Saam Motamedi: Why Series B Won’t Make Money & Why $1M ARR is a BS Milestone for Series A | E1177

1. 0:00 – 1:06

   Intro

   1. SMSaam Motamedi0:00

      What's happening, I could argue is even crazier than what was happening in peak 2021. It's not unusual for us to see seed rounds for companies that are just getting started being priced in the many tens of millions of dollars, even $100 million plus post-money ranges. I think the series B market may be even frothier than it was in ’21. I think playing the game on the field would have cost you dearly at many different periods in time. And our view is most people in venture capital are not helpful.

   2. HSHarry Stebbings0:27

      Ready to go? Saam, I'm so excited for this, dude. Listen, we have so many mutual friends in common. I have been waiting for this one, so thank you so much for joining me today.

   3. SMSaam Motamedi0:48

      Thanks Harry for having me, and likewise. I've been a longtime listener and fan and I've heard the best things about you from a bunch of friends who have been on, so I'm excited uh, for this conversation.

   4. HSHarry Stebbings0:58

      You know, it's pretty expensive to buy Grady these days and so it's a large part of our marketing budget-

   5. SMSaam Motamedi1:03

      (laughs)

   6. HSHarry Stebbings1:03

      ... but I'm pleased that it's working well. Uh, my question to you

2. 1:06 – 2:20

   The Lasting Impact of Childhood

   1. HSHarry Stebbings1:06

      is, you know, when we look at your childhood, you grew up in Texas. You moved to California for college. I think people are shaped often a lot more by their childhood than they think. What element of your childhood do you think shaped you most?

   2. SMSaam Motamedi1:18

      Yeah, it's a great question. So I grew up in Houston, Texas, um, was born and raised there all through high school and then moved out to California for school. There's a lot in my childhood that shaped me. I think maybe two things are probably most formative. One is I- uh, I wasn't built for sports, but I was really good at debate and, um, really competitive in- in policy debate in school, traveling around the country with my team and competing. And I think what that taught me is just a love for competition. And whether it's on the venture business when we're competing to work with the best founders or the companies we partner with, I think you have to be mega competitive to be good, uh, good in our industry. And then- and then the second is, I also did a lot of biomedical research and- and work around designing, um, early cancer detection techniques that we published on when I was in school. And I think that taught me just the power of small teams. And with a small research team, we were able to produce some pretty cool work. And I think that's been quite formative to now what I do, which is invest in teams that are really, really small and then help them, you know, go on to build really formative companies.

3. 2:20 – 3:16

   Is Hyper Competition for the Young?

   1. SMSaam Motamedi2:20

   2. HSHarry Stebbings2:20

      I remember Peter Fenton saying the best, uh, a combination of hyper competitive and hyper curious.

   3. SMSaam Motamedi2:25

      Yeah.

   4. HSHarry Stebbings2:25

      The question that I'd have for you is, with that hyper competition being so front and center, do you agree that venture's a young person's game?

   5. SMSaam Motamedi2:33

      I mostly agree, but I'll tell you there are exceptions, right? Like my partner Ashim, who I think is... not I think, the data would suggest is a- is a truly generationally great investor, has been doing this for more than 20 years, has had many IPOs under his belt, and still works seven days a week. And, you know, if he learns of a founder fundraising that- that he, you know, he thinks is high quality, he'll drop everything he's doing and go meet that person tonight. Um, so I think some people are just wired that way. And if you're wired that way, I think it doesn't matter if you're 20 years old, 30 years old, 40 years old, 50 years old, but I think if you're not wired that way, you're dead. And- and- and it takes a while to- to notice, given the lagging nature of our business, but this is a super, super competitive game.

4. 3:16 – 7:58

   Are We in an AI Bubble?

   1. SMSaam Motamedi3:16

   2. HSHarry Stebbings3:16

      A lot of people say that we're in an AI bubble. I just wanted to start here, Saam. Are we in an AI bubble? Um, how do you think about the state of AI investing today?

   3. SMSaam Motamedi3:24

      The short answer is yes. We are in a- in an exuberant bubble. I think we may not even fully, uh, appreciate in how big of a bubble we're in. And what's happening, I could argue, is even crazier than what was happening in peak 2021, 2022 zero interest rate period. It's not unusual for us now, again, in- in kind of pure AI to see seed rounds for companies that are just getting started being priced in the many tens of millions of dollars, even $100 million plus post-money ranges. And then companies that have a little bit of revenue growth, um, you know, raising at 100 times, even 200 times their revenue. That's with a backdrop where when you look at the top public names, I think the most valuable public company today for, on multiples basis is CrowdStrike. And CrowdStrike is trading at, I think, 20 times forward revenue, right? And- and by the way, there's like maybe only five companies trading at north of 15. So you have this odd thing that's happened where in '21 we were investing at 100 times revenue, but you had public names trading in the 50 to 80x range. Now you're investing at 100 to 200 times revenue when public names are trading at the- the best public names are trading at 15 to 20 times. That dislocation does not make sense to me, unless you believe that these companies fundamentally have much more persistent growth than prior generation of software companies. And like, look, it was just reported, I think The Information ran a piece last Friday that OpenAI's at 3.4 billion of ARR and it's doubled in the last several months. That's impressive. But I would question how many companies other than that are going to be able to persist that rate of growth at those scales. And if you don't have the growth persistence, it's very hard to see any of this investing make sense.

   4. HSHarry Stebbings5:04

      I think the cool thing is actually valuation should only be held as a market in a world where financial incentive is the sole driver. And I think this is what people are forgetting, which is with the rise of corporate investing, with Amazon investing, with Google investing, with your largest cloud providers investing, they are no longer purely incentivized by the price of the deal. They're incentivized by the partnership, by the cloud credits.

   5. SMSaam Motamedi5:27

      That's right.

   6. HSHarry Stebbings5:27

      And so when you have the entrance of an irrational buyer, it fundamentally reduces the importance of price for them and distorts the market. And I think people forget that.

   7. SMSaam Motamedi5:38

      Absolutely. That's- that's one of the main... That- I'd say that's a really big distortion that's happening, Harry, to your point. And the other big distortion that's happening, which again is- is a positive, but I think it also cuts negatively, these com- some of these companies are growing explosively. Like when you look at the revenue growth, it's- it is amazing. Yet at the same time, the long-term retention on these companies is very unclear. And I don't want to pick on a specific company, but take your favorite, you know, AI prosumer application that's growing really fast and just go run the Google trend graph on it.For many of them, you'll see an amazing peak, and then also it really quickly comes down. And so, you know, you're investing in revenue today and you're putting some multiple on that revenue. But I think you have to ask yourself, have these products really proven persistent user value? And are you really buying revenue that's kind of gonna recur with high net dollar retention, all the things we love? I'm not sure. And so I think that's also creating a bit of a distortion.

   8. HSHarry Stebbings6:33

      Do you care? And what, what I mean by that is, like, to what extent do you have to play the game on the field when the company scales to 20 million in revenue, whether it's fucking experimental budgets or short term with retentive loops, that is traction that is hard to ignore. And the fear of missing a generational defining company is so large. Fuck it. Put the bat down.

   9. SMSaam Motamedi6:55

      The way we reconcile this is we take two lenses. One is we look at the data. And as my partner Reid always says, "When you see the data that that's, that's explosive, the question you have to ask yourself is not why invest, but why not invest." You need to come in with an orientation of something seems to be really working, we should be in this business. And then convince yourself why you shouldn't be. So we are certainly reactive to that. But the other lens we take, which is an equally important lens that I think the venture industry has sort of forgotten in the last year, is a very fundamental lens, which is, what are the market dynamics? Does the product really have product market fit? What does retention look like? What is the defensibility of this business? And if we don't like the answers to those questions, it doesn't matter if the company's gone zero to 20 million in six months, we're not going to invest. And we don't, we feel completely comfortable with that decision. And, and by the way, Harry, like, again, it's early, but we're seeing some of the first generation AI apps that two years ago everybody was talking about, writing assistants and the rest, that had unbelievable growth metrics, you know, now come down quite a bit and, and really

5. 7:58 – 10:30

   Differentiating in a Crowded AI Market

   1. SMSaam Motamedi7:58

      sober.

   2. HSHarry Stebbings7:58

      One of your former colleagues actually, Sarah Tavel said on the show that the biggest challenge is actually the multitude of players in single spaces, and the challenge in differentiating between them. Whether that's sales rep, um, AI tools. Whether that is customer service AI tools, which are the most common that I've seen. The challenges it's differentiating between them is so difficult. How do you think about that? You know, language learning as well. Fuck, I've seen so many AI language learning at 10 million ARR plus.

