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Beyond a black square and a hashtag

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We’re switching things up this week. Don’t worry—we still got your data and all the extras you need. 

But first—in light of the Black Lives Matter protests, a deep dive into how companies can go beyond social media statements and spark real change.

As Black Lives Matter protests continue across the country, we see more brands flood social media announcing their solidarity against racism. 

These efforts are a step in the right direction, but it makes me wonder what brands are doing beyond their social media statements. 

At ProfitWell, we don’t agree with virtue signaling. We believe in finding truth and taking action. 

“I want to use that effort not into crafting a message that may fall on deaf ears because everyone’s doing it, and not everyone’s doing it for the perfect reasons, but I don’t want to judge their intent. I want to do things that are actually going to help and are going to make a change either internally or externally,” Patrick Campbell, Co-Founder and CEO of ProfitWell, says. 

It brings up a question I’m sure is on the minds of many: What can we do to make change beyond our social media statements? 

To answer this question, I reached out to Kunle Campbell, ecommerce growth consultant and principal at 2xMedia

Kunle and I discussed current brand messaging on social media. Like Patrick, he says the action needs to go beyond posting a black square for #BlackoutTuesday.

“When I hire, I want to hire the best person for the job, so we do it as quickly as possible. What I’ve noticed a lot of the time is, there’s still a deficit, and that needs to be addressed. And again, that is a very systemic issue,” Kunle says.

Kunle encourages all business leaders to mentor and educate minority entrepreneurs who are just starting their businesses. 

Mentoring and working to be more inclusive as a company is one step. There are many. Remember—not every company has to or should do the same thing to make a change. 

For some companies, inclusivity means allowing employees to have open dialogue and discuss issues on their minds. 

ProfitWell has always fostered an environment that allows us to talk about issues with nuance. 

“I think the really important piece that a lot of people get wrong with this is that they don’t allow the conversations to happen and the disagreements to happen,” Patrick says. 

Patrick says encouraging employees to host book clubs or open forums to discuss issues they care about is crucial. With that, it’s on companies to create a zero-tolerance policy on things like racism, so overall it’s a safer space for those difficult, but important, conversations. 

Another thing to remember, as more companies and more people voice their thoughts, is that we are all learning. Patrick always encourages feedback. It’s non-negotiable at ProfitWell. If you make a statement, brace yourself for feedback. You may not agree with it, but you can learn from it. 

As we all work to navigate these difficult waters, together in our unique ways, it brings us back to an overarching point…

Truth. 

When you think about it, consider your own truth and your company’s truth. Are we inclusive? Does everyone understand that our company has a zero-tolerance policy on racism? Do people feel safe talking about important social issues? 

Recognize the power in educating not only others, but yourself. Discovering the truth may not always be pretty; however, it’s necessary if you truly want to make a change. 

“It’s kind of that search for truth that I think has to be the number one priority.” – Patrick Campbell.

 

 


DTC_Index_v5

How is DTC growth trending over time? 


📈7 day +1.08% |  📈30 day +5.52% |  📉90 day -1.37%

DTC Index 90 day 2 (0;00;04;05)

The latest numbers take us on a wild ride. You’ll see what I mean.

In terms of overall growth, this past week we’ve noticed the slightest decrease. At negative 1.37%, this week’s overall 90-day growth has decreased 0.16% from last week. Inflections this minor are natural and normal. 

In the past 30 days, growth has declined a bit to 5.52%, but it’s still trending positively. 

How are churn and new revenue trending over time?


MRR Gain +15.38%

DTC-MRR Gain (0-00-07-04)


MRR Loss -21.2%
DTC-MRR Loss (0-00-07-12)_1

*MRR gain is new revenue from either acquired customers or upgrades in a given month.

*MRR loss is churn, or lost revenue from cancellations or downgrades. 

MRR gain* seriously spiked. We’re seeing a positive 15.38% change over the last seven days. If you don’t recall—MRR gain last week was at -0.9%. So, we’re really cruising in this department. 

On the other hand, MRR loss* takes us on a serious drop at -21.2%. (The rollercoaster I was talking about.)

The reason MRR gain is dramatically higher this week and MRR loss is dramatically lower is because we started a new month (hello, June). Many subscriptions start at the beginning of the month, which could explain the uptick in revenue. On the other hand, subscriptions will also end at the beginning of the month for those customers who churn. 

Be sure to check your subscriber newsletter every Monday morning so that you can kickstart the week with some fresh data on DTC growth.

Know anyone who might also benefit from this data? Send me their email address to grace@profitwell.com and I’ll hook them up. Or, they can subscribe directly at index.profitwell.com.


The411_v6

RETAIL

Prepare to pivot [again] 

The coronavirus pandemic threw a wrench in travel plans. As summer approaches, people still want their planned vacations, even if they look a little different. 

What does this mean for online retail? 

The Future of Customer Engagement and Experience says, “summer retail trends for 2020 reflect the ongoing dramatic changes in consumer shopping behavior.” 

Prepare for another pivot. Consumers are looking to purchase items to make the most of a ‘staycation’ at home. 

Think with Google top trending categories this month are almost all related to outdoor activities. (Although, I am curious about the sudden need for leis…🌸🌼🌺)

Top trending categories

Source: Think with Google

Some additional trending consumer purchase items: 

⛺Camping and RV products 

👙Summer apparel 

🏋️Fitness equipment (bikes, boxing gloves, soccer balls, and weights)

🏠Home appliances 

The main takeaway from this consumer data is to always ask yourself these questions: What do my consumers need/want right now and how can my brand provide it?

When the pandemic first struck, we saw clothing companies sell masks (and in some cases, toilet paper) because they were in high demand. So, as new trends evolve into the summer, think of how you can expand your product offering to stay relevant. 


RESOURCE

Connect with the best and the brightest

Conferences, although we haven’t had any in a while (s/o COVID-19), are crucial for taking us outside of our intellectual comfort zones. With the DTC space rapidly growing, I’m eager to learn from the best and the brightest. 

I stumbled upon some information for a direct-to-consumer conference you might find worth attending. 

DTCday

Source: https://www.dtcday.com

DTC Day hosts the largest DTC conference in North America featuring talks from 50+ direct-to- consumer CEOs, breakout sessions, stands highlighting DTC brands that have successfully launched a retail channel, and more. 

Here are the details: 

When: October 14-16, 2020 

Where: Hudson Loft, 1200 S Hope St., Los Angeles, CA 

Who: 1,000+ attendees, but brands that attended previous events include Glossier, Quip, Disney, et al.

Connecting with founders and leaders who have already been through the trenches seems like a learning experience you wouldn’t want to pass on.

If you’re interested in attending, register here


BeforeYouGo_v6

PRODUCT

#TheFutureIsFemale

In the product spotlight this week: Tribe Beauty Box. 

I’ve always been a huge fan of subscription beauty boxes. They’re a fun way to try new products or to give as gifts. Even cooler than the products inside Tribe Beauty Box… the founder’s story. 

Bili Balogun started this company just six months after receiving her undergraduate degree in 2017. Bootstrapped with only $200, Bili grew the business to more than $360,000 in sales in 16 months. 

bilibalogun

In an interview with Shopify Masters, Bili talks about how being a woman of color, it’s hard to find makeup that matches her skin tone. With Tribe Beauty Box, she opened a beauty product space that’s inclusive to all colors.

You can learn more from Bili on how she grew her business through Facebook groups, supports other female founders, and creates an inclusive brand, here.


LEARN

Here’s what else I’m reading:

What keeps CEOs up at night

Being a leader during these transformative times is tough—it’s hard to know how to respond to hot-button issues. CEOs, I ask you not to lose sleep. Instead, read The issues haunting CEOs during the Trump era by Axios

Ads enter Snapchat

TechCrunch reports on the global expansion of SnapChat’s new advertising product “dynamic ads.” Read more about these mobile-ready ad templates and how they may help you step up your ad game, here

“Safe, yet delightful”

As some retailers reopen, they’ll need to rethink how they showcase their pieces in a way that’s safe for both customers and employees. This article by RetailDive illuminates questions all brick-and-mortar stores will soon face. 

The quickest recession

The Great Recession lasted 18 months while recovery took several years. But, experts say the coronavirus recession is different. Grow explains how


That’s all for this week’s edition of the DTC Download. For the weekly hook up, straight to your inbox, visit index.profitwell.com to sign up. And, of course, if you have news or ideas you’d like to share, send me a note at grace@profitwell.com

This has been a Recur Studios production—the fastest-growing subscription network out there. 

Source: https://www.profitwell.com/blog/dtc-download-inclusivity

SaaS

SaaStr Podcast #350 with Contentstack Founder & CEO Neha Sampat

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Ep. 350: Neha Sampat is the Founder and CEO @ Contentstack, a modern content management system bringing business and tech teams together to deliver personalised, omnichannel experiences. Atypical in our world, but Neha scaled the business to well over $1M in ARR before raising funding. Now Neha has raised over $31M from the likes of Insight Partners and Illuminate. Prior to Contentstack, Neha was the Founder and CEO @ Built.io and before that spent 10 years as the Founder and CEO @ Raw Engineering, building a leading digital transformation consultancy.

In Today’s Episode We Discuss:

* How did Neha make her way into the world of SaaS and content management systems having previously built a digital transformation agency?
* How the heck did Neha scale Contentstack to over $1M in ARR without raising capital, whilst being based in the Bay? What were the signals that made Neha realize she had a scalable software business? What did Neha look for in her first seed round investors? How did that profile change when she went out to raise the Series A?
* How has being a sommelier helped Neha break the glass ceiling of business? What are some lessons Neha has learned in terms of building true and genuine relationships with customers beyond the transaction? What are the counter-intuitive strategies Neha has found work when it comes to motivating remote teams?
* Why did Neha decide to build out so much of the tech team well outside of the Bay in a town outside of Mumbai? Does Neha believe the future of tech is in the valley or decentralized?

If you would like to find out more about the show and the guests presented, you can follow us on Twitter here:

Jason Lemkin
SaaStr
Harry Stebbings
Neha Sampat

Below, we’ve shared the transcript of Harry’s interview with Neha.

Harry Stebbings: Welcome back. You are listening to the official SaaStr Podcast with me, Harry Stebbings. And diving straight into our show today, I’m very excited to welcome an incredible founder who did something very atypical for our industry. She scaled her business to well over a million dollars in ARR before ever raising any funding. Intrigued? You should be. And so with that, I’m very excited to welcome Neha Sampat, founder and CEO at Contentstack, a modern content management system, bringing business and tech teams together to deliver personalized omni-channel experiences. As I said, atypical in our world, but Neha scaled the business to well over a million in ARR before raising any funding, and now Neha has raised over $31 million in funding from the likes of Insight Partners and Illuminate. And prior to Contentstack, Neha was the founder and CEO at Built.io. And before that, spent 10 years as the founder and CEO at Raw Engineering, building a leading digital transformation consultancy.

Harry Stebbings: I do also want to say a huge thank you to the wonderful Teddie Wardi at Insight and Cindy Padnos at Illuminate for some fantastic question suggestions today. I really did so appreciate that. 

Harry Stebbings: But that’s enough from me. So now I’m very excited to welcome Neha Sampat, founder and CEO at Contentstack.

Harry Stebbings: Neha, it is such a joy to have you on the show today, I’ve heard so many great things, both from Cindy at Illuminate and Teddie at Insight. So thank you so much for joining me today.

Neha Sampat: Thank you. And thanks for having me on. I’m very excited to be here.

Harry Stebbings: Not at all. When Cindy says the incredible things she does, it’s an episode that I’ve been looking forward to. So I would love to kick off, though, with a little on you. So tell me, how did you make your way into the wonderful world of startups, but really come to found Contentstack?

Neha Sampat: So I’ve been an entrepreneur for as long as I can remember. When most kids played house, I always pretended I was running my own fashion firm or my own factory. I was always up to something. So when I was 12 years old, my best friend and I started a fan club for our favorite band, who I’m not going to name right now, and I charged teenagers all over the world $18 for a homemade fan club folder that we made ourselves. And we made over a thousand dollars in profit one summer and then reinvested that into creating a competitive Olympics event for our neighborhood.

Neha Sampat: And then that in turn funded our next young venture. And we essentially took bootstrapping to the next level when we were just kids. So it’s kind of in my blood. And from that point forward, went to high school and college like normal kids do. And I graduated and moved to Silicon Valley, not really knowing what I was getting into, but knowing that I wanted to be in something that was fast paced and exciting. And my brother actually pointed me to tech and to Silicon Valley. And so I moved and within a year of being in Silicon Valley, the entrepreneurial itch kicked back in and I ended up leaving the job I was in.

