Andy Stinnes: Moving Up Market in The SaaS World #187

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Hello, hello everyone. This is your host, Akil Jabbar, and welcome back to another episode of SaaS District. In today's episode, we'll be talking about moving up market in the SaaS world. Today we have our guest, Andy Stinnis, joining us. Andy is a general partner at Cloud Apps Capital Partners, a market-focused VC firm specializing in cloud business application companies. They partner with entrepreneurs at the very early stages to build global category-leading companies. Andy is responsible for developing investment strategies, sourcing and leading investments, and serving on the board of portfolio companies. He's an expert in business software applications, business networks, enterprise-class product strategy, and go-to-market. So welcome, Andy. Super excited to have you on the show today.

Thanks Akil, it's good to be here.

So lots of interesting stuff has been happening this year, right? I mean, I'd love to kind of start before we dig into kind of going up market, um, you know, about the current market when it comes to investing in, you know, the SaaS applications, the cloud market with obviously public markets going down, uh, investors holding back or, you know, rethinking the strategy. What's your kind of current position as a VC firm, both in the short term for, let's say 2022, and then maybe, you know, thinking long term ahead as well?

Yeah, absolutely. And, you know, what a crazy market it's been right over the last uh two years for sure. Maybe cut to the answer first: we think it's it's actually a great time, uh, great market for uh for investors in SaaS. I mean, we think the cloud market in general is is a great thing and uh, you know, never mind sort of the ups and downs of the moment, is uh the long-term proposition is a wonderful place to be and to invest and to build companies. But maybe just for a little bit of context, uh, let's not forget we had like, you know, the longest running bull market, uh, and this this market is known for its sort of ups and downs on a somewhat of a regular cycle, but this has been a long one, and the last two years like I said were particularly uh crazy, right? Um, yeah, and honestly, as a firm we've been sort of sitting here for a while expecting that it's time for uh for a change and for a correction. Yeah, um, and you know, IPOs on fire. I don't need to retell the story. Lots of non-traditional investors coming in the last year or two years. Yeah, and really amping up valuations around sizes, particularly towards the late-stage investments where sort of the the time to IPO, time to exit was short enough that you can kind of set the clock for it and and expect that IPO window still to be open and lucrative for you. And as a result, you know, valuations kind of doubled in cloud specifically over the last, you know, two years at the late stage. Interestingly, when you look at early stage, which is where we're investing, it's not as pronounced; they were up but more like 40 or so, uh, and that's simply because at the early stage you're so far away from an exit, right? At the time you're talking six, eight, ten years to maturity to public scale, and God knows what the market will look like at that point. So it's it's a little different than the early stage, but but still uh clearly it's been uh it's been somewhat dislocated. Lots of folks moving earlier and and as a firm we've actually been sitting pretty uh uh uh conservatively and not made many investments. Okay. For example, in 21 we, you know, we made just I think one single investment, um, just because it was not, you know, not a particularly good market as an investor, as uh as as overvalued as things were. So you know, fast forward six months here we are, um, and uh the world's changed quite a bit, which I think is actually is actually good news, uh, good news certainly for us as investors because you know evaluations are down, things are a little saner, and you know the process is more uh more healthy, right? You can actually take your time to get to know founders and their business ideas and and build a real relationship and not just rush through, you know, from two weeks from get to know each other to term sheet. Um, and the other side of this is, you know, a downturn like this is actually the time when a lot of great companies are being born, right? If you go back in history, a lot of the the all-time, you know, most successful sales companies were actually started, you know, in 2007, 2008, 2009, for example, and a time when things were were not that great. So, um, because in the early stage, that's a whole other chapter we can talk about, um, you don't necessarily need that many customers, you don't need that that much funding, right? So you just need time from your customers and from your investors, and that's what folks have right now. So uh it's a great time uh to be investing and we're super active again and um and uh we'll be for some time to come here uh and we're excited.

Yeah, yeah, absolutely. I mean, we've been in the same kind of position with you in 2021. I think we were the same at Horizon Capital. I think we did one one investment, but yeah, you know, initially this year we were kind of, you know, rocked by what was happening. We're going to just more of the uncertainty, but now that things have kind of settled, I think we're we're definitely more excited and you know to get into to doing more deals because yeah, exactly that was just I felt overvalued, over high, people were just asking for way too much, and it just didn't feel um, you know, sustainable to to to do those kind of deals. But um, would love to kind of hear, you know, so you said you work with early-stage companies, um, can you share about a little bit more but what does your investment thesis look like? What do you look for in entrepreneurs you work with and and, you know, who are companies you don't want to work with or, you know, tell me tell us a bit more about evaluations that you are comfortable investing in right now?

