Hi, I’m Josh Stein. I’m a partner at DFJ, a VC firm that invests in extraordinary entrepreneurs who set out to change the world. I focus on enterprise and consumer software and services companies, and some of my current board responsibilities include Box, Chartbeat, LaunchDarkly, LendKey, Periscope Data, SugarCRM, and Talkdesk. I’m thrilled to be here, and look forward to your questions!
Jason M. Lemkin
@jasonlk · SaaStr
What's the "bar" in SaaS today? How has the bar to get funded gone up since you wrote the first check into Box (if at all)?
@jasonlk if we're talking about early stage funding, I think the bar has actually gone down considerably. With a credible team of 3-4 people, a reasonable idea and a basic MVP, I think it has never been easier to raise seed capital for a SaaS company due to the robust ecosystem of seed investors, whether you're talking about incubators like YC, Techstars & 500 Startups; or super-angel/micro-VC funds like SoftTechVC, Homebrew, Cowboy or the Saastr Fund (!!). And I think that also extends to then getting the business going and growing to ~$1M ARR. All the enabling platforms are so mature and easy to access. To launch a service you have AWS for compute/hosting, Twilio for communications, Stripe for payments, etc. Initial customers can usually be found pretty easily via @ProductHunt, Google and Facebook ads, any of the many marketing automation and lead generation platforms. Thanks in large part to your own efforts on Quora, even the knowledge needed to scale companies is easier to find than ever. All that said, I think the bar to raise later capital has gone up and the challenges of scaling to a larger ($100M+ ARR) company have become harder. 10-15 years ago, startups were competing with much slower, legacy vendors. Today, Salesforce, Google and Microsoft are all considerably more agile and even more entrenched their respective markets. It seems to me that there are less greenfield, horizontal opportunities available, at least until we see another major platform change (like on-prem to cloud or desktop to mobile). I would guess there are 100+ SaaS companies in the industry today that are $20-50M in revenues. I'd also guess <20% of them reach IPO scale and only another 30% end up as a good M&A. I think we may see a good number of companies get "stuck" in the middle stages, at least for a while.
@philipkuklis · Co-Founder, Hubble
Hi Josh, as a partner at DFJ, what would you say is the best way for founders to get a hold of you? And how important are warm introductions in your opinion?
@philipkuklis the best intro is always going to be from another founder that we work with, especially one that has worked with you in some capacity in the past. If one of our founders/CEOs tells me "I worked with this person, they're amazing and they've got a great idea" that's a 100% going to meet. Connections through service providers like attorneys or other investors, especially your seed investors who have backed you with $$, are great. Failing all that, can just email me josh at dfj.com but it really isn't that hard to find a warmer connection with a bit of effort.
Sven van der Zee
@svenvd_zee · Haven't found the next big thing yet
Is their a minimum age of founders you would invest in?
@svenvd_zee I think it would be hard to invest in someone <18 yrs old for a variety of reasons but we've had great success backing founders in their early 20s and very late teens. Most of the biggest tech companies were actually founded when the founders were in their 20s. The variance is higher with a younger founder and I'd guess the "batting average" (defined as money-making investments/total investments) peaks with an early 30s founder but the slugging percentage (adjusting for the size of the outcome) is probably higher in the 20s, driven heavily by a small number of very large outcomes.
What are your top 5 tips for first time founders
@bentossell 1) Surround yourself with advisors and mentors, and then use them liberally for advice. Few problems or challenges are "new" and talking to someone who has seen what did and didn't work before is invaluable. 2) Have a co-founder that you trust completely, be equal partners in economics but also be clear in decision making (two in a box for CEO doesn't work). Having someone in the struggle, locking arms together with you day to day is critical. 3) Find an experienced and committed investor to partner with. I think one negative consequence of less concentrated seed rounds has been that investors aren't as close to the company. Some of my best investments were Series A/Seeds where DFJ did the whole round and was the only outside BOD member for the first year (Box, SugarCRM, etc) 4) Pick a vision which inspires people beyond making money. Startups are *hard* and it helps if you, your employees and their family/friends care about what you're doing on a personal level. Elon Musk is the master of this - Tesla is about saving the world from fossil fuels, SpaceX is about going to Mars. That mission inspires people to put in their best, day after day, and also inspires investors. DFJ's motto: #thinkbig 5) Listen to everyone but after you've heard lots of input, trust your gut and don't be afraid to think different. It's the only way to upend and disrupt an industry. And why younger founders often do better - they don't know all the reasons why something can't be done.
