What's 🔥 in Enterprise IT/VC #207

🏰 Developer ❤️, power of community moats and two ways to get there

Do you remember those long road trips back in the day or maybe even now, if you are a parent, and the thought running through a young you or your children, is “are we there yet?” This reminds me of a couple of board meetings for infrastructure and open source companies when we get to the “how are the community efforts going” slide.

In the early days, many have that same feeling that no matter what you do, you really aren’t getting anywhere fast. It really takes true conviction, perseverance, and patience to build a true community-led and bottoms up motion. And if you stick with it (assuming you have an amazing product developers ❤️ and continue iterating on that), I truly believe that community is one of the true long term 🏰s that can be built in the software business.

As I’m a fan of looking at successful companies, let’s look at this week’s news and see what we can learn. Top of mind for me was Hashicorp and several product announcements from Hashiconf, Armory’s $40mm Series C round, and Twilio’s completion of its Segment acquisition. Looking backwards, it’s clear there are 2 paths to build a community, start your own, or leverage an existing one and work like hell to make sure that you add enough value to grow.

In the build your own scenario, Hashicorp, valued at over $5 billion, is a great example of what I mean by patience and perseverance in building a community. If we look at Gitstars as a proxy for user ❤️, this chart below spells it out. Vagrant, Hashicorp’s first product, was released in 2010 and took 3 years to reach 2700 Gitstars and languished in no growth territory and then boom, in 2014 it started taking off.

Now that the hard work of building community drip by drip was done, its next OSS release of Consul only took 6 months to reach 2700 stars and its next release of Terraform took a little more time but scaled past Consul. And this week, Boundary, developer first secure remote access based on trusted identity, was released and has already hit 1500 ⭐ in a couple of days. Because of that amazing developer ❤️ built drip by drip, it’s now an overnight legit contender going after two of the newer venture backed companies, Nebula, originally started at Slack, with 6k ⭐ and Tailscale with 2.8k ⭐. Not only has community allowed it to protect its flank against competition, but it has also provided a huge boost as it open sources more product.

Second, let’s look at this slide from Twilio’s acquisition of Segment.

As I wrote two weeks ago Twilio took a long time to get there but once it did, growth started compounding. With that huge community of developers, we can see how Twilio will extend its reach by offering Segment to 10 million from the 250k installed base already.

Finally, let’s look at Armory which has built an enterprise version of Spinnaker. In this case, however, Armory is not the steward of the community, but rather an active participant. Spinnaker took an insanely complicated open source project and built an installer, offered enterprise support and SLAs, and in its first 6 months signed 4 enterprise customers worth over $100k of ARR, standardizing on enterprise Spinnaker from Armory. Here’s Drodio’s YC Demo Day pitch from 2017.

So that was fast, 6 months from start to paying customers but that’s because Armory was built off an existing community started by Netflix. The big risk, of course, is if one of the core maintainers leaves and takes the community with them, but in this case, Armory has done a tremendous job contributing code and adding value on top. From the video, Spinnaker’s big vision is to be the cloud native control plane, and Armory, who does not own community, will build enterprise value from auditing, compliance, and cloud arbitrage. Well, it’s clearly working, as Armory was able to go enterprise super early because the rabid community was comprised of large companies who were waiting for someone to support them and build an enterprise-ready service. And now, it even launched an OSS plugin framework on top of Spinnaker to continue adding value to the community.

⚠️ In your darkest days when you feel like you will never get there, you will be tempted to build for the enterprise use case. While I am a huge fan of the 🥪 sandwich model, bottoms up GTM and Top Down enterprise, going enterprise too early can kill you. It can be so tempting, as that enterprise customer will have a big bag of 💰 waiting for you, like a pot of gold at the end of a 🌈, but the question you need to ask is if I pursue this, what is it taking away from my engineers and team actually building to make it easier on the developer first side? If I pursue this, are dozens upon dozens of other enterprise customers ready and willing to pay. In Armory’s case, they leveraged a built in Spinnaker community made up of larger organizations and were able to scale quickly. For someone creating their own community from scratch, this may be too much to handle.

So remember, there are 2 ways to get there, one is the slow way by building your own community and the other is leveraging an existing base. If you build it from scratch, remember to focus on making an incredible product developers love, be patient as it will be slow, and continue to invest in community. Trust me, you will eventually get there like you always did on those long road trips. And once built, community ❤️, becomes a true 🏰 for future success and defends your turf and amplifies each new release.

As always, thanks for reading and please share with your friends and colleagues!

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Scaling Startups

  1. Often forgotten on what makes a great product - Shreyas from Stripe reflecting on the Superhuman (a portfolio co) philosophy - wait till the developer and infrastructure startups get hold of this design thinking 🤯

    and here’s the podcast - we (@boldstart) were fortunate to be an investor Rahul’s last company Rapportive and then be the first check into Superhuman watching him build this from scratch with a product North 🌠 of speed and simplicity and beautiful design. He even built his own font - I kid you not!

