the right kind of revenues, the right kind of customers, does a flywheel right? And I think the really interesting companies build that foundation which then has that ROI over time. And that’s why I love series A because hopefully I can take some of my learnings from the Googles of the world and companies I’ve worked with have gotten to scale and help them build those like that concrete kind of foundation that you can then really build a good house on.
22:12
So unpack that more for us, right? We all we’re familiar with revenue quality. We know like defining an ICP. We know we want to be in markets with tailwinds. But what does a great foundation look like versus something that may, on the surface appear like a nice foundation at series A but could be an eventual house?
22:31
Yeah, absolutely. So I’ll give you maybe a semi controversial. It’s not really controversial example, but you know, I hate this kind of hype around plg. You know, everybody’s like, get your plg motion down, right? Plg, plg, whatever, whatever. And I think it’s really dangerous when people and that this goes to sort of quality of revenue. If you’re selling hard to small and medium businesses, and they’re it’s, you can get to that 10 million in revenue pretty quickly, you know. But is that sticky? How much of those businesses, how many of those businesses are gonna stick with you? You know, once you sell them, are you gonna have to resell them every year, right? Is there a network effect? Is there anything, because I sold to malicious pizza place in Palo Alto, does malicious pizza place in Kansas City care? Probably not, right? And so I think about sort of that foundation as thing, okay? Are you building a product that has the shape of something, if it’s on the B to B side, that could go after a million dollar kind of scale contract, right? Can you actually build the same widget, not a product suite? Are you taking the time to think about is this pain point deep enough to go after something that can be at scale? And if you’re not doing that like and you’re thinking, Well, I just want to get to that revenue, to the threshold mark, and then that’s enough, because I’ll get my next round of funding and then grow. I think you enter into a dangerous territory of refactoring the whole company, because you’re not going to have the right shape of revenue and quality of revenue. So when I think about the foundation, it’s like, okay, if I built this one product, no one is going to be even kind of crappy. Isn’t the pain point high enough? Am I thinking about where the markets going that can get pulled in to the enterprise, right and right?
24:07
Is that most evidenced in like, gross dollar retention, or are there some, like, good metrics that you look at most closely to kind of, yeah,
24:16
I think, I think it’s less about the metric. I mean, there’s always things like the mattress game, I think is dangerous at the Series A, yeah, I would agree. Because every a lot of growth equity guys, that’s different. Because if you’re a growth equity, you know, during Series D, it’s just kind of like, show me your P, L, and I’ll show you a term sheet, right? It’s like, that’s, it’s like umbrellas, beat balls, whatever, infrastructure, you know, that’s a different kind of thing. Yeah, no charm required. It’s a different game. But where we play, I think the metric is actually anecdotal, and that’s the art of it, right? It’s like doing those customer calls, understanding, like, Hey, where’s this really coming from in the budget, right? Not just, is it innovation budget or real budget, but like, why is somebody spending their money on this? Why is somebody betting on this random startup versus buying IBM, so to speak, right? Really learning how to, like, hear what a customer saying. And this is in the B to B use case of like, why is this something even interesting and entertained, right? Because oftentimes, what I found is I’ll do calls and I’ll be like, Wow, this problem is an interesting problem, but this is not the right product for it, right? This is actually they need something else, you know, and I think that’s really exciting. And then even giving that feedback to the startup, it’s like you are touching on something that’s interesting to this customer, but they’re not actually buying for you for what they think, right? And being able to have those kinds of conversations is useful to my companies, potential startups that transparency, but also, as you think about, you know, the metrics, it’s like learning that the qualitative side is so important in the early stage, 100%
25:48
so, you know, we talked a little bit about AI and llms Earlier, I’d be curious to get your input and your advice for startups that are Trying to sell AI into the enterprise, absolutely.
