Jason Green, co-founder and partner at Emergence, is one of the leading VCs investing in enterprise startups at the moment. But even with the focus on B2B, many of their companies have become household names — Zoom, Yammer, Box and Salesforce among them.
Now, we’re all living in a climate where everything has been turned upside down. Meetings are virtual, the future economy and collective health of the world are unknowns, and being an investor — or a founder — comes with completely new parameters and rules of engagement.
We sat down with Green for an enlightening hour to talk about the challenges of all that, plus making deals, running a business, and suddenly finding your quiet, B2B name being turned into a verb. It was an interesting conversation, worth a read for enterprise startups and investors, but — similar to how B2B can spill into consumer — equally insightful for many more.
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Below, you’ll find a lightly edited transcript of our recent chat with Green.
How is sourcing impacted in the current climate?
Sourcing is not much different. We follow the same due diligence process, so when we make an investment, the whole team basically dives in and does due diligence. So we make manager references and customer calls and spend time with each of the management team having one-on-ones. In some ways, it was better. First of all, we could very easily do breakout rooms with each of the individual management team members and then come back. So there was this dynamism to the meeting that we hadn’t had before. We were able to basically record it and share it with folks that couldn’t participate. So all of us had all the information when we were making the decision together. That was pretty special, actually. So it took a little bit longer, it probably took about 50% longer than we would have done otherwise. But I think actually, now knowing what we’ve done, we could probably compress it back to our normal timeframe. So I think in a lot of ways, we’ve learned like a lot of folks that we can do things remotely that we probably didn’t think were possible before. Hopefully, we’ll see how the investment turns out, but we’re super excited about it.
Are you considering more startups outside the Valley, and how are they viewing their own place outside the Valley?
We do a handful of investments a year, we’re very hands on, so having entrepreneurs close by where we can interact with them and meet with the management team and help recruit, that’s important to us. So there’s kind of a natural bias more toward the Bay Area. But I would say a third of our investments are outside the Bay Area historically. I would say right now, it kind of doesn’t matter, you know, the rules have changed. I mean, if we’re going to be interacting like this, and honestly, other than time zones … I mean, it really doesn’t matter.
Many of our companies now I think are rethinking their whole talent strategy, right? They’re not constrained to their headquarters or a certain geography where they are. They’re going after the best talent in the world. In some ways, again, it kind of undoes a bunch of geographical constraints we all were operating with, which is pretty exciting. It also shifts the balance of power a little bit, in a positive way. There was something I think, you know, about having entrepreneurs come to you to meet with you. Now, we’re kind of both meeting together in this virtual space, and it feels a little bit more equal and even and open actually. In a lot of ways, right now technology is going to enable more diversity and more access than we’ve ever had before.
Speaking of the power of virtual meetings, what’s been the lesson from investing in Zoom?
Yeah, once you become a verb you know you’ve made it, right? The companies we focus on are wonderful companies, but most people don’t know about them because they don’t interact with them on a daily basis. But Zoom is something that, you know, my dad and my children both interact with on a daily basis now, so I kind of feel vindicated that the enterprise SaaS space finally has a company that everybody knows and cares and is passionate about.
One of the things we believed at Emergence was we’d be better off investing in companies where the technology, the software, was an important part of your job, right? It’s not a nice-to-have, it’s a must-have, it’s a fundamental part of getting your job done.
That’s really exciting. But Zoom has just, like, blown that up in a way that we never could have imagined. There’s going to be a billion people on this platform not too far in the future. That’s education and it’s work, but it’s also fun, right? I’ve had Zoom dinners and, you know, interviews.
But it is also, obviously, a big obligation and responsibility. My partner Santi Subotovsky spends hours a day just trying to help manage one thing after another, even now. Zoom’s a pretty unique situation, and we’re actively involved. [Emergence stays involved at other companies after they go public.] [At] Veeva, for instance, my partner Gordon [Ritter] is still chairman of the board of that company five years after it went public. We tend to like to stay involved over the long haul. We love these companies and we get to know them and we’re still significant investors. One of the things we’ve done as a firm is decide we’re going to hold on to our investment over the long haul, if we can, and treat our LPs just like we would treat them if it were our own money in capital. So that’s enabled us to stay longer engaged with these companies, and not kind of abdicate the decision when we decide to exit. In the old days, when I started Emergence, if the company went public, you distributed the shares, and you were done. You moved on to the next one.