  2. Fully remote, partially remote and now remote first from Dropbox - makes a ton of sense as you think about how to get back to work

    Starting today, Dropbox is becoming a Virtual First company. Remote work (outside an office) will be the primary experience for all employees and the day-to-day default for individual work.

    And, once it’s safe to do so, we’ll continue to facilitate a cadence of in-person collaboration and team gathering either through our existing real estate or other flexible spaces. 


Enteprise Tech

  1. Must read from Martin Casado (a16z) and and team on next generation architectures for modern data infrastructure - great overview of the how and who are some of the top companies providing value; a couple missing items are on the privacy engineering front with cos like BigID and Cape Privacy and data collaboration/sharing front on the output side with the likes of Harbr (all portfolio cos 😃)

    Unified Architecture for Data Infrastructure
  2. Speaking of data, databricks reported to be at $350mm ARR as of end of Q3 2020, up from $200mm same time 2019. This will be a big IPO one day as it has a big vision combining data eng with data science and data warehousing. If you don’t have TC Extra, I suggest paying for it as Alex Wilhelm does a great job breaking out the Databricks story from OSS to top down enterprise sales.

    How the hell did the company raise a Series B with minimal revenues? I, too, was curious.

    At the time Databricks had a more open-source focus. So, the company attracted capital based on usage of its software, the popularity of its conference and other nonfinancial metrics. Ghodsi joked that during the company’s early fundraising periods, investors would tell the company that “this is the last time we’re giving you money based on your hopes,” and that the next time they wanted to see “hard numbers.”

  3. Accel Euroscape of Top 100 Cloud Startups built in Europe and Israel out. Some amazing category defining companies like UiPath, GitLab and Gong. Great to have boldstart portfolio cos Snyk, BigID and Front on this list!

    Bonus, 5 of our 15 portfolio cos in latest fund from 🏴󠁧󠁢󠁥󠁮󠁧󠁿 🇮🇱 🇮🇪 🇫🇷 🇩🇪 - great cos can be built anywhere!

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  4. DevOps 100 - Tech Beacon’s Annual list of DevOps & OSS influencers to follow on Twitter - congrats to Nora Jones (Jeli), Patrick Debois (Snyk), Gareth Rushgrove. If you’re looking for great content on all things infra, I encourage you to take a look at the list and follow!

  5. In process automation land, Celonis seems to be moving upstream from process mining to now automation (see Integromat purchase) while UIPath has long moved down the stack when it bought Process Gold to do light discovery.

  6. Uptime matters and as the world goes more online and loads increase, shit happens - Twitter down for several hours this past week. And where the users are, the hackers will be as Robinhood confirmed at least 2k accounts hacked. Massive VC interest in in uptime, resiliency and security will continue!

  7. Semil from Haystack is usually spot on when identifying his breakout startup of the year and for 2020 it’s event platform - Hopin - and i

  8. 👇🏼💯


Markets

  1. 👇🏼Must watch 📺 - Bill waxing poetic on tradtional IPOs vs. directs and Spacs

  2. Bitcoin is back and Fidelity tells investors to allocate up to 5% to the digital currency - article and Fidelity report here

  3. Amish Jani from FirstMark Capital shares why Firstmark launched their own SPAC

  4. Fastly, one of the best performing cloud stocks of 2020, takes a huge hit from impact of TikTok which was 12% of revenue

    The company, whose core technology helps companies speed the delivery of digital content to consumers, said it now expects revenue of $70 million to $71 million, compared to its previous guidance of $73.5 million to $75.5 million. 

    “Due to the impacts of the uncertain geopolitical environment, usage of Fastly’s platform by its previously disclosed largest customer did not meet expectations, resulting in a corresponding significant reduction in revenue from this customer,” the company said in the release.

What's 🔥 in Enterprise IT/VC #206

Enterprise funding on 🔥 but pause to remember 3 Cs for what makes a truly supportive investor who knows when to cheer 👏🏼, challenge 🧑‍🏫, chill 😎

Where did the time go? I can’t believe that we are now in October and dialed in on Q4 already. In my 24 years of enterprise investing, I can say that I’ve never seen a 🔥 pace of company creation and fundings like now. While part of me ❤️ this, another part makes me worried. For example, with this speed of deal making, I want us all to take time to pause, at least briefly, to think about this 👇🏼, the 3 C’s for Founder/Investor relationships.

Given that preemptive rounds are the new normal, and we are investing over Zoom, the art and nature of relationship building has changed. So it’s imperative for founders to slow down to understand who they are partnering with and how they operate. These are decisions that last a lifetime. Always make time to do references on your investors or future partners. And investors, make sure you spend the time talking to existing board members and investors on the cap table.

This is often lost in the speed of capital deployment.