   3. SMSaam Motamedi8:26

      Hasn't that always been the challenge about SaaS investing? I, I mean, at least in the eight years I've been doing it, there's always been multiple competitors doing very similar things. You could argue now there's more excitement, maybe there's seven competitors instead of two or three. But I, I, I feel like that's always been a question we've had to ask ourselves as investors. And I think, you know, for us, we come back to, like, the basics, which is which one has the best founder and the best management team? Who has a point of view on what's gonna drive real product depth and workflow and stickiness and defensibility? Where is the distribution really unique and self-compounding? But candidly, Harry, those are the same questions we asked ourselves on, on, you know, non-AI SaaS companies.

   4. HSHarry Stebbings9:04

      So is AI investing the application layer? Is it any different to traditional software investing?

   5. SMSaam Motamedi9:09

      I don't think it is. And I, I think this is, like, one of the biggest misnomers in the venture zeitgeist, where everybody's talking about, like, "Hey, are these just wrapper companies? What makes these things defensible? Is value going to accrue to them?" And the history... I, I don't think any SaaS software company is, like, rocket science in terms of the underlying technology. I saw a tweet from Bryan, the founder of, of HubSpot, maybe yesterday or today, where he said like, "Hey, people used to say HubSpot was a wrapper on a database, right? And just some workflow on top of a database." And I think, I think we're gonna look back on this discourse a few years from now and it's gonna feel very similar. I come back to, like, the SaaS companies that have really become market defining build for a specific end user very deep and valuable workflow that becomes very sticky and critical to that person's job and are able to have sign- significant pricing power. And then they get to distribution before others who have the distribution, namely incumbents, are able to copy their innovation. And the ones that have done that really well, HubSpot being very high on the list, Figma and R Portfolio being high on the list, have gone on to be iconic businesses. And by the way, SaaS is littered with lots of point solutions that didn't do that, had more superficial value. Maybe they got bought a lot during the COVID period, and now they've completely flat-lined and there's no growth or there's decelerating growth, including names you and I both know well. And so, you know, we'll see that happen in AI

6. 10:30 – 12:38

   Can OpenAI Updates Threaten AI Application Businesses?

   1. SMSaam Motamedi10:30

      as well.

   2. HSHarry Stebbings10:30

      Do you think o- that OpenAI could kill my business is a legitimate fear in the same way that Apple have killed many businesses with updates to Torch calculator, Maps, you name it? Do you think that is a legitimate fear or we're over-emphasizing the concern that an update to OpenAI could kill my business as a application layer AI company?

   3. SMSaam Motamedi10:51

      So we have to start by acknowledging OpenAI is, is ruthless. And the quality of their execution is just incredible. And we should expect them to continue executing and shipping amazing products. Harry, I'll tell you my mental model for this, which is, it's not quite consumer versus enterprise. But the way I think about it is, there are some applications that I use the word... And, and this word is overloaded, but I think of as very foundational. Like, very foundational primitives and workflows on top of AI. Right? And you talked about, like, the calculator or Maps o- on the iPhone. You could say those are foundational capabilities for, for the iPhone. And so, write... Content generation and writing, editing is, is, is a foundational capability. ChatGPT's really good at it. I think coding is a foundational capability. And I think if you just take kind of...... pure s- code generation, I would bet very strongly that OpenAI is going to compete ruthlessly on that. Now, do I think building a co-pilot for lawyers, or for physicians, or building software development tooling, that's not the code generation itself, but maybe it's the incident response and SRE workflow, maybe it's debugging tools, do I think those are gonna be kinda core foundational things that OpenAI is going to need to own? I don't. And so kind of our Lenses were less, we're not closed for business, but we've really gotta believe to back a team that's competing on something that we'd call, quote unquote, "foundational," just like we'd really need to believe if someone wanted to go compete with the, uh, Apple calculator or Maps. But we think there's, like, immense, immense opportunity in really focused applications on top and that doesn't mean focused applications are small. Like, I think there's gonna be many, many large companies, public companies built that will be focused applications on top of these large model capabilities, but that's where we're focused.

7. 12:38 – 16:03

   Venture Opportunities in the Foundational Model Layer

   1. SMSaam Motamedi12:38

   2. HSHarry Stebbings12:38

      I totally agree with you and I think they can be very large companies. Um, (laughs) one of my friends just sold his blinds business, you know, window blinds, uh, for $9.5 billion.

   3. SMSaam Motamedi12:47

      Wow.

   4. HSHarry Stebbings12:48

      Uh, you forget how big some small industries are. Uh, Europe has many amazing families built on the back of them.

   5. SMSaam Motamedi12:55

      Yes, yeah.

   6. HSHarry Stebbings12:55

      I do have to ask, that's like the application layer. You also did, what, do have a bet in the foundational layer being em- um, uh- um, Mustapha and Inflection, and many of the big firms do. I'm just interested to hear, how do you think about the foundation model layer and opportunity, or not there, for venture investors specifically?

   7. SMSaam Motamedi13:18

      I'm unsure of exactly what the opportunity is going to look like. And I think anything anyone on your show says, you should put high error bars on, because what the last several years of AI have taught us is, it's remarkably hard to predict the future in how this technology plays out, and even the people building it are unsure. And that's why we talk about emerging capabilities and the rest. Now, with that said, our mental model is there may be one or two players who are able to persist a lead and actually compete selling models as a service, right? API clouds, et cetera. OpenAI is obviously a leader there. Um, Anthropic has a scaling business there. Even that you could debate. Like, you- you and I could have a healthy debate on, three years from now, is there real separation between those models and the next size? And if that separation is small, can those models really command margin? And so I think we at Greylock have taken the point of view of, like, we're less excited about that as a space. On the other hand, we do think there are some applications where you need to own the model because the model needs to be tied to the application, whether it's a personal agent, as an example, you referenced Inflection. And for those, we actually do believe money can be made and will be made at the foundation model layer. And so what excite- what excites me about an OpenAI, in terms of its opportunity to create enterprise value, is its first-party products. ChatGPT is an outstanding product. I think they're gonna have more outstanding products, and those products are gonna require a really deep t- uh, tie-in between the model and the application. And I think those can have enduring value. I think if you're just building, like, you know, an API service, I'm more skeptical. I think there's a lot of value this year and next year. I'm skeptical how it plays out.

   8. HSHarry Stebbings15:00

      Okay, so t- tell me, are there any other very clear use cases where you see the agent and, uh, where you see kind of the model and the application needing to be tied together? You said they're personal agents. Any others?

   9. SMSaam Motamedi15:13

      Personal agents, possibly horizontal enterprise agents. I think code generation is one where you might want really tight tie-in. There are companies taking both approaches. And, like, we'll see, we'll see what ends up winning. But those are three that, like, I think require a really tight tie-in. Whereas, you mentioned customer service AI, that's an area where I don't think you need tie-in, where the startup should be really focused on everything except for the model.

   10. HSHarry Stebbings15:37

       Everyone says that we're- we're like seeing the death of per-seat pricing with AI. Do you agree with that?

   11. SMSaam Motamedi15:43

       You know, I do and I don't. I think a lot of it depends on how your product drives value. I think we're gonna see hybrid pricing models, where you're gonna layer on to seats the type of work that you're doing for the end user and you're gonna monetize that separately, and that will allow these companies to continue growing inside accounts even if seats are not expanding.

8. 16:03 – 23:24

   Is SaaS Ending? The Shift to Custom-Built Software

   1. SMSaam Motamedi16:03

   2. HSHarry Stebbings16:03

      Friedberg, you know, Dave Friedberg, I think on All In, he says that, like, we're gonna see the end of SaaS in many respects, so businesses will build their own software for a lot of their own use cases. Do you think that's true? And how do you think about that kind of end of SaaS and, you know, people just building their own software now?

   3. SMSaam Motamedi16:21

      I- I couldn't disagree more. I- I sincerely believe it- it is the best time in a long time to be building SaaS companies and investing in SaaS, and I'll tell you why. If you think about what have been the largest outcomes in SaaS, most of them are deep systems of record for important horizontal functions.

   4. HSHarry Stebbings16:40

      Mm-hmm.

   5. SMSaam Motamedi16:40

      We talk about Salesforce. We talk about Workday, which started at Greylock, ServiceNow.

   6. HSHarry Stebbings16:44

      HubSpot.