Neha Sampat: And I started a PR firm with my closest new friends from Silicon Valley. And we started to represent major consumer technology brands and then software brands. I essentially started off doing services in tech as a marketing person, and eventually went into product marketing and product management and realized that I have an incredible passion for products, and products that change the way that we work and the way that we do things. That eventually led me to building products. I built a parking app, Curb Karma, which we launched at TechCrunch Disrupt back in 2012.

Neha Sampat: I learned a lot about wine, so I launched some products around wine education, and that series of ventures eventually led me to where I am today, running a world class software company for enterprise companies.

Harry Stebbings: Can I ask you a question? A lot of people are coming out of college today, and they’re questioning what to do with their careers in terms of direction. And they always ask me three options. They say, “Hey, I could join a startup. I can start a start up or I could join an incumbent.” I’m really intrigued, given your kind of ingrained entrepreneurship from birth, what do you advise those graduates and how do you think about the advice you give them?

Neha Sampat: It’s really funny, cause I think back to that time and how confident I was and how I thought I knew everything, and I really didn’t know that much. I just had the confidence, right? And so I go into this job thinking if I work for a PR firm, I can learn everything I need to learn and then eventually I’ll start my own. So I kind of had that intention, but a few weeks into it, I kind of already felt like I could do a better job on my own. I started thinking about spinning off to do my own thing right away. I feel like it depends on where you are in your kind of journey and your confidence.

Neha Sampat: If you feel like you’ve got it, if you’ve got the itch, I would say, just go for it because you learn so much in that journey that you can constantly pivot and change and continue to learn more. If you feel like you need to gain more experience, do that first, but just kind of have an eye on, what would you do differently? What would you take away from the experience and how would you put that to work?

Harry Stebbings: Yeah, no, I agree. I think the confidence is key, but I do want to move to Contentstack. As I said, I think one of the most fascinating things with Contentstack is the many narrative violations that worked out so well and gone against the grain of startup mythology. And one that I spoke to Cindy about before is, your scaling from nought to a million in ARR. And you scale to a million in ARR, based in SF without any outside funding, which seems pretty impossible and unheard of in today’s world. Bluntly, and thanks to Cindy at Illuminate, how the heck did you do that without taking any outside capital?

Neha Sampat: So it’s funny. We actually scaled pretty far beyond that before we raised funds, but essentially, for a Silicon Valley based startup, our playbook did not look like the companies around us. We were doing everything very different. For starters, I’m not an engineer and I’m a female. So running a tech company with a lot of engineers, as a CEO from my background, was already kind of against the odds. We built our engineering team in an unproven location in the outskirts of a city in Mumbai, in a city called [inaudible 00:07:55] which is not known for tech. There’s no tech schools there, but we were able to find undiscovered talent in a place that you wouldn’t necessarily expect it, which helped us to grow a team that was super talented.

Neha Sampat: We started off by building a profitable services business, and that services business helped us to uncover real use cases for the products that we wanted to build. As we started to build those products, we were doing that with the profits from the services business. So that allowed us to extend our time without needing any outside capital, and building really cool products that we were able to test in our customer base before we really essentially went to market. So we had almost like an incubation company within our own company, building incredible products that were super competitive. And when we were ready to take those to market and to actually put the fire behind them for go-to-market marketing, sales, all of that good stuff, that’s when we spun them out and started to look at raising funds.

Harry Stebbings: Can I ask what were the signals to you, when you look at those kind of incubated products? What were the signals that made you go, “Absolutely. We’ve got a sustainable, scalable business here with these products, versus let’s keep incubating and keep doing more services.” What signals drove you to feel confident that you had the business?

Neha Sampat: The obvious thing is demand, right? We were not spending a ton of money on marketing. I would say we were very scrappy with what we were doing from a marketing perspective, but we were selling products and we were hearing from the market that they wanted more and that they wanted to talk to us and we couldn’t keep up with that demand. That sort of product market fit being in your face was probably the biggest thing. And then we were in two very distinct spaces that were really hot. One was an integration platform, as a [inaudible 00:09:40] space with a company called Built.io, and then content management, which was modernizing with Contentstack. And so we had both of these products under our services business, and they’re both really incredibly hot areas to grow. We realized if we don’t spin these out and give them what they need, we won’t be able to capitalize on either of them to their full extent. And so that was kind of the obvious moment for us to make that change.

Harry Stebbings: Speaking of capitalizing on that opportunity, then you decide to go out to raise the seed round. And that’s where Cindy comes in. But I guess my question is, and this was asked for by Cindy, so I guess there might be a little bit of bias, but what did you want in that seed investor, first off?

Neha Sampat: It really came down to sharing the excitement about our space and with Contentstack in particular, this is the product that I have had the most passion about from when I started doing entrepreneurial things many years ago. And the reason is, it actually is we’re in this world that’s changing and modernizing. There are people on the business side and people on the technical side that want different things. And we built a product that addresses both sides and addresses large organizations and enterprises, and it’s really hard to do that. Cindy got it right away, as did our other seed investor, Linnea from Gingerbread Capital. Both of them not only shared the passion for the product and what we were doing, and they believed in the opportunity, but they also shared a passion for our team and the rest of the founders. And we just felt that connection. So from a seed perspective, we were looking for that.

Harry Stebbings: Okay. So you’re looking for that shared excitement, the shared passion, the enthusiasm of the seed investor. When you think about the translation to the series A, obviously you got my former colleague and the wonderful Teddie from Insight onboard, but what did you want from the series A, and how was that different from that?

Neha Sampat: Yeah, so the series A, we actually raised a pretty sizable round. We did a 31 and a half million dollar series A, which is usually a B or further down. And so it was really about the scale. The reason that we raised such a large round was so that we could triple our sales teams, so we could get the go to market underway, so we could address all the demand that we were seeing. So what we were looking for there is a longer term partner, someone that potentially would have that multi-stage experience, that not only shared the excitement that we got at the earlier stage, but also understood our longterm vision and brought operational expertise to help us meet that scale and demand. So that’s where insight was an incredible fit for what we were trying to do.

Harry Stebbings: Yeah, no, absolutely. And I think they have the funds to scale rounds as well. I do have to ask, though, because it’s a unique experience, bootstrapping then raising from more boutique seed firms, like as we said, Gingerbread and Illuminate, but then also adding Insights to the cap table. When you advise entrepreneurs today, what advice do you often find yourself giving them when it comes to fundraising?

Neha Sampat: I think the biggest thing that stood out to me is that you shouldn’t be married to your plan. You can learn as you go, you can pivot quickly. We essentially thought that we were going to do a series A a bit earlier, and we decided that the seed was enough to get us to the next inflection point. But that was sort of an argument we had to have in our heads. And if anything, I would go back to myself and say, you know what, that’s actually okay. And it’s going to turn out better as a result.

Neha Sampat: And so I think that’s the big thing. And then a couple of tactical things, we learned that all investors, whether they’re going to move forward or not, will want to have conversations with your customers, and customers are your lifeblood. They’re sort of the most precious currency you can give to an investor in the process. So I would just caution other founders that yes, you should ask your customers to support you, but do it in a way that’s a little bit more limited to getting further along in conversations with investors. And when you know that you’re likely to move forward, that’s when you bring your customers into the mix.

Harry Stebbings: I’m so with you on preserving the customers and you really don’t want to overload them. As you said, customers are King. But how do you think about diligencing, how far along the investor is, and is it right to put an FAQ pack together from your customers? How can you actually ensure that the lead is as warm as you think it is before you introduce them?

Neha Sampat: Yeah, that’s a really good question. I mean, I think what I learned is the ones that were very serious about us and not just trying to learn about the space, were doing a lot of their own diligence. And it came back to me. I was getting text messages from either customers or other strategic partners in the industry that were saying, “Hey, I just heard from this investor, are you guys looking to raise?” You would know. If there’s a pulse on what you’re trying to do, you’ll find out about it and the better investors are doing their own homework before they’re really coming to you for that information.

Harry Stebbings: Yeah, no, absolutely. I do have one more question on the investor to founder relationship [inaudible 00:14:14] in the last 18 months, I’ve joined my first boards, and I constantly think about what I can do to be the best board member that I can be. In your mind, what would you advise me, a freshly minted board member, on how I can be the best partner to you, the founder, and how I can build that relationship?

Neha Sampat: You know, I’m actually new to having investors on my board too, cause this has all happened in the last year, but what I get the most value from, and Teddie’s an incredible partner on my board, is that he listens and he provides insights, no pun intended, from the rest of the portfolio and from his own experience. And that’s, I think, the best thing that you can bring to the table and you’ve had some 2,500 conversations with either investors or entrepreneurs. So you’ve been exposed to so much information that just making things relatable, helping people to solve problems, that’s really what it comes down to and being supportive. It’s been a really weird year, and being an entrepreneur in general, there’s lots of ups and downs and smiles and frowns as Snoop Dogg would say, but it’s kind of rolling with that and being supportive and being able to kind of help point your entrepreneurs in the direction of something positive and progressive, to move the ball forward.

Harry Stebbings: You mentioned your relationship with Teddie there, and I obviously spoke to Teddie before the show and he mentioned the incredible relationship you have also, but he mentioned kind of the conviction building that was driven with the investment, largely being with you and just the faith that he had in you. I’d love to start on you as a leader. And when we look at your background, it’s also a fascinating background, because I think you’re the first guest I’ve ever had on the show, who’s a sommelier. I mean, first, congratulations on that. But I mean, second is also, and this one is from Teddie, how have you used that background as a sommelier to break the glass ceiling in business?

Neha Sampat: I love that question. It’s so incredible because when I became a certified sommelier, it was actually about 10 years ago. I did it as a hobby. It was something that I was passionate about. I love wine. I love the taste of it. I love what I’ve learned about the world and geography and history as a result of my studies of wine. I did not know that it was going to become such an incredible business tool, but it has. I’ll give you a few examples that stand out. I remember when I was first studying, before I even passed, I was so involved in it that people knew, and I was working at a wine bar and moonlighting and my whole company knew, and I got invited to so many executive events that I would not have otherwise qualified for, or so many conversations that I would most likely have been left out of, because of my wine experience.

Neha Sampat: You know, and it’s interesting how that has then led to events that we’ve been able to pull off within our customer base, with partners, with analysts, with press, just because they’re interested in the knowledge that we bring to the table from a wine perspective. Cause it’s just so different than sitting around and talking about tech and APIs and things like that. So it’s been an incredible tool to open doors and I didn’t know that’s what I was getting into, and we’ve actually been able to turn it into something that has been a business development tool and a customer relationship management tool and a lot of fun for the internal team employees, the brand, all that good stuff.

Harry Stebbings: I absolutely love it. Tell me, what’s your favorite wine?

Neha Sampat: I go through phases. So I’m currently really stuck on Italy and specifically the Piemonte region. I’m trying a lot of different Barolos.

Harry Stebbings: I am writing down, and I look forward to trying on your recommendation. In terms of counter intuition though, you said there about using wine is a customer relationship tactic, in terms of other counterintuitive elements, I spoke to your team and they spoke about what an incredible motivator you are of the team more broadly today. I guess the question for me was, what are some really counterintuitive lessons you’ve learned along the way, on what it takes to really motivate, especially remote teams? You mentioned the team in India earlier, how do you motivate them?

Neha Sampat: It’s interesting. This year has just been weird for everybody. We’ve gone through a lot of turbulence. More specifically, the pandemic has changed all of our lives in ways that we have yet to see the longer term impact. I think the big thing is, and I don’t know if this is necessarily counter-intuitive, but it’s really about the importance of motivation in turbulent times. That’s been a big focus area for the last quarter for me. And as a growing, scaling company, we had a lot of people that were new to Contentstack that joined early this year, and they didn’t necessarily know what they were getting into when all of a sudden we shut down all of our offices, everyone’s working from home. Luckily we did that early and we did it in a way that was pretty non-disruptive to not just employees, but our entire customer base.

Neha Sampat: That whole business continuity went flawlessly and people appreciated that. But at the same time, you have to think about the wellness of employees and they’re sitting at home and they’re dealing with all these new nuances and all of these different challenges of either being at home with kids or feeling lonely or trying to get medical attention when they need it, there’s just so much going on. A focus on people and wellness and just kind of checking in became a really important part of my daily process as a leader.