The M&A markets also are on 🔥 and the latest huge, potential acquisition comes from Twilio who is rumored to be buying Segment for $3.2 billion. When you’re worth $45 billion, it’s always a question of what’s next on the product side and great to see that Twilio continues to lean in on their API and developer first product North ⭐ (see last week’s newsletter for a breakdown of the Twilio model).

I don’t see any signs of this slowing down as cloud multiples are at all time highs and companies need to find more ways to grow their TAM.

As always, 🙏🏼 for reading, and have a wonderful weekend!

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Scaling Startups

  1. 👇🏼💯

  2. Index Ventures shares it’s playbook for European founders expanding to the US. FWIW, our last two investments were in open source related companies in Germany and Ireland so super excited about the developer talent coming out of Europe with an eye towards US expansion. That being said, IMO, the best dev first companies continue to focus on community and product and end up getting pulled into the US because of that and not the other way around. Forcing the US expansion with a “playbook” too early can be a recipe for disaster.

  3. Love Jim McKelvey’s (co-founder of Square) advice for entrepreneurs. Reminds me of the difference between “white-board” entrepreneurs who start with the market looking for white spaces vs. founders who start companies born out of a problem or pain that they’ve experienced, with a burning desire to solve it. (The Profile newsletter).

    The final thing is to understand why you're doing it. The motivation is really important. If you're doing it for money or notoriety or anything that's easily accessible, then you're probably going to burn out. It turns out that money, fame and the flashy stuff are really weak motivators because once you have a little bit of money, you'll quit. The best motivator, at least for me, is a problem you care deeply about solving.

    And Tobi from Shopify concurs

  4. First, a super cool article about sled dogs, but secondly, this is how I try to approach our current times - embrace each and every day and make the most of it - What my sled dogs taught me about planning for the unknown (h/t Farnam Street)

    Planning for forever is essentially impossible, which can actually be freeing: It brings you back into the present. How long will this pandemic last? Right now, that’s irrelevant; what matters is eating a nourishing meal, telling someone you love them, walking your dog, getting enough sleep. What matters is that, to the degree you can, you make your own life sustainable every day.


Enterprise Tech

  1. The Developer Experience Gap from Stephen O’Grady from analyst firm RedMonk. This is also what excites me about the opportunities that lie ahead to solve this.

    Fragmentation makes it impossible for vendors to natively supply the requisite components for a fully integrated toolchain. That does not change the reality, however, that developers are forced to borrow time from writing code and redirect it towards managing the issues associated with highly complex, multi-factor developer toolchains held together in places by duct tape and baling wire. This, then, is the developer experience gap. The same market that offers developers any infrastructure primitive they could possibly want is simultaneously telling them that piecing them together is a developer’s problem.

  2. Battery State of the Cloud is out and another must read 💎. Here’s a couple of nuggets on their best practices for building an OSS company. Key is point 1, need to think about the atomic user and build for them, not the CIO or CISO. Second, I would add is must have investment in the community.

    • Targeting “practitioner” buyers inside organizations, like data engineers and DevOps experts, rather than high-level buyers like CIOs and CISOs;

    • Building your product in the cloud initially, as opposed to on-premise, which can create a quicker path to $100 million in ARR;

    • Leveraging different paths to efficient customer growth, including the best features of open source and SaaS;

    • Spending time to understand and nurture your community of users, and also working with open-source foundations;

    Also ❤️ this slide

  3. 21 Dev and Infrastructure startups to watch from SD Times - includes companies from Netlify to Tidelift to Env0 (a portfolio co)

  4. 🤣 This is so good! What is Docker and Kubernetes. 🎩 Crissy Costa

  5. McKinsey debunks the 7 myths of the cloud - always interesting to hear how the F500 thinks about the cloud and why and where their real concerns are

  6. Can’t keep up with all of the latest CNCF projects? Marc Campbell’s podcast (co-founder Replicated, a portfolio co) will go deep with the maintainer to understand the who, what and why of each project and provide a window into how we will build, deliver and operate cloud-native systems in the near future.

    Episode #1 is with Uma Mukkara from Maya Data, creator of LitmusChaos, a k8s native chaos engineering platform. Besides discussing the idea of shifting chaos eng left to developers, I thought the benefits of participating in the CNCF were important to highlight for founders - stamp of approval for orgs and devs to use which also means more distribution!

    You own Sandbox, that means there is some degree of due diligence that is already put in, so I should go look at it."

    It's an enthusiasm for the maintainers as well, and it's easier to build an ecosystem around that.

    You get more ideas, more people are trying out Litmus for example.

    We were having 50,000 experiments in July, and now we're already 100,000 in just a few months.

    The rate at which Litmus is being used is much higher out of the Sandbox adoption.

  7. Speaking of the CNCF sandbox, Backstage from Spotify is one of the newest and more interesting projects to join. Backstage is an open platform for building developer portals with a vision to provide engineers with the best developer experience. Here’s more on the plugin marketplace which just went live this past week.