   7. SMSaam Motamedi16:45

      HubSpot, another great example. Now, why has there not been a new deep horizontal system of s- record SaaS company built over the last five or six years? I can't think of one. Features built around the major systems, like a Gong built around Salesforce, but no one's been able to go after the core.

   8. HSHarry Stebbings17:02

      Mm-hmm.

   9. SMSaam Motamedi17:03

      I would argue you can only go after the core when either the data model profoundly changes, the delivery model profoundly changes, or the interface changes.

   10. HSHarry Stebbings17:13

       What's the data model?

   11. SMSaam Motamedi17:14

       So Salesforce has an opinion on how you should run sales at your company. There's a customer object. There's an account object. There's a relationship between the customer and the account. There are different dimensions th- around that that your reps are filling out. And th- they've picked a model. We can debate if the model is good or bad. The reason why it's important is because everyone around them, whether it's the users, the sales managers, channel partners who are implementing Salesforce, or the tools like Gong and the rest that have been built on top, have adapted to that data model. And so that data model, that schema, if you will, has become the standard for how people think about CRM.

   12. HSHarry Stebbings17:50

       Okay, great. What's the delivery model?

   13. SMSaam Motamedi17:53

       Delivery model is how the software's actually delivered and consumed and priced, right? So here, you know, I would think about the shift from on-prem and, and sort of Oracle Siebel to cloud-based, SaaS-based, and now we may see a new shift in delivery which I would argue is m- mainly gonna be on pricing, which is the, it's Sieb- it's not just Sieb-based but it's Sieb plus work or work only, and that, that's pretty disruptive.

   14. HSHarry Stebbings18:17

       And then the third one is what, sorry?

   15. SMSaam Motamedi18:18

       The interface.

   16. HSHarry Stebbings18:20

       Okay.

   17. SMSaam Motamedi18:20

       So, like, Harry, you probably have a lot of sales reps in the companies that you work with who complain about Salesforce. They hate using it, they hate the UI, it's super clunky. We're, they're constrained by the interface, yet they've learned how to use it, right? If you got, if y- if I, if you hired me as a new sales rep tomorrow, you're gonna train me on some, "Here's how you do your work inside Salesforce." Well, with generative AI, the entire interface could change. In fact, like, there may no longer be an interface. I may have an agent that's working alongside me as the sales rep helping me do my job and it's navigating all the underlying systems on my behalf, and by the way, when it doesn't know something, it'll come back to me and it's not just gonna be a chatbot, it might be a UI but it'll be a generated UI, it'll be very dynamic, and I would argue in 10 years, sales reps won't even know what the Salesforce UI looks like because the interface to the underlying system of record has changed.

   18. HSHarry Stebbings19:10

       Okay. So now we understand those three, what does that mean in context of, like, now's the best time to be-

   19. SMSaam Motamedi19:15

       Right.

   20. HSHarry Stebbings19:16

       ... investing in AI and that question?

   21. SMSaam Motamedi19:18

       Yeah, so now to connect it back to why is now a great time to be investing in SaaS, if you buy my point that the largest outcomes in SaaS come from when you're able to go after these horizontal big application companies, right, again, think Salesforce, think ServiceNow, think Workday, think SAP, you need disruption on these three buckets for the opportunity to be real. Otherwise it's just incremental. And I'll give you an example of what I mean to make it more concrete. There are many, like, mobile CRM companies, like, "Hey, I'll put, you know, CRM on the iPhone." Great, that's not that different, it's just another client for interacting with the CRM. Salesforce now has a mobile app and you and I don't talk about any of the mobile CRM companies anymore. Right? So I'd say for the l- last 10, so l- let's take the last eight years that I've been investing, those three things have not been true which is why I would argue it's been impossible to go after those large, you know, platform companies. I now think they are true. I now think you don't need the data model that Salesforce suggests anymore because your AI agent can go and just suck up your inbox, suck up all your gone call recordings and on the fly materialize the views of data it needs to help you run your sales team, so when you're doing a pipeline forecast you don't need to go into sales- Salesforce, you can just ask an AI application to generate your pipeline forecasts for you. And by the way, it's gonna be a lot more accurate because it's not gonna be based on what your sales reps put into Salesforce, it's gonna be based on the actual raw text of all the interactions with your customers. So that's-

   22. HSHarry Stebbings20:41

       Mm-hmm.

   23. SMSaam Motamedi20:41

       ... on, that's on data model. On delivery model, the pricing's gonna change, to our earlier conversation, right? The way you think about Siebs is not g- not going to be the same, and sure, Salesforce over time will adopt that but there's gonna be a window where they won't adopt that 'cause it's gonna cannibalize their business and startups can come in with really disruptive pricing. And then number three and most importantly, I think the interface is going to change. I don't think we're gonna be spending our time doing pivot tables in Salesforce and figuring out where to put in dimensions. We're gonna be talking to an agent, that agent's gonna be consuming information from us and it's gonna be navigating systems for us. And those three things mean that you and I could go start a very different CRM company and I think actually build the next Salesforce but something that feels radically different. And the same is true across all of these functions, and that's why I'm excited about going in investing.

   24. HSHarry Stebbings21:30

       Do you think AI allows companies to actually make more money from their existing customers? I know it's kind of a little bit off tangent but, like, when you look at, like, Box-

   25. SMSaam Motamedi21:39

       Yeah. (laughs)

   26. HSHarry Stebbings21:39

       ... they add AI and it's like, "Great, thank you, that makes my product better but fuck, I'm not gonna pay for it." Same with Notion. Like, is it actually just like a, "Thanks but I'm not paying more"?

   27. SMSaam Motamedi21:50

       I think it's too early to say. Uh, a year ago everyone got really excited, all these public companies were telling analysts, "Hey, people are gonna pay a lot more." I can't remember exactly what week it was but there was that week three weeks ago I think Salesforce reported earnings and all the software had a bit of a correction. I think the reality-

   28. HSHarry Stebbings22:06

       Dude, it was brutal. We, we, we did a show with Jason Lamkin this week in SaaS and it was m- uh, Mongo down 20%, Salesforce-

   29. SMSaam Motamedi22:12

       Exactly.

   30. HSHarry Stebbings22:12

       ... down 20%, UiPath down 30%.
9. 23:24 – 30:54

   Rationality in Seed & Series A Pricing

   1. HSHarry Stebbings23:24

      at seed. I wanna go through the stack a little bit with you today 'cause, uh, I think there's not enough discussion on what we're actually seeing on the ground. When you look at seed and series A today, what are you seeing in terms of seed and series A pricing, and is it rational?

   2. SMSaam Motamedi23:37

      Let's talk about pricing first and then is it rational, and I'll start by saying the thing we all know which is there's a wide range, but let's talk about kind of what is the bread and butter. So in seed, if you are a high quality team, right, coming out of a company where, you know, you've been on a growth clip, you've seen how a great business gets built and you're building a new company in an area that is secular, right, maybe you're building an AI BDR, um, maybe you're building a co-pilot for lawyers, I think seed pricing is between - and I'm gonna give you a wide range, Harry -... 20 to 40 post. For series A, based on what we're seeing, again, for that kinda cohort of companies, if you have a little bit of product-market fed, again, we're seeing, uh, pricing between 80 and- and maybe 150 and 200 post on the high end.

   3. HSHarry Stebbings24:25

      So, uh, sorry, just let's go to the 20, uh, 20 to 40 seed. What do they have there? Is that pre-product, pre-revenue? Is that a little bit of product, little bit of... Where are we at there?

   4. SMSaam Motamedi24:35

      There's variance, but no, I'd say in many cases, I'm seeing teams where the company was incorporated last week raising in that range.

   5. HSHarry Stebbings24:43

      Mm-hmm. Okay. Is that rational?

   6. SMSaam Motamedi24:47

      Uh, so I think one of the distortions of the 2020 to 2023 period is we all forgot about the power law. And we all forgot that very few companies matter, but the companies that matter end up being much larger than we think. And so with that lens, I actually do think it's rational, and I get really upset when I hear people say, "Oh, I love this company at 20 post, but at 30 it's too expensive." So if you run the scenario math, and you ask yourself, "Harry, what is the outcome for this company where at 30 I'm disappointed but at 20 I'm thrilled?" The only possible outcomes where it would matter are really intermediate ones, right? Okay, the company sells for 150, and net of dilution you make a 5X versus a 3X. That's irrelevant. Like, it doesn't matter to fu- to... Maybe it matters if you're really... And I'm not talking about a 150 million dollar fund, I'm talking about a really small fund. But for- for most funds, those outcomes just don't end up mattering. All that matters is are you backing the team that has a chance of building an iconic, enduring company? And those teams are really scarce. So when you find one of those teams, I really don't believe you should be passing on price in those ranges.