26:02
Well, first thing you got to do is get the domain name.ai, that’s really important. Legitimacy. You have nothing if you got that.com you know. But you know, in terms of selling into the enterprise with companies that are doing AI, I would say one, find a real champion. You know, find somebody, because it’s almost like they’re like, in this moment, are these shifting plate tectonics. It’s huge changes all the time, right? Huge changes. Even if you go and talk to folks at the big labs, whether it’s open AI or anthropic, I mean, their roadmaps are shifting every month because it’s like a new innovation and it’s like, cool. We’re going this way. Now we’re going this way. So it’s so hard to predict of what the future is. So if I was a startup building something squarely in AI, first and foremost, I would spend a lot of time finding a champion that trusts me and becoming really an advisor to that person, understanding why she trusts me. I’m become the go to person for their AI. Because everyone’s looking for an AI solution. They don’t even need it sometimes, right? But they just afraid that their whole business is gonna be disrupted because of it. So I need to understand it, right? And we’re kind of in this moment of like changing the tires on a moving car, right? So I’d say, find the champion. Build the trust. First and foremost. Don’t just sell to them. Build the trust, right? Then figure out what the real pain points in the organization are, right? Understand if what your thesis is of what you’re building your platform, whatever it is doing in AI, is it solving a big enough pain point? And if it’s not, I would really move the company to solving the thing that is the bigger pain point, right? Really understanding that right, and being able to be facile in that way, because your startups in the AI space, I think are in this because the ground is shifting underneath them, and the biggest strength any startup has is adaptability. And it’s very frustrating when, for me, like when a startup doesn’t know how to fire its customers, you know, and that’s key at the early stage, you know, don’t get stuck with customers that don’t understand and just are using you as a job shop and are not really helping you’re not really using you to solve a real problem. And I think that goes back to like, Do you have a champion? Do they have trust? Are they going to open doors for you within the organization? Because deploying a lot of these AI solutions, it’s not just like a SaaS solution, where it’s kind of in a bucket, whatever it can be, pretty sprawling with the organization. It can touch data and workflows and all the different types of things and teams, and being able to understand, oh, this is going to be a little bit messy to get deployed, because even the programming paradigm for AI solutions is so different than what maybe you and I were used to 1015, years ago, right? And so I think that then allows you to iterate very quickly and then build and deploy things that hopefully will impact the organization and then win for them. You know, because I see so many companies today that are AI companies, pre seed to seed to a that have gone from like zero to 10, zero to 15 million in ARR, they have all these awesome vanity metrics of growth, but it’s like, man, you’re just gonna you’re not building anything that’s sticky, you know, like people are just trying you out, but there’s no way that you’re going to be able to become a multi billion dollar company on this, right? Maybe famously, a good example of this, and no shade, but like the companies, like Jasper and the whole copywriting thing, right? Like, amazing company, tremendous growth. But how sticky was that version one of the product? Right? Of just copywriting, right? It has, it’s got to be a much deeper thing. You know, I think they’re evolving, and they’ll figure it out. Hopefully, that’s life in the startup land. But just, I think, thinking through that sort of thing, I think you’re seeing that now, with a lot of the generative AI stuff related to video, right? They can go from here to 10 million really quickly, working with the ad tech company or what have you. But how sticky is that really going to be? You know, how much can Google just say we’re going to turn that on one day, or Facebook will turn it on one day, and I’ll just be like a default thing in their system, you know, generate a bunch of ads around whatever widget you want to sell.