Yeah, absolutely. So, um, we're market-focused firm, like I said, we invest exclusively in business cloud, so business software, cloud-based, um, primarily with sort of an eye to sort of end-user application software, and we lead what we call a classic Series A, uh, typically those are, you know, around three to six, seven, eight million dollars in size, okay, that you know we lead and we do the majority of the check for uh and then we'd like to build some strong syndicates around us for those rounds. And um, the reason we call a classic Series A is, you know, if you look at the funding continuum, right, there's lots of angel activity, lots of seed investors who do a great job doing what they're doing, but to build a successful cloud company you need enough capital uh to get to sort of a 2 million ARR range at which stage you can raise from most of the more traditional larger firms, right? So then the new age Series A, for example, typically now is 10, 15 billion in size, and those rounds typically require 2 million ARR or more, right? So in our view, there's a bit of a hole in the market because the seed check of 2 million or so just doesn't get you there, and then importantly also seed firms as a risk hedging strategy just make a lot of investments, but as a result they don't have a whole lot of time to help founders, and especially that early stage so much company building is being done, and that's where founders need the most help, right? Because nobody knows it all, right? So so our thesis is that we kind of sit in the middle as a stepping stone, we do these what we again call a classic Series A, we have to focus of a Series A investor, you know, we only do about 12 to 15 investments per fund with two investing partners, so we join the board, we have time, we have, you know, lots of operating experience. My partner and I both have 20 years each as operators building software companies in various roles and executive teams, so we've done it, seen it, have a lot of, you know, network of SaaS experts that we can bring to bear as advisors, as board members, maybe as higher's, and and we do that again earlier than your new age Series A, right? We don't need 2 million ARR; we go in 100, 200 KARRs as long as we can see there's some traction, some validation. We've done investing at inception when, you know, the founders. So some people would think of it as seed investing, but we don't think of it that way because we are very focused, like I said, 15 investments per fund, so we have a much more dedicated um commitment to uh the companies we invest in. Okay. And so you do see it, you also do classic Series A, you know, 2 million plus ARR, is there specific industries? If somebody's listening in, they say they probably got a business that could be a fit and they want to reach out, um, you know, some kind of verticals that make more sense for you guys and you guys like to work with?

Yeah, so I think the best way to describe it, I think, is when we look at opportunities is again we have uh sort of a preference for end-user software, right? So we stay away typically from um, you know, infrastructure stuff like security or cyber or something like this just because we don't understand it well enough and we want to add value in the process post-investment, and for that we need to kind of understand it. So but with that frame, it's fairly broad, right? Okay, whether it's sort of CRM, MarTech, sales, whether it's legal or compliance, whether it's supply chain, manufacturing, we you know we've done a lot of things kind of all over the corporate functional spectrum. The things that we look for the most are: do the founders really understand the domain and the problem they're solving? That's sort of one big criteria for us. Yeah, second one is who is the buyer title, right? Not just the company, the ICP so to speak of companies they sell to, but who's the person in terms of their title, their role, their influence, their budget access, and how relevant is this problem to this particular buyer, right? Is it like the number one problem to that buyer title or is it a number 12, right, or another 50? And then is the market large enough, right? Because as you said in your opening, you know, blurb about us, we invest with an eye to public-scale, category-creating or leading companies, and that works only if you have a large enough global market um with enough value runway if you will around that buyer title, like what are all the things that this person is going to need to be built around the initial proposition so that you can grow ACV with that customer over time. So those are the things we look for. Again, it's got particular particular verticals or it's not particular spaces per se, but those are sort of the theses, the dimensions of the theses that we have.

You got it. And then so you get a stage, you find you find a company that's, you know, you feel is a good investment opportunity where you guys can get involved and you feel you understand at the early stages, your expertise is obviously also involved in the the validating and opportunities to and help them go up market, to understand the, you know, the value of being up market, um, maybe can you speak a little bit why do you think it's important that they they move up market or they they should consider that that should be where they should be?

