What's 🔥 in Enterprise IT/VC #264

The impact of lofty expectations for investors and founders

Nov 20, 2021

Aloha 🍹 from the Lobby: Enterprise conference where I had the chance to hang out with a great group of enterprise founders and investors and have some fascinating discussions on the state of investing, building and scaling, and what’s next in enterprise. While we dove deep into the state of dev tools, cybersecurity, and enterprise/web3, one of the huge topics that came up repeatedly was around valuations, size of funding rounds, and the impact it can have for both investors and founders.

A lot of this discussion reminded me of what Fred Wilson posted earlier this week on why entry price matters for seed funds.

So, in a world where we are seeing more and more $100mm valued seed rounds, one has to ask the question what are the investors expecting? A $100 billion outcome? Doubtful. Less dilution, maybe. A different power-law distribution? Don’t count on it.
I think they are being delusional, comforted by the likelihood that someone will come along and pay a higher price in the next round. But it seems that person may also be delusional. Because when you model things out, the numbers just don’t add up.

And here’s some historical context on that $100B outcome…

Flaherty.eth @josephflaherty

Some historical context on @fredwilson's latest. Between 1/1/2010 - 12/31/2019, 166 tech startups went public. Here's where their valuations sit now: 2 = $1T+ (TSLA/FB) 4 = $100B+ (SHOP/NOW/TEAM/SQ) 48 = $10B+ 35 = <$1B Median = $4.4B Deploy wisely!

Seed Rounds At $100mm Post Money - AVCWe have been seeing quite a few seed rounds getting done in and around $100mm post-money and that concerns me for a few reasons: Seed stage is when a company has a good team, a good idea, but has not yet proven product market fit and a go to market model, and has not yet […]avc.com

Unlikely - so this will be an interesting next year as more 💰 pours into every stage and VCs need to think through entry price and founders need to think through the impact of raising too quickly at too high a price.

What this comes down to is having shared expectations and alignment around the true state of the business and how long it may take to actually scale. Without that, bad things can happen…

Jenny Fielding @jefielding

All this VC money is great until... 1) Series A company doesn't hit their numbers 2) Board is pissed + even abusive (curses at the founder) 3) Pushes out the founder/CEO despite him controlling the equity 4) How? By sinking the bridge round This is just the beginning😵‍💫

And with deals closing so fast, founders and investors rarely have a chance to really get to know one another due to timing, and unless they’ve had a long standing relationship prior, both sides are taking a huge leap of faith on the personal dynamics and fit.

This post from Anu further highlights that:

Anu Hariharan @anuhariharan

The average length of a marriage in the US is 8 years The average tenure of a board member is 9 years Yet may founders decide on a board member after meeting them for 2 hours

Allison Braund-Harris @HardlyAllison

Choose your board wisely: “Board of Directors, on average, last longer than marriages in the US” - @anuhariharan at @ycombinator. https://t.co/FryWeFAUD1

While this is great for the companies crushing it, for those in the middle or who are taking a little longer to ripen, I do worry about the possibility of abandonment from their investor or other problems arising. It will surely be an interesting 2022 as I believe more 💰 will continue pouring into enterprise startups, and we may see some of the first signs of companies that raised at too high a price get stuck for their next round.

Ed Sim @edsim

@aweissman @albertwenger as investments become more "transactional" due to speed, it's even more important for founders to find the right partners - I fear that there will be a slew of these startups treated as such in the coming years...esp. because of super high expectations + entry prices