    Imagine a not-so-distant future where you walk up to Backstage, install it in your environment, and then choose from a gallery of existing, open source plugins that match whatever infrastructure you use inside your company. That is our vision for the Backstage plugin ecosystem.

    Running services on Kubernetes? There’s a plugin for that. Using Snyk for security scanning? There’s a plugin for that. Grafana, DataDog, or Rollbar for monitoring? There’s a plugin for that. Using Jenkins, CircleCI, GitHub Actions, or Travis CI? Pick the CI plugin of your choice. You get the picture. Regardless of your stack, there’s a plugin that you can use.

  8. Slack down this week, Microsoft down twice in last few weeks and Google down a few weeks ago - resilience matters - expect to see continued investment and innovation as we become more reliant on being online all the time. A great place to learn from some of the top SREs is the Learning From Incidents community.

  9. 🤣 Great marketing - Superhuman created their own day, the Inbox Zero Day with Mr. Russ Hanneman helping launch


Markets

  1. Go ☁️ or Go 🏠

    "IBM will focus on its open hybrid cloud platform and AI capabilities. NewCo will have greater agility to design, run and modernize the infrastructure of the world’s most important organizations."

  2. Reid Hoffman lays out the whys on his SPAC

  3. Bitcoin? Square invests $50 million

    Square believes that cryptocurrency is an instrument of economic empowerment and provides a way for the world to participate in a global monetary system, which aligns with the company’s purpose. The investment represents approximately one percent of Square’s total assets as of the end of the second quarter of 2020.

    “We believe that bitcoin has the potential to be a more ubiquitous currency in the future,” said Square’s Chief Financial Officer, Amrita Ahuja. “As it grows in adoption, we intend to learn and participate in a disciplined way. For a company that is building products based on a more inclusive future, this investment is a step on that journey.”

  4. Bubble talk building every week - this from Bloomberg - “Cloud Stock Mania Comes With Eerie Echoes of Dot-Com Boom and Bust

What's 🔥 in Enterprise IT/VC #205

☎️ 📱👩🏼‍💻 Anatomy of a developer first juggernaut, Twilio

Twilio held its annual developer and customer conference this past week highlighted by an investor day presentation you can find here. All I can say is 😯! If you’re looking for proof of the 👩🏼‍💻developer first and land and expand model, then Twilio is it. This is one of the best public investor presentations I have seen in awhile, and I’ll share a few slides showing why I’m so excited. Winning the ❤️ and 🧠 of developers truly does pay off in the long run.

But before I go there, let’s go to the Wayback Machine to Twilio’s founding in 2008 and one of its first websites. Twilio started with an API for voice communications so developers could build easily build telephony apps.

4 years later in 2012, Twilio refined its value proposition and expanded from just voice apps to text messaging as well. As you can see from both websites, it’s all about APIs and building.

In early 2016, the year Twilio filed to go public, the messaging is getting broader but still about building apps and developers. The latest product expansion from the core base of voice and messaging is now around video and authentication.

In the Twilio S-1 from 2016, I pulled a couple of 💎as it was one of the first developer led and API-first models to go public. It’s always interesting to see how the bankers positioned the company and sold the story to the public.

  1. The future is developers!

    Software developers are reinventing nearly every aspect of business today

  2. The dev first model requires patience and letting them “explore” on their own; so don’t sell to them.

    As of March 31, 2016, over 900,000 developer accounts had been registered on our platform. Because big ideas often start small, we encourage developers to experiment and iterate on our platform. We love when developers explore what they can do with Twilio, because one day they may have a business problem that they will use our products to solve.

  3. Twilio invested significant 💰into Signal, its developer conference to the point of including it in its S-1 several times and highlighting the $2.6 million cost to run it. I’m not advocating for startups to spend this much but the point is, events matter, one by one and eventually once you build your installed base, epic user conferences matter…which is why I’m so excited for the first ever SnykCon coming on October 21. Twilio continues to invest in Signal, despite what Wall Street may have thought in the early days!

    Our business model is primarily focused on reaching and serving the needs of developers. We established and maintain our leadership position by engaging directly with, and cultivating, our developer community, which has led to the rapid adoption of our platform. We reach developers through community events and conferences, including our SIGNAL developer conference, to demonstrate how every developer can create differentiated applications incorporating communications using our products.

  4. Product North ⭐ remains the same - developers, developers, developers - reduce the friction, focus on ease of use…

    Our platform was built by developers for developers, and our approach has the following strengths:

    Developer Mind Share.  We are recognized as the leading platform for cloud communications, and we believe we set the standard for developers to build, scale and operate real-time communications within software applications.

    Easy to Get Started.  Developers can begin building with a free trial, allowing them to experiment and iterate on our platform. This approach eliminates the upfront costs and complexity that typically hinder innovation.