Yeah, so that's an interesting that's an interesting um uh question, right? Because to some degree I think it's less of a you decide whether you want to go up market or down market, it's more of like the dynamics around the problem you're solving, the industry you're solving it, and what can happen to you and then navigating that and being ready for it, right? So the way we think of it is there's essentially two sort of distinct models in SaaS, right? One is what we call traditional SaaS, which is more like you start with smaller companies, SMB, mid-market, but you tackle a global problem in a pretty ubiquitous problem, and it can grow and go be taken all the way to enterprise, and I'll come back to that in a second. The other distinct model is what we call enterprise cloud, which is where from the very beginning you tackle um large companies, enterprise customers exactly, and and which one is the right one really depends on what is the problem you solve, right? And who is that buyer title and which kind of companies do I find a buyer uh that has that problem of significant uh criticality if you will and scope that you can um you can even sell successfully, right? So just to make some examples, like supply chain for example is like a typical top-down thing, right? Because you need large enough companies that really have massive issues with their supply chains that you can enter, right? Um, you know, an example from our portfolio is a company called 4C Risk, which is uh governance, risk and and compliance, and you know from the very beginning they sell to very large financial institutions to the risk, the chief compliance officer and risk manager, right? To make sure they have the tools in place to to to to deal with that, that's just not something you find easily in in smaller companies, right? So enterprise cloud versus traditional SaaS depends a lot on again the problem you're solving, and that goes back to the domain expertise of the founders. Now what's interesting in um, you know, all the years we've been doing this, when you look at companies that start with enterprise customers, enterprise cloud companies, very rarely do you see them really go down market, even with large even with large success. Or think of like a a Workday or think of a Viva, right? The pharmaceuticals cloud, super successful companies, crazy successful, but their attempts to go either they don't try because it just doesn't make sense and they're not or they try but they shouldn't, right? Yeah, because the culture that gets built, uh, the dynamic or on a partner ecosystem and the way the product is designed, the way the sales organization is designed and works, and 100 other reasons, and that's probably that's a whole other show here on that topic, it just doesn't really happen to to go down market. Now if you go start with small customers, SMB and mid-market, you know, traditional SaaS, then it's you're much much more likely to be able to go up market, and I think the way that happens is more of a you get pulled up market; it's it's less of a conscious decision than like, hey wouldn't it be a good idea we start selling bigger customers; it's more of a natural process. So if you think of um, let's see Salesforce is a great example or uh yeah or Box is another wonderful example, right? Yeah, very much started with a you know let's nibble away at Siebel, right? This is the old Salesforce story, right? Uh, and um and then it becomes more of a land and expand really, right? First of small companies and they use it and it's great, it's easy to use, and it doesn't have a huge sticker and there's no professional services organization that wants to come in and charge you big dollars to implement the stuff and blah blah blah, it's easy, right? It's good, it's it's it's good for small companies, they love it. Yeah, and then you find big companies start um adopting this more of a departmental level, quite a small team, they use it, Slack by the way is another example of this, right? And then more people see it and it becomes it grows sort of internally from, you know, small group to department, and at some point CIOs looks like it's like why don't we all use this, right? Exactly. And that's the point when the market actually starts pulling you up, and that's a wonderful place to be, uh, it's also one that you need to be prepared for, okay? Because things absolutely break at that point, um, you know, your product isn't designed for enterprise, you know, enterprise has different needs. Yeah, when you think about the infrastructure on security, robustness, scalability, integration into their backend systems and a whole bunch of stuff like this, right? It's it will break. I mean, if you trace the story of a Salesforce or a Box, that was certainly the case, uh, we talked to people who've been there through the journey, like there were, you know, moments of angst, we're like, okay, we have to kind of rebuild this thing as we're flying. Um, that's the product side, there's the sales side, right? Selling to big companies is different, um, the way they buy, the way they want to be treated, you know, the whole the long sales cycle, complex, much more political, multi-dimensional, you know, all those things, so you need to retool your organization, you retool your product, your financials actually start changing a little bit, so there's a bunch of stuff that uh needs to be overcome, there are real obstacles, and by the way, some companies choose not to go there, right? They're like very happy in mid-market and in SMB, but you know most of the super category successes that you know I keep referencing, they all like saw it, felt it, were pulled and did the work to get there and became super successful uh uh that way, right? By the way, so just sort of a little factoid here, we we did some some analysis, uh, if you look at the the Bessemer Cloud Index and look at those companies there, just broadly speaking, there's some some mixed forms in there that are hard to categorize. Broadly speaking, about 70 percent of those companies all started with SMB and went up, right? And about 20 or so of those companies are like the Workday, Viva types, right? That are basically enterprise cloud companies, and a few of them, if any, I mean, I couldn't name one honestly that really went all the way down into SMB. I think that that it's definitely a challenge, and I've heard that, you know, when when some SaaS companies you speak to who start up market and you know they don't get as much traction or growth as they like and they think, okay, maybe it's better to go, you know, down market to kind of, you know, faster sales cycles, easier to kind of get into the market, get faster feedback, and I think that's probably the biggest reason why people start maybe with the with SMB is easier just to to get it out and get people using it in the shorter sales cycle, right? But now one one important point you mentioned which is, you know, you kind of get pulled up market, and I guess there's certain metrics or certain, you know, checkpoints that maybe start telling you that it's time, um, what would be some that you think that as a founder you have to think about and say, okay, look, it's time to transition to up market? I mean, one would be kind of, you know, maybe you're just getting more demand and people are reaching, you know, there's more enterprise inbound requests or, you know, there's just more requests from your existing customers who need more functionality that are are using it but needed for their, you know, for for their entire team, um, what else would you think would be?