Salesforce is a good example of what we do. Salesforce went public in 2004 with a $1 billion market cap. Today, it’s $170 billion. So just theoretically, if we had distributed the shares back in 2004, investors would have lost 170x from that period of time. To some extent, they’re looking at us and they’re saying, “Okay, you guys are actively involved in the company. You’re experts in the area. And if you’re distributing the shares, to some extent, it’s kind of a signal, right?” Or, “Okay, you think it’s time to lock in those gains.” If you hold a significant portion of your investment, it’s a statement about your belief in the long-term prospects of the business.
So many might argue that we should have distributed every last share, you know, of Veeva or Zoom or Salesforce, six months after they went public, but we’ve made better returns for our investors and we’ve stayed engaged with these companies and continued to contribute to their journey, so that [attitude] has changed, I think. Part of it is having the conviction to do that. The more success you have as a venture firm, the more right you’ve earned to make those kinds of decisions that you think are in the long-term best interests of the LPs. And that’s a great position to come from.
How much of the boom around SaaS companies like Zoom do you think will sustain post-COVID-19?
I think that we’re still in the early innings of the movement to the cloud. We saw this in prior downturns — and I’ve lived through the tech bust, you know, back in 2000, and in the financial crisis. Interestingly, the move to the cloud actually accelerated during those times.
So right now in this period of kind of a lot of uncertainty, we’re actually seeing companies lean even further into this digital transformation. We’re still just on the cusp of seeing what the potential opportunities are. I mean, there’s a lot of companies being funded. So one argument might be, you know, these companies are getting nichier and nichier as they’re trying to pick off each of these new business processes.
But the other argument is, we never thought that CRM would be as big as it was right when we invested in Salesforce. I mean, it was maybe the entire market was a few billion dollars at the time in terms of an opportunity. Salesforce today is a $13 billion revenue business and $170 billion market cap. So even a part of CRM, we have a company called SalesLoft, in the sales engagement space. It’s trying to pick off the opportunity to really help sales people sell better, as opposed to sales managers managing salespeople better. Even that could be a multibillion dollar opportunity, and it’s just picking up one slice and doing it better and focusing in on it and really changing the game for a salesperson in a significant way. So, I don’t know, we just keep seeing more and more of that. I would think it would have run out by now. We’re 15 years into this kind of trend, but we’re just seeing more and more opportunity, not less.
How do you choose which startups you tap to know better and potentially invest in?
Historically, I would say the relationship network piece was the most important, the warm intro from somebody you like and respect. Over the last 5-10 years, I’d say it’s shifted much more to a proactive, thesis-driven, data-driven, outbound kind of model. I think that’s the maturing of the venture capital business.
When I got into the business 25 years ago, the whole industry was probably $5 billion a year invested. In the first quarter of this year, I think $20 billion was invested in VC. So it’s just, the whole thing has exploded, and entrepreneurs have lots of options, and there’s just too much. There’s too much information, too many companies to really process it all. So you have to focus. I think our firm has done a good job of figuring out kind of … we wanted to play in the sandbox of enterprise cloud, but even more importantly, what are these minor themes that we can really focus in on [and] reach out to these companies and figure out who is the best entrepreneur and product in the space that we want to really help fulfill.
From our perspective, we’re the best for early product market fit. If you’re still developing the product, our expertise is more on like, how do you really scale the go-to-market side of the company? How do you build a foundation for building an iconic company. So for us, we’re trying to find that sweet spot of a space that we’re interested in, a founding team that’s really compelling. Then this product market, early product market fit that kind of aligns with our fund size, check size and value add to these companies.
How do you approach diversity at Emergence and in your portfolio?
To start with, you have to look in the mirror. The George Floyd video was kind of a profound moment and shift for me personally, and for a lot of folks.