29:48
Any thoughts on AI with regards to like, top down versus bottom up? And part of the reason I ask is because it seems like for most enterprises, like fortune 100, AI is a priority. You, but it’s almost like it’s headless, right? You can read the analyst reports, and a lot of CEOs don’t really know what it means exactly for their future. So you can’t really reverse engineer the sale, like you can I used to do in my M and A days like you can figure out how to position a business, you know, to, like, appeal to the priorities. So that’s an issue. You can also run into challenges when the champion, as you mentioned, doesn’t have the leverage in the organization or the decision making, you know, to kind of RAM something through, whereas, you know, there are some wedges, there’s some clever ways to use AI from a bottom up standpoint, where you can get momentum and then hopefully carry that to more of an enterprise grade sale. So I don’t know, do you think about this bottom up versus top down? And do you have any insights on on that? Yeah,
30:47
in terms of the sales process? Or, yeah, I would say, you know, maybe a couple thoughts. One, I think the bottoms up sales process is easy but hard to scale. You know, if you’re trying to, if I were to use an analog, like a Dropbox, right? Let me, like a couple of teams using it, and then the whole organization uses it. I think that’s really tough in the world of AI, because it touches so many different systems and proprietary data within systems, right? So you think about security, privacy, all those things, at some point someone’s going to lock it down, and I just don’t know if you can generate enough momentum, or you hit a hard wall before you really get to sort of the executive level in sale, right? And this is where I think that revenue can be intoxicating. You know, you can grow nicely across a bunch of small teams, but can you really become the de facto sort of solution for the enterprise? And so when I think about the top down. I think that’s like a hardcore consultative sale, right? That I really convince people. They don’t even know what they’re doing. They see it every day. I need something. And so when I think about what the staying power is like if I was a startup having to make a bet, you know, if you’re working, if you if your end goal is to get the enterprise class solution, you you may say, my that’s not my end goal, right? I want to, I want to just sell to kind of mid sized businesses, and I’m happy there. That’s a different conversation. But if you want to go sell to the fortune 500 fortune 2000 the world, I would say, think about, how do you get to those executives? Now, I don’t think it’s direct sales, by the way. I think that that’s, I think the thing that’s different than maybe 15 years ago, where you’d hire a guy that wears khaki pants and blue shirt and plays golf and eat steak to go sell your widget. I don’t think that exists anymore, right? Because those guys are expensive. It’s a long time takes, you know, 1018, months to close a deal, etc, right? Multi headed Hydra, especially in AI. I don’t think that works anymore. I think the future, in this moment, anyway, of the next 510, years of high, high velocity direct sales is going to be much more about the channel. I think it’s going to be partnering with really smart channel providers. They’re already that they have that relationship to record with folks, right? And through that partnership, you’re able to get in there with those organizations and do these very technical, complex things. And as a startup, you’re going to give on margin because of that, but you’re getting big logos, and you’re going to get a team that knows how to work with a big organization, and that’s going to allow you, you know, if you’re Series A, Series B kind of company, build up good logos, learn how to work at big scale enterprises, etc, and eventually, maybe by the time series C comes along, you really start to build up that direct sales muscle, you know, and invest in that. But right now, you know, those guys are very expensive. And I think building AI tooling is actually also very expensive. So thinking about where is the best place to put your dollars, I would say building that okay, product, giving on margin, getting big logos, proving legitimacy, taking up a little bit more airspace. And then when the direct sales team comes in, they can go leverage that and be like, Look, we’re deployed across a Disney. We’re deployed across a CBS, whatever big Toyota and like that gives them, makes their life easier. Love it.
33:57
So So are those mostly channel partners then on the services side, yeah, or, I think it’s like the IBMs of the world,
34:05
extensions of the world. I also think there’s lots of great groups and companies like the Akamai of the world and others that like, have like, you know, that have important relationships with massive companies that you could think about, how do I partner with them, and how do I use that giant sales force to help empower, help empower that sales force to sell my better mousetrap. Yeah,
34:25
we had Dharmesh on from battery probably year and a half ago. We’re talking and char dual from index. We had a conversation about enterprise cloud adoption and how still, like, I think it’s a little more than 50% of software still on prem. Oh, totally, which is, which is shocking, right? But,
34:46
I mean, yeah, go ahead. Sorry, sorry,
34:49
Manish. But you know, as we think about like, adoption of software and cloud in the enterprise over the past couple decades, starting with ASP, which became SAS, you. Know, what should we expect with AI? Is this going to be a really slow burn? Is this, you know, going to be fast and furious? Will it follow a similar adoption cycle, you know, get out the Manish crystal ball and tell us a few.