Neha Sampat: We did a lot and we’re still doing a lot to try to just keep everyone connected. In terms of our core values as a company, we’re pretty distributed. We’ve been distributed for a long time, but connection’s been super important and not being able to get together in person makes it harder to connect, but doing things like cooking classes online or working out together or offering people summer Fridays, things like that have helped us to continue to uphold our values, feel connected, feel like we’re not just colleagues, but a tribe.

Harry Stebbings: I have to ask one thing that I’m experiencing now in many different ways is all hands. And I didn’t necessarily have a love for all hands. I find the daily all hands for half an hour, it’s kind of a waste of time and not everyone gets to share a voice. I’m just not a fan. How do you approach all hands? I’m really intrigued. And how does that scale with the scaling of the team?

Neha Sampat: Yeah. So all hands meetings are, typically, they used to be more about reporting out business metrics and big things that were happening. What I find has happened in the last few months is they’ve become a little bit more about specific topics. We recently held an all hands called “Upholding Our Values,” specifically to talk about what’s happening with the Black Lives Matter movement and how that’s impacting people in the company, and what we’re doing about it as an organization and just giving people the platform to share and to be open and to talk about it.

Neha Sampat: I think that it’s crazy how that openness helps bring people together, that vulnerability and that emotional discussion. It’s usually not everybody who speaks up, but the people that are participating feel that connection as well. That’s the feedback I got from the team. So I think choosing ways to connect, that maybe is a little bit more emotional and not just tied to business and metrics and reporting is important. I think the other thing that’s worked well is having guests that people can connect with, having a customer come and speak about what all the hard work that people are doing is doing for them, and being able to feel that sense of significance as a result of all the hard work really connects people together. So those are the types of things we’ve been doing that I think are a little bit different.

Harry Stebbings: I love that, in terms of having a guest speaker. And it’s a really nice idea. In terms of the team itself ,though, I know that obviously you’re also a big proponent in terms of really building diversity throughout the organization. When building out the Contentstack team, I’m interested, did you consciously build diversity into the team? And if so, how so?

Neha Sampat: Yeah. I mean, diversity is a part of our core values. We actually talk about equity, diversity, inclusion a lot, probably before it became a very hot topic. I think part of that, if you think about just our leadership team, I mentioned this earlier, but as a non-engineer running a big engineering company, I’ve been able to bring value to the organization by understanding what the business is looking for, what our business and enterprise customers need, while my counterparts are bringing value from understanding the modern technology aspects of things.

Neha Sampat: We’ve always kind of had that mindset, that coming from different backgrounds and having different experiences, helps you to make better decisions. That sort of undeniable curiosity is what we look for when we build a team. So when I’m looking for candidates, not just for the leadership team, but across the board, we’re looking for people that have that curiosity, that like to learn with their colleagues, that are comfortable being challenged and that have this commitment to teamwork.

Neha Sampat: The idea of teamwork is that you can get aligned around an idea, even if you don’t agree with it, but then you can commit to moving forward. So this whole disagree and commit mentality is based on having a diverse mindset, having diverse experiences that help you to make more cohesive decisions in the long run. Diversity is a big part of how we think about hiring and building. It’s just a part of how we’ve adopted our culture. It’s just inherent in who we are.

Harry Stebbings: How do you respond to… I speak to many enterprise and SaaS founders and they say, “Harry, I know you think that we should do better, but it’s a pipeline problem, okay? It’s not our fault. It’s a pipeline problem.” How do you respond to that? I guess, is there anything that you do kind of deliberately, to ensure the top of the funnel is full of diverse candidates, not just being a pipeline problem?

Neha Sampat: There’s a few things. One thing that stood out to me and I stole this idea from one of the big firms, maybe three or four years ago, was in our CVs that we receive in India, we started to cross out the names of people, so people would not know the gender of the candidate. That actually helped us to just focus on the skillset and not have that subconscious bias that could exist in an organization, and little tricks and tools like that help you to eliminate what could be subconscious bias.

Neha Sampat: Beyond that, we actually have been talking about this a lot this year. How do you attract candidates that maybe don’t look like you? Right? How do you get them into the organization? Our talent acquisition team is specifically looking at going into areas that are underrepresented in the tech community, looking at minorities, working with organizations like Black Girls Code, to attract talent that might be different, or that might look different than the rest of the pool that we have. So it’s really about being proactive and looking for that talent. It’s not necessarily that the pipeline doesn’t exist, it’s just that the pipeline might not be looking at you. Some of that burden has to be on the organization and the talent acquisition team to go and find the talent to help make your organization more whole.

Harry Stebbings: Yeah, no, I totally agree in terms of being much more deliberate about kind of finding them and filling the top of the funnel with diverse candidates. I do want to ask, in terms of the team’s location, because the majority of enterprise companies, as we know, are kind of Bay based, and you took the decision to move a large amount of the team from the Bay to Austin, Cindy told me. Why did you decide to do this? And what’s been the learnings in terms of what it takes to make that transition successful?

Neha Sampat: Yeah, it’s been an interesting transition to even accept that geographical distribution is a good thing. I went through that transition in my own head. I’ve seen a lot of companies starting to accept that now. Especially with this year, we’ll see a lot of that transition happening for many brands, but essentially, for us, we started off in San Francisco and Mumbai. Those were sort of our two locations and we grew the teams there. We had critical mass, we continued to just look locally, and eventually we found that we were finding talent in places outside of the Bay Area. A lot of that came from our own network. When you work with somebody that you really like, and they live somewhere else, you’re kind of open to giving them an opportunity. That started to happen more and more. And as we grew, we understood and realized that there’s talent everywhere.

Neha Sampat: By only looking in the Bay Area, we’re only limiting ourselves. And so we started to deliberately find a few new hotspots. So we’ve got a team in San Diego, a team in Austin, a team in San Francisco, and then Amsterdam, and a couple of places in India. We started to grow small bits of critical mass in each of those locations. I decided to move to Austin after we had already started that effort. I believe that there’s an incredible talent pool here in Austin. Part of my move was also based on wanting to grow the team here, as we continue to scale the company.

Harry Stebbings: Can I ask, how have you found the move, personally? The Bay is such a magnet town and the Bay does have such electricity around tech. How have you found it personally? I’m interested.

Neha Sampat: I lived in San Francisco for 20 years before moving here. So it was a big move and a big change for me. Honestly, I was really excited about being exposed to conversations that were not just about tech and going back to the diversity thing, right? You meet people that have so much talent, but it could be talking about music or playing instruments or screenwriters or people that are just really incredible at coding. There’s just so many different people here. After 20 years of having conversations about software and APIs and dot coms and all of those different buzzwords that built up over the years, it’s been really refreshing, actually, to be in a place where there’s other ideas and thoughts that essentially pique curiosity for the people around you.

Harry Stebbings: Yeah, no, I’m totally with you, or it’s kind of that standing in the San Franciscan living room going, do you like to hike? Oh, me too. Me too. I love to hike. My favorite conversation that happens, I want to move into the quickfire, which is my favorite. Essentially, I’m going to say a short statement and then you give me your immediate thoughts. Does that sound okay?

Neha Sampat: Sure.

Harry Stebbings: Okay. So 60 seconds per one. Favorite book and why?

Neha Sampat: So I think my favorite book is probably The Hard Thing About Hard Things, and I have a lot of other favorites, but that one comes to mind just based on the conversation we’re having today. Really, the reason is it highlights the resilience and adaptability of entrepreneurs. And the fact that Ben Horowitz actually focuses in on some of the things that people don’t talk about in the MBA schools of the world, where you really learn through experience and going through some of the rough times and being an entrepreneur, like I said earlier, there’s just lots of ups and downs. And I think he does a really good job of capturing some of those.

Harry Stebbings: 30 seconds on each here, and this is a tough one, but biggest strength and biggest weakness as a leader.

Neha Sampat: I think my biggest strength is just my ability to be resilient and persevere and essentially reset. I have this concept that I call Tuesdays at noon, and this is based on the foghorn in San Francisco, which goes off every Tuesday at noon as a test. Every Tuesday at noon, I have an alarm set on my phone since I can no longer hear that fog horn, in which I reset, I let go of all the negativity, all the bad stuff, and then everything that I’ve learned, all the positive things, all the goodness, I take forward. And that’s just sort of helped me to kind of take a breath, realize that some things don’t go the way you want. Other things are great. And just focus on progress.

Harry Stebbings: I love that in terms of setting that foghorn on your phone. Tell me, biggest obstacle to success that you face and how did you overcome it?

Neha Sampat: I think the biggest obstacle is really just my background being a female and non-engineer, trying to prove myself in a tech bro world. I have to say, overcoming it is just continuing to persevere. I like to think about Nemo in Finding Nemo. Just keep swimming and just keep going. It’s like just keep swimming, just keep winning, keep proving yourself. And now I’ve established myself to a point where I can walk in with the credibility, but it took some time. I think I had to work harder than probably a lot of my peers.

Harry Stebbings: Can I ask? And this is off schedule. Do you feel it’s getting better?

Neha Sampat: Yes and no. There’s definitely more awareness. And I think that’s been super important and I feel like allyship has been a big word this year. I feel like allyship for females in technology has also grown and that’s been good to see. There’s been more focus from investors on finding female founders and finding females on boards. So I think that there’s a step in the right direction, but we still have to move the needle quite a bit.

Harry Stebbings: Yeah. There’s still a lot to do. Tell me the biggest thing that you believe that most around you disbelieve.

Neha Sampat: This is a little bit of a tricky question because most around me are the people that I work with and spend a lot of time with, and they probably do agree with this and believe in this. But if you think about most of the world in my field, there’s this concept of all in one enterprise software. This is really hot because we just launched an alliance to combat that yesterday. So it’s top of mind, but there’s this concept of mach, which stands for a modern way of doing technology. And mach is essentially microservices, APIs, cloud native, headless, which is where Contentstack kind of fits in. For me, that is the better way. That’s the modern way. That’s why I built this business. There are still a lot of people that could be our buyers and prospects and potential partners that believe that an all in one enterprise suite is easier or better. Part of my vision and part of my goal is to combat that. That’s where I’ll go with that.

Harry Stebbings: Tell me, penultimate one here, what moment in your life served as an inflection point and maybe changed the way you think?

Neha Sampat: I think this goes back to where you discover talent and we kind of touched on it a couple of times, but I think my light bulb almost 10 years ago was when we started to hire people in this small part of Mumbai that nobody had thought of and nobody had heard of. It was like a place where factories existed and somewhat residential, and the people are so talented. They just did not have the opportunity to put that talent to work. So for me, I think that was a big light bulb, knowing that talent exists everywhere. If you can provide the opportunity for that talent to lighten up, it’s like magic.

Harry Stebbings: Final one, and probably the most important one. What do the next five years hold for you and for Contentstack? Can you paint that vision for me?

Neha Sampat: Yes, absolutely. So I talked a little bit about mach, and that really means taking over the old legacy way of doing things and doing things now in a modern way. What that really means is for brands to be able to bring their ideas for digital experiences to life. Imagine if you are out and about, living your life, and you’re able to consume the content that you care about at the right time, at the right place, on whatever device you want to see, or whether you’re carrying the device, or you’re looking at it in the sky, or it’s an AR experience.

Neha Sampat: All of that can be delivered in a way that’s cohesive and personalized and not intrusive and scary and very relevant. That’s sort of the vision for where we’re going with Contentstack as a product. In terms of the team and the company, we essentially will continue to scale and grow and make others believe in what I believe, which is that mach vision.

Harry Stebbings: I absolutely love that. It is such exciting times ahead, as I said, I spoke to Teddie and Cindy before, and they both echoed that. I just really appreciate you joining me today, so thank you so much for coming on the show.

Neha Sampat: Thank you, Harry. That was a lot of fun.

Harry Stebbings: So great to have Neha on the show there. If you’d like to see more from her, you can find her on Twitter @nehasf. Likewise, it’d be great to welcome you behind the scenes here. You can do so on Instagram @hstebbings1996. I always love to see you there. 

Harry Stebbings: As always, I so appreciate all of your support, and I can’t wait to bring you another phenomenal episode next week.

Published on July 8, 2020

Source: https://www.saastr.com/saastr-podcast-350-with-contentstack-founder-ceo-neha-sampat/

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5 Ways to Prevent Involuntary Churn in SaaS

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Customers churn because they don’t want to use your product anymore, right?

Well, not necessarily.

There’s this “little” thing called involuntary churn that’ll slowly eat away at your business if you let it go unchecked. And unfortunately, a lot of SaaS and subscription-based companies don’t take any action to stop it from happening.

The end result is unnecessary cancellations, lost revenue, sadness, despair, misery, nightmares… Ok, maybe that’s a little extreme. But ignoring involuntary churn will cost you money.