   7. HSHarry Stebbings25:58

      Right.

   8. SMSaam Motamedi25:58

      Because whether you do it at 20, 25, 30, 35, 40, if that company goes on to get to 100 million plus of ARR with high growth, you're gonna be very happy as an investor. And if it doesn't, and it has an- a- an intermediate or mediocre or bad outcome, you're gonna be unhappy, and maybe you're slightly less unhappy if you paid 20 than 30, but that's not the thing to optimize for.

   9. HSHarry Stebbings26:18

      Okay, so I think you can hold two truths in your mind at one time, which is that I agree with you in terms of the importance of being in the massive companies, but then I also agree that you're not getting paid for the risk that you're taking at that stage.

   10. SMSaam Motamedi26:28

       Um...

   11. HSHarry Stebbings26:29

       You're making that trade-off, and that's fine, and I accept both things to be true, but you are not being paid for the risk that you're taking when you are doing a company that's pre-product and pre-revenue at 20 to 40 with good people coming out of a good company.

   12. SMSaam Motamedi26:43

       And this is where it probably comes down to, like, the specifics of the situation, and it's maybe harder for us to reason about generally, because I would argue that, in many cases, you are being paid for the risk. For instance, right, if you have a team coming out of a, uh... I'll- I'll give you an example. Like, we backed a team coming out of NetApp, where they had previously built and scaled a business, um, and they sold it to NetApp for half a billion dollars, and they're- they're- they're building a new cybersecurity company called Upwind that's off to the races, and we l- we led a really large seed round. I- in fact, I think the seed round, the round size was $26 million, okay? Now, you could say, "Hey, Saam, that's crazy. You know, you're not getting paid for the risk." But I take the counter and say, "Hey, I'm getting in business with a team that has built a business to 100 million of ARR before, understands how to build product, sell product, scale management teams." Think about how little risk there is on so many dimensions around that project. And so I'd much rather do that than do a $2 million seed round where I'm backing a team where I don't know if they actually know how to build a product, sell to the enterprise, recruit a VP of sales. There's so many layers of risk. And so I agree with you, Ha- Harry, generally speaking, but I would say there are... We just have to look at the specifics of each situation, and I would argue there are many situations where the expensive seed round is a lot less risky than people think.

   13. HSHarry Stebbings28:00

       I get you. I get you, but your entry price there is, like, 125 if you assume the standard dilution, uh, over 20% per round. And then you're like, "Shit," you know, when you look at the dilutive nature of rounds, "Fuck, if it's a $5 billion company, shit, we're getting like a 20X?"

   14. SMSaam Motamedi28:18

       So in that case, the- the valuation was not that high, and I- I agree with you, like, I think you have to have a ceiling on valuations you're willing to pay. Um...

   15. HSHarry Stebbings28:26

       I also think, like, you have to be aware of what is the exception. So I- I agree with you. When people are like, "Oh, well, I'd pay 20 but not 30," well, you're a fucking moron. Like, (laughs) that's just stupid. But if everything is now 30-

   16. SMSaam Motamedi28:39

       Exactly.

   17. HSHarry Stebbings28:40

       ... your blended entry-

   18. SMSaam Motamedi28:41

       Exactly.

   19. HSHarry Stebbings28:41

       ... is gonna be 30, and your returns are gonna be 50% less.

   20. SMSaam Motamedi28:45

       Exactly. And- and that's been... Uh, that's an excellent point, and that's why we maintain two truths in our head, to- to use your parlance. One is for the right situations, uh, like, the rules don't matter, and then the other is at a portfolio level, the rules do matter. (laughs) Because if every investment in your portfolio is an exception, then there's- there's no actual portfolio construction rules that you're enforcing. And so for us, you know, we invest, you know, we're investing in our 17th fund. It's a billion dollar pool of capital. We are more ownership-sensitive than price-sensitive within a range, and so the lens we take on our kind of core early stage positions is how many of them are there where we have adequate ownership? And we think of adequate ownership as 20 to 25% plus, right?

   21. HSHarry Stebbings29:26

       Do you still get 20 to 25% plus?

   22. SMSaam Motamedi29:29

       It varies, Harry, and we're not as, um, religious about that as we once were. In many of our companies, we- we own in those ranges or more. Now, the reason why is because we're willing to give founders more capital early, right, when there isn't proof, because we have belief in them. And so we are willing to do things other people may not do.

   23. HSHarry Stebbings29:49

       Do you think that's good? My worst-performing companies are the five on 25s or- or bigger because you l- lack urgency, you lack creativity 'cause you can just buy it, and you lack real speed of decision-making. I don't think giving founders much money early is, like, the solution.

   24. SMSaam Motamedi30:07

       I think it all depends on the founder.... it just all depends on the founder. And the more I do this, the more I come back to like everything is about the founder. I can tell you, G- Harry, there are situations in our portfolio where we've done large seed rounds and where the velocity and desperation and paranoia is unlike anything you've seen, 'cause the founder's just amazing, and there's situations where we've done a million dollar round and there isn't that orientation. I think you are right to say that when there's more capital, perhaps there can be more of an temptation to overspend, you know, not be as scrappy rest. But I think the best founders, they inherently have the right orientation on those dimensions, and so the capital just becomes an accelerant to them. It allows them to think bigger, build more of a complete product, target larger customers from day one, and that makes a big

10. 30:54 – 33:00

    Maintaining High Standards with Irrelevant Check Sizes

    1. SMSaam Motamedi30:54

       difference.

    2. HSHarry Stebbings30:54

       I love it. Parker Conrad at Rippling and I always have beef on Twitter 'cause he's like, "No, that's bullshit, Harry." Like, "You, you totally can." And I'm like, "Yes, you can if you're as good as Parker Conrad." Like, he-

    3. SMSaam Motamedi31:04

       Exactly.

    4. HSHarry Stebbings31:05

       But, but, so I, I, I get you on this founder dependency there. Uh, can I ask you, you mentioned the billion dollar pool. When you're writing like a $3 or a $4 million check, who gives a shit? I don't mean that bru- I will just pause. When it's a $100 million seed fund, god, 3 or 4% of your fund is a lot of money. $3 or $4 million for a billion dollar pool? How do you maintain a high bar when the check size is irrelevant?

    5. SMSaam Motamedi31:30

       Harry, we make very few investments at Greylock. Each partner might make one to two investments a year, and many of them start as very small checks. The last two investments I made over the last 12 months, one was a $6.5 million check and the other was a $5 million check. Okay? But our constraint is not the capital. Our constraint is our time, because when we make these investments, we sign up to be accountable in service of the founder forever. Like, it's not an option for us. And so we actually, on the $6.5 million check, I spent 90 days getting to know the founders in our offices before we wrote that investment, where I was working with them every single day.

    6. HSHarry Stebbings32:07

       Is that still possible? With deal compression, with heat in markets, I would love that.

    7. SMSaam Motamedi32:12

       It is if you build the founder relationships early. In this case, we got to know these people when they were still full-time employees elsewhere and were helping them before the company even existed, and that, um, actually I think something like 80% of our investments that are of that flavor, where we met the person before the company existed, and that's not to say we don't sometimes make decisions in 48 hours, sometimes we have to, but, but that's our intention. And so, so, J- Harry, just to complete the point, you know, that $6.5 million might grow into $50 million over time. Right? And so we have many... And if you look kind of over our more recent funds, whether it's a Figma, a Rubrik, an Abnormal Security, a Discord, many of these companies we've put real capital to work over time and we've earned the right to do that with the founders, but they all started as really small checks.

11. 33:00 – 38:07

    The Impact of Signaling in VC

    1. SMSaam Motamedi33:00

    2. HSHarry Stebbings33:00

       My question to you on the back of that is like with the growth of check per company, it brings the question of signaling. Um, signaling is often touted as being a very real threat to companies. Before I weigh in, how do you feel about signaling?

    3. SMSaam Motamedi33:17

       I think it's total bullshit. Um, I, uh, I, uh-

    4. HSHarry Stebbings33:20

       (laughs)

    5. SMSaam Motamedi33:20

       And, and I think the best founders

    6. NANarrator33:22

       (cheers)

    7. HSHarry Stebbings33:22

       Do you, son? I was-

    8. SMSaam Motamedi33:23

       Yeah.