35:11
Oh, yeah, well, if I knew that, I’d be a richer guy. So your return suggests
35:15
you’ve got, you’ve got some sort of crystal. Yeah,
35:18
I think that’s just my shiny head reflecting somewhere. You know, I think a few things, I think there are some great lessons learned with cloud adoption. You know, it’s a lot slower, even though, in the narrative, everybody’s like, it’s on the cloud, it’s on the cloud, it’s not, you know, if you’re JP Morgan, you’re not on the cloud, you have your on prem solution, right? I think there’s some good lessons learned from that, as you think about AI adoption. The other thing I think this a lesson learned that I’ll highlight is the people that are the incumbents today, that are people think are going to be subverted because of AI, let’s call it a sales force, right? Like, oh, I want to, you know, change how SaaS works, and Salesforce is not going to be there anymore. The lived history of people like a Mark Benioff, who I think is formidable, maybe the one of the most competitors in the world, right? He built this company not too long ago. He saw how He disrupted all these old school players in the like early 2000s right? That were and so. And he’s still alive and kicking, so his memory is right there. So I
36:15
just had dream for he’s talking about, I think, agent, yeah. And they
36:19
even alluded to changing some of their their famous SaaS pricing model, but consumption based, right? So these people are much more agile. And so sometimes when I see like young founders underestimating them, I think it’s a little bit worrisome, because they still got a lot of game left in them, you know, in terms of and they have infinite resource, and they also have the data and our systems of record, right? So I think there’s that narrative that’s important to put out there as you think about where think about where is AI going, I think there are some big companies that will be able to deploy AI. They’re not going to be disrupted, and sort of have the innovators dilemma that can maybe, you know, people talk about that was relevant for like an Exxon Mobil or like an old, old world company. These companies, these tech companies, are evolving quickly. So I wouldn’t count out some of these large tech companies for sure, because they move quickly, and they have resource and they have the data and have systems record, right? But at the same time, I do think there’s opportunity for companies that are, this is a bit cliche to say, but like aI first that really are thinking about the world of like, let me not disrupt CRM, but let me redefine what CRM really even means. If I had an agent, right? It, you know, I think agents are going to move across systems now, so it’s not just going to be about CRM. It’s going to be like, send the email and take care of it for me, and then loop back with the value prop and the follow up email to the customer, right? I think the agents are going to let you spanned all these verticals where these SaaS companies existed, and that’s an AI first kind of solution, right? Because it’s kind of like, well, what’s the human beings workflow? Not what are the products they’re being forced to use today because the limitations of software in 2003 that were built? I think that’s the really, the interesting part, the funny thing now, I think we’re in this moment of, like, remember when the iPhone came out and they were like, you know, like, fart apps and beer apps and all these kind of stupid like, I think we’re kind of in that moment of AI where there’s all these, like, stupid little things. They’re like, Yeah, it’s fine. I use it for a week, but I’m bored of it, like, whatever. But then, over time, I think you’re gonna get some real depth to these companies too.
38:21
So like, on that note, you’re a Google guy. You just mentioned Salesforce, these incumbents are pretty savvy and pretty nimble. Do the startups have any chance to, you know, on a percentage basis, to exceed spend, you know, from large customers versus, you know, these big tech incumbents? You know, as AI absolutely evolves over the next few years. In the near term,
38:45
the hyper scalers will kind of be the winners, right? It’s kind of that’s just they have the infrastructure, they have the attention, they have the distribution. But I think the pendulum will shift in five years, right? As it always does. And I think this is kind of the physics of business and the physics of tech. There will be a next generation of hyper scalers, so to speak, that will start to be the place where consumers and users and rents accrue. And that’s what I’m actually most excited about over the next few years, is we spend all our time talking about infrastructure today, right? And like, I love that stuff, but I tell you, it’s boring for most of the world. Like, it’s boring to talk about infrastructure, but I’m very excited next five years of, like, the consumer side, the verticalization of these things, right? Where it’s like, these experiences that touch people’s lives in everyday ways that become massive, massive companies. And I think we’re just not the we haven’t got to that point yet, right? We’re still kind of building up, sort of the middleware of shorts, right? If you go back to, like, the mid 90s, people talk about middleware. All the time, right? It’s gonna swing back. And I think that’s where the you’ll really will see the value accrue.