    Easy to Build.  We designed our APIs so developers could quickly learn, access and build upon our Programmable Communications Cloud.

    Easy to Scale.  Our platform allows our customers to scale elastically without having to rearchitect their applications or manage communications infrastructure

And for the first couple years, Wall Street didn’t really understand the developer first model.

And now it does.

So let’s dive into the investor day deck. First, it’s a full blown platform now but as you can see from the earlier websites, for many many years, it only focused on doing one thing, being the best API for voice and text before carefully adding more products. 🔑 lesson for startups is to know you can’t sell a platform on day one, you need to solve a narrow pain and grow your way into it. In addition it takes time and patience to build the initial developer first engine.

12 years from its founding Twilio continues to focus on this developer first motion resulting in astonishing growth in the last 4 years going from 900k devs in 2016 to 2 million devs in 2017 to 10 million in 2020. The reward is significant customer growth along with world class dollar-based net expansion and revenue. Dollar based net expansion has grown over time due to more usage as well as new product upsell.

Here’s another great slide on Twilio’s developer first model showing the life of one customer journey with a small initial land and upward sloping curve and steep ramp 4 years later - it takes time and patience for this small land to fuel massive growth but when it does the economics are wonderful.

And here’s the result when it comes to Twilio’s cost of sales and marketing versus many leading SaaS companies.

And over time this expansion leads to much larger customers as usage and product upsells drive this.

Lastly, here’s another look at the developer first strategy in action as you can see the expanding growth in revenue by cohort.

Bottom line, Twilio has been one of the leaders along with Atlassian paving the way for product led growth and developer led motions, so it’s important for all of us to look at what true business success looks like as we think about our own companies or portfolio.

And going back to Twilio’s S-1 in 2016, the real question is shouldn’t every company have a developer first doppelganger ready to disrupt the old way of doing things? You know my answer!

As always thanks for reading and please share with your friends and colleagues.

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Scaling Startups

  1. 👇🏼💯 Shreyas Doshi, first lead product manager at Stripe, has another great breakdown of what a product-focused company is. I encourage you to click and dive deeper into the thread.


Enteprise Tech

  1. How Linkerd rebuilt it’s CI (continuous integration) and took it down from hours to under 10 minutes. Lots of great thoughts on requirements and what tools were evaluated, and why it chose kind, Packet, and Github Actions. 🎩 Gareth Rushgrove

    With the prioritized requirements in mind, we set about evaluating any tools we could find in this space:

    k8s Distributions: kindk3dk3sGKEAKSEKSDigitalOcean K8s

    Compute: Packet

    Build: skaffoldBazel

    Job Management: GitHub ActionsProwTravisCircleCIAzure PipelinesJenkins XGitlab CIgarden.io

    Release/CD: Kubernetes Releasewerf.io

  2. Cloudflare with new serverless product, Durable Objects for stateful serverless on edge - this is potentially huge, here’s an example for real-time editing

    Durable Objects make this easy. Not only do they make it easy to assign a coordination point, but Cloudflare will automatically create the coordinator close to the users using it and migrate it as needed, minimizing latency. The availability of local, durable storage means that changes to the document can be saved reliably in an instant, even if the eventual long-term storage is slower. Or, you can even store the entire document on the edge and abandon your database altogether.

  3. Matt Turck with another great update to his Data and AI Landscape.

    For what it’s worth, our strategy has been investing in the layer above the pure infra side to help end users unlock the value of all of their data - companies like Harbr and Cape Privacy.

  4. Datadog and Azure announce deal - seems like Azure finally allows customers to draw down from existing spend for marketplace - startups should take notice!

    In addition to the integration enhancements, the new channel through the Azure Marketplace allows customers to draw down on their committed Azure spend to purchase Datadog. This makes it significantly easier for customers to find budget, and also aligns incentives for Azure and Datadog sales teams for better collaboration and engagement in co-sell motions with enterprise clients. As a result, this partnership will enable more Azure customers to leverage Datadog's observability platform to drive successful cloud modernization and migration initiatives.

  5. Great explainer post on the Cloud Native Landscape, runtime layer including all things container runtime, storage and networking


Markets

  1. Palantir and Asana both directly listed on the NYSE this past week with both Palantir ($9,20 vs. $10 offer) and Asana ($25.70 vs. $27 offer) below their offering price at end of week.

What's 🔥 in Enterprise IT/VC #204

☁️ is the future of open source, lessons learned from Timescale

There are two important posts from the week that caused me to 🤔 and dive deeper. The first is Timescale’s (OSS time series database) post on how they are going all in on the ☁️. The second is from Kevin Kwok on Mike Speiser’s (Sutter Hill Ventures) incubation playbook (Snowflake), an unusual and highly effective model with compounding effects (more in the Scaling Startups section).

