What's 🔥 in Enterprise IT/VC #264

The impact of lofty expectations for investors and founders

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…

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…

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:

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.

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

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Scaling Startups

  1. 💯👇🏼

  2. Chipping away a little every single day

  3. Building culture around your customers and gratitude

  4. Great 🧵 on the power of experience


Enterprise Tech

  1. Keybank/Pacific Crest Annual SaaS survey is out…lots of performance benchmark for churn, retention, growth, spend…

  2. 💯 but the infra around it to make it easier and more scalable is what gets me excited

  3. 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

  4. 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.”

  5. 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”

  6. 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.”

  7. Another 💎 from Ryan Petersen (Flexport) on supply chains and the opportunities ahead…

  8. 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.

  9. 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

  10. 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

  11. 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.”


Markets

  1. Growth matters - look at the difference between the Top 10 Median and the Overall Median