39:47
Love it. So beneath gaming has been a bit of a malign category, and yet, you found a bright spot with your investment in Scopely, a mobile gaming company that achieved an exit of nearly 5 billion. What did Scopely do different here than other gaming companies in order to emerge as such a large success?
40:05
Yeah, and it wasn’t just make money, because a lot of gaming companies make a lot of money really fast. I was very fortunate to be part of that journey, and it was an awesome ride. And credit to Walter driver and Javier and the team there. The things that they did differently, one, you know, they really understood the unique combination of business and entertainment and technology. I think a lot of gaming companies are really great creative shops that have these one hit wonders, and they grow to a billion dollars in revenue, and it’s a highly addictive game that’s, you know, whatever, like a candy crush or what have you, and they just iterate on that down the line. And I think, though the Scopely team did was, like, realized and embraced this idea that, you know, gaming is a business of hits. It is a hits driven business, you know, and like, let’s embrace that. Let’s build a business around it. So if we hit a double, if we hit a triple, how do we create our business structure and cost structure, so we make money on that, you know? So they didn’t build out these big, heavy engineering teams. They would partner sometimes with third party engineering teams, right? And then they were like, hey, IP is really important in gaming, you know? Yeah, we’re smart guys, but we may not come up with the next Pokemon idea or the next great Disney idea. So they partnered with a lot of the Hollywood studios and became stewards of this highly valuable IP, and said, you know, we will trust us with your IP, and we will make a great game with it. And they went, even went to like, old world companies, like a Hasbro and Mattel, and had games like Yahtzee, and they’d be like, we will take care of that IP. It’s funny. I think even at one point in the company’s history, a Yahtzee. I think it’s Mattel or has, but I forget which one owns the IP. And they said something along the lines of, they made more money on the digital version of Yahtzee than the entire history of the board game, right? No, which is pretty crazy, you know? And so I think they understood that really well as a team amazing executors, as it’s a very much a no, Bs kind of thing, right? Let the creative people be creative. Let’s build a technology stack where it could be off the shelf. We could pull in new stuff, but let’s not try to reinvent the world and get too much and drink our own Kool Aid about stuff. Let’s just really focus on gameplay and on the IP side. How do we become the steward and trust for this really important IP, whether it was like wheel the fortune, or Breaking Bad, or all these different games, you know, and let’s leverage that so it was a combination of those things. And I think the you know, right before, right after they exited, last year, they launched monopoly, they redesigned the Monopoly game, which, in and of itself, I think is a big undertaking, that game is social, game on the mobile device has now become the fastest growing game in history. I think I reached something along the lines of $2 billion in revenue in 12 months, something incredible like that, right? For the redesigner, yeah, monopoly go and it’s incredible, right? One title on my mobile phone spending, people spending that much money on this game playing experience, right? And so that, I think, is the testament to the team really understanding that trifecta of IP Game Design and Technology love.