The Timescale post goes back 2 years when a number of open source companies updated their licenses to protect from cloud providers forking and modifying code to host and sell their own versions (AWS). It was certainly a scary time for many of these companies like Elastic who many thought would get crushed. More importantly this was a wake up call for the whole open source market to understand the true power of the ☁️ as a consumption model. 2 years later, these updated cloud licenses seem to be working as Elastic still has a market cap over $9 billion and companies like Timescale just announced it is going all in on the ☁️ and getting rid of their open core model. 😲No more open core and all in on SaaS! I know many founders have been thinking about doing this for a long time and Timescale, IMO, will help unleash a new era of cloud-only OSS.

By going “all-in” on cloud, our choice becomes simpler: make all features available for free, so that we can invest in our community. Users can then either self-manage for free (including use our open-source k8s helm charts), or use our managed cloud.

But this easy choice – and our ability to “support our community” while preserving Timescale’s long-term viability –  exists precisely because we have the Timescale License, which restricts cloud vendors’ ability to offer TSL software unless they first establish a business relationship with us.

While revenue is important, this message starts with supporting their community. Successful OSS companies cannot exist without a vibrant community, and no matter how big or successful one becomes, investing in and supporting the community must come first.

One other huge and important thought from this post is that their second core revenue model is selling software on-prem!

But this year, we have increasingly focused on our managed cloud service as our primary commercialization strategy, and selling an enterprise edition of TimescaleDB for on-premise deployments (either on customers' own physical hardware or on their own cloud VMs) as our secondary commercialization strategy.

Isn’t on-prem dead? Well if you go back to last week’s newsletter, you’ll see Grant Miller’s take on why kubernetes is enabling a whole new world of modern on-prem (cloud native) and how a number of the Cloud 100 have an on-prem offering.

As always, 🙏🏼 for reading and please share with your colleagues!

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Scaling Startups

  1. 👇🏼This is so good on so many levels; a deep dive into how Mike Speiser got Snowflake started and his model for incubating companies. Mike’s model is not for every founder but for those who may not want to be CEO, he is clearly a great choice.

    A key enabler of all of this is the nature of enterprise startups.

    Unlike consumer, traditional enterprise markets lend themselves more naturally to deterministic and repeatable success. There’s a small handful of VCs who have clearly shown they can succeed repeatedly and whose approaches and playbooks are legible enough to imply it’s not a fluke. Speiser is one of them.

    So what does this mean for venture in general? Kevin rightly points out that it’s all about the “value add above replacement to portfolio companies” and how can a “firm help increase the likelihood and magnitude of success.” Most importantly, Kevin recognizes that there are many ways to “incubate” and add value.

    Incubations have far more degrees of freedom than investing, since investors are more closely involved in many more aspects of the company—especially at the proto-formation stage before many core decisions have calcified. If you look across the current landscape, there are very different strategies across the taxonomy of firms that incubate. Some of the investors that incubate include Asheem Chandra (Greylock), Aneel Bhusri (Greylock), Jim Goetz (Sequoia), Kevin Ryan, SciFi VC (Max Levchin’s fund), Thrive Capital, BoldStart VC, 8VC, Unusual Ventures, and many others. Just looking at this list there are many axes they all differentiate on in approach, what they think should be centralized by the incubating firm, and where they think value is generated. And the types of companies they incubate and the dynamic range of their outcomes is equally wide.

    I’m grateful that Kevin included Boldstart in his list as we have our own unique way of “incubating” and partnering with founders at inception. By inception, this in many cases, means waiting for founders to get their company incorporated before we can even send a term sheet to avoid triggering issues with 83b elections. And it always starts with technical founders and helping accelerate their path to product market fit. As you can imagine, the last is a loaded word and so much goes into that from helping recruit key hires to making customer intros for product feedback and sales and working closely on gotomarket. If we can help a founder get their faster by 3 or 6 months, to avoid costly mistakes we’ve experienced with other founders, then that’s less cash burned and a faster time to an A round at a higher price which means less dilution in the long run.

    This model has allowed us to partner at company formation with startups like Snyk, BigID, Kustomer, Superhuman, Security Scorecard, and many new unannounced companies. And every once in awhile we’ll just partner with outstanding founders like Rob Bailey at Backbone.ai with more of a classic incubation approach. Irrespective of how we do it, the key is that this has to be embedded in a firm’s DNA.. And while Speiser has absolutely crushed it with his own unique style, it’s imperative for everyone to find their own path to success.

  2. While not enterprise, building the right culture and constantly being able to reinvent oneself transcends business models. One of the best at doing so is Reed Hastings from Netflix and with the release of his new book, No Rules Rules, Reed talks about what culture is and how he builds one that allows for constant reinvention. This a16z podcast is a great listen as Reed lays out his big ideas on culture.