What are your top 3 things a one person non-technical founder should accomplish before seeking funding from you?
@mariuschawa great question! The first thing would be to understand the spec of any investor you're approaching: DFJ's venture fund, where I spend most of my time, is looking to write $2-10M first checks (we make exceptions on both sides but that's the normal range). That usually translates to a company with at least a small team (5-6) people, a functioning product (even if beta) and some early customers or users. On a more personal level, I think it is usually a good idea to have worked at another startup prior to being a founder yourself. You learn so much, so quickly, in a startup - usually by making mistakes. Always great when a founder has had a chance to make those mistakes (and get the learnings) on another company's dime vs. doing things the first time at their own company. YMMV and many exceptions here though - some of the biggest companies were first time founders (Facebook, Box, Google) so certainly not a hard and fast rule.
Josh, I'm working on security a bit these days. How much up front work do you see in pitches with respect to data security? Do people discuss the issue or punt to a comment like they will partner with a company like Netskope?
@leighanne3000 it doesn't come up all that much in pitches, I think we assume that companies will figure that part out and they also benefit to a large degree from the protections put in place by the platforms like AWS, Box and Twilio. But as I type this I find myself thinking "maybe we should be asking about that more" :)
@i_am_brennan · CEO, Co-founder
What's the fastest way to totally blow it in a meeting with you?
@i_am_brennan the number one job of a founder is to inspire others to rally to their flag and join their mission. Both capital and labor have so many opportunities they can work on - why yours? The best founders can walk into a room, command your attention and make you walk you thinking "I HAVE to invest in her." If you can't do that in the first 10-15 minutes, that's an easy "no" no matter how good the idea looks on paper or how strong your background might be. If you can't communicate the vision in a compelling way, you're not going to succeed at a startup CEO. In which case, my advice would be to find a person that can to be your co-founder. Many of the best founder pairings have been this way actually - Jobs/Wozniak being the canonical example.
Hi, Josh. I have a portable movie theater surround sound system that you can carry in your pocket called Oomo. Anyway I can send you one to review? Not for any investment, just for a review to get the word out. I launch on Kickstarter in a week. Thank you.
@aaryanramzan sure, although I'm not totally sure why you'd want to have a portable surround sound system? Is it a headset?
@dfjjosh - Yes Josh. Earbuds. You'll have the experience of being in a movie theater but my saying it and you experiencing it are two different things. How do I send them to you?
@aaryanramzan cool, email me josh at dfj.com and we'll figure out the logistics.
Hi Josh thanks for joining us today. What's your top piece of advice to a first time founder looking for initial investment?
@ems_hodge thanks for having me! I'd encourage that founder to ask themselves "do i have conviction that i want to spend the next 10 years of my life working mono-manically on this business?" That may sound like a high bar but once you raise capital, you're putting your reputation on the line - both with the investors who are backing you but more importantly with the employees and customers who will join you. It's a big commitment and you shouldn't enter it lightly or if you're not consumed by the mission. I speak from a bit of personal experience here. Back in 1999, I started a company, brought in a couple co-founders, signed up some alpha users and went to talk to investors to raise a seed round. A SF-based VC (not DFJ) gave me a termsheet for $5M but as I slept on it that night I realized I wasn't fully committed to the vision, it wasn't my passion. I turned it down and told them why. They were surprised but (1) offered me a job and (2) told me I could apply the termsheet to any other idea. I took a couple months, came up with the idea for another company (ViaFone) and they co-led my Series A. Turning that first offer down was one of the best decisions I've made in my career, as I wasn't passionate enough about the first one to last through the ups and downs that would have followed.