Whether you’ve never heard of this type of churn before, or you know what it is but just aren’t sure what to do about it, we got you covered.

In this guide, we’re going to explain what involuntary churn is, why you can’t afford to ignore it and how to prevent it.

What is involuntary churn? (AKA passive churn)

Involuntary churn, also known as passive churn, is when a customer’s account ends unintentionally.

It generally happens as a result of the customer’s payment failing and never resolving the issue. After a certain amount of time goes by without payment, their subscription doesn’t renew, which results in churn.

how involuntary churn works

Since involuntary churn isn’t done on purpose, some SaaS and subscription companies don’t put too much effort into stopping it. Most just assume the customer will notice their payment didn’t go through and fix it.

But that doesn’t always happen. And that’s when churn happens.

As you can probably imagine, this is a huge missed opportunity.

Unlike voluntary churn (i.e. when customers cancel their account), customers who churned involuntarily aren’t necessarily disappointed with your product. They usually just had a billing error that needs to be fixed and they’ll continue to pay you.

And according to our data, SaaS and subscription companies lose around 9% of their MRR on average, due to involuntary churn. Unless you’re acquiring an insane amount of new customers every month, most SaaS companies can’t afford to give up that type of revenue. In fact, back in the day, uncontrollable churn stopped Baremetrics from growing.

Now that we know the problem, let’s talk about solutions.

How does involuntary churn happen?

First, you have to understand how failed payments happen. Here are some of the most common causes of involuntary churn.

The credit card expired

This is a very common one, and also one of the easiest issues to solve.

You’ve probably had this happen to you before. Your card is about to expire, and your card issuer sends you a new one a month or so before your current one expires. You get it and activate it, but forget to update it on all the subscriptions you pay for.

This is exactly what happens with your own customers from time to time. And unfortunately, the charge won’t go through until your customer updates their card on file.

The billing information is incorrect

Your customer heard all the hype around remote work, and realized it doesn’t make sense to pay ridiculously high rent for an office in San Francisco. So they pick up and move their headquarters to a cheaper city.

As a part of the move, they have to update their address info with their credit card issuer. But they forgot to update their billing info for your product. So the billing info is now out-of-date. Eventually, their card may decline, which leads to… you guessed it—involuntary churn.

Their card is maxed out

Raise your hand if you’ve ever had your card declined for going over your limit!

It’s ok, this is a judgement-free zone. And you’re note alone. In fact, one study found that 52% of Americans have maxed out their credit cards.

Your customers may be a part of that 52%. And trying to charge a card that’s maxed out is like pouring water into a full cup, it’s not going to work.

The card was reported lost or stolen

When most people lose a credit card or have it stolen, the first thing they do is report it to the card issuer and cancel the card.

And until they get a new card and update their billing info for your subscription, their payment is going to fail.

Hard declines vs. soft declines

All of those different failed payment reasons we just went over fall into one of two categories:

  1. Soft decline
  2. Hard decline

A soft decline happens when the issuing bank approves the payment, but there’s an issue somewhere else in the payment process. Most involuntary churn happens from soft declines.

Here are some examples of soft declines:

  • Expired credit card
  • Incorrect billing information
  • Exceeded the credit card limit

A hard decline happens when the issuing bank doesn’t approve the payment. This happens when:

  • The card has been reported lost/stolen
  • The account for the card has been closed
  • The card isn’t valid

One of the main differences between a soft and hard decline is a soft decline might go through if you retry it again later. But with a hard decline, no matter how many times you try it, the payment isn’t going to process.

In either case, you need to take action to fix failed payments before your customer churns. The longer it takes for the customer to update their billing information, the more money you’re at risk of losing.

Here’s what you can do.

How to prevent involuntary churn

Like I mentioned, the worst thing you can do with involuntary churn is be passive. You can’t afford to “wait to see what happens”.

Here’s how to handle involuntary churn before and after your customer’s payment fails.

1. Email customers before their card expires

Assuming your customers actually enjoy your product and intend on using it, they shouldn’t churn just because their credit card on file has expired. But it happens every day.

The easiest way to prevent involuntary churn caused by expired credit cards is to give your customer a heads up BEFORE their card expires. This is called “pre-dunning”.

But don’t wait a week before their card expires to notify them.

Most credit card issuers will send customers a new card 30-60 days before their old one expires. So you should send them an email 30 days beforehand since they’ll likely have the new card by then.

If you use Recover (which you should be), you can automate this process. We send out a customizable email 30 days before your customer’s card expires, and another one seven days before.

Here’s an example of what ours looks like.

credit card expiration email

This is such a simple step, yet way too many SaaS companies aren’t doing it. Just set it up and let it save you money.

2. Send renewal reminders (for annual plans)

This next tip is a little controversial. Some companies don’t send notifications before renewing annual subscriptions. The thought process being that it might give customers an opportunity to cancel their account.

But here’s the thing.

If a customer wants to cancel, seeing a charge for hundreds (or thousands) of dollars on their account that they weren’t expecting isn’t going to convince them to stay.

On the flipside, sending annual renewal emails can give you an opportunity to prevent failed payments and involuntary churn.

Most credit cards expire every three years. So there’s a good chance that some of your annual customers have gotten new credit cards between the time they originally signed up for your product and the time they’re up for renewal.

Sending an email beforehand will remind them they have a charge coming up, and give them a chance to update their billing info if they need to.

Here’s the email we send to customers before their annual subscriptions renew.

baremetrics annual subscription renewal email

For reference, we’re averaging a 73% open rate and 11% click-through rate with this email.

3. Use paywalls and in-app reminders

Have you ever had someone owe you money, but they never never bring it up when they see you?

You know they owe you money. And you know they know they owe you money (or at least you assume they know). But they come over to your house and eat dinner, watch TV and just hang out like everything’s fine.

You go along with it, even though it bothers you deep down inside that they still haven’t paid you the money.

Well, that’s kind of what it’s like when your customer’s card declines, but you keep letting them use your product without saying anything.

It’s called involuntary churn for a reason. Sometimes your customer genuinely doesn’t realize their card has expired or there was an issue with their payment, so you need to remind them.

I may not be able to help you collect your debt from your friend, but for your business, you can set up a paywall for customers when their payments fail.

Here’s an example of what we do at Baremetrics. When a customer’s payment fails, we put up an in-app notification that looks something like this:

billing error notification

We give customers a 7-day grace period in order to update their billing info. During the grace period, they can still use the app, but the notification will stay at the bottom of the screen.

If they haven’t fixed their billing info after seven days, we put up a paywall with a form for them to update their billing info in order to access the app.

baremetrics paywall

If you want to set up something similar (it’s working very well for us), we do this all with Recover.

paywall form editor

It’s super easy to set up, and a lot less awkward than reminding your friend they owe you money.

4. Send multiple dunning emails

When I first joined Baremetrics and was learning about how the product works, I remember our head of growth telling me about some of the benefits of Recover.

One of the things he told me was that a lot of popular payment providers that SaaS companies use will typically only send one or two emails after a payment fails. I found that to be super odd.

As a marketer, I’ve been conditioned to think of most emails as campaigns. You send multiple emails to get the recipient closer to an end-goal or action.

For instance, you wouldn’t just send one onboarding email to new customers. And you don’t just send a single email to people in trial or new leads from an ebook or webinar.

So why would you only send one email to customers that owe you money?

That was one of the reasons why we made Recover. You can (and should) send a series of dunning emails to customers to increase your chances of recovering missed payments.

baremetrics recovery statistics

If you’re not sure what a dunning email is, or if you know what they are and want some inspiration for making your own, check out this guide: How to Write Effective Dunning Emails (30+ Examples Included)

But long story short, sending multiple dunning emails gives you more opportunities to recover revenue. As you can see from the screenshot above, we’ve recovered tens of thousands in potentially lost revenue by sending follow-up emails for delinquent customers.

If you send a customer five emails letting them know their payment failed and they still haven’t updated their information (you can track who’s opened and clicked your emails), you might not be dealing with just involuntary churn. There’s a chance they haven’t updated their info because they don’t want to use your product anymore.

5. Retry failed payments (Recurly as example)

Most payment providers have a built-in feature that’ll allow them to retry recurring payments if they decline. For instance, Stripe will retry credit card payments up to four times if the payment fails.

stripe smart retry

This is a great way to prevent involuntary churn from soft declines.

Remember, a soft decline means that the payment failed because of something that’s fixable, or sometimes a technical issue. So if it’s retried later, the payment might go through. The customer might’ve just had to update their expiration date or billing info.

One word of caution though. You should always reach out to customers when their payments fail. Don’t just keep attempting to charge their card over and over again. And if you’re going to automatically retry their cards, space it out instead of trying to charge it once a day.

Don’t be passive about involuntary churn

The good thing about involuntary churn is that it’s fairly simple to reduce. The bad thing is that it seems like such a small problem that it’s easy to ignore.

If you implement the five tips we went over in this guide, you should easily be able to start recovering a good chunk of the revenue you’re losing from failed payments. But if you choose to play the sit and wait game, you’ll end up digging your business in a hole that’s hard to climb out of.

Source: https://baremetrics.com/blog/involuntary-churn

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SaaS

Seed Investing Today: What’s Changed, What Hasn’t with Aileen Lee and Jason Lemkin (Video + Transcript)

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What Nobody Tells You About Seed Investing with SaaStr CEO Jason Lemkin and Cowboy Ventures Founder and Partner Aileen Lee

Aileen Lee | Founder @ Cowboy Ventures

Jason Lemkin | Founder @ SaaStr

Jason Lemkin:
… founders what, how things really work, what it’s really like. And not only is Aileen one of the investors that many of us all look up to-

Aileen Lee:
Oh, God.

Jason Lemkin:
… but she also… What’s that?

Aileen Lee:
Oh, God.

Jason Lemkin:
Well, we admire, but also she’s very early in the micro VC trend. We won’t talk about it too much today, but we will talk about a little bit. When Aileen founded Cowboy Ventures in 2012…

Aileen Lee:
12, yep.

Jason Lemkin:
2012. Now you open up TechCrunch or StrictlyVC or anything, you’ll see a dozen firms a week literally sometimes. Five or 600 since then, but back then, you could probably count the seed firms on one hand or two hands.

Aileen Lee:
Yep. And I was not the earliest. We can talk about that.

Jason Lemkin:
But you were in the… Let’s call you Gen 1, even though… At this new wave. I think it gives us a perspective that maybe we don’t get in some other places, in addition to many great investments over the years. I thought we could talk about really what’s changed, what hasn’t. And it’s funny, just to kick it off, I’ll tell you we’ve heard two… First of all, two things. We’ll have some time. I know I’m not always great at it. But put your questions in the Q&A and we’ll answer as many as we can, right in the Zoom, put them in.
But what I want to do… Oh, I had forgot about this slide. Oh, hold on. Just one take pause. Sorry, I’ll come back to this. I don’t want to go out of order, but I did want to highlight one thank you and whatnot. We’ve been doing these SaaStr events since 2015, the SaaStr Annual. This is just a funny story. You can learn a lot from people on how they act and treat people backstage. You can learn a lot from the COs that bail the last two weeks and how they quit. They say that they have other issues. Then, you see them heli skiing on Instagram. There’s one like that. Those are the unicorns that always bail.
You can learn what founders think of VCs. I will tell you how many COs I’ve talked to that say, “I’ll come to SaaStr, but I don’t want my series B or series C VC interviewing me,” which is sort of interesting. And then you can learn about the people that are for you and this is maybe too nuanced for some of the folks here, and I want Aileen to do most of the talking, but we had to reschedule SaaStr Annual this year right during COVID-19. It was terrible.
The last speaker I was talking to was Aileen and she was like, “I’m coming. I’m here.” We were going through these slides, and not that many people are troopers and supportive. It sounds minor or technical, but if you want to due diligence on a human being, I get to do it a few 100 times a year. And to see someone that is supportive… Even if it’s something that seems minor, most people don’t do it. Most people don’t don’t go the extra yard, so that meant a lot to me. It’s another reason just to take their money as an aside [crosstalk 00:02:58].

Aileen Lee:
Both of our money, actually. Not just mine. Jason’s, too.

Jason Lemkin:
But it meant a lot to me. I want to talk about this slide. I used it in kind of my breakfast pre warm-up, the crazy times we’re in. But before we even get there, we had two talks today. I sat in on all of them and I heard different opinions. From Satya from Homebrew, we just heard that seed’s at an all time high. People have to deploy money. Deals are getting done left and right. They’ve done four or five deals since March and valuations are down a bit and the bar’s gone up, but seed investors know they only get one bite of the apple.
They can’t do the A or the B if they miss the seed. We heard, in a way, like an 11, right? And then I asked Keith Rabois this morning how it’s doing. He said, “Seed is at 10% of what it was.” So, we’re [inaudible 00:03:48]. If you had to summarize, then I want to talk about this slide, just where are we? On either a scale of 1 to 10 or a percentage basis, where is seed investment?