    I think company culture is the behaviors that get you promoted or get you let go. So everyone, when they go into a company has to figure out what's the real culture? What are the values and behaviors that are rewarded and which ones are violations? And sometimes there's a written culture, and sometimes companies follow that written culture. Other times there's a written culture like Enron famously had, you know, respect, integrity, you know, as to four big words. But there was actually what got promoted, and what got them promoted was trading profits. And, you know, then people cut corners to do that, and eventually the company blew up. So, you know, in any company the real culture is again shown by who gets rewarded and who gets pushed out right?

  3. Must read from Shreyas at Stripe! (🎩 Shomik Ghosh) . And IMO, one of the missing links in many a customer interview is this nugget buried in this thread:

    After talking to each customer about the problem of support costs, he should have asked them to stack rank that problem vs. all the other problems they were trying to solve for their business & for their organization. THAT is where the real truth could have emerged.


Enterprise Tech

  1. Accel has launched their Open 100 celebrating the fastest growing OSS companies based on “community growth, commercial evolution, and innovative approaches to driving OSS adoption in new markets.” Great to see portfolio cos Snyk & Replicated here. We also have 3-4 more waiting to be added to this list 😃One important point is the balance between community and revenue which Guy from Snyk (a portfolio co) describes in further detail (more here)

    “The challenge we all face daily is, when developers are both the buyers and the users, you have this duality of looking at every user in your community and saying ‘on the one hand I want to make you successful, and on the other I want to make you buy.’ There is always some element of trade-off.”

  2. What are the biggest factors driving forward multiple for software companies? Tomasz Tunguz from Redpoint shares what the data from analyzing 60 publicly traded SaaS cos says:

    The answer: revenue growth and sales efficiency dominate the model. Cash flow margins, net income margins (profitability), gross margins, and many other metrics are largely irrelevant.

    So yes, folks pay for growth and more importantly efficient growth.

  3. The importance of online…

  1. Microsoft going after Twilio with Azure Communication Services

  2. Google Tables is out - like Monday.com, Asana, and Jira plus some AirTable in there - interesting timing considering Asana is listing this week


Markets

  1. 💪🏼

  2. Jamin Ball from Redpoint breaks down Q2 SaaS earnings in one post! And he nails the point on continued IT spend and move to the cloud citing this Credit Suisse report

  3. 👇🏼💯 Many post Series C companies still not doing audits which needs to change. Speaking of SPACs, there are about 140 of them around, all looking for acquisition targets and to also raise more capital to fund these acquisitions - will be an interesting next few months! To date, many companies sold have been more energy related like autonomous vehicles or batteries which require tons of capital, but we will see more enterprise software companies sold to SPACs in the future.

What's 🔥 in Enterprise IT/VC #203

☁️💯 + ❄️ + 🐸, breaking down the Top 20

What a huge week for enterprise software with Snowflake, JFrog and Sumo Logic going public 📈. In addition, Bessemer and Salesforce Ventures released the Cloud 100, the 5th annual list of the top 100 private cloud companies. This is an important list to follow as it’s a leading indicator for what the next great IPOs could be. Snowflake is #1 this year and now a graduate. As an aside, I’m pretty excited as 3 companies we backed in the very beginning with a first check debut on this list with Snyk at #86, BigID at #93, and Front at #94.

Rather than breakdown why some of these companies are Cloud 100 worthy which Bessemer does quite well here, I wanted to take a look with a different lens. I took the Top 20 and used my best guess to understand the primary business model and sales motion that they employed and as you can see below, dev first models (including OSS) account for 40% of the list! Winning the ❤️ and 🧠 of developers to win the enterprise, is certainly paying dividends for those who stick with it. While most investors are enamored by the bottoms up mode, top down enterprise is not dead. 2 of the top 3 are more traditional enterprise sales oriented in Snowflake and UIPath, although Snowflake increasingly has multiple paths to close new customers.

Grant Miller, cofounder and CEO of Replicated (a portfolio co) takes a different view of the Top 20.

There has been an ongoing philosophical debate whether all cloud or on-premise and it’s been a religious war in many executive meetings and boardrooms. With the cloud, companies maintain and build one version of their software and on-premise installations means one has to maintain hundreds of different installs at a customer’s data center which becomes a maintenance nightmare over time.

Even in Greylock’s founding story of Sumo Logic, one of the key points centered on the cloud:

Throughout our partnership with Sumo Logic, we have admired their steadfast commitment to delivering continuous intelligence at scale. In the early days, many large enterprises requested an on-premise version of Sumo’s platform, but the team stayed true to their vision and focused on where the puck was headed – cloud scale analytics. From those humble beginnings, it’s amazing to see the platform today which scans more than 870 petabytes of data per day. That’s what continuous intelligence at scale is all about.

My view is that this debate should not really be one as it’s all just cloud native which means it doesn’t matter whose cloud you deploy on as it’s still the same software, especially as kubernetes and container usage has proliferated. Grant calls this modern on-prem and of note is that UIPath and Hashicorp, 2 of the Top 5, both use Replicated for their “on-prem” versions. Digging deeper, Grant goes on to say:

“Interestingly, only 4 of the Top 20 from 2016 had an on-prem version available... now there are 8. It seems rumors of the death of on-prem software are greatly exaggerated.”