Yeah, I think the number one thing to look at and listen for is just what is the market telling you, and is there that tool that I described earlier, right? Are you starting to see uh larger customers adopting maybe in smaller ways, team-based, departmental, like I said, and does that naturally lead to like a sort of growth inside those companies? I know from our portfolio we have some some companies that basically run stats on like, okay, how many users do we have at large customers and how does this user count grow over time as an indicator for them to know like, okay, this is working for large companies and it's better than the alternative that they have used so far, and that's that word is spreading, right? So I think that's the number one thing to look for, right? Okay, I think if you're not certain, you can do some some test marketing into the mid-market, some lower lower lower level enterprise and just see like are they are they gonna take it up to begin with, just you know reputationally, functionality fit to what they need, and then what is their experience and what you know how hard is it for you to service them and how different is that from your experience? Yeah, and I think that will tell you a lot about the market's interest, and then there's a gut check question, um, you know, you're the founder, your executive team, your board, right, your investors, that's that's a big step, big decision to let that happen, to go there, and are you ready, right? I mean, it does exchange exchange financials and then just change the company and it uh it's it's a journey, right? You need a lot of capital also to make that happen, so is that the path you want to go or are you you're happy in the spit market or SMB world, and that can be the right answer, it really depends.

Exactly. Yeah, I've actually heard that as well, some founders who just want to stay product-led, they just want to focus on product and just all inbound driven, and they have no desire to be sales-led, to build a sales organization, to be doing any sales, and and they're okay with that, and regardless of what the market says, they just want to stay in that that bubbler circle, and that's okay too, right?

Yeah, absolutely. Yeah, absolutely. I mean, think about gross margins, right? So yeah, when you have a if it's PLG it's even more so, but you know even if you have like an inbound, inside sales or or auto-convert kind of um business, SMB, you probably end up having tremendous growth margins and you're probably in the upper 80 percentile or something like that, and if you like you said if you have to put a sales organization, go for a bit of field sales organization together, yeah, and a professional services organization, um, your margins will not look as stellar as they used to, and there was definitely an example of companies that looked at that go like, nah, not for us, let's let's just stay where we are.

Morgan's biggest, exactly, exactly. And that's okay too. Yeah, have you seen other kind of uh, you know, differences in terms of like key metrics when when people go up market, such as, you know, the ARR or the, you know, LTV or or churn or CAC and you know other other uh?

Yeah, of course, as always, right? It varies a little bit, but I think broadly speaking what you will see is your your annual contract value, your ACV will go up, right? Larger customers, larger tickets, you know, once they commit and they want to do this for real, then those are big big deals. Your churn will actually improve, right? So enterprise customers are much more sticky, a they don't go out of business or at least not as often as SMBs, right? So a lot of the churn in the SMB level where you have like 15, 20 percent churn or so, it's just small companies come and go, right? Um, uh, so churn goes gets better so to speak, uh, LTV and LTV over CAC, customer acquisition cost definitely goes up for all the reasons I mentioned a minute ago, but your LTV also goes up, a bigger tickets and b much more

