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EVERY SPOKEN WORD
40 min read · 8,269 words- 0:00 – 0:59
Intro
- JSJohn Somorjai
We have built an incredible service cloud business. It's now almost eleven billion dollars, and the foundation of it was an acquisition.
- AIAlex Immerman
How do you describe Salesforce as a platform today?
- JSJohn Somorjai
At its core, it's delivering trusted foundation for all of your enterprise applications. You can interact with it through Slack. You can interact with it through CloudForce.
- AIAlex Immerman
Software development is faster and more affordable than it's ever been. In this era of software, what is worth actually buying?
- JSJohn Somorjai
There will be a reckoning that happens. A lot of these companies have valuations that are not sustainable, that they won't be able to grow into. We've invested in more than seven hundred and fifty companies. We've acquired twenty-nine, so it's still a relatively small number of companies. But I think if we ever see something really exciting, we want to stay close to that company.
- AIAlex Immerman
If you were gonna start a company today, and it was gonna attack Salesforce head-on, what are the openings that you see fit?
- JSJohn Somorjai
Um-
- 0:59 – 2:45
Working with Marc Benioff
- AIAlex Immerman
John, it's great to be with you today.
- JSJohn Somorjai
Thank you for having me. It's wonderful to be here.
- AIAlex Immerman
You've been at Salesforce now for over twenty years. Uh, Marc, uh, Benioff is a Mount Rushmore-style figure for cloud software, you know, led the transition from on-premise to cloud. Uh, he is an incredible marketer. He, uh, you know, at Dreamforce this year, he, uh, frame magged, uh, Jensen and Dario and Sam. Uh, I'm curious, you've had a long career with him. What, what, uh, what's it like to work with him?
- JSJohn Somorjai
Uh, well, I would also add visionary to that, that point as well.
- AIAlex Immerman
Yes, yes.
- JSJohn Somorjai
Marc, Marc is quite a visionary, and he really, I think, can see where the industry is heading. And so that's w-how he helps, uh, the company transform itself. And when he thinks about growing the business, he thinks about organic innovation, but also inorganic innovation. And that's really been the key to how we've grown the company and marrying the two together. And so acquisitions play a huge role in that. And, uh, when Marc sees that the world is moving a certain direction, he will point me and my team to, like, go, go figure out, go find the best asset to buy in that category and, um, and come up with, with those ideas, uh, all the time. Um, I would say the other thing that's very unique about Marc is just his, his level of curiosity and, uh, how he thinks about things with a beginner's mind, uh, all the time. And so he asks that of us as well, and I think it's really helped us find some remarkable companies to bring into Salesforce, uh, and also some really exceptional entrepreneurs.
- 2:45 – 5:12
How Salesforce decides what to buy
- AIAlex Immerman
With that in mind, I really like that idea of beginner's mind, the curiosity. Um, how do y-how do the two of you approach, uh, you know, acquisition and investment ideas together?
- JSJohn Somorjai
Well, I, I think that one of, one of the things we-- that's always been the hallmark of Salesforce is we listen to our customers quite a bit. And so we get a ton of feedback around what do customers want to buy from us? Where do they feel like our products are missing? Where are the gaps? Uh, and we take that and work with our product teams to really identify what are the best opportunities. Uh, and that's certainly for the acquisition side. On the investment side, you know, my, my ventures team meets with thousands of companies every year, and I think we have a v-get a very good sense of where is the traction, where is the interest, what, what areas of technology are really growing the fastest. And we can bring all of that feedback and learnings back into the company and I think make better decisions as a result.
- AIAlex Immerman
And you alluded to, you know, Marc as this, uh, you know, big visionary. Uh, and of course he is. How do you, uh, how do you and your team think about balancing Marc's, like, big vision mindset with, uh, strategic and financial discipline? Uh, maybe there's been times where you've had to tell Marc no on his big grand idea. I'm curious how, how, how that all comes together.
- JSJohn Somorjai
So what we, uh, what we have is a, is an internal framework that we follow, which, um, we are pretty disciplined about following, and we look at sort of three elements. The first would be, where is the strategic fit, and how much customer success can it drive? I think the second would be, can we accelerate the business? Will it fit into our technology stack? Will-- Is there good cultural alignment with the team? Do we see the, the talent there as, as people that will work well within Salesforce? Um, and then the third part, uh, which is probably the trickiest in this day and age, is, how can we deliver value to our shareholders and to our customers? And what is the, you know, what is the timeline for value accretion? Uh, is the valuation reasonable? And that's, that last point is probably the hardest right now, uh, because everything is expensive.