I wonder how many on next year’s list will be part of the Hybrid Cloud 100?

Finally, if you’re looking for more reasons to be excited about the future of enterprise, take a look at a presentation from Citi this past week at the Barclays Financial Services Conference. Notice the annual $9 billion in tech spend “to enhance client experience, productivity, and control environment!”

As you can see from above, key spending areas include the continued move to mobile and cloud, the elimination of legacy infrastructure, and a focus on improving the customer experience. Every Fortune 500 is a tech company and this shows why we still have much more room on enterprise spending growth.

As always, thank you for reading and please share with your friends and colleagues. I hope my readers on the west coast find some relief from the terrible fires, and that we all find time to reflect on the passing of RBG, a true pioneer and champion of justice.

Share What's Hot in Enterprise IT/VC


Scaling Startups

  1. Why is Frank Slootman, CEO of Snowflake, successful and how does he lead his team? Read Frank’s 2018 posting to understand his philosophies for management from Data Domain to ServiceNow to Snowflake. Short answer - he’s intense, and it works for him. So many 💎 in here, and not for everyone, but certainly a style that delivers results as evidenced by Snowflakes massive IPO this week. It also sounds like Frank subscribes to the Topgrading philopsophy - if interested, read this book, first published in 2005, on how to hire, coach and keep A Players. The wonderful thing about business is that there is never one right answer, and you need to figure out what works for you.

  2. 🎧 Had to slip this one in - interview I did with Jeff Meyerson from one of my fave podcasts, Software Engineering Daily - covers it all from starting in VC in the mid-90s and what it was like, parallels to today, how we got started at boldstart, what to think about when building a VC firm, how founders should choose partners, not investors, and day zero investing for developer first companies

  3. Gitlab has been default distributed/remote from day one - great read from Fast Company on how it continues to uplevel performance and you guessed it, writing and documenting everything is 🔑

    At GitLab, meetings, memos, notes, and more are available to everyone within the company—and, for the most part, to everyone outside of it, too. Part of this embrace of transparency comes from the open-source ethos upon which GitLab was founded. (GitLab offers a free "community" version of its product, as well as a proprietary enterprise one.) But it's also crucial to keeping employees in lockstep, in terms of product development and corporate culture.

  4. When do some of the top startups hire their first PM? This is always a huge question and inflection point as it shows the transition from founder led product to team led product.


Enterprise Tech

  1. McKinsey says large companies still only host 10 to 15 percent of their applications in the cloud - read on to understand why - and you know what I’m 🤔, challenges = huge opportunities. Also ❤️ this

    Focus on developer experience. CIOs must redesign the technology delivery processes end to end, using cloud-native practices to create a “delightful” developer experience. Applying developer journeys to workflows with modern tooling drives organic adoption and sustainable velocity.

    This is why companies like JFrog are doing so well (from Protocol).

    "Every company is now a software company," said Shlomi Ben Haim, co-founder and CEO of JFrog, in an interview with Protocol on Wednesday. However, "every company was not created as a software company," and those scrambling to modernize their approach to software development need help making that transition, he said.

    JFrog offers a series of software development tools that help companies manage the process of getting software from the idea stage to production. These tools allow companies to manage their code repositories, monitor the entire development pipeline for potential issues or problems, and deploy that code to self-managed servers or cloud services.

  2. Congrats to Chris Hecht and Atlassian on launching a $50mm venture fund to fuel its ecosystem

    “As more and more customers transition to our cloud products, we are committed to supporting their journey by fostering a robust ecosystem of cloud-based apps that enhance their experience and satisfy all use cases,” Chris Hecht, Atlassian’s head of Corporate Development, writes in today’s announcement. “We are incredibly proud of the 4,200+ apps already available in our Marketplace and the integrations we already offer with popular tools like Slack, Zendesk, and GitHub . But this is no time to rest on our laurels. Atlassian Ventures will facilitate our continued investment in the best-of-breed tools and integrations our customers need to fuel the next wave of innovation and manage their work, both now and into the future.”

  3. The note taking wars are in full swing…reminder, treat folks with respect as sometimes it may come back to bite you

  4. Where does Zoom go next? The Information says messaging which is not surprising…watch out Slack

  5. Questioning the value of why service meshes for microservices? Karl Stoney who runs the platform team at Auto Trader breaks it down nicely for us.

  6. Dependencies?

  7. 🤔


Markets

  1. And there it is, Bill Gurley weighing in on giving up billions of dollars of wealth resulting from the traditional IPO and Snowflake’s 112% run up on day 1 - more in the thread

  2. Headlines like this worry me though! “Opinion: IPO like it’s 1999: Snowflake and other software stocks pop as market nears dot-com-boom levels”

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