Longevity. Right. So, once a large enterprise makes a commitment to use Box, or to use Salesforce—to stick with those two examples—yeah, those are 10-year commitments. That's not stuff that they rip out after two years, right? So, so both of those numbers go up. So your LTV, CAC—uh, it depends a little bit, right? It trends the same, better, or worse; it's a bit of a proportional question. Yeah. Um, and then your net retention rate is also going up. Right. I mean, I mean, there's there's good statistics being published by folks out there, but I think, you know, the SMB world, you probably, you know, you're probably 80, 80-90% net retention, and once you go into enterprise, you're going to get that over 100, and you know, it should be more like 120 percentile or so, okay, in that space. And like I said before, gross margin typically goes down because of the bigger part of services that aren't usually needed in the in the enterprise world—not always, but you know, in most cases. Sure. So more services and then also, I guess, higher CAC overall. So I think as long as you're willing to invest that CAC, I think overall it seems to be a better return in the long run. Right.

Yeah, that's right. Yeah, so I, you know, looking at your website, your portfolio of companies you guys have invested in, you have different, you know, great success stories as well. Um, you know, with your track record, I also have a great track record. Can you share maybe a few uh mistakes? Right, that's all things that we want to learn—mistakes that companies make when they maybe try to scale a little bit too early, and I think that's important. People love the idea of scaling quickly, but you know, if you scale too early, I think there's this, you know, could go wrong as well.

Yeah, I think um, the number one thing that we find advising founders on in our portfolio or just in general as we speak with people is is uh scaling your sales organization prematurely, and I think that is, you know, the the larger I think your customers are, the the longer your sales cycle, the more complex that is, the more true that is. Right. So if you have something very transactional, very simple, uh fast sale cycle, then you know, it's easier to ramp and experience and see where that goes. But if you have a long sale cycle and complex sales cycle, and if you start throwing bodies at this too quickly, um, it takes a long time for you to figure out that it doesn't work and it doesn't scale, and that's very expensive. Right.

Yeah. So, for example, like you know, you have a uh, you know, a company, and you have like, you know, the founding team, and you have like two sales people, yeah, and under the direct, you know, supervision if you roll up the founders, and that works, and you're like, okay, we got it now, let's hire seven, yeah, right? Finding the right plus five, right, and actually understanding what's going on and what's going wrong and what's going right, uh, yeah, what's going slowly on the go, it's quite wrong side—uh, it becomes very opaque and very hard, right? Um, because you know, you really need to understand, you know, who is the ICP, the ideal customer profile, who's the buyer, how do they buy, what are really the solution requirements and sort of the whole solution, right? Not just here's the product, but everything around it to make it like something that's really adoptable and can be successful. Competition—how do we, where do we really differentiate? Not just our marketing material, what we think it is, but what is it really in the customer's life? All these things take time, right? And I've seen too many founders, you know, out of their, you know, boundless optimism and sometimes a lack of experience, they're like, okay, we want to grow fast, so you know, we can each rep can, you know, do this many deals per year, so therefore we need, you know, eight reps—that's higher—and not wait long enough until you really have figured this out, and you can sort of tell, if I add one more rep, it's going to actually add this much more in that net new ER every year, and once you get to that point, then you can carefully grow into it rather than just, you know, go fast. And I think the other one that's a little bit more nuanced there, but um, there's a very important transition that goes on in that early stage as you grow that team, which is the transition from founder-led sales to sort of sales-lab, right? Professional sales organization. And many founders totally under-appreciate how important they personally, a role they play in the sales process, how much those early customers love sort of the cliché of dealing with this young, vibrant CEO, and she is just awesome, and I'm really buying from her, right? And the moment she steps away from it, it becomes a very different dynamic, and the sales process changes, right? And since they need to deliver numbers and the boards on their case, right, so she or he, whoever the case may be, they continue to, you know, be in every deal and and don't realize that as long as that's the case, they're not ready to scale. You have to first, with a team of two to three reps, you know, prove—ideally with like a VP, player-coach, head of sales, with two plus two, maybe three reps for a year or so—prove that this really works and you don't need to be much involved, and then you know that now I can start adding more people to it. But if it's always centered around you as the founder or the founding team, it's hard to scale.

Yeah, absolutely. I mean, you can expect the same results from from, you know, be you as the founders as you know your first hire, right? And it's going to take time before you can hopefully replicate the results that you got yourself. Right.

Yeah, yeah, for sure. And then, you know, speaking of some of the companies or portfolio companies that you've worked with or you partnered with or invested in, can you talk, you know, maybe share an example, maybe how you help them form that strategy for that up-market transition, and maybe what was the result that you guys have seen from doing that?