- 5:12 – 10:31
Headless Salesforce and outcome-based pricing
- AIAlex Immerman
We're, we're in a unique moment in time, and we should use some time later to, to chat on that.
- JSJohn Somorjai
Yeah.
- AIAlex Immerman
Maybe to take a step back, uh, Salesforce today, really large company. You're much more than CRM today.
- JSJohn Somorjai
Mm-hmm.
- AIAlex Immerman
Um, how, how do you describe Salesforce, uh, as a platform today?
- JSJohn Somorjai
Well, I think it's, it's always been a, a, a place where customers can go to buy technology to help them interact with their customers in new ways. And, uh, and that's sort of been foundational from the beginning. But, you know, how we think about it is that we, we have a platform that is, at its core it's delivering trusted foundation for all of your enterprise applications. And then you can interact with it from different surfaces, whether it's, uh... And, and that's, that's why we made Salesforce headless, and so you can interact with it through Slack. You can inter-interact with it through CloudForce, uh, and through other, other places. And I think it's, it's just as broad as a company wants to make it, uh, a place where you can really deliver a lot of enterprise value.
- AIAlex Immerman
Absolutely. I mean, I think, uh, it has been really cool to see you guys leading the charge on the headless transition. Um, I'm curious, as you-- uh, as we all enter this brave new world with AI and there's new interfaces-
- JSJohn Somorjai
Mm.
- AIAlex Immerman
Um, you referenced Claude, there's obviously ChatGPT, um, there's a broad swath of them today. Um, you're able to access Salesforce via them.
- JSJohn Somorjai
Yeah.
- AIAlex Immerman
Um, maybe, uh, a good portion of your customers are aspirational about, uh, requiring fewer seats in the future because they're able to accomplish more work today, uh, with AI than they previously needed to. I'm curious, um, under this transition, like, how do you think about Salesforce capturing value, uh, in this new world?
- JSJohn Somorjai
Well, first of all, I mean, I think we have different ways to price our products. But most importantly, uh, consumption is a big part of, of how we price. And so many of our products, they are consumption-based. Like MuleSoft was always consumption-based, for example. Uh, and so I would say, you know, what we, what we try to do is make sure that as, uh, we're deli-- First of all, we wanna be delivering value that our customers really appreciate and wanna continue to pay for. And whether they pay on a per-seat basis or on a usage basis, it doesn't really matter. Um, but I think the, the key thing is making sure that they're happy and successful and will come g- come back. And that's one of the critical pieces about where the technology industry has been, uh, moving, is more towards outcome-based pricing, where you're paying for resolutions. Uh, and this is what Fin does so well-
- AIAlex Immerman
Fin, exactly
- JSJohn Somorjai
... for example. And, um, and versus just paying for, uh, a seat. And I think that's, that's definitely a trend that we are getting really behind and, uh, more and more of our products are gonna be delivered that way.
- AIAlex Immerman
Yeah. Fin was, uh, certainly an, an early pioneer in, in the outcome-based, more resolution-based pricing. Uh-
- JSJohn Somorjai
And the re-- And by the way, the reason they can do that is because the time to value is so fast. So Fin, you can get up and run-running on average in sixteen days and immediately start seeing, um, the agents take-- handling more and more of the calls that humans might have otherwise been, uh, escalated to handle. And so we, we actually decided, "Okay, well, why don't we just pilot Fin internally and see what it does for Salesforce?" And, um, we found that we had it up and running actually in fourteen days, and on our help.salesforce.com website, um, it's now handling over forty percent of the traffic.
- AIAlex Immerman
Oh, wow.
- JSJohn Somorjai
And it is, um, delivering sixty-five percent resolutions without going to a human. Uh, so that is really quick time to value, and that's kind of a hallmark of, I think, what a great acquisition looks like.
- AIAlex Immerman
Yeah. And, and in-- with enterprise sales in particular, you're earning a larger share of the labor budget. In your Fin example, uh, you know, that, that could be customer support, a little bit of sales. Um, and so in a Salesforce context at large, that can be my AI team is, uh, prospecting, it's finding leads, it's qualifying leads, it's following up, it's closing deals.