I won’t speak for everybody, but for me it’s been an accelerated learning over the last few months. I’ve just tried to really listen. I think I would characterize myself before this as a nonracist, and now I’ve kind of shifted to try to be an anti-racist, meaning that I think it’s incumbent on all of us to not just try and treat others well, but to really try and actively fight the system that hasn’t really produced the outcomes that we want.
I’m 53 years old and Martin Luther King, Jr. was talking about these issues 50 years ago, and we’re still at a state that’s unacceptable by any measure. So, I think it’s incumbent on every one of us and every organization to figure out what we want to do to try and make a difference.
As a firm, we’re not as diverse as I would like. One of the things we chose to do as a firm was to grow from within. We hire junior people, and we train them and we support them and now they’re managing partners of the firm. So we’ve tried to maintain that kind of focus. It’d be a lot easier if we could just recruit a partner, a senior partner and change it overnight. I don’t think that’s our preferred approach.
But I wish I had started a long time ago. I wish I’d started thinking about these issues 10 years ago, as opposed to five years ago, because it takes a while.
But I’ve already noticed a difference. Just being more conscious about it. It’s like having a prepared mind for a new investment opportunity, having a prepared mind to be more inclusive and to really be more action oriented.
So I’m having more meetings with diverse entrepreneurs with diverse candidates that will be our next hires. I’ve also made some outreach to try and mentor folks, and as a firm, we’re obviously having these conversations about what we can do. We’ve made donations, we’re having discussions internally. But it’s going to be a long journey.
We’re definitely also having a lot of those conversations with portfolio companies. We’ve been sharing a lot of best practices across the portfolio. We should have a separate call just on that topic with our CEOs. If each of us figure out how to win, it creates more success for others and opportunities for others and I love that about our business. That is not a zero-sum game. The more you can unleash human potential and have them fulfill their potential in life, I mean, it’s all positive, right? So, the good news is, hopefully everybody feels like we’re aligned in terms of what the outcomes we all want to achieve are and now it’s just about really paying attention to it. And being an accelerated learner and making it happen. We’re gonna try and do our part.
Do you still consider Zoom an enterprise company? Or … prosumer?
The core of that company is trying to make businesses communicate in a more compelling way. I mean, that is the core of the business. I think we’ll always be kind of the core of the business. But Eric has decided not to, just because it’s being used by a lot of consumers in a meaningful way, whether it’s kids being taught by it or others … we have a responsibility now to make it work for those use cases as well.
I don’t think that anybody thought when they were doing their earlier rounds or even when they were going public, I don’t think people imagined that it would get swept up the way it has, especially considering there’s so many other video conferencing tools that are much more kind of geared at trying to be more consumer free, that it became Zoom.
I’ve thought about how and if that sort of weird flip could happen to other companies, or even if it’s something that might be a trend now … more of a possibility of flips that way? It’s a good question. I would say our core focus still is the B2B side, making solutions and applications that really help people be more productive at work. But I will say that the way products are bought and sold in the B2B world has become much more consumer-like, and so we call it product-led growth, right where the products can be trialed or it’s a freemium version of it. It’s easy to adopt … it’s their UI and very compelling and easy. All those things are positives. When we invested in Yammer early on, they were one of the early companies to pioneer the whole freemium model. But it was all about creating a consumer-like experience spreading virally within the organization and then layering on top of it a go-to-market enterprise sales organization and marketing organization. We love companies like that.
If you can have a product that’s inherently viral, that can essentially be tried and spread and produce value for end users … and then layer on top of it a more classic enterprise sales and marketing engine, it’s the best of both worlds. That’s what we’ve done with Zoom and Yammer and others. So, absolutely, we’d love to look at more companies like that.
Many people don’t even remember this, but Box started out as a consumer company, and then moved into the B2B space, when it decided that was where the money was. So we love companies that have an ethos of building consumer-like products, but ultimately, to be a fit with Emergence, I think we’re best in the world at helping these companies build amazing B2B companies.
You can watch the full episode below.
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