    9. HSHarry Stebbings33:23

       I wasn't expecting that. (laughs)

    10. SMSaam Motamedi33:25

        Yeah. And, and of course everyone sells their own product, so at risk of sounding like that's what I'm doing. There's different ways to cut this, Harry, but I'd say I have never seen a situation in our portfolio where it has mattered and actually it's the flip, where the seeds we've done, many cases we lead the Series As, in many cases we help the founders land tremendous Series As, and I, you know, I know some other funds run these stats and they publish them on Twitter and all the rest. I, I don't have the exact data, but I can tell you that our seed companies almost always raise Series As. And the data, like, the conversion rate to A is, is much higher.

    11. HSHarry Stebbings34:00

        That doesn't disprove signaling being a thing. All that does is prove the strength of a Greylock brand on getting subsequent rounds. I had this conversation with Grady. I said to him, "You know, I don't think that Sequoia necessarily always invests in better companies, but if you think about actually, uh, starvation being the thing that kills companies, not indigestion, the amount of time you have to find product market fit, because Sequoia and Greylock have such great brands, they will generally, 90% of the time, always get more money. And because they get more money, they have more time to get product market fit." It doesn't mean signaling's not real.

    12. SMSaam Motamedi34:33

        Maybe I misunderstand the signaling argument, but my, my view of the signaling argument is like, hey, if I raise my seed from Greylock and Greylock doesn't lead my Series A, you know, is it less likely that another investor will lead my Series A?

    13. HSHarry Stebbings34:44

        You can have real preempting, but the real thing for me is like on the negative, negative side of life, if s- if Greylock doesn't do it at all, will it kill it?

    14. SMSaam Motamedi34:53

        It's never been an issue for us. Like, H- Harry, I'll, I'll give you an example. Like, I, I, I led the Series A in a company called Cresta, right? I, I may have mentioned it earlier-

    15. HSHarry Stebbings35:01

        Hmm. Mm-hmm.

    16. SMSaam Motamedi35:01

        ... contacts at our company. Sequoia led the B, company's doing great. Andreessen had done the seed. I remember, when we looked at the company at the A, I was like, "Hey, why isn't Andreessen doing the A?" You know? Uh, like, they probably passed. I mean, I, I don't, I still to this date don't know, but I assumed they passed. Doesn't matter. Like, we evaluate the company on the merits of the company. We love the founders, we love what they're doing, and, you know, we did the A. And, and, and I'm just picking, I mean, that's the first example that jumped into my mind. There's so many ones where we did the A where someone else did the seed. We just look at it as i- independently.

    17. HSHarry Stebbings35:32

        Okay.

    18. SMSaam Motamedi35:32

        Especially with some of these global platforms that are doing 50, 60, 70 seed deals a year. I think it's hard for them to even keep track of what companies there are investors in. And so, I'm not gonna let that get in the way of backing a great founder.

    19. HSHarry Stebbings35:43

        But if you have 20% on, on entry say, like you said there, you're gonna end up owning 40, 50% of a company if you continuously lead round, round, round. At what point does it become damaging for the company?

    20. SMSaam Motamedi35:56

        Yeah. So a couple of things. One I should say, if we own 20% of a company at seed, it is less likely that we will... Like, we will view that as kind of being in our core ownership bucket, um, and so it's less likely we, we will necessarily have to lead the next round, whereas if we own 10% it's a different equation. But, like, that notwithstanding-You know, Harry, like on every round, uh, we sincerely ask what is the right thing for the company. And our view is most people in venture capital are not helpful, they're not additive. We don't think founders need an incremental brand when they already have the Greylock brand behind them. And so we challenge founders and we say, "Hey, build the list of people who, if we get them on the board, they will actually change and have impact on this business." It's a really small list. Every time I do this exercise with a founder gearing up for a fundraise, I'm disappointed by how small the list is. I mean, you mentioned our shared friend Pat earlier. He's on that list, but there's not a lot of names on that list.

    21. HSHarry Stebbings36:50

        What are the common names on that list?

    22. SMSaam Motamedi36:52

        You know, at Enterprise, where I play on the early stage side, I have a lot of respect for Pat. I love Eric, uh, Benchmark. I'm on a board with Ravi at Lightspeed, who I think is excellent. I'm on a board with Ted at Kleiner, who's a- who's excellent in security. Like there are names, but it's not 50 names. It might be five to 10. And I think the names vary a lot based on the domain that you're in. So our gu- and, you know, I- I can't talk about this company yet, but there's an exact one where we led the seed, we built that list, th- we would have loved to lead the Series A. The founder went, pitched the three names on the list. All three of them wanted to invest. He picked the one he liked the best, and we invested as well. Do we own a little bit less than we would have if we had led the A? Of course. Is that the right thing for the company? Of course. Because that person's gonna be additive to the business. And if that makes the company bigger, like we'll all do better. And so we're not in the business of like, we want to own 40% of companies and do every round. We're more than happy to in great businesses. But we first always ask ourselves the question, is there someone out there that could actually be additive? And if so, let's go get that person. But if we're just gonna go get capital from someone who's gonna show up to board meetings once a quarter and not do anything, like I'd rather give the capital because number one, uh, we can do it at a better price since we already have an existing position in the company. And number two, like let's- let's- let's keep the company tightly held. Why not? It's better for the founder.

12. 38:07 – 39:01

    Saam’s Approaches to Managing Investment Reserves

    1. SMSaam Motamedi38:07

    2. HSHarry Stebbings38:07

       What's your approach to reserves? Many people have different perspectives. What's your approach?

    3. SMSaam Motamedi38:12

       We don't have a super formulaic perspective. Like we- we at a portfolio level, think about it, we reserve a lot generally because we invest in things early. We're fortunate that at least to date, m- s- a good portion of them have had the chance to go long, which means the, even just the pro rata dollars really add up. And so as I said, it's not uncommon for us to start with a $5 million position and it yields a 70, $7,500 million position. By the way, the other thing on reserves, which nobody talks about anymore, is like reserves aren't just for when things are going great. It's also for when like companies hit an air pocket. And many of the great companies we've been a part of have been, have hit those air pockets and we've had to step up and we have gladly done that and led inside rounds, not out of offense, but out of defense. And we won't have the capital to be able to do that. So I'd say we run a relatively high percent of our fund in reserves so that we have, you know, ample opportunity to play offense and defense for our companies.

13. 39:01 – 45:43

    Rethinking ARR as a Series A Filter

    1. SMSaam Motamedi39:01

    2. HSHarry Stebbings39:01

       When we're thinking about evaluating Series A's, I think we take quite brute mental models for how we evaluate companies at this stage. Mostly it's kind of ARR dependent as a good way to screen for it. Uh, what do you think, why do you think, more importantly, sorry, ARR is wrong in terms of a filtering mechanism at Series A?

    3. SMSaam Motamedi39:22

       This reminds me of what we were just talking about when an investor says, "I like something at 20 and not at 30." It drives me crazy when I hear, you know, investors write these blog posts, your checklist for the Series A, number one, a million dollars of ARR. Why does that drive me crazy? Because for you to make money on a Series A is, as, uh, and let's just take SaaS or enterprise software to simplify. You've got to get into a business that gets into the hundreds of millions of ARR, right? Because that's the only way you can become a public company. And so if your goal is to get into the hundreds of millions of A- of ARR, and your main thing that you're looking at is, is this company at a million or 2 million of ARR, Harry, how many companies get to a million of ARR that don't get to 10, that don't get to 50, that don't get to 100? The vast, vast majority. And so my argument is like, I don't get why that's the primary thing that people look at. I really believe it's misleading because you might look at that and be like, "Oh, this thing's at 2 million of ARR. It's great." When it turns out that the market's super capped and it's gonna grow to 20 million and then massively decelerate and the business is gonna be worthless or turns out you don't really believe it's a superstar founder. And conversely, you might look at something and, you know, we were, we- we didn't invest in this company at the Series A. We fortunately invested later in the growth rounds. But you take Wiz. I'd argue Wiz is one of the most important privately held companies today. Wiz, when they raised their Series A at a $500 million valuation, had zero in ARR. But what did it have? It had an amazing iconic founder, and it was going after the cloud security market at a time of dramatic transition. I would much rather, uh, and look, 500's a big price. M- most of them don't need to be that high, but I would much rather take that shape of bet and bet ahead on the ARR than be happy that I'm, you know, getting into a business with a couple million of ARR, but where I'm in a stunted market where I don't believe I'm backing an iconic founder. And so it's not that I don't look at ARR. I look at it. It's an important proxy for product market fit, but I always start with who's the founder and what's the market? And then I go to ARR as a, as a secondary consideration.