43:10
Don’t, don’t say monopoly too loud. MANISH, my seven year old is gonna burst through the door here. He’s a little capitalist that wants to play it if he’s not selling stuff on the street. He wants, he wants to play dead and monopoly. But you know, you’ve talked about design a few times here, and I know that you teach at Stanford, what do you think makes a great product? Totally,
43:31
a couple things. One the heuristic I always talk to my students about is, if I give you a product and I take it away in a week, do you care as a user, you get an emotional response, right? Are you like, Oh, darn. You know, I really wanted that. And I can’t, you know, you feel that because you then you infected somebody’s life. If you take something away, and people like, Yeah, it’s nice, but whatever, you know, not such a great product, right? You’re not tapping onto something deep. I think the best products really tap into latent human needs. And the way I see it this is kind of Venn Diagram of, sort of, is the product? Is by the viability of the product, right? Is the technology there? And I talked about, like, if you want to build tele teleportation product, is the technology exists today, right? Quantum Computer, does the technology exist today or not, right? So by that, then there’s the feasibility of it, right? What’s the business if I have to, like, put this thing in, like, gold and diamonds, or some crazy thing, like, How feasible is that? How many people, right? The thing that I think is most interesting in that then, is on the human side, this latent human need, I think it’s really about, is this something that taps into something deep, right? Something emotional, something exciting, the desire for somebody to do this? And that could be on the enterprise side, you know, you know, like, I think, like, data dog, is it, you know, the dashboarding that they did, let’s people get hooked on that. On the consumer side, Snapchat as redefining entertainment for the Gen Z of like, what it means, right? And that combination of those three, when you think about the. Diagram, the tech, the business, the human side. When you have that intersection, I think that’s the great product. That’s the really interesting product, because you’re solving for these three things that then allow for the product to have longevity. I think a lot of people in tech talk about technical feasibility a lot, and obviously in the venture capital world, people talk about business etc. I think the thing that often gets overlooked is the latent human need. Like, how is this taking up somebody’s of all the things in the world? Why are they going to spend two minutes a day on this, right? Like, not just share a wallet, share a time. Like, why am I going to do this? You know? And I often look for that when I even look at, like, deeply technical products. Like, one of my companies is a AI orchestration company, and it’s called the Open Source is called flight. The company’s called unions, deeply technical company. And the thing that’s exciting for me about that company, separate from all the tech jazz and all that stuff, when people use it, they get promoted, you know, I’m like, Oh, that’s interesting, right? When the engineer puts it on their resume that I’m an expert in XYZ thing. I’m like, Oh, that’s interesting, right? And like, Oh, you went from Sweet level two to sweet level three because of this thing. Oh, let me, let me think of a little bit more into that. You know what’s exciting there, right? That’s that truly mean side of it. And
46:13
is that what’s most often look overlooked when people are creating new products, like, I think so what’s the biggest oversight? So
46:19
I think in the narrative of the valley, like, I think there’s a lot of things everybody talks about business. There’s so many decks and reports about KPIs, as we were talking about technology out the nose, yeah, but the human side, because it’s hard, you can’t always quantify it, right? It’s very messy. I don’t think it’s a place where people get comfortable that are building, because oftentimes their narrative of, just build for yourself, solve for your own problem, right? Or just actually look, look at problems with other people. Really listen, you know, see, you’re struggling with, right? And I think unfortunately, Silicon Valley, a lot of the products and stuff, if they don’t really meet the needs of the world, they meet the needs of a certain group of people,
46:58
100% like and you got to ask the right questions to get to the right needs. Many years. I remember, many years ago, I worked for this motion automation company, and I was sent out to one of our customers. It was a postal customer, so it’s sorted postal mail. And I said, you know, we can do this faster. We can. We have a faster motor, you know? And he said, I don’t need faster. We’re good. And I’m like, well, what’s the biggest problem facing the facility? And he said, revenue recovery. So people under post their postage, you know, the stamp on the letter, and we can use vision systems to determine the stamp, but these things are moving at 70 miles per hour, per hour, we can’t determine the mass. I said, Ooh, that’s interesting. So we designed a pinch wheel that applied a force, and then we measured velocity at two points in time to get to acceleration and solve for mass. And so we were able to determine mass of the letters on the fly. And I was trying to do a business model where we did a revenue share, like, we’ll put these in all your sorting machines all across the country. Man, my business was not set up to do that. So we ended up just, you know, selling, like, probably 1000 of these components. And it was not super lucrative. But the question was, you know, not how to make it faster. It was, what’s the biggest issue exactly, you know, your face totally
48:14
like, one of the things I think about, I use an example in the class, is that everybody thinks about, like, flying right? Make the airplane go faster, right? Go from the con. Go build the Concorde, right, go faster. I want to get from San Francisco to London faster. I’m like, why is that the problem? Because, is it because the air flying experience is not very fun. What if I redesigned the air flying experience to be, like, super luxurious. It’s like a spa in the air, right? I wouldn’t want to get there in 10 hours. I wanted to take 16 hours, let me really feel relaxed and refreshed, right? Like, why can’t that be part of the equation? And I think that’s the thing that sometimes gets missed in the Valley. It’s all about go fast, fast, fast, which I think misses the point. You know? I think some of the best experiences are like dwelling on things, right? Like, even Google. I love Google. I mean, I’m a fanboy for Google. I grew up there, etc, right? Like, you know, the thing I miss, and I have a young daughter that she’s not going to have the same experience of I had, of like, walking around the library and getting lost and dwelling around, dwelling in the shelves, picking up a book and just discovering something, you know, and that moment learning like, oh my gosh, it’s so cool to read about ancient history or whatever it is, right? Because so much of this, the world that we live in today is, like, served up exactly in my own reflection, right? And I think that’s gonna cause a lot of problems that I don’t even know if we appreciate as a society today.