Yeah, yeah, yeah, yeah. Um, let me see, let me see. Um, so maybe a good example is a company called GoForms, okay? So they're in the mobile forms, digital mobile forms space, um, and we invested in in them quite a while ago. They uh, they very much started with small companies, you know, not even mid-market, just really SMB, um, and it's a PLG model, right? So business freemium—it wasn't called PLG, they started, you know, business freemium—but it's basically a free plan for, you know, this many users, this many forms, what have you, um, and then you know, four-feet tiers of different four-feet arrangements on top of that for those who really like the solution, I'm gonna grow it and use it more and so forth. And so, you know, we we spend quite some time um helping them through like perfecting the model, the PLG model, the product itself. I mean, it's a it's a a very unique sort of solution because the form is exactly like whatever your PDF looked like before, now it's going to look exactly the same, only it's a it's a it's a digital form that you can fill, which makes the adoption in the field so much easier, right, than something that's different. So getting that right, right, and then finding traction—like what are the verticals, what are the kind of companies, who is that buyer title uh that really uh gets it and wants that and needs it and will grow it. And so, for example, they hadn't had much success or however, having much success sort of in construction and general sort of field service and things like oil and gas and things like that. Yeah, and uh, you know, now they are, you know, the leader uh if you look at the G2 uh quadrant, right, the leader of the mobile forms market uh and um are growing really nicely. They've got, you know, wonderful KPIs. So if you look at their LTV over CAC math, it just looks awesome, and with every dollar invested in sort of marketing, it just pays dividends, and it's a it's a great sort of flywheel thing. And you know, back to your theme of moving up market, right? Without necessarily a conscious, okay, let's change everything and move up market kind of decision, they're starting to see more and more mid-market customers, big enterprise customers, you know, they've got like a whole stable of customers where you're like six-digit annual, you know, ACV numbers. It all started with just PLG—use it for five users and grow over time—and um, and that's kind of things that that you know that we we do, we've experienced with, and uh, it's definitely a great success story, and we are very excited about what will happen to them over the next, you know, two or three years. For sure.

Yeah, you gotta love those type of uh those kind of inbound requests of, you know, those those uh enterprise companies or mid-market to come in, and they just try it without any kind of sales, sales interaction, and they they over, over time, just organically grow and and become a six-figure user. Right? You gotta love those.

Yeah, for sure. Yes. So I'm just checking this out. Yeah, goforms.com. Yeah, great, looks great. Um, and then kind of the last question I have before we move to the, you know, more personal rapid-fire questions part of the the interview, which is, you know, I know we talked a little bit about uh maybe issues or things to think about if you're trying to if you try to scale your business too early, but you have any other tips or maybe mistakes to avoid for some early, early-stage founders if they're looking to scale their company and they're ready to go up market in the future and and maybe think about when is the right time uh, you know, when it comes to that time for their business?

Yeah, yeah. Um, I think I'd say this uh, first and foremost, I think don't worry about uh, you know, enterprise versus SMB versus whatever. Start with really thinking about what is the problem I'm solving—like, do I really understand it, and where is the right sort of, you know, head pin, if you will, from a types of companies, types of buyers that have this problem and gravitate to using new technology and adopting new technology, not being risky, and let that make that decision for you, right? And if you are a, you know, Workday kind of company, you know, when they started, and it's just the right answer to start with large enterprises for, you know, a host of reasons, and that's what it is, and then that's great, and you can be spectacularly successful within big enterprise customers and maybe never leave that space. Yeah, or if you find out that, you know, the nature of the problem you're solving is just such that, you know, you find it much easier to start with small companies and be successful there, then that's what it is, right? So so don't don't get it, go get too much in your head over there, like up-market, down-market, whatever—like what's the right thing to do, right? Right, for this for this problem, for this business I'm trying to build, right? Um, and then I think um um, be cognizant, right, of some of the things that we just talked about in terms of limitations and challenges along the way, right? So, for example, I would say if you are ending up starting with uh more of the enterprise side, be very careful in what customers you pick specifically if they're really big. Yeah. So you know, I always cringe when I see, you know, early-stage founders, you know, um, you know, give me a call and all excited about their very first customers—Walmart, right, or something like that. Right.