- JSJohn Somorjai
Right.
- AIAlex Immerman
And so as you're earning a greater share of that labor budget, sure, your customers may be paying you quite a bit more than they did in the past, but their overall cost of selling has gone down.
- JSJohn Somorjai
Absolutely. And Qualified is probably one of the, the great examples of what you just said. So that can replace your, your sales development rep organization, essentially, where ba-- where basically it's taking all the traffic that's coming in through the website and answering questions with its Piper agent. And it's a very human-like experience where you, you're speaking to, uh, a very lifelike avatar and, uh, they can explain what, uh, what the products do, uh, and help set up meetings for you all automatically without touching a human.
- 10:31 – 17:33
Partner with Salesforce, or sell to it?
- AIAlex Immerman
Uh, ma-makes a ton of sense. Uh, I mean, we just started to touch on a number of your acquisitions. You have a long history of acquisitions. I think nearly a hundred billion of acquisitions over the course o-of your tenure, twelve o-over the last year. Um, really amazing. Uh, as you think about M&A as your strategy, um, there were the large ones like Slack and MuleSoft, In-Informatica, and then, uh, more recently you've gone to the AI-native companies. You mentioned Fin, uh, Listen Labs is another. Uh, your framework for acquisitions, you touched on, like, fi-financials is the third component.
- JSJohn Somorjai
Mm-hmm.
- AIAlex Immerman
The second, strategic, and then first was what are your customers asking for?
- JSJohn Somorjai
And also how can we accelerate them-
- AIAlex Immerman
Accelerate growth
- JSJohn Somorjai
... with our distribution. I mean, remember, we have fifteen thousand sales reps, and so if you can plug one of these acquisitions into-- that really, in the case of Listen, you know, only a handful of reps, you suddenly make it available to your entire sales team, you're gonna grow that business.
- AIAlex Immerman
And so maybe, like, imagine I'm at the other side of the table, uh-
- JSJohn Somorjai
Mm-hmm
- AIAlex Immerman
... and, uh, I, uh, am at Alfred, I'm at Listen Labs. I'm a really ambitious AI founder. Um, I get, uh, you know, approached. I'm spending time with Salesforce, and it sounds great to partner with your fifteen thousand sales reps and get me pushed through your channel. I would love that. Um, how do I think about partnering with Salesforce versus, you know, selling to Salesforce?
- JSJohn Somorjai
Well, I think we, um, we approach partnerships in, in a very open way, and so we, we have Probably more than 8,000 partners at this time that we work with, and these are ISV partners. Um, sometimes we invest in the partners, by the way, as well, and that's part of the, the role of Salesforce Ventures. Um, but we wanna have an open ecosystem where we're bringing as many solutions as possible to our customers, and they make the decision. They can buy a partner solution. They can buy a solution from Salesforce. But I think we-- I think the, the hallmark of, of our company is making sure that we have this as broad of an ecosystem as possible because you want to have as much to offer as you possibly can. So there are, are-- there are definitely ways to partner with us. We have multiple types of partner programs and a great organization that does that.
- AIAlex Immerman
Uh, and so, you know, maybe like, as I think about, uh, you know, I, I'm an ambitious AI founder and, uh, selling to Salesforce, why is that the, like, more ambitious choice for me?
- JSJohn Somorjai
Well, imagine having to build that distribution channel on your own and how long that will take to hire the reps, ramp the reps, enable them, uh, and get them productive. It takes a very, very long time to build that at scale. Oh, and by the way, you've got to do that across small business, medium-sized business, and enterprises. Oh, and you also have to do that globally. It's a heavy, heavy task for anyone to take on, and I think that, you know, entrepreneurs have to, like, make that decision. Is, is this the right time to sell and, and plug, uh, my technology into a company that already has that, uh, or can I continue and go it alone and try to build it on my own and continue to raise money and dilute yourself further and further and further? And, um, it's just, uh, many years of undertaking versus, uh, getting your, your technology in the hands of customers as widely as possible and as quickly as possible.
- AIAlex Immerman
And-
- JSJohn Somorjai
And that's the decision you have to make.
- AIAlex Immerman
Fair enough. And, uh, as you try to integrate these folks into your culture, um, they bring a certain entrepreneurial spirit their own way-
- JSJohn Somorjai
Which we love
- AIAlex Immerman
... of thinking.