    4. HSHarry Stebbings41:22

       I hate competition. It's probably one of my biggest reasons for saying no. Like there's five people doing it, we're one of n, we're pricing power none. I just don't... And you are, you said earlier, "Oh, isn't everything competition?" Uh, no, like, you know, I look at my biggest and best property management in Berlin, commodities pricing providers, like unsexy businesses where no one is going after it. That's, I think, where great money is made.

    5. SMSaam Motamedi41:51

       I- I- I agree with you, but I would say that great money is made, you know, to be pithy being contrarian and being right, right?

    6. HSHarry Stebbings42:00

       Mm-hmm.

    7. SMSaam Motamedi42:00

       And there are multiple ways to do that. I think the common way people do that, and, and congrats to you on those companies, like is they find companies or markets that others aren't all over and they invest in them. And then a year later, it's clear that things really working and they benefit from cheap follow on capital. But another way you can be contrarian and is right is to take a really competitive situation and say, "Hey, I'm willing to pay twice the price anybody else is willing to pay."... because I actually am such a believer in this thing that I- I'm willing to price it at twice the price you are. And I think, like, and again, I come back to the Wiz Series A, right? That's a good example. I think at the time, the price was astronomical. I'm sure many people passed due to the price. But, you know, credit to the people who funded it. They were right.

    8. HSHarry Stebbings42:41

       When do you think most obviously you were contrarian and right in that way?

    9. SMSaam Motamedi42:45

       I think for Greylock writ large, we- and then I'll give you a couple of concrete examples for- for myself personally, we are willing to invest behind great people and great markets when the traction data is not there, often when others would pass. So for instance, we- we were fortunate at Greylock to initiate a company called Abnormal Security, which recently announced they've crossed 100 million of ARR, growing north of a 100%. You know, I think it's- it's one of the fastest-growing private companies today. You know, we did multiple rounds in that company before it was clear that there was repeatable product market fit. But we had, you know, really deep conviction in the market and in the founder's evidence on Jay. You know, we mentioned Upwind and the large seed round. I'm sure many people looked at that and were like, "Wow, these guys are smoking something, $26 million seed round." It's like, no, Amiram's amazing. He's- he's gonna be an iconic founder. That company just started sales. It's one of our fastest-growing new companies. Um, so that's the form of risk we're willing to take. And I think any investor has to be willing to take some type of risk that the market writ large is not willing to take.

    10. HSHarry Stebbings43:46

        Does the framework you use to invest at seed differ from Series A? 'Cause I- I would argue that actually whether you are buying a Series C or a seed, ultimately, it comes back down to the founder. Why is- why do most companies stall out at, you know, some growth level at 50 million an hour? It's 'cause the founder doesn't have a second act, 'cause they can't operate a new geography, a new product, a new market. They can't get that second layer of the exact team. Gets back to the very seed investing principle of, is this a Bezos that's sitting in front of me? Is this a Zuck? Is this a Spiegel?

    11. SMSaam Motamedi44:20

        I think the way you just articulated that is spot on, and I'm gonna- I'm gonna steal that 'cause it's very clarifying for me as I think about how we look at seeds versus seeds. You're mostly right. I'd say there are two exceptions. One is markets have gravity, and I don't think even the best founder can overcome a market that has the wrong dynamics when it's too late. What do I mean by too late? If you start a SMB SaaS company that sells to other startups, and you start flying the plane, and the plane gets to 50 million of ARR, but the overall market is 100 million, it's really hard at that point to re-engineer the plane and to go after some other segment. And so as these companies get more baked and evaluations go up, we pay even more attention to, is this really one of those markets that matters? And not just matters, but has the right dynamics to support a new company.

    12. HSHarry Stebbings45:11

        Just on that, do you not think they're the best too? You know, when you look at, like, Dharmesh and Brian's pivot with CRMs with HubSpot, a market that no one fucking foresaw them going into and is now, you know, a 700 million market for them. Fuck.

    13. SMSaam Motamedi45:25

        I think it's a little bit of a philosophical debate. I mean, yes, I think the best two, there are many examples, but I think you make the- you make the odds just lower by picking the market incorrectly. And so- and- and- and maybe the best teams are able to pivot, but there's so many things that can go wrong as part of that process. It's like, hey, why not just get it right from the beginning?

14. 45:43 – 51:07

    Great Founder, Poor Market: Would You Invest?

    1. SMSaam Motamedi45:43

    2. HSHarry Stebbings45:43

       Yeah, so that's interesting. So if you have a- a founder where you love them but hate the market, would you do the deal?

    3. SMSaam Motamedi45:51

       This question is the bane of my existence. Like, it's one-

    4. HSHarry Stebbings45:53

       Yeah.

    5. SMSaam Motamedi45:53

       ... we debate every day at Greylock. Um-

    6. HSHarry Stebbings45:56

       Really hard.

    7. SMSaam Motamedi45:57

       It's really hard, Harry. I- I- I think the only things I can offer as learnings I've had, and- and I've made so many mistakes, so many mistakes on this exact question, it's painful, is one, like, you've got to be really honest with yourself, like, is this- is this truly an iconic founder, right? Is this, you know, the next George Kurtz at CrowdStrike or Nir Zuckerberg at Palo Alto Networks? And that's a really high bar. So one, that. And then two, I think we are more likely to do it if we think the general zip code is good, right? So, like, if you're in a good zip code, but the street you've picked to build your house on is a bad street, like, that we're more willing to get behind 'cause we're like, "Hey, Harry's smart. He's gonna figure that out. He's gonna shift streets before he starts construction." But if you're in the totally wrong zip code, it's hard for us.

    8. HSHarry Stebbings46:45

       Does that differ by stage? Will you do it at seed?

    9. SMSaam Motamedi46:47

       We're more likely to do it at seed. But even at seed, that's been where we've made some of our biggest mistakes. Like, I- I'd say at seed, our biggest mistakes, our biggest mistakes were we have not, you know, pursued the investment, has been where we've met someone truly iconic, and we did not like the idea. And by the way, Harry, often we were right. Often two years later, the founder was working on something different, but we should have been in business with them.

    10. HSHarry Stebbings47:09

        That is the worst when you meet them, and you're like, "This is not at all what we discussed." Like-

    11. SMSaam Motamedi47:15

        Exactly.

    12. HSHarry Stebbings47:15

        ... of course I would have said yes to this. Okay, we have that. Growth, a step further. Everyone's like, "Well, growth is totally dead today, right? There's no growth rounds happening." Is that true? Are the best companies raising growth rounds? Help me out here.

    13. SMSaam Motamedi47:31

        It's, yeah, it's not true, again. Like, and I see the same things you do, and I- I just don't understand the data people are looking at, 'cause I see a totally different, uh, battlefield.

    14. HSHarry Stebbings47:40

        Do you think the data they're looking at is median companies?

    15. SMSaam Motamedi47:43

        Exactly.

    16. HSHarry Stebbings47:43

        And that sounds really arrogant of me, but we do operate in rarified air. If you are in Middle America or Middle Europe, and like a Series B is a $10 million round for a industrials machinery business, it probably isn't even traditional venture, yes, it's impacted.

    17. SMSaam Motamedi48:00

        Exactly. You nailed it. And it comes back to the power law, right, which is very few companies matter, but the ones that matter-... become much bigger than you think. And so, if your company that's building something secular, maybe it's AI enabled, maybe it's not, by the way, you have great growth, great market dynamics, I think (laughs) this is gonna be controversial, I think the series will be in market maybe even frothier than it was in '21.

    18. HSHarry Stebbings48:25

        We've seen the- t- removal. Not removal, but SoftBank retreat, uh, Coatue retreat, uh, D1 retreat, uh, Durable do less. Uh, all of these guys, and there's no discredit to any of them, but just do less and slow their cadence. I thought it would make it less competitive.

    19. SMSaam Motamedi48:43

        That's what I thought too, but I think the thing maybe we both missed is those players would leave the market, but there's a new set of players. And those players are the early stage platforms that have raised these massive growth, global growth, et cetera, funds. There's incredible amounts of capital and dry powder at these platforms. These platforms have ha- all hired a lot of new partners who need to come out of the gate swinging and, because those platforms don't have public market teams, they don't have to face the harsh reality (laughs) of where public multiples are the way, if you're at a Coatue or a D1, you're thinking about every day. And so, by the way, that can also be an advantage, 'cause you could argue it allows you to be longer term blah, blah, blah, but like, those players an- and those players are competing for a smaller set of companies. 'Cause in '21, so many SaaS companies were growing from like one to four to twelve that, you know, yeah, all those companies got funded at big prices, but there were a lot of them. Now there's fewer. But the ones that have it, you overlay that with all of this demand, I, uh, the pricing is exuberant. I- I mean, I- I really wonder if- if the series be asset class as a whole is positioned to make money this vintage.