Yeah, yeah. And as beautiful as and as big as those companies are, they can also thank you, right? Because you'll end up building a product that's basically just for them, but how many more Walmarts are out there? Like how many more customers that have exactly the same problem and can be solved the same way? So so just be be careful there, right? And I think if you end up starting more on the SMB side, uh just think scale, think automation, right? You know, yes, early on you could do a lot more things manually, but you're very quickly going to run into brick walls, right? Because in order for that to work, you need to onboard hundreds of customers every year, not thousands, right? So you need to just do this as streamlined as possible, so get that into your mindset and into your team's mindset early on.

Yeah, that's fantastic advice. Yeah, I remember that, you know, getting that first, you know, uh enterprise client, you know, years ago and the first SaaS company I advised with, and yeah, you know, they asked for a proof of concept, and you know, team's all excited, and yeah, but then you you end up building for for their team, then one department, and then all of a sudden you're yeah, you're you're stuck into a bit, you know, a different business than what you thought you would. Right.

Absolutely. Yeah, yeah, yeah. Cool. Andy, this has been fantastic advice. I mean, I appreciate all you shared here. Gladly. Yeah, ready for the uh rapid-fire questions?

All right, hit me. Yeah, that's it. All right. All right, let's do it. Okay, so uh, what's one activity you enjoy outside of work that you say gets you into to flow state?

Uh, I love being outdoors, and you know, whether it's, you know, hiking or skiing or whatnot, I just love the outdoors, but I think more than anything else from this flow state, I love endurance sports, and you know, I swim a lot and I run, but biking by far is my number one—like, I get, love to be on my road bike and, you know, here where I live, lots of nice hills and beautiful roads, and and it just gives me a lot of peace and and space to think.

I love that. Yeah, yeah, I'm with you. I love biking as well. That's awesome. Um, what's one piece of advice, Andy, you wish you had known, and you would if you could go back you would tell your let's say 25-year-old self? Okay, where do I start, list of that? Yeah. Well, I think, let's see, I think one that comes to mind here is if you'd met me at 25, I was hyper, hyper-focused. My my friends always make fun of me—hyper-focused, super intense as a person—and knew exactly what I want to do, and that was only one right way, and that was my way, and and go, go, go, right? Yeah, and I think, you know, over the years I probably mellowed out a little bit, but I would give myself the advice that, you know, your peripheral vision is really important, right? So what's around you, like what you learn along the way, and that's sort of not directly within focus, and who you meet and, you know, how these people may become really influential in your life later on. Yeah, it's actually worth spending more uh time and capacity, brain capacity and everything else on than I ever did in my in my early years.

Yeah, yeah, fantastic. I love it. Um, what are some of the biggest challenges you guys are currently facing in order to continue to grow your VC firm, Cloud Apps Capital Partners? Meaning, I don't know if there's anything that keeps you up at night these days when it comes to investing or looking at deals or what?

Um, yeah, let's see. So I think, like I said, we were super excited about the market. I think that that's that's really a bright spot for us—more, we're excited about what what lies ahead and the investments we already made this year. Keeping up at night is probably too strong, but the things that are sort of on the watch list are um, it's a little uncertain right now just economically of how the bio markets will develop, right? I mean, we had like this huge burst of like everybody needs to digitalize, our digital talk, digitalize everything, yeah, um, so now maybe there's a recession, maybe not, we'll see how that uh how that behaves, right? So we're thinking and working with our portfolio companies around how much caution to put into their plans for that. Um, and then the second one is just follow-on financings, right? So we leave the early Series A, the classic Series A, yeah, but then there's like B's and C's and D's come after us, and we have a great, beautiful network of firms we work with that we we appreciate and they appreciate us—a lot of those firms are, you know, in a position now where they have to be cautious, right? They invested, you know, in high-valuation companies that don't really have anywhere to go right now, so the market gumped up, and uh, so making sure that that starts uh flowing again, that capital, and you know, our portfolio companies can all get follow-on financings and continue to grow uh is another thing that, you know, we we spend time on and is is on the watch list.

Okay, okay, fantastic. Uh, and and who are, what are the best uh resources—let's say three—it could be books, it can be, you know, people, mentors, or maybe people you fall in the space—who you say been kind of the most instrumental to your success over these last few years, whether in investing or in operations?