- JSJohn Somorjai
Yes.
- AIAlex Immerman
And h- so how do you think about, uh, bringing them in and integrating them appropriately so that that spirit can continue to spread and thrive while being a part of the, you know, larger platform?
- JSJohn Somorjai
I think that's one of the most exciting things about what we do when we buy a company is, is bring in, uh, this exceptional talent to help transform the company and, and in many ways refresh us, you know, and make sure that, like, we're bringing in that entrepreneurial spirit into the company and thinking about new ways of doing, doing things. Um, a key focal, focal point of the integration team is on the people and making sure that they're successful in onboarding, learning, learning how things work within Salesforce, um, but also growing their careers internally. And we've had many, many, uh, stories of people who have come in, uh, sold their companies to us and have risen to become our chief product officer. It's happened actually four times now.
- AIAlex Immerman
Huh.
- JSJohn Somorjai
Um, and, uh, or people who have taken on big roles within our sales organization or other leadership roles. And so I think, um, I think it's been a, an important part of how we've grown the company too through bringing in new talent.
- AIAlex Immerman
Yeah. I mean, you have eighty thousand employees. I can imagine you bring in these companies, they, they help like turbocharge certain areas.
- JSJohn Somorjai
Mm-hmm.
- AIAlex Immerman
Is there, uh, an example of one of these acquired companies that, uh, you point to as, as having a, a big impact on the culture of the organization?
- JSJohn Somorjai
Well, I would say, you know, one, one that, that springs to mind is David Schmeier's company, uh, Velocity. So, um, we didn't really have much of an industries bent within Salesforce, and yet, you know, so many, um, there's so many important verticals that are a key part of the growth of the entire software industry, and we now have thirteen verticals actually.
- AIAlex Immerman
Oh, wow.
- JSJohn Somorjai
And, um, and that all really-- that sort of focu-focus on the industries, focus on the specific use cases for that industry, that came through that acquisition. And so David came on board, brought Velocity in. It brought in six verticals. We've added another, another seven since. And, um, and he went on to be chief product officer, now chief strategy officer, and I think he's definitely helped us think about, uh, selling to those industry verticals in ways we never would have otherwise.
- AIAlex Immerman
Uh, that, that's very interesting. And like one of the, one of the pieces that's also been impressive about Salesforce over the years is like there are large companies built on top of you that are just focused on verticals as well, like Viva and the like.
- JSJohn Somorjai
nCino was probably-
- 17:33 – 22:54
Build vs. buy: Listen Labs and Fin
- AIAlex Immerman
Um, today, as you're thinking about, uh, you know, build versus buy, uh, you probably are told way more, um, that we can just build that. Uh-
- JSJohn Somorjai
Mm-hmm
- AIAlex Immerman
... software development is faster and more affordable than it's ever been. Uh, and so a part of your job must be figuring out like when that's actually true.
- JSJohn Somorjai
Yeah.
- AIAlex Immerman
Um, I'm curious, like in this era of software, um, what is worth actually buying?
- JSJohn Somorjai
Um, well, I, you know, when we think about the, you know, do we build, buy, partner, I mean, we go through a lot of analysis with the product teams around what their roadmap should look like for the next three years. And, um, do they truly have the people that can build what they're trying to deliver? Um, do they have the internal expertise for it, for example? Um, and, uh- And, or can they go out and easily hire it? And you know how hard hiring, um, like AI-
- AIAlex Immerman
It's a competitive market these days
- JSJohn Somorjai
... AI engineers right now, very, very hard. And so, uh, in many cases, you can really speed up, uh, the, the development process through an acquisition if you can find the right one and if you can integrate it quickly. And that's, that's also, you know, s- one of the, the things that you have to consider because a typical acquisition end to end from the moment you start with the idea to when it's actually integrated, eh, could be six to nine months. And so could you deliver something on your own much faster than that? And so those are the types of, of calculations we, we make and try to, try to think about. But when the right asset shows up, you know, you really know it. You, you can have a sense. And that was, you know, the case when Alfred and Florian came, came to meet with Marc and demoed Listen Labs to us. I mean, they were just brilliant, and I think we had-- we thought the-- not only was the technology outstanding, but the, the interface was so easy. It was so easy that my team started using it with, you know, no enablement whatsoever. Within 10 minutes, we had, um, we had a survey out and, and st- and started, and it was-- it just could not have been easier.