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

Share What's Hot in Enterprise IT/VC

Scaling Startups

Enterprise Tech

Keybank/Pacific Crest Annual SaaS survey is out…lots of performance benchmark for churn, retention, growth, spend…
💯 but the infra around it to make it easier and more scalable is what gets me excited
Aaron Levie @levie
A programmable internet that stores shared data and logic securely is honestly pretty exciting when you think about it. Could be a 10X unlock for innovation if played right.
November 20th 2021
33 Retweets430 Likes
To that end, it’s been all about tokens but Blockchain infrastructure is having its day - huge congrats to Blockdaemon (a portfolio co) - more here on Bloomberg
Ed Sim @edsim
💪🏼 Leading blockchain node management platform @BlockdaemonHQ getting stronger and expanding platform to cover NFTs as well Stake, scale and deploy nodes - powering the blockchain economy on over 40+ networks https://t.co/ZxZtHIsT9K
Blockdaemon @BlockdaemonHQ
📢Blockdaemon adds @jpmorgan and Tiger Global Management as strategic investors. ➕In addition, we have acquired blockchain analytics platform @AnyblockTools to extend @Blockdaemon's NFT offering. https://t.co/vomtIUh8ye
November 17th 2021
12 Likes
Lacework which provides data driven ☁️ security built on Snowflake, just raised a $1.3B round at an $8.3B valuation
“With this capital, which is the largest funding round in security industry history, Lacework will continue to invest in rapidly scaling its business globally, building on recent momentum of more than 3x year-over-year revenue growth, a 3.5x year-over-year increase in new customers, including LogicMonitor, Hypergiant, Sprinklr, and more than 3x year-over-year employee growth worldwide.”
What does a 2 year old dev first security company with 3,500 developers/users and a huge market for passwordless security equal? A huge preemptive round at a $1B valuation - it’s like a next-gen Auth0 which was bought for $6.5B (more from Stytch blog)
“Today, we have more than 3,500 developers building on the Stytch platform adding email magic links, SMS and WhatsApp passcodes, OAuth connections, one-click user invitations, and embeddable magic links into their user onboarding and login flows. In addition to these core passwordless features, we’ve seen companies of all sizes drawn to the simple developer experience and the flexibility offered by our API-first approach, including a few Fortune 500 companies that are using the product.
It’s still early days for Stytch and passwordless authentication”
In SaaS, it’s truly hard to scale a single player company without entering the wold of teams as the churn rates are usually off the charts in the 4-5% per month range and over time, it becomes difficult to keep acquiring customers at LTV/CAC ratio that makes sense. That being said, Grammarly is one of the few that has reached escape velocity and just raised another $200M at a $13B valuation! 😲 (TechCrunch)
“Grammarly operates on a freemium model, where paid tiers give users more tools beyond grammar and spelling checks to include things like word choice, sentence rewrites, tone adjustments, fluency, formality level and plagiarism detection. The paid tiers are priced at $12, $20 and $30 per month.”
Another 💎 from Ryan Petersen (Flexport) on supply chains and the opportunities ahead…
Ryan Petersen @typesfast
Global supply chains are a mess. The world's logistics infrastructure has proven incapable of scaling to the demands of a global economy going through more chaotic evolution than ever. 1/
November 18th 2021
172 Retweets1,028 Likes
Is Docker back? - Two years ago, in November 2019, we refocused our company on the needs of developers
The results? More development teams than ever are using Docker as the fastest, most secure way to build, share, and run modern applications. In fact, since our refocusing on developers two years ago our community has grown to 15.4 million monthly active developers sharing 13.7 million apps at a rate of 14.7 billion pulls per month. Moreover, for the second year in a row Stack Overflow’s Developer Survey ranked Docker as the #1 most wanted development tool, and JetBrains’ annual survey rated Docker Compose as the most popular container development tool, used by 58% of respondents.
Many of these tools start at these cos and get open sourced and many also do not…bringing this to the rest of the world is the bet many have made but for some of these more sophisticated companies NIH (not invented here) syndrome is real
Adam Laiacano @adamlaiacano
There's a huge ecosystem of Data, ML, MLOps tools out there. And then there's this. All of the big-ish tech companies are almost entirely using in-house (IH) tools. towardsdatascience.com/lessons-on-ml-…
November 9th 2021
142 Retweets774 Likes
If you’re interested in what’s next for tech, follow gamers - Discord started with gamers and now PLG cos also use to build community
Brian Cho @brianjcho
All gamers are used to web3 already — they just don’t know it yet. A 🧵 on why gamers are well-positioned to become the true fans of web3, and why that matters.
November 12th 2021
949 Retweets3,102 Likes
Old school McKinsey outlining the important priorities for CIOs the next 12 mos - includes “make developer experience the cornerstone of talent strategy” and “make security an enabler of speed and growth” - the Fortune 1000 still behind on much of this which I why continue to be bullish on dev tools and devsecops
“The second shift is to upgrade security operations to improve prevention and resilience. CIOs can best enable this shift by applying a developer mindset to security rather than a compliance one. A DevSecOps working model, where security is integrated into each stage of an agile product life cycle rather than being a check at the end, is one way to do that. CIOs can further harden security by committing to a “security as code” approach that defines cybersecurity policies and standards and then instantiates them as code through architecture and automation.”