Aileen Lee:
I would say… I don’t know if I can put a number on it, but also, thank you for having me, Jason.

Jason Lemkin:
Thank you for coming.

Aileen Lee:
And hi, everyone. Thanks so much for coming to hang out with us. When shelter in place started, the conversation we’ve had internally on our team is we have to think of ourselves as Navy SEALs, where we’re at base camp right now, and we’re going to train and we’re going to work on our playbooks and do our research. Obviously, our first priority was working with our portfolio companies, but if you’ve got your investing engine on and you’re rearing to go, it didn’t feel like in February or March or April or May was really the time to deploy. I have that feeling we will get super deployed probably maybe end of summer, this fall, and the winter, because I think a lot of the people who are raising right now are still raising on ideas and plans that were pre-COVID.
And I think we need to give people time to adjust their plans and their mentalities, and also, we also need to give folks time, folks who’ve been laid off who have a little time to decompress, and then they think about an idea and they spend the summer working on it and they’re planning it out. Maybe they’ll come out and raise the fall, but if you look at historical recessions, at least in tech, those are just one of the best times to be an investor and the best times to start a company that people are scrappier, they’re really on a mission, they’re clearly not going to get rich quick, and they attract really great hardworking people who are on the mission with them.
I think that’s going to be an awesome time to invest, but I don’t think we’re quite there yet. Personally, our team has been holding back a little bit. We’re taking a ton of meetings, but I think in terms of quality, the best time will probably be… It hasn’t really started yet.

Jason Lemkin:
Let’s just-

Aileen Lee:
I don’t know. What do you think about that?

Jason Lemkin:
Well, I don’t know the answer. My view… I want to depack your term deploy, because it’s an insider term and I want to explain it to founders and [inaudible 00:06:00] what deploy means, because it’s not obvious. I want to hear more views. My views… First of all, March 15th, today has been utterly exhausting on many levels. The rate of change, right? I think whether it’s doing portfolio triage or learning to take pitches over Zoom or whatever people are doing, it’s hard as human beings. We can only process so much change, and I feel like we’ve been through three worlds since early March. I think everyone needs some stability, whether it’s good, bad, or ugly or in the middle to survive.
So, I’m just trying to learn. What I personally have seen in my little portfolio and the founders I work with is what I call the COVID beneficiaries. The ones that have accelerated since March. I mean, it’s what you see on the BBP cloud on the left. They’re on fire. They are on fire, the ones that have grown faster and I’ve seen, and I want to get your views on this. I’ve seen the folks that are the ones that are even growing a little bit less fast where you would think a VC should take a bet.
Look, okay, let’s say half your business sells to eCommerce, but 20% sells to live events. Okay. Well, do the math in your head. You should still be growing, but growing more slowly. I see those folks struggling, which maybe isn’t totally logical, but if you’re a COVID beneficiary, it’s like the money is there at least from someone you’ve met. At least from someone you’ve met, the money’s there.

Aileen Lee:
But these are also super… I mean, you were talking about growth stage companies where they’ve got strong product market fit.

Jason Lemkin:
Anyone post-revenue.

Aileen Lee:
Yeah, and they’ve got referenceable customers, they’ve got pipeline, they’ve got funnels. Seed is just a totally different game, right?

Jason Lemkin:
Yes.

Aileen Lee:
But I think, yeah, for … I mean, the cloud index is not even post-revenue. That’s way post-revenue.

Jason Lemkin:
Yes.

Aileen Lee:
And so, they’re just way easier due diligence, I think.

Jason Lemkin:
I want to get your thoughts on this slide on the best of times and the worst of times, but when you say deploying capital, let’s just [inaudible 00:08:00] for a minute. How big is your… I was going to tease on this in a later slide, but how big is your current fund?

Aileen Lee:
95 million.

Jason Lemkin:
Okay, 95 million. And you have two GPs, right?

Aileen Lee:
Mm-hmm (affirmative).

Jason Lemkin:
[crosstalk 00:08:11]. You have two partners and one or two other investing?

Aileen Lee:
Yeah. We’ve got two awesome other people on our team, Amanda and [Jamara 00:08:18]. [crosstalk 00:08:19].

Jason Lemkin:
Okay, but roughly that means you and Ted each have 50 million. It could vary, but it doesn’t really matter. 50 million. How long before COVID were you planning to take to deploy that 50 million? Because, that’s what this deploy means. It means over a timeframe. Right?

Aileen Lee:
Yeah, it’s … I mean, my version of deploys is kind of deploy capital, but kind of deploy yourself as an investor. [crosstalk 00:08:40] So, when you think about there are … Sometimes, on work it’s super intense and then you have a little … You have to take advantage of the lulls, because sometimes it gets super intense, whether you’re an operator or you’re an investor.
Sometimes, when it rains it pours, right? There’s just, you’ve got five really interesting companies in diligence and parallel and you think they’re all potentially things that you could invest in and founders you really want to work with, and there’s times that you’re not really seeing things that you think are going to get there on the other side.
And so, I think probably it will be really intense this fall and in the winter in terms of great ideas, new waves. Now, the one thing we don’t have that’s new is … Some of the waves have been because there have been new platform shifts, because of mobile or because of cloud or because of security or because of a bunch of other stuff. We don’t…
That’s not clear what the next big tech platform shift opportunity is, so I think that will dampen the intensity a little bit, but I think in terms of some investors feel anxious, like “I need to be writing checks all the time” or “I need to be making investments all the time”, I don’t think that’s true.
You got to … Sometimes it’s slow and let it be slow, and then sometimes it’s really fast and really intense and you’ve got a lot going on, and that’s when you make your investments and sign up to work with new folks.

Jason Lemkin:
So, traditionally in normal and good times, there is a sort of very slow-paced pressure as a VC, which is to do X deals a year. There’s many types of pressure. As time goes on, it’s how many unicorns, what’s your multiple, what’s your DPI, but in the earliest it’s just if you don’t do enough investments, you just can’t make money, right?

Aileen Lee:
Yes.

Jason Lemkin:
If you do no investments, you’re toast. So, and if you’re … How many investments do you and Ted each do a year, roughly? What’s the target?

Aileen Lee:
It’s a wide range. We might do six to 12 a year.

Jason Lemkin:
Together as a team, right?

Aileen Lee:
Yeah. Mm-hmm (affirmative).

Jason Lemkin:
So, each of you will do three to six.

Aileen Lee:
Yeah.

Jason Lemkin:
Okay, that’s a classic seed portfolio. And then as you get [crosstalk 00:10:37].

Aileen Lee:
It’s probably actually a slower pace than I think. We’re probably on a three, three and a half year fund cycle where we’ll make our initial investments. Whereas, other funds are maybe on two years.

Jason Lemkin:
Got it. So, that’s why you were less, right?

Aileen Lee:
Yeah. Yeah.

Jason Lemkin:
And then later-

Aileen Lee:
We’re definitely more [crosstalk 00:10:51]-

Jason Lemkin:
… it’s one to two.

Aileen Lee:
… hopefully a quality, not quantity kind of a thing.

Jason Lemkin:
And so, usually what happens… Let’s say I’m working at Cowboy and I’m supposed to do three or four a year. We’re coming up on June and I’ve done none. I start to feel pressure, don’t I?

Aileen Lee:
Yeah.

Jason Lemkin:
Even if no one says it.

Aileen Lee:
Totally.

Jason Lemkin:
Do you think that pressure is going to come back at the end of the year and therefore … When you talk about deployment, do you think folks will want to do a lot of deals in the back half of the year because they’ll feel the pressure to hit their quota?

Aileen Lee:
It’s very possible.

Jason Lemkin:
Okay, so let’s talk about this slide for a minute. And you have a broad exposure. You have exposure to segments that are, I call COVID beneficiaries. You have exposure to segments that probably are heavily impacted, right?
How do I … How you get your arms around the fact that cloud stocks on the left are at an all time high and we almost, and California is one of the worst economies in the Western world? How do I … How are you thinking about this?

Aileen Lee:
I mean, the multiples that folks are trading at right now on the left hand, I don’t totally understand it. I think it’ll be interesting to see, because also the numbers, we don’t have Q2 numbers yet. When Q2 numbers come out, for some folks they may be softer because budgets were not really locked up for most of Q1.
And so, I mean, I think if you are Zoom, obviously, or maybe an infrastructure, you probably won’t see a lot of the budget freezes and the layoffs and your sponsor being laid off. But I think for a lot of vertical SAS, they’ll see impacts when the Q2 numbers come out. And so that may change what this chart looks like maybe in July or August.

Jason Lemkin:
Yep. When you look at Main Street versus the cloud index, what are you excited about today? Are you more excited about eCommerce? I mean, what especially non-obvious things are you more excited about?

Aileen Lee:
Yeah. I mean, I think in a bunch of categories like healthcare and distance learning and infrastructure, this recession, which super sucks for a lot of people, it is going to be an accelerator for tech, because businesses are going to rely on technology and are also going to adopt technology faster.
So, it’s like in healthcare, one of my friends who’s a doctor says she feels like she fell asleep in 2020 and woke up in 2030 in terms of …

Jason Lemkin:
Yeah, I bet.

Aileen Lee:
… the industry’s willingness to adopt technology. Because it’s been a fight and it needs to be adopting technology across the board. And so, but now they have to.

Jason Lemkin:
Yes.

Aileen Lee:
And so, I think for a lot of states and regulatory agencies and businesses that have been pushing back to enable remote work, they’re going to have to change a lot of stuff and that’s going to take … A lot of investment’s going to happen in software. It’s not going to be like …
If the question would be like, “Do you feel like we have too many unicorns?”, we are going to have more unicorns. There’s no question in my mind there’s going to be more in the US and more in China, and then an increasing number in Latin America and in India and other markets that are really huge because this is… We’re in a good sector, tech is only going to get more important and more valuable.

Jason Lemkin:
So even if you feel that multiples on the left are a little aggressive, if you’re bullish on unicorns, having coined the term. If you’re bullish on unicorns, what does that mean overall for seed investing and venture investing? If folks feel good about unicorns, does that mean it should still be easier? There’s room for many, many more startups. What does that mean for a founder?

Aileen Lee:
Wait, hold on a second. I have kids in the background.

Jason Lemkin:
Bring them on.

Aileen Lee:
Thanks.

Jason Lemkin:
Lunch time?

Aileen Lee:
Yeah, exactly. It’s lunch break at school. Wait. What was the question?

Jason Lemkin:
What does it mean… So we’re in these weird times, the cloud shares are at an all time high, NASDAQ’s closed, this crazy recession we’re in, but you’re bullish about unicorns. Right?

Aileen Lee:
Yeah.

Jason Lemkin:
Unicorn generation, how does that inform your thinking in terms of types of investments? Pace, valuations, anything? Does it inform your… Does it change your thinking?

Aileen Lee:
Yeah. No, I mean, I think … Look, I was an AEB investor for 12 years and did some growth too and I switched to seed. Partially, I think, for personal reasons. I think it’s a better fit for me and it’s more fun. I’m really passionate about seed investing. And there are lots of really good folks that we partner with at A and B and C and D, who they’re really good at that, and this is the one thing that we want to focus on. We think it’s also a great category for like, you are getting in at the riskiest time where the valuations are lower, but there’s way more upside. It’s also more collaborative as you know.
I had lots of friends in seed who were co-investing with each other and helping each other build companies. Whereas, at A and B and C, you generally, you can be friends with everyone in BC, but you have to beat all of them to win the A or the B. And then you’re carrying the water with the founders for the next decade as a lead board member, and you don’t get a ton of help from other people. So, I love seed and I’m super excited about it.

Jason Lemkin:
So I want to dig into that next, on the next point. But before we leave this slide, do you have any portfolio companies that have benefited from this time that you didn’t expect? Maybe even Zoom, we didn’t fully expect it would be this big. But are there any that folks could learn from they’re like, “Wow, I’m just kind of surprised that one is a COVID beneficiary.”