49:38
Well said, Manish, 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? Yeah,
49:45
there’s so many great investors from like legendary folks, but one person who I really respect and had a chance to work a lot with, one of the first board members I ever worked with, was a woman named Emily Melton from threshold ventures. Emily’s amazing. She’s. Brilliant. She’s been around the industry her whole career, and she’s also a very humble person. So I’m a big Emily fan. So if you could ever get her on the show, I think she has so much wisdom to share.
50:13
That’s a great recommendation. We had Heidi Rosen from threshold, and incidentally, we get, we have some Faulkner, the gold medalist, former threshold. She’s going out to our AGM next
50:22
to get more well, you’re deep with a threshold, folks, that’s
50:25
right. We are Manish. What book, article or video would you recommend to listen? You know my
50:30
favorite book right now? It’s called press here. It’s a children’s book. It’s about and I love it because it’s I read to my daughter just about every night, and it’s a very It makes you think differently about the world, and so I really recommend it. You’re on Amazon for like, six bucks, you know, press it here. It’s a kid’s book, but it’s a whole, if you really step back, it’s like, wow, thinking about user interface design, thinking about creativity, going back to this idea of a curious mind and first principles, and it’s like a five minute read, right? So it’s like, yeah, it’s and I love it. I read it to my daughter, and I recommend it to my students, and I give it away to like my CEOs all the time. It’s my favorite book in the world. I love it.
51:13
It’s probably the shortest one ever recommended. We’re doing you all a favor, probably cheapest Manish. Do you have any habits, tactics or behaviors that are a force multi Yeah.
51:24
So every day I think about how I can make less decisions. I think that’s like the number one thing great CEOs do, great leaders do for me as this venture capitalist. It’s like the time. How do I reduce my cognitive load? Because when I think about something, I want to make sure I’m fresh and ready. So every day I’m like, Oh, wait, what did I do that could have outsourced today? You know, what did I do that I outsourced that I shouldn’t have, right? And that muscle has really helped me think about especially as an emerging manager, where you feel like you have to do everything all at once. You know, in my little startup of a VC, has helped me to be like, forced me to be like, productively, reflective. And I think that’s a really important skill in life, especially for people that are in tech, where they’re usually pretty smart, people that can do 10 things at once until they break, you know, and you’re trying to be proactive about that. So when you really have that crisis or the thing that matters, you’re able to say, okay, I can devote three or four hours to thinking about this. I can devote 10 hours to this, and I have a fresh mind for it.
52:25
Love it. And then finally, here Manish, what is the best way for listeners to connect with you and follow along?
52:30
So they can find me on our website, dot Nava, N, a V, A, dot v c, and you can email me at m, a, n, i, S, h@nava.bc,
52:40
he is Manish Patel and the firm is Nava ventures, Manish. Thanks so much for joining us today. This was a thrill for me to do, and I wish you continued successfully.
52:49
Thank you so much, Nick, it’s been a
52:53
lot of fun. All right. That’ll wrap up today’s interview. If you enjoyed the episode or a previous one, let the guests know about it. Share your thoughts on social or shoot them an email. Let them know what particularly resonated with you. I can’t tell you how much I appreciate that some of the smartest folks in venture are willing to take the time and share their insights with us. If you feel the same, a compliment goes a long way. Okay, that’s a wrap for today until next time, remember to over, prepare, choose carefully and invest confidently. Thanks so much for listening.