Look, I I've been I've been blessed with, you know, working with, you know, amazing people throughout my whole career, and I think I've sometimes there were, you know, rather explicit mentors to me and that sort of acknowledged, and sometimes I never knew that they were mentoring me, but I was borrowing and looking and watching. I've always sort of been fascinated by seeing what other people do, how they do it, how they how they're different from who I am and how I am and how I do things and sort of, you know, borrow and steal and and emulate, if you will. Yeah, but one thing I think I've found for myself over the years is that at the end of the day, you just have to be you, right? Um, you have to trace true to yourself and know and understand what your style is and not overthink they're like, okay, is that the right way or the wrong way, but just be authentic about it and be true to yourself. Exactly. Yeah, just what do you really want, right? To know what you know, right? It looks like success or what you know, the, you know, what uh everybody else does, you know, there's I think there is sort of a tendency to to think that there's a right or wrong in certain things, like how how should a, you know, founder of a SaaS company be, right? In terms of behavior and appearance and and demeanor and all these things, and it's just not, that's just the wrong way to look at it—like, who are you, right? And how can you apply your strengths and your character traits to the task at hand, and there's a million different ways to do that. I think that confidence of just, you know, being yourself and making the most out of that rather than trying to play a role, someone you're not, I think that's that's that's—I imagine you being in the Bay Area, you might see a lot of those, you know, there's like a replication of how, you know, what the ideal person looks like as a founder, and everybody tries to replicate. Yeah, there's a little bit of that going on for sure.

Yeah, yeah, it's all right. Um, so obviously you've had, you know, great success in your career, and you're you know, where you are today, so you know, things about this definition of what I'm about to ask you probably has changed over time, but you know, today, what what does success mean to you today? And it could be either personally, business, financial, life—there's no right answer—but how do you how do you define it?

Yeah, you know, it's uh, to some degree kind of comes back to what we just talked about. Um, you know, I mean, to me success is like, first and foremost, just, you know, be happy, be healthy, right? With what with your life and what you're doing, right? And everything else is just, you know, sub to that, but my kids, my teenage kids, um, they they say this thing, and and others will probably laugh and they hear that, but they say, you do you, and they typically they typically say that when they completely disagree with what I just said or what I'm doing uh in this sort of slightly passively aggressively, like, okay, you're you're you're lost cause, I will give up on you, so you do your dad, but you know, secretly to me it's almost become like a like my secret mantra, which is like, you know, be doing yourself. Yes, I'm gonna do me, right? You do you, and uh, be happy with that, right? Find what makes you happy and, you know, and whatever mix of, you know, um personal, professional, financial, what have you, right? Is all these things matter, right? But they're different for everybody, and you just need to figure it out for yourself and and go with that.

Perfect. Yeah, be yourself—that's success. Yeah, love it. Andy, this this has been great. Um, you know, just just kind of wrap this up—for if founders are looking to get in touch with you, learn more about you, your VC firm, or they're maybe looking to pitch their company for for investment, where's the best place to go or get in touch with you?

Yeah, so I think all these two obvious ones, but I think they are the best one—like, one is LinkedIn, so you'll find, you know, me on LinkedIn very easily, and there's also a lot of resources out there. I do uh, to write a bunch of articles, you know, about these kind of topics—actually, the one that we just talked about here about up-market, down-market, I wrote a whole paper on this a couple years ago. I think it's all out there, so you'll find me there—just, you know, follow me if you want to learn more or just contact me if you uh if you're interested, if you think like you have a business um that kind of fits our theme and need a partner that, you know, is like us, like that has operating experience and can can be committed to the long-term success—just find us there. And then our website, uh Cloud Apps Capital Partners website, which you'll also find quickly, um, has, you know, lots of more information about us, the portfolio, you know, our success stories, who we are, and I think those are probably the two best resources.

Okay, okay, awesome. So add your your LinkedIn profile and the the website to our show notes, so if you guys want to check it out uh, feel free to reach out and check out more about Andy. Awesome. Thank you so much once again, Andy. Appreciate you jumping on on the SaaS District show today.

No problem. Making it was great fun. Thank you for having me.

Thank you. Thank you all for watching this episode and joining SaaS District today. Don't forget to like, subscribe, and hit the bell for future episodes where we interview top leaders in the SaaS industry. If you're a SaaS company looking to grow and unlock the true value of your business, get in touch with us at Horizon Capital, and myself or one of our consultants will provide a free assessment to help you get there and hit your goals. If you have any feedback or suggestions for this podcast, please comment down below and help us improve our content for you all. Thanks again, and see you on the next one. [Music]