Aileen Lee:
Not really a surprise. I guess probably one of the more notable companies that we work with is Guild Education. And I think because a lot of the folks that they work with, they basically help hourly workers who work for big companies like Disney and Walmart get high school diplomas or college educations or get vocational training. And I think because there’ve been a lot of layoffs in hourly workers, I think there could be a question about whether that was going to hurt a company like Guild. But it’s turned out that a lot of enterprises who have furloughed workers are suggesting that people who are furloughed use the time to actually get an education.
It’s also being used as an off-boarding benefit. So like, “We’re really sorry, we have to let you go. But we’re going to help you get on a career path, so you can get this benefit of trying to figure out where you’re going to get your next job.” So there’s been a bunch of things that actually have helped accelerate Guild that I think could have been a question. And obviously just the fact that they built this incredible infrastructure for remote learning is great.

Jason Lemkin:
Yeah. It’s an interesting one because on the one hand, it’s remote learning, right?

Aileen Lee:
Mm-hmm (affirmative).

Jason Lemkin:
And very powerful. On the other hand, it’s a benefit, right?

Aileen Lee:
Yeah.

Jason Lemkin:
You know the company much better than I do. But it’s a benefit, that’s where the budget comes from. That’s why it’s done well. But it’s a benefit, and as soon as folks cut at traditional companies and cut people, you would think the benefits … We’ve seen many folks in the benefits space be exactly linearly impacted.

Aileen Lee:
Totally.

Jason Lemkin:
Linearly impacted with layoffs and it’s natural. Right? It’s like cutting back on rent. We’ll cut back on benefits.

Aileen Lee:
Totally. Totally. So that was the one, it was like, “Uh-Oh.” But so far it’s going great.

Jason Lemkin:
That is interesting. What’s your gut? What percent of startups you think are COVID beneficiaries? Have you looked at it? Do you have a sense? What do you think?

Aileen Lee:
I think, unfortunately, it’s a pretty small, it’s a small percentage.

Jason Lemkin:
Yeah. [crosstalk] percent are benefiting.

Aileen Lee:
I’d say 10 to 15. I don’t think it’s …

Jason Lemkin:
10 to 15?

Aileen Lee:
Yeah. What do you think?

Jason Lemkin:
I made up a number just based on a very limited data set. I think it’s, in SaaS, in cloud, if you define it that way, I think it’s about 15 to 20%.

Aileen Lee:
Yeah.

Jason Lemkin:
And it’s more of the folks on the left than we would have thought, which maybe there’s some learning from that. We missed it. We knew Slack would benefit, but actually Atlassian’s benefited much more than Slack. Did we know bill.com would benefit as much as Zoom? I don’t know. If you didn’t analyze its business model, you would think that intuitively. Right?

Aileen Lee:
Yeah.

Jason Lemkin:
But I feel the question, and let’s maybe transition to that. Let’s assume it’s 10 or 15 or 15 or 20, it’s a big delta. But you’re not saying it’s single digits, right?

Aileen Lee:
No.

Jason Lemkin:
For the rest of the year, or at least for the next quarter too, would you only invest in COVID beneficiaries or would you invest in folks in heavily impacted industries? Like how you thinking about that?

Aileen Lee:
It’s a spectrum. I don’t think I’m going to be going to try and find a lot of travel startups right now. But I do think … we’re investors in a company called Homebase that basically sells SaaS for small-medium size businesses to do hourly work management. Like scheduling shifts, paying folks, giving them cash advances, communicating with the manager. Obviously, the majority of the people who they were managing the shifts and the payments for who were working in February, they were not working in March or in April.
But when businesses reopen, I think they are going to rely on technology more than ever before. Some of the older businesses that were a little hesitant about technology, they may not reopen. And the people who start businesses in the next generation are going to be like, “I need a full stack of modern software to run my business, so it’s flexible and it’s nimble and I have good transparency and I can do it from anywhere.” And so they will adopt things like Homebase at a faster rate than businesses that have been around for 30 years. And so I think if you time it right, I mean, you can basically ride the wave of all these businesses reopening.

Jason Lemkin:
For your existing portfolio and new investments, can you model that? I mean, you have to have at least have a position, right?

Aileen Lee:
Yeah.

Jason Lemkin:
Is it six months? 12 months? They just announced today, Disney World’s going to start to reopen.

Aileen Lee:
Wow.

Jason Lemkin:
When will Homebase get back-

Aileen Lee:
When is it going to reopen? Is it going to be like six feet apart and every other? Like on the rollercoaster.

Jason Lemkin:
July. Yeah. They’re going to adopt the Shanghai processes. Attendance will be half. You can’t hug a prince or a princess and you have to get reservations.

Aileen Lee:
Is the price going to be double?

Jason Lemkin:
Well, that’s a question for a lot of things down the road. If the price doesn’t double, I mean, that’s a restaurant question too, right?

Aileen Lee:
Yeah.

Jason Lemkin:
I mean, if prices double, it all works. And obviously Disney can carry a business for a little while. Those are some of the scarier questions for our economy. Is can we adapt to things? Can we adapt to Coachella when we’re 20 feet apart? I mean, I don’t know. I don’t know if Coachella $4,000 a ticket works, does it?

Aileen Lee:
No, but also it was funny. I was in San Mateo County. I think they had a rule that some camps can open, but they have to, you have to sign up for four weeks at a time because they don’t want kids in and out. But it’s like that really disadvantages people who cannot afford four weeks of camp.

Jason Lemkin:
Oh yeah.

Aileen Lee:
It’s not good. Yeah. There’s a lot of challenges.

Jason Lemkin:
A lot of challenges. A lot. And I think a lot of, probably beyond the scope of what can we get into today, but a lot of these flattening things you might… and we can talk about it in deal flow. You might think some flattening helps less advantaged, but I don’t know. Do you think pitching over Zoom helps outsiders more? Do you think it helps the founder that didn’t go to Stanford and didn’t go to YC? Or is it maybe not help as much as you think pitching?

Aileen Lee:
I am hopeful. I mean, I think there’s two things, there’s the pitching, but there’s also, where’s the company going to be based? That’s all up in the air now. So before, I mean, look, when I was at Kleiner, I spent a year spending a lot of time in New York, there was a lot of stuff going on in New York. And when I came back and I was like, “Hey, I found all these cool companies like Mongo and Warby and Stack Overflow.”
And some partners were like, “Why are you wasting your time? No big companies are ever going to be built outside the Bay Area. We clearly didn’t teach you well.” And same thing with HomeAway actually, it was the same thing. It’s like, “Why are you wasting your time?” And so things have changed a lot in the past 10 years, but I am hopeful that I was just on the phone with one of the CEOs we work with today, who is in New York and they’re moving to Denver. I think over the summer, people are going to be moving all over the place and trying to figure out how to run remote or partially distributed or clustered companies. And I think that will advantage founders who are in different places and are not on the coast.

Jason Lemkin:
I think it started like last week.

Aileen Lee:
You think so.

Jason Lemkin:
I think that folks that live in San Francisco, founders and executives that live a crummy lifestyle in San Francisco, in gross parts of the city that have sacrificed that maybe even have families, that have sacrificed a lot, are looking around. Like several conversations I’ve had with looking around, like, “What is the point of being in San Francisco today? I cannot visit Salesforce. I can not visit Twilio. I cannot visit a customer. And I have a baby and a husband or a wife or significant of living in not just a small apartment, but a gross part. I’ve traded off so much.” And I three people I know packed up the minivan and left.

Aileen Lee:
Totally. I agree. Like we had another CEO that we worked with, they packed up their car and they rented an apartment, or a house on a Lake in South Carolina. They had never been there before. They’d never been to the town and they just drove there and they lived there for the past month and a half. And he’s been so much more productive and so much happier. There’s a whole nother thing we won’t get into around mental health and all. Especially if you’re by yourself in a small apartment, it’s not happy making.

Jason Lemkin:
Yep. And how do you think, like, let’s just, maybe this is a, not a good example, but when you invested in Guild, they were based in Denver, right?

Aileen Lee:
No they’re based in Palo Alto.

Jason Lemkin:
Oh, I thought it was based in Denver.

Aileen Lee:
They moved to Denver. It’s funny because Rachel came to us and said like, :Hey, I know we just had a meeting and we discussed, we need to hire a VP of engineering and a VP of product and a VP of marketing. But we also want to move the company in Denver.”
And we were like, “What? How are we going to find those people in Denver?”
And she was like, “Trust me. There are some really good companies there. And some tech like Facebook and Gusto are opening offices. It’s a great place to live. I think I can get people from the east coast and the West coast to move to Denver. Because if you want to have family or if you want to buy a house, you want to send your kids to public school. It’s a great place. And I want to build a company where people can have a family and have a good home life and have a great job.”
And I’m so glad that we were like, “Okay, do it.” Because it was a really smart move in probably three or four years ahead of her time.

Jason Lemkin:
Yeah, it was. So she’s built a unicorn now. And let’s compare today. I mean, you had no choice, but did you have reservations? Did you try to talk her out of it?

Aileen Lee:
Oh, definitely. I didn’t try to talk. But I was like, “Are you sure?” But I mean, I think it gets a lot of the stuff on a slide. Which is we are seed, I would say half the time that we invest, they haven’t built a product yet. There’s no technology, they need money to actually build software. And then half the time they’ve built like some MVP we do about, we’re probably 75% enterprise, 25% consumer, we’re generalists. We usually invest between 500 K to one and a half million. We like to co-leader co-anchor seed rounds and we almost always co-invest with other folks, angels and institutional seed folks like yourself.
And so at Guild, they had basically had an idea for kind of reboot your career boot camps. And they came up with a three hour bootcamp and they posted it on Craigslist. And they rented strip mall, vacant space and they were holding these free three-hour boot camps. And then they were texting the people afterwards asking for. And then they charged 40 bucks and then 80 bucks. But that’s basically what they had when we invested. And so it doesn’t have to be perfect at seed.

Jason Lemkin:
And so I want to make sure we hit the bullets on this slide, but so today let’s fast forward today. So, four years ago when Rachel said, “We’re moving to Denver to build my management.” And now that I understand kind of how raw the vision was in the beginning, I get it. Because it wasn’t technology heavy in the beginning, that’s for sure. So I get it. But today, how are you feeling about not just New York or Denver, how are you feeling about Baton Rouge or Sioux Falls or Tampa? How does that strike you today for new deals? And what would you advise founders that are thinking about leaving the Bay area now?

Aileen Lee:
Yeah. I mean, it’s a better time than ever to both, to start a company in a different part of the United States. People are going to have to be way more purposeful around culture building and about communication. Because it’s still been a rarity to build a really successful scaled company without having formative team members live and work in the same place and be next to each other. A lot of times we recommend for portfolio companies that are opening up second or third office, it’s like you have people all in the headquarters and then you send out people who really understand the culture and how to have a lot of internal credibility and they start the new offices.
In some cases, I’m really curious as like, founders may start companies they’ve never been in the same office when they start the company. When we hear pitches this fall, we’re probably going to hear people who have not seen each other. But SVT Robotics is a company that is based in Virginia, Virginia Beach, actually. And it’s kind of like MuleSoft for warehouse robotics for integrating. If you’ve got a third party robotic arm and you want to integrate it with your conveyor belt or your WMS, you’ll use SVT instead of writing custom code. The founders know warehouses and they know warehouse automation really well. And they’ve lived in Ohio and Pennsylvania and Virginia, and all the places where warehouses are. And we’re super psyched to be investors in that company. And we’d love to find more like them.

Jason Lemkin:
Those are all really interesting examples. Today if you met with a startup and you’re doing seed, so it’s early, but it’s the kind of company that clearly could benefit in a year or two from some Salesforce alums or Box alums or Twilio alums. They’re doing a classic playbook and they want to move to Arkansas or Ohio or Bismarck, is that a no in this flattened world, in this distributed world? Do you think you can get VPs to join a company, Bay Area style VPs, to join nonbearing companies in 2020? Do you think that’ll change?

Aileen Lee:
I think we can do it. It’s funny at Textio, another company that I work with, which is based in Seattle, we tried hard to make the whole team Seattle-based and when we were doing our head of revenue search, we said like, “Maybe we should open it up and look at people who are not based in Seattle.” And we found a great person who’s based in the Bay area. I mean, at the time we had a deal where he was going to spend a week or two in Seattle, a month and then a week or two at home or on the road.
And so we’re fortunate that we had that time together before we wanted to go into shelter in place, but it works. And he’s a huge part of the team and they’re making it work. So I think we’re all learning fortunately or we have been learning over the past couple of years how to make kind of commuter style jobs work and distributed team work which is a good warmup for the next three years we’re about to live through.