    20. HSHarry Stebbings49:50

        Wow. I mean, that's a bold statement.

    21. SMSaam Motamedi49:53

        Again, Harry, I come back to, unless you're betting that public market multiples are gonna re-expand, or that the growth durability of these assets is a lot stronger than what we've seen in the past, the vintage writ large is not going to perform. It does not mean that there won't be outstanding series being investments made. There, of course, will be. But the vintage and the basket overall, I don't think will perform well.

    22. HSHarry Stebbings50:15

        That's really interesting. And then you see people like Pat Grady move earlier and earlier. I think Pat's one of the best. But-

    23. SMSaam Motamedi50:20

        And it's incredible. It speaks to who he is as an investor that he's able to do that.

    24. HSHarry Stebbings50:24

        Uh, uh, when you look at, like, his prescient pick of, like, a Harvey very early-

    25. SMSaam Motamedi50:28

        Yeah.

    26. HSHarry Stebbings50:28

        ... I agree, but it's also indicative if it was ripe and fruitful at B-

    27. SMSaam Motamedi50:34

        Exactly.

    28. HSHarry Stebbings50:34

        ... he wouldn't be moving earlier.

    29. SMSaam Motamedi50:35

        And Pat's obviously one of the all-time great growth investors. And so, uh, to your point, I think it's interesting that that's what he's doing when many others are- are playing the, quote unquote, "game on the field" and paying up for these Bs and Cs.

    30. HSHarry Stebbings50:47

        Do you agree with the "play the game on the field" mantra?
15. 51:07 – 54:18

    Lessons from Investing in Great Founders, Poor Markets

    1. SMSaam Motamedi51:07

    2. HSHarry Stebbings51:07

       You mentioned a lot of mistakes when it's like, amazing founder, but you hate the market. I'm just interested, the best shows are always when one's very open with mistakes, but then also has lessons tied to it. If I were to ask you, what are your biggest lessons when you think of that and what- what situation was it, what would that be?

    3. SMSaam Motamedi51:27

       So, there are two that, uh, there are many, right? Um, the two that, like, first came to mind, the first is Glean, right? So, we have known, we at Greylock have known Arvind Jain, co-founder and CEO of Glean, for a long time because we were, uh, the series B investors of Rubrik, eh, where he was one of the co-founders. And so, have known him for a long time, have thought super highly of him. When he started Glean, you know, we- we looked, I- I took the meeting on the, uh, I think the series B round that General Catalyst ended up doing. At the time, and still now, but at the time, you know, he- it was an enterprise search company. Enterprise search as a market was littered with so many people who had tried and had been unsuccessful and who hadn't been able to crack enough end user value to get recurring, uh, to get recurring user love. And, you know, the business was early, and so we made a really bad decision, which is, we didn't try to win the right to invest. And when I, and today, I'd say Glean is- is- is on its path to being an iconic company. In my view, it's one of the most important AI application companies, and I think anyone who's not using it should, uh, (laughs) immediately start using it if you're a large enterprise. And so if I reflect back on like, what was the learning? I think there's two learnings there for me. One is, Arvind is an ico- iconic founder. Like, he is unbelievable. He had a long tenured career at Google then started Rubrik, which has gone on to, you know, just went public recently, become the defining company in the next generation of ransom per- ware protection and- and data backup. And- and when you have the opportunity (laughs) to work with someone like that, you don't overthink the dynamics around the market because he, for sure, understands it better than you do. That's number one. And then number two, I think the thing we also fail to see, which I think was hard to see at the time, but- but- but we failed to see it, what, because this was a few years before ChatGPT, was that the rise of generative AI would fundamentally change the way search and the enterprise worked and what would be possible. And you, and Arvind and his team were the best positioned to take advantage of that and build truly transformative experiences. So that- so that's- that's one. And then the second is a company called Codium, right, where, you know, uh, this company in the code generation space, we've known the founder, Varun, for many years. In fact, he was a Greylock fellow, uh, when he was still a student in college. I- you spend 30 minutes with this guy and it is very clear to you that he is, he is of the making of these very, very, very special entrepreneurs. But when he pitched us on this seed round, he was building a completely different, uh, company idea. Uh, at the time, it was model inference, which ironically now turns out to be a great idea, but several years ago, you know, there wasn't a lot of, uh, demand for and so we made a mistake of not trying to compete to invest in this round.

    4. HSHarry Stebbings54:07

       Did you change how you invested on the back of these?

    5. SMSaam Motamedi54:09

       Yeah. So now...... at the seed, when we see someone like a Varun or an Arvin, we- our orientation is towards

16. 54:18 – 59:29

    Mastering Sourcing, Selecting, and Servicing

    1. SMSaam Motamedi54:18

       yes.

    2. HSHarry Stebbings54:18

       Yeah. I asked Keith Rabois this one, but I think it's really interesting. When you think about sourcing, selecting, and servicing, kind of three elements that make up great venture investors. What are you best at and what are you worst at, and why?

    3. SMSaam Motamedi54:31

       I think all three are important. I- I'm- I don't wanna give you a non-answer but I sincerely ... Like, I think one of the hard things about venture capital is you have to be good at all three, especially if you're playing at a serie- se- seed and series A firm like I am.

    4. HSHarry Stebbings54:44

       I don't think you have to be good at servicing.

    5. SMSaam Motamedi54:46

       That's a good point. Uh, I, you're right, there are many great examples of, of investors who are knock, who don't do the servicing, and there are many founders who don't need that. But, I think the hardest and most important is sourcing. I believe, like, you are only as good as what you source. It is incredibly difficult to stay relevant, to understand where the new pockets of entrepreneurs are going to be, and to see them before anybody else. And we have a nine-person investment team at Greylock and we're competing with people with 50 investors. So, we have to be on top of our game and we think, we, we care about sourcing tremendously. Um, and so I, that, that would have been my answer for both what I think is hardest and I think what's most important. Because if you find the right founders, you could argue you don't need to do any servicing.

    6. HSHarry Stebbings55:29

       Can I ask, your trajectory within Greylock has been pretty unbelievable. What would you advise younger investors on successful career navigation in a firm?

    7. SMSaam Motamedi55:39

       I think most young investors make a big mistake, which is they think too about, too much about themselves-

    8. HSHarry Stebbings55:45

       Mm.

    9. SMSaam Motamedi55:45

       ... and not enough about the firm. I'll give them the benefit of the doubt, maybe it's not their fault. And what I mean by that is, a young investor shows up at a firm, and classically the way they think they can have impact on the firm and progress themselves in their career is by sourcing great investments.

    10. HSHarry Stebbings55:58

        Mm-hmm.

    11. SMSaam Motamedi55:59

        And so they start sourcing investments and they, you know, come to their partners and their colleagues, and they say, "Hey, you know, this is a great company. That's a great company. All of these things are great companies." 'Cause in their minds, they just wanna make investments happen. And I've seen many people, including people who formerly worked at, you know-

    12. HSHarry Stebbings56:13

        (laughs)

    13. SMSaam Motamedi56:13

        ... at Greylock and at other firms be oriented in that way, and I think those people are doing themselves a wild disservice.

    14. HSHarry Stebbings56:19

        But I think there's just one distinction to make. Are you using this as a stepping stone to a better fund or your own fund? Or do you wanna scale within this fund? If you wanna scale within that fund, 100%, judicious, thoughtful, preserving capital, being very intelligent around slow deployment, yes. I think on the flip side, if you just wanna use it as a stepping stone, attach yourself to as many names as possible. What matters is being able to say I was a part of a winner, and leverage the shit out of it for your personal brand, to be able to raise your fund or get a job at one of the best.

    15. SMSaam Motamedi56:53

        I think you're right, that does happen quite a bit. I hope we don't ever hire anyone at Greylock who's wired that way. But you are right, that that does happen.

    16. HSHarry Stebbings56:59

        So then to your point of, okay, if you do wanna stay, you then are judicious, you're thoughtful. What a- what is that advice?