- AIAlex Immerman
Um, is that how you diligenced Listen Labs? Uh-
- JSJohn Somorjai
It was part of what we did
- AIAlex Immerman
... uh, a survey on Listen Labs?
- JSJohn Somorjai
To their customers-
- AIAlex Immerman
Yeah
- JSJohn Somorjai
... actually. And, uh, that, that was incredibly effective. Um-
- AIAlex Immerman
That's great
- JSJohn Somorjai
... but we do-- By the way, our diligence process is pretty rigorous, and, uh, the customer element, the customer feedback that we do is, uh, is one of the most important, uh, ways of really judging how good the product is and, you know, are these customers likely to renew?
- AIAlex Immerman
We're, uh, happy Listen Labs customers ourselves and use it as a diligence tool as well. Uh, very cool. Um, maybe on, on this piece of, like, accelerating capabilities, uh, a-another acquisition that, that you were talking about earlier was Fin.
- JSJohn Somorjai
Mm-hmm.
- AIAlex Immerman
Um, you guys have long had a role in customer support. Maybe talk about what capabilities Fin brought to you all and maybe the story behind that acquisition.
- JSJohn Somorjai
Yeah. And I think, I think it goes back to, uh, what we talked about earlier, Marc's focus on having a beginner's mind. And so we have built an incredible service cloud business. It's now almost $11 billion in, in AOV. And, um, and the business, actually, the foundation of it was an acquisition-
- AIAlex Immerman
Mm
- JSJohn Somorjai
... that we made in 2008, a company called Insternet, which was Alex Dayon's company, uh, another person that went on to be our chief product officer.
- AIAlex Immerman
A sequel. Amazing.
- JSJohn Somorjai
Like, he's, he's exceptional. He's, you know, has, has-- one of the greatest entrepreneurs to come out of France. Um, and, uh, I think that, um, what, um, what's, what's, was very clear to us is that the whole, uh, movement towards native AI applications and the way that it, they were priced based on outcomes and the very fast time to value, how quickly you could get it implemented and up and running and having happy customers using it, um, it just wasn't something that we could build quickly enough. And so, um, we had a, a wonderful relationship with Eoghan, who we had known for years. We got to know his AI team in Ireland, who were just outstanding, absolutely outstanding, some of the best AI talent actually in Dublin, Ireland. And we, we realized, like, wow, this could just turbocharge what we're trying to do with Service Cloud. And, uh, and so we were able to, to buy the company, and it's, it's real- As I said earlier, it's, it's proving, um, to be quite a, a very valuable acquisition for us.
- AIAlex Immerman
Yeah. I mean, that, that one's an amazing story from a rebirth of the company perspective too-
- JSJohn Somorjai
Yeah
- AIAlex Immerman
... with, you know, the transition from Intercom to Fin and, uh, you know, him coming back as founder.
- JSJohn Somorjai
And he's having a big impact at the company, like he is-- Eoghan is someone with a loud voice, and he, uh, makes his views known.
- AIAlex Immerman
Free spirit.
- JSJohn Somorjai
And he's real- and he's really trying to shake us up, and that's, that is another benefit to bringing these people
- 22:54 – 28:16
Slack: the perfect interface for agents
- JSJohn Somorjai
in.
- AIAlex Immerman
Amazing. Amazing. Um, another product that, you know, I use every day, uh, certainly you do, is, is Slack. Um, I'd be curious, uh, if you were to rewind the clock, like you had a rationale for acquiring Slack. Um, Slack's role today in AI is pretty important and different than-
- JSJohn Somorjai
Mm-hmm
- AIAlex Immerman
... maybe what you could have expected then. I'm curious, like, how your thinking about Slack has evolved over the years.
- JSJohn Somorjai
I think the core thesis for why we bought Slack holds true today, but it's even bigger than I think we all imagined because it is the perfect conversational interface for AI. And when we thought about it back in-- So we bought the company in 2020, so it's now been-
- AIAlex Immerman
There's a, there's a rumor out there that Marc only spent an hour with, uh, uh, Stewart before the acquisition. I don't know if that's typical, but-
- JSJohn Somorjai
Uh, a lot more time than that. Definitely.