Jason Lemkin:
Yeah. Yeah. I think especially for B2B in the next couple of months to watch is can we flatten management teams? Not just the Gitlabs and the Zapier’s, but can bury a type executive, whether they’re based in the Bay area literally or in New York. But folks that come out of the traditional folks where we poach… I mean, once you scale, you want to hire someone to set up [inaudible 00:31:06]. You really do. I mean, everyone that runs Salesforce today came from Oracle and everyone that runs Twilio came from Salesforce. There’s a reason. And if folks in Virginia Beach or wherever it is can hire these folks now is easily, it changes everything. Doesn’t it?

Aileen Lee:
Well, I mean, like internally at Cowboy every other week, we have scenario planning time where we just kind of think about like, “Okay, what if this is 24 months? What if this is 36 months? What if nobody can get on a plane until summer of 2021 the earliest?” From a sales perspective, how is that going to change sales? How’s that going to change marketing? The fact that a lot of our portfolio comes in enterprise, they got a lot of sales done or relationship building done around conferences whether it’s-

Jason Lemkin:
Up in 40%, it turns out yeah. Like 40%.

Aileen Lee:
Like HR Tech Yukon, whatever it is. You may not have been spending a lot of money getting a booth, but like you were hosting dinners, you were meeting up with people and when that doesn’t happen, how is that going to change sales?
I think maybe that’s going to be better for startups because having a lot of money to buy people expensive dinners is not going to be as important and it sounds like COVID has for at least in the folks that we’ve been talking to the past couple of weeks, it’s now a common bond. You make small talk over Zoom for five or 10 minutes about like what’s been hard or how the family time’s been good or whatever, then you get right into the sale process. And the customer on the other end is like, “This sounds really good. I need this. Let’s do it.” And so in some ways, it’s like more efficient, but we’re staying really close to it.

Jason Lemkin:
Yeah. For what it’s worth. And I want to talk about how you’re sourcing deals now. But my personal view just for the conversation is I actually think this selling over Zoom at least for now, is substantially benefiting folks with brands because if I don’t know you yet, and I can actually meet the CEO and I’m meeting [inaudible 00:33:08] over Zoom, don’t get me wrong, but we’re all taking more vendor risks. We’re taking more investment risks. More risks just has to be taken in the shelter world. And it’s comforting to know it’s BOXX. It’s comforting to know that well it’s a unicorn now.
Maybe Gild isn’t as great as Schmild or whatever. I don’t know, but if there’s risks during discovery, maybe I don’t want to take risk today. Now if you’re the only vendor in the space, it’s different, if you’re the notion or tandem, but I wonder if one of the reasons these cloud stocks are going to keep growing is because, “I’ll just stick with JIRA.”

Aileen Lee:
I kind of worry a little bit about whether we’ll move into this like nobody ever got fired for buying IBM for buying certain brands. And I do think like if you are a seed stage founder who is listening to this right now, or you’re pre-seed, or if you’re not a brand, it’s going to be hard to make new sales I think in the next two or three quarters at a minimum.
So being willing to give your product away for free or like changing the packaging so that it’s virtually free for the next six months, and then people pay for it, but getting people to use it and showing that it’s super valuable. And so that when people have budgets again, they’ll buy it. They’ll pay for it and that’s referenceable. I think for a lot of seed stage companies that’s the thing to do because it’s really hard to get new budget, even if you’re an existing brand, but as a new brand, it’s even harder.

Jason Lemkin:
It is harder. Yeah. It is a fun topic we could dig into, but we can if you want. But tell me on this. First, I want to talk about how you find deals and how founders can pitch you. But just the micro topic, say in today’s world, I know you’re slowing down a little bit to learn, but how you’re feeling about being pitched on Zoom? What’s your personal view of not meeting in real life? What’s your [inaudible 00:35:00] one to 10?

Aileen Lee:
I think it’s a bummer on both sides, right? I mean, the benefit is things have been so hot that the velocity of decision making and relationship building was I think untenable. Founders were optimizing for getting it done fast. And I think in many cases, they weren’t really getting to know the people that they were getting married to and who were… Because once you get people on your cap table, you can not get them off.

Jason Lemkin:
Never.

Aileen Lee:
So I was really bummed about how fast the process was happening, where we weren’t really having a chance to get to know people, and they weren’t really getting to know who they were taking out to their cab table. So I think this will actually be better in terms of giving people…
Then we were thinking about, when we moved in shelter in place, “Okay, how are we going to get to know people?” We already had a diligence process, but in marketing, in old fashion marketing, I don’t know if you remember the four P’s? There was price, place, promotion, and product.

Jason Lemkin:
Mm-hmm (affirmative).

Aileen Lee:
Right? So I was thinking about, “Okay, we have our own four P’s that we generally try and figure out.” So our four P’s are people, product, potential, and plan.

Jason Lemkin:
Okay.

Aileen Lee:
So we’ll say to someone, if we kind of have a first meeting and we think it’s interesting and they like us, we’ll be like, “Okay, we have this thing, we’re not going to probably get to meet face to face. So we want to get to know you over a course of meetings and maybe some of them will be dinners,” or something like that. Where we’re like, “We want to get to know the people, where you came from, what you’ve done before, what you’ve learned, what you think of your strengths and weaknesses, your self awareness, where you want to be complimented, what kind of a team you want to build.”
Then on the product, obviously really understanding both, what’s their vision for the product? Competitive landscape, differentiation, how much better it is, the potential. What could this become? Right? Both how big is the market? And if we’re really successful, what are we building? Then the plan.
How much do you want to raise? Valuation range, what are we going to get done during the seed period? Who do you need to hire? All that stuff. So basically just going through those four things is our way of getting to know each other. I think that that’s probably going to be the way we do it first of the year.

Jason Lemkin:
So more time can balance out the lack of the ability to schmooze in person?

Aileen Lee:
Yeah. I think it might, in a way, be better. I mean, obviously in person’s better, but I think a slowing, and I’m also think the velocity and optimizing for speed and just low overhead check… I think there are plenty of founders who will tell other founders that that was a mistake. I think this downturn is hopefully going to give people pause around a lot of… There’s going to be a lot of shitty ups and downs. I want to be careful about who’s going to be helpful to me in a time of a lot of uncertainty.

Jason Lemkin:
Yeah. This morning, the first speaker, I don’t know if you know, Krzysztof Jans from Point Nine Capital?

Aileen Lee:
Hold on one second. Sorry. I just told the kids to go to the other room.

Jason Lemkin:
Oh no, we’re in the lunch session. I don’t know if you know Krzysztof Jans from Point Nine?

Aileen Lee:
I don’t.

Jason Lemkin:
He’s great. His first angel investment, he was the first angel into Zendesk, after he was a CEO. Then he started doing SAS really in the beginning, and we kind of became SAS content buddies before we co-invested.
He’s done half his investments remote since then, because he’s in Berlin. So he couldn’t always get on a plane and pop up for an angel or seed deal. His advice, he had a great… Because he is a veteran, although none of us foresaw shelter, but his point was it’s like anything in sales, but make it easier. So his point was, have the best diligence together, have the references built, do a video, have the best email pitch, if you weren’t going to build the deal room, build the deal room. If folks need more time, bake it in, and just turbocharge the amount of disclosure and transparency you would have to make up for the kind of informal type decisions people are making in those high velocity advice.

Aileen Lee:
Yep. Good. I like it.

Jason Lemkin:
Okay. On this, so just to folks that understand, how do you find… Just some insider stuff to help folks learn. How do you find deals and how do founders pitch you?

Aileen Lee:
Yep.

Jason Lemkin:
Maybe a few case studies from some last deals. How did they find you? How do you discover [crosstalk 00:39:35].

Aileen Lee:
Yep. We get a ton of referrals from angels, from co-investors who we want to work with, from founders, from folks that we know. I think Ted and I, I’ve been doing this for 20 years. Ted’s been in tech for 20 years too.

Jason Lemkin:
Yes.

Aileen Lee:
So we like to say, “Hopefully when you work with us, you’re going to get really experienced, thoughtful, patient, supportive advice, with a huge Rolodex.”

Jason Lemkin:
Yep.

Aileen Lee:
So we get a lot. But also, you and I are both super passionate about using our privilege to try and make tech more equitable and less bro-tastic. So, I’ve been told that the need for the warm intro really disadvantages a lot of people. So we read all of our inbounds. So you can email hello@cowboy.vc. Someone will read it and if it’s a potentially a fit, we will get back to you. You don’t have to get referred to pitch us.

Jason Lemkin:
So let’s break that down for just a second. So if you had a pie chart, number one source of deals, you do is [crosstalk 00:40:39].

Aileen Lee:
Referrals.

Jason Lemkin:
Warm referrals, right?

Aileen Lee:
Yep.

Jason Lemkin:
For better, mostly for better, but for better or worse. Right? They do have some bias and issues associated with them. But the inbound. So the inbound is… Sorry, it’s hello@cowboyventures.com?

Aileen Lee:
Hello@cowboy.vc.

Jason Lemkin:
cowboy.vc.

Aileen Lee:
Yep.

Jason Lemkin:
I got to get this one right, folks.

Aileen Lee:
Yep.

Jason Lemkin:
We’ll layer it on top of the YouTube.

Aileen Lee:
Thank you.

Jason Lemkin:
Hello… Well, it’s probably on the website too. Right?

Aileen Lee:
It is. hello@cowboy.vc.

Jason Lemkin:
If that email is good, if it’s good… If it’s, “Dear cowboy, we’re the team that built the top product at Square. We’re pre-revenue, but we have 10 beta customers. All of them said we’re changing the way finance works. Here’s where we come from. Here’s who we know, here’s our friends.” What are the odds that email gets read and how seriously… I’m just making my…

Aileen Lee:
Well, it’s 100% going to get read.

Jason Lemkin:
100. So let’s [crosstalk 00:41:34].

Aileen Lee:
100% going to get read. Yes.

Jason Lemkin:
Right? I can’t find you. I can’t track you down. I met you at a conference, but that email is going to… This is things founders don’t get, that great email is going to get read isn’t it?

Aileen Lee:
Even a crappy email is going to get read.

Jason Lemkin:
Even a crappy email is going to get read.

Aileen Lee:
Even, “Dear Sir,” gets read.

Jason Lemkin:
Okay. But the good one, if you liked what I just wrote, right? What are the odds someone’s going to read a deck that’s attached? And what are the odds I’m going to get at least a Zoom?

Aileen Lee:
I mean, that email you described is probably a 100% going to get read.

Jason Lemkin:
100% getting read. Yep.

Aileen Lee:
And 95% going to get a, “Hey, let’s have a meeting,” or, “Let’s set up a call.”

Jason Lemkin:
Yeah.

Aileen Lee:
Yeah.

Jason Lemkin:
What percent of emails that come to hello@cowboy.vc are great like that? What percent of these emails are great?

Aileen Lee:
Not that many. I would say we only invest in the US.

Jason Lemkin:
Yeah.

Aileen Lee:
We get some from different countries, and unfortunately we just don’t invest outside the US. But when I was at Kleiner, this is before email was really how we got most pitches, people would mail business plans and pitch decks and the EAs would put them in folders and just put them into giant L.L. Bean bags and just drop them off at my office and I would go home every night and basically order Chinese food and read business plans every night.

Jason Lemkin:
You were like a script reader.

Aileen Lee:
I was single and my girlfriends were making fun. They were like, “Should we buy you cats nor or later?” Because basically my life was just reading business plans. But the business plan for Bloom Energy was a cold inbound from a professor of space technologies at University of Arizona and at the time we had heard about fuel cells and we knew that there was different kinds of fuel cells and we were kind of getting interested in alternative energy and green, and he seemed interesting and so I wrote him and I was like, “Hey, I got your business plan. Do you want to do a call?” Bloom is a public company now and it was a cold inbound.

Jason Lemkin:
Cold inbound. Let’s just finish this because I think this is … It’s not perfect but it does flatten a bit. These emails are going to get read [crosstalk 00:43:44] and you don’t need-

Aileen Lee:
Are you really surprised by this? You sound surprised.

Jason Lemkin:
No, no, no. I’m not surprised. I think founders are surprised and I want to talk about how to hack it because so much of the advice you get on the internet … The fact that warm referrals are your number one source and that a great cold email will get read just seems inconsistent to people, right? I’m happy to share some personal stories. I even published two cold emails that I funded, one of which crossed 100X last… It’s the best made. It’s 100X on a double digit ownership, cold email, and it was an outsider.
There are advantages to being an outsider. You don’t know. You don’t do as much diligence. You don’t have to have gone to Stanford and have done the perfect thing, but I think founders are surprised that investors are so busy. They’ll see you on social media, they’ll see you traveling, they’ll see that you have 20 portfolio companies, and they’ll be like, “How could I get Cowboy’s attention?”
But the reality is there’s only so many great deals a year, and it’s sales for founders and it’s sales for VCs and if the pitch is amazing, the cold email works. Email is profound, and yet people don’t spend enough time on it. They ask you for coffee. “I saw your [crosstalk 00:45:01] on stage. Can we get together some time and talk?” What are the odds you’re going to get coffee?