    17. SMSaam Motamedi57:06

        I think at Greylock, like, the lens we would take is why is this person going to have something to offer an entrepreneur? Like, why would any entrepreneur, at some point, wanna work with this person? And if you don't have a really good answer for that (laughs) , I think it's really tough to be successful at, certainly at Greylock.

    18. HSHarry Stebbings57:21

        Do you think you need to have an answer for that? So, like, I, I would not say that many have an answer for that. But actually, what I would ask is, does this person have a unique, different way to find the best talent before anyone else? And again, they, they can learn servicing and knowledge on the side, whatever. I just care, can they help me find the next Collison before someone else? Do they run fintech meetups in their university and have the best, small, dense environment of amazing entrepreneurs? That-

    19. SMSaam Motamedi57:51

        I think it's both, Harry. I, I think your point's fair but I think it's both. And I, by the way, I don't just mean it because o- o- of the servicing. I just think it is the case that entrepreneurs fundamentally, in my mind, make decisions to work with venture capitalists. And they have the power, and they choose who they wanna work with and, by the way, that might be they have six term sheets. It might be that you're trying to preempt a series A in a company that doesn't need to raise, and the founder, of course, is excited about the capital but also has to be excited about you. And, again, Harry, it doesn't mean that you're gonna come on the board and drive a ton of value. That's one flavor of it. There are different reasons why a founder might wanna work with you. You might have a great brand. You might have great distribution. Like, there are great reasons. But, there has to be a reason. I, I fundamentally believe that. And so, that's why with our, you know, when we add people to the team, we think about telling them, "Hey, what's your reason gonna be?" And Harry, often that will also connect to sourcing. Because your reason might be, "I'm gonna go become an expert in fintech, and I'm gonna spend the next year, and I'm not gonna be focused on, like, what's the deal I bring in this week, but I'm gonna take the bet that over the next 10 years, fintech is gonna be important. And the next year, I'm gonna go map out Stripe and Square and Klarna and all these great businesses. I'm gonna meet the product managers, the directors of engineering. I'm gonna know everybody in the next generation of fintech. And a year from now, that's gonna result in me meeting Sally coming out of Stripe six months before every other venture firm, and that's gonna enable me to win or help our firm win that opportunity." That's the type of thing that I think a thoughtful young investor who really wants to build a lane for themselves at a firm should be focused on. And, Harry, I actually think we're saying two sides of the same coin, 'cause you became know- you become known for something, and that something both helps your sourcing, I would argue, and it helps over time your ability to win the best opportunities.

17. 59:29 – 1:07:39

    Quick-Fire Round

    1. SMSaam Motamedi59:29

    2. HSHarry Stebbings59:29

       I wanna (laughs) do a quick fire, so I say a short statement and you give me your immediate thoughts. That sound okay?

    3. SMSaam Motamedi59:33

       Sounds awesome.

    4. HSHarry Stebbings59:34

       So, d- what do you believe that most around you disbelieve?

    5. SMSaam Motamedi59:37

       I think investors can help companies in the pre-product market fit stage.

    6. HSHarry Stebbings59:41

       Ooh.

    7. SMSaam Motamedi59:41

       I think there's a misconception that p- finding product market fit is magic, and I disagree. I think if you're an investor you can be a thought partner to the founder on how to segment customers, how to orient on an ICP. You can sit in customer meetings and give real feedback, and I've seen it have real impact.

    8. HSHarry Stebbings59:56

       I totally agree with you.I, I really do. I, I, so many times it's like your ICP is way too wide, your product marketing's not tight enough, and that's really been detrimental to your ability to get your first 100 customers. Which venture investor do you most respect and learn from outside Greylock? And it can't be Pat Grady.

    9. SMSaam Motamedi1:00:14

       (laughs) I love Pat, uh, and there are many amazing people that you and I both know who I learn from, so it's hard to pick one name. But I'll go with Elad. I think Elad Gil is, is just an outstanding thinker and ambassador. Uh, you know, we've worked with him closely over the years. I have the good fortune of working with him at BrainTrust, um, which is a company in the AI developer platform space. And his ability to do everything from, you know, help initiate new companies like BrainTrust, to lead series A's, to do terrific growth rounds, he's a thinker that can extend across all stages in a single person. And I'm just very impressed by him.

    10. HSHarry Stebbings1:00:49

        One of my lessons is when someone really great brings you into a round, don't ask twice. And what I meant by that is like, he brought me into AgentSync, amazing business, very grateful to him for that. He offered me ............................ at seed.

    11. SMSaam Motamedi1:01:02

        Wow.

    12. HSHarry Stebbings1:01:02

        And I was like, "SOC2? What is that?"

    13. SMSaam Motamedi1:01:05

        (laughs)

    14. HSHarry Stebbings1:01:05

        Like SOC, I didn't even get that. Compliance is weird and boring. Christina was amazing, by the way.

    15. SMSaam Motamedi1:01:10

        Yes. She's amazing.

    16. HSHarry Stebbings1:01:11

        But like she's, yeah, why the fuck was I questioning Elad at seed on that?

    17. SMSaam Motamedi1:01:17

        I've also learned that mistake, uh, uh, uh, painfully on, on companies he's been involved with.

    18. HSHarry Stebbings1:01:21

        Tell me, what's the most memorable first founder meeting you've had?

    19. SMSaam Motamedi1:01:24

        So there are many, Harry, but the one I would mention, actually talking about BrainTrust, is the founder of BrainTrust, my friend Ankur Goyal. So Ankur's someone who I've known for a long time. He was the first VP of engineering at a company called SingleStore then went on to start Impira, which Figma acquired in our portfolio, ran the AI team at Figma. But when I met up with him last year when he was, you know, getting BrainTrust started, and he, he painted a vision of how people would actually build AI applications. And everyone's debating where's the value going to accrue, the tooling layer, the model layer, the app layer? And he's like, "Saam, I was at Figma, I know the team at Notion, I know the team at Zapier. Here's what actual developers care about and their pain points, and here's how I'm gonna go build a solution." There was such clarity in the way he spoke about an emerging market. You know, I, I walked out of that first meeting, I texted my team, I was like, "We are immediately investing in this man." And you know, I'm glad we did. Now all of those companies are customers of his.

    20. HSHarry Stebbings1:02:16

        How big was that first round?

    21. SMSaam Motamedi1:02:18

        I can't remember the round size. We wrote a $5 million investment.

    22. HSHarry Stebbings1:02:22

        Got you, okay. Uh, tell me, why have some firm incubations worked and others not?

    23. SMSaam Motamedi1:02:27

        Broadly, I think incubations don't work for a number of reasons. Um, I think most firms take too much of the cap table. There's negative selection bias where they don't get the best founders to want to work with them. They can't actually help. And so I broadly think incubations don't work. That said, some have worked out outstandingly and, you know, at Greylock, Palo Alto Networks and Workday are our two largest historical outcomes. Um, my partner Ashim and I were fortunate to help incubate a company called Abnormal Security I mentioned earlier that, you know, is on its path to be a company of that ilk. If I think about those businesses, they had amazing founders, they picked really large markets, um, and then they worked really collaboratively with their venture partners around recruiting and customer development to build the right team and initial set of customers out of the gate. And, you know, others like the folks at Cedarhill have done that really well. But broadly speaking, I don't think incubations work.

    24. HSHarry Stebbings1:03:16

        I love Nikesh at Palo Alto. I had him on the show and he was fantastic. So yeah, totally agree with you. What have you changed your mind on in the last 12 months?

    25. SMSaam Motamedi1:03:24

        12 months ago, I was of the mindset that the large foundation model companies would crush all of the smaller focus models. So if you were building a model for audio generation or, you know, voice synthesis, yeah, you might have an advantage today, but how is it not gonna be the case that OpenAI two years from now is gonna have this way better? And so we didn't invest in any of those. And I still hold the view that just on the raw like generator voice, the underlying large models will get better. But the thing I have changed my mind on is if you can start with a better focused model and then very quickly move up the stack into the application layer, it's actually a very good strategy. And unfortunately-

    26. HSHarry Stebbings1:04:04

        What is the best example? What's the best example?

    27. SMSaam Motamedi1:04:05

        ElevenLabs, which unfortunately-

    28. HSHarry Stebbings1:04:06

        Yeah, I thought this one too.

    29. SMSaam Motamedi1:04:06

        ... we're not investors in. But it's the best example.

    30. HSHarry Stebbings1:04:09

        We got, we got a tiny check offered to us at like 100 million price. And I was like, "What's the point in doing 200K?" I don't think-

Episode duration: 1:07:39