- AIAlex Immerman
[chuckles]
- JSJohn Somorjai
Definitely. And, and I think we, um, no, we looked at it very closely. We had been using Slack. It was clearly a beloved product in, in, uh, among its users and, um, and something that needed more distribution. Like, it was just really-- It was losing to Teams, and they were really, they were stuck. I don't know if you remember back in 2020, but there was like one bad quarter. The stock went down. And, uh, and that's really what triggered a lot of the discussions, is that, you know, how can we bring these two companies together and turn Slack into what it really needed to be, which was the user interface for everyone and the collaborative tool where humans and, and, um, and apps would work together. Uh-
- AIAlex Immerman
And now agents.
- JSJohn Somorjai
And now agents, yes. And, uh, we didn't know the agent part. That came later, but you can just see that it was the perfect interface for that. We also knew that it would be the, the interface for all of our products. And so you can access all of Salesforce products now through Slack. And, um, and that was always, uh, you know, one of the key strategic rationales that we had at the beginning. Um, so since then, uh, Slack revenue, uh, is now almost three times from what-- where it was when we bought the company. Um, and it is our fastest growing product. So it's, it is taking off like wildfire in this day and age, uh, because it's just perfect for agents.
- AIAlex Immerman
Um, yeah, m-makes a ton of sense. I think, I think of Slack in this current era as the unofficial org chart. Like, it knows who reports to who, how people talk to other people. It has all the context on how decisions are made.
- JSJohn Somorjai
Yeah.
- AIAlex Immerman
Um, and so it's a really important corpus for AI.
- JSJohn Somorjai
Yeah.
- AIAlex Immerman
Um, but it's an interface product, as you alluded to, and so, um, as other products are more headless, it can be the central, uh, you know, repository, central, uh, like ground for decision-making.
- JSJohn Somorjai
Absolutely. And, and because it has all the context from all of your work, if you use Slackbot ever, like you can just get the m- the richest answers that you've ever seen from AI, uh, right there within your interface. And so it, uh, it just couldn't be easier, and, uh, we're, we're thrilled that we were able to buy the company. And, you know, fi- it's been like five years and a quarter since we've owned it, and it's, it's just, I think, transformed Salesforce.
- AIAlex Immerman
Amazing. And, uh, maybe just to like hit on that, right? Like you said, it's grown nearly three X in, you know, a bit over five years. That's really strong growth at scale. What about that, you know, story, that integration? What has gone so well with that one relative to, you know, other acquisitions?
- JSJohn Somorjai
Yeah, and I, I think, you know, it was-- it, it wasn't clear that it was going to go so well from the beginning, especially when we were buying it during the pandemic.
- AIAlex Immerman
Right.
- JSJohn Somorjai
And we basically negotiated the deal, did everything, all the diligence through Slack, you know, by the company without ever, you know, having a lot of face-to-face meetings. And, um, and then, uh, you know, it took a little bit of time for the integration to really hit its stride, but once it did, um, it, it has taken off. And I think getting-- Again, it's like, it, it's like great technology that was starved for distribution. And I think this is k- sort of the point I was making about in Listen Labs as well. Like this is the, the benefit that an entrepreneur can get from, uh, a great acquisition partner.
- AIAlex Immerman
Um, how many of those, uh, face-to-face meetings happened to happen in Hawaii?
- JSJohn Somorjai
Uh, not... Well, it was, it was a lot later, actually.
- AIAlex Immerman
Re- Was-- That was not the common ground in, uh, H- COVID times?
- JSJohn Somorjai
Not, no, not, not then. I mean, there were so, so many restrictions on even travel to Hawaii then.
- AIAlex Immerman
Sure.
- JSJohn Somorjai
But I would say, um, we-- Hawaii is very useful now.
- AIAlex Immerman
[chuckles]
- JSJohn Somorjai
So, you know, I think about like Braze, for example, which is, uh, our most recently announced acquisition. Um, I think the, the meeting that the two CEOs had in Hawaii was critical in terms of like jump-starting that process and building the camaraderie and seeing the alignment, and, uh, it just, it-- Hawaii is a magical place.
- 28:16 – 35:48
How Salesforce Ventures’ strategy evolved
- AIAlex Immerman
All good things start in Hawaii.
- JSJohn Somorjai
[chuckles]
- AIAlex Immerman
Um, uh, so we, we've spent a bunch of time talking about, uh, buying companies, uh, and partnering with companies. Uh, you have a third option, which is investing in companies, uh, letting them run independently. Uh, I used to think of Salesforce Ventures