Aileen Lee:
Right. Yeah, too much coffee.

Jason Lemkin:
Too much coffee, right?

Aileen Lee:
Yeah, or can I pick your brain? That’s one of my-

Jason Lemkin:
Can I pick your brain?”

Aileen Lee:
I do not like that.

Jason Lemkin:
“I have an idea. Can I pick your brain?” Right?

Aileen Lee:
Yeah.

Jason Lemkin:
I think the best founders figure that out but the earlier stage it is, the less they figure it out, right? The less they know, and I think if you write the world’s best email, and it has to be real … It can’t be imaginary but if you even have some hints of excellence, it’s going to get read, isn’t it?

Aileen Lee:
Yeah, yeah. But I do think for years I was kind of fighting the “will read everything” just because I felt like it was the mark of a good founder that knows how to hustle and is a relationship builder and is a talent magnet, that a good founder knows how to somehow get it started. Cold email someone, you, and be like, “Hey Jason, I really admire you. I like this thing that you wrote. I’d love to talk to you about this thing,” and then they didn’t know you but also now you know them and then you introduce them to someone and they introduce you, and then before you know it, the person’s kind of kick started a network of relationships that can be helpful to her or him. And I do think that’s a really valuable skill.
So for years I was like, “Well, if a founder can’t figure out how to get some credible person with some venture capital universe, some founder cred, someone who’s the VP of engineering at a decent company or someone who’s a product manager at a decent company who knows a venture capitalist, maybe it’s going to be harder for them to recruit people or sell customers.” But I’ve kind of let go of that because I think a seed is a really raw stage and I’ve seen founders change over the course of 10 years from where they start to hopefully being a unicorn founder that’s managing thousands of people, and people change.

Jason Lemkin:
Yeah, I used to think that. I used to think… I came up with a simple bar which is a founder that was better than me with more going for them can build a unicorn. And so I felt like if you couldn’t penetrate, if you couldn’t be that aggressive founder that found their way through the door literally by email, physically showing up to Cowboy, whatever it is, if you weren’t that person, you weren’t aggressive enough to build something big. And what I’ve still done, anyone that wants to talk to me, if they want to talk to me about community or SaaStr in general, there’s a million ways to reach me. If they want to reach me about investing, I used to always say, “Well, find my email.” “If you can’t find my email somewhere …” “Then what’s your email, Jason?” “No. How are you going to sell Procter & Gamble or Google if you can’t figure out a prospect’s email?”

Aileen Lee:
Yeah, and it’s also in a way… If you’re in a consumer space, you can be an introvert and just an awesome product person especially if your product has network affects. You can not be able to talk and you can build a huge company. In the enterprise space, I think it’s a little more important that you can talk.

Jason Lemkin:
I think it is. I will say, for what it’s worth, I don’t… Like you said you read more of the emails today. I realize that while that is … It’s too tight a noose. It’s too much of a forcing function. There are other ways to build traction. You can build an incredibly developer-centric product and [crosstalk 00:48:13].

Aileen Lee:
Totally. Exactly, yeah, yes.

Jason Lemkin:
Even if you’re not good at things. And so if you require that almost alpha-esque, put your boot through the door, there’s a lot of privilege and other issues, but you’re also going to miss people, I think [crosstalk 00:48:26].

Aileen Lee:
Totally. I think that’s totally true. I have so many lessons learned about companies that I’ve passed on that I shouldn’t have, but I’ve learned that early on in the process I have to figure out … Or just ask the person if they are more of an extrovert or an introvert.

Jason Lemkin:
It’s a good question, right?

Aileen Lee:
And if they’re an introvert we have a different conversation.

Jason Lemkin:
Yep. All right, we’re going to run out of time [crosstalk 00:48:48].

Aileen Lee:
I know, we have so many questions and we could chat for a long time.

Jason Lemkin:
No, I know. We can do them later if you have the energy but let me just pick a couple because some are tactical. This one’s super tactical but I think it is actually helpful. One attendee asked, “Who would you look for for references?” Talk just a minute about references. What if you don’t have great references? Is that a gating item for folks that come out of nowhere? How important are… especially if yours are funky?

Aileen Lee:
I think it’s important, especially now, like you said. That it’s people that you’ve worked with or worked for, people who’ve worked for you, people who’ve been your boss. We recently did diligence on a company and the founder gave us references and gave us their friends. That was not helpful.

Jason Lemkin:
I used to think that was a no. A close to a no, like such a fail, but I don’t know today.

Aileen Lee:
We’re very … I think as a person, like an immigrant person who has in many ways been underestimated in many different ways in different situations, I have a lot of empathy for being underestimated for giving people chances. And at series B, you got to know this shit. But like at seed, if you never raised money before, sometimes there’s stuff that someone tells you and then you were like, “Oh duh. Yeah, I get it.” And then they move on. So it’s not a no for me, but yeah. I was like, “Hey, don’t give me your friends. I don’t really want to know what your friends think of you. I want to know what you’re like to work with.”

Jason Lemkin:
Yeah. This one’s interesting because it’s not necessarily obvious. This says when you invest seed or pre-seed, what do you expect MRR will be in three to six months? It’s actually not a silly question because you’re not the only VC. You’re betting that someone in the next 12 to 24 months is going to write a check at two to five times the price you did. So what does that have to mean in terms of the window in which you can invest in terms of growth?

Aileen Lee:
Especially right now, that is a really tricky one, right? Because let’s say if you’re going to… We’re basically recommending, in March, we recommend to all of our portfolio companies to basically plan. Come up with a bunch of plans, so that ideally you have money to get you into ’22. 2022.
So either raise money right away, or you’re going to do some cuts because assume that Q2, Q3, Q4 are going to be really hard for new sales and that maybe things will pick up in Q1, but maybe not. Maybe they won’t pick up until Q3 next year. And so you’re going to be going out to raise your A if your seed unpotentially not a lot of revenue growth, especially if you have to go out in the first half of 2021.
And so I think depending on what the product is that you’re selling and what business you’re in, are there other metrics that you can show around customer engagement and customer use or value or, because otherwise you’re going to be competing against people who are starting from scratch in March or in June who are like, “I have no traction, but I just started this thing.”

Jason Lemkin:
That’s a tough thing, right?

Aileen Lee:
Yeah.

Jason Lemkin:
It’s like folks graduating from college this year. It may be a lost generation compared to next year.

Aileen Lee:
Well, I hope not.

Jason Lemkin:
What?

Aileen Lee:
I hope not.

Jason Lemkin:
Well I know, but this may be a year where they don’t get to go through traditional recruiting processes and are impacted. And you’re like, “Well, there’s next year.” But by next year, there’s another-

Aileen Lee:
Yeah. They’re going to be-

Jason Lemkin:
… 50,000 seniors graduating from great colleges and you’re in this weird phase.

Aileen Lee:
Yeah. And the other thing we didn’t get to, I know it was one of your questions was just, there’s so many funds and this is, and that there are multi-stage funds, right? When you look at venture capital, there’s a whole thing going on about how many funds are and how many seed funds there are.
But the other thing that we, I feel like we don’t talk about enough is how many gigantic funds there are and how much of the money is in multi-stage funds that each fund is bigger than $500 million. And so how that changes the ecosystem in terms of when you put someone on your cap table, like we co-invest with multi-stage funds all the time and we partner with them all the time, but you have to be really savvy about when you do take one of those folks on or multiples of them onto your cap table and onto your board it’s a different ball game in terms of their incentives and their portfolios and the size checks they want to write and versus like us simple seed people.

Jason Lemkin:
Yeah. I think for each big fund on the cap table, you need to create $1 to $2 billion in exit value. So once you have four or five of those big names, you’re con is committing to a decacorn.

Aileen Lee:
Yeah, exactly. And that reality is like, I mean, Thomas Jeung has published a thing recently about, I think you’re 26 times more likely to be acquired than to go public, and so the reality is I mean, people can joke about how many unicorns there are, but it’s still extremely hard to build a billion dollar company.

Jason Lemkin:
It is. I keep waiting for your tech crunch article number three.

Aileen Lee:
Are you there?

Jason Lemkin:
I don’t think you put the third one, did you?

Aileen Lee:
I haven’t no. Actually it’s funny because I have, now that we have a little bit more time at home, I’ve gotten back to it actually to kind of get up to speed on the new set and to try and learn where they came from and all that stuff and how it’s different than the original set.

Jason Lemkin:
I think it’s time. I mean, I think-

Aileen Lee:
Oh, thank you. I’m working on it. I’m a really slow writer.

Jason Lemkin:
The first one was like… This is probably the last thing we’ll have to chat about, so maybe it’s a little off topic, but I think it’s helpful. I think the first one was one of the best pieces of venture content marketing ever, right? Which was probably part of the goal. Right?

Aileen Lee:
No, it was completely an accident.

Jason Lemkin:
It was an accident?

Aileen Lee:
Totally. I did not think anyone was going to read it at all.

Jason Lemkin:
Really?

Aileen Lee:
Oh my God.

Jason Lemkin:
Oh, wow.

Aileen Lee:
I worked on it for months just for myself just because I had this new fund-

Jason Lemkin:
Months? Months?

Aileen Lee:
Months. Because I-

Jason Lemkin:
No one had ever assembled that type of data, but now there’s analysts and everyone’s firm does it, but no one had ever seen that whenever the first one was, 2014 or something like that.

Aileen Lee:
2013. Yeah. I did it for myself just because I had this new fund and I was like, “What should I invest in?” If I had to do an analysis of the most successful companies of the past decade, what would they have in common, so I could try and look for those for the next set. And then there was all this stuff that came out of it. I was like, “Oh, actually I think this would be useful for founders and for investors for a bunch of different reasons.”
And so I published it, but I gave it to some friends to read it. I actually was on the way back from the lobby conference and I gave it to a couple of people on the plane to read it. I was like, “Hey, I’m thinking about publishing this blog post, what do you think?”
And they were like, “It’s okay.” Nobody even said like, “Wow, this is really great.” Or like, “This is going to become a thing.” And so it was a big surprise.

Jason Lemkin:
Yeah, the second one was great because it had even more data.

Aileen Lee:
Actually to bring it full circle, when I published it, I was at Disney World, I was at Disneyland with my family, the day that it went up, the Saturday morning it went up and so I’m on line for rides and I was like, “Jason,” my husband’s name is Jason. I was like, “Oh my God, people are liking this and sharing this. This is so crazy.” And he’s like, “Hey, we’re at Disneyland. Focus.” And I’m like, “You don’t understand. People are actually reading this thing.”

Jason Lemkin:
It’s funny, speak from… I mean, it’s the great lesson of all writing, speak for what you’re passionate about. You’re passionate about it because you had to learn how to deploy the fund. So this was your homework and you forced yourself to distill all that work into an article because it was your investment thesis. This was your investment thesis. A piece of it, right?

Aileen Lee:
And also, I mean our industry is huge, right? It manages almost like $500 billion and there was so little data or analysis on our industry. No transparency of… I mean, there’s not even… In universities, there’s no professor on the history of technology who studies the history of the technology business and all the forks in the road of companies, like if you did A instead of B, what happened to the company? I just think it’s fascinating.

Jason Lemkin:
It is. All right. We’re out of time. I’d like to do all these questions.

Aileen Lee:
I know. Sorry.

Jason Lemkin:
Maybe if you’re bored someday, let me know. We’ll do it again on Zoom and answer them together.

Aileen Lee:
Okay. That’d be fine.

Jason Lemkin:
I have time. But I’m looking forward to-

Aileen Lee:
But I always really enjoy chatting with you.

Jason Lemkin:
… the third piece.

Aileen Lee:
Okay.

Jason Lemkin:
I want the third article on TechCrunch. It’s okay if it takes a while. I’ve been waiting for a few years so that’s-

Aileen Lee:
Oh, you’re so nice. Thank you.

Jason Lemkin:
All right. Aileen, thank you for doing this. This was great and we’ll talk to you soon.

Aileen Lee:
Thanks everybody.

Published on July 8, 2020

Source: https://www.saastr.com/seed-investing-today-whats-changed-what-hasnt-with-aileen-lee-and-jason-lemkin-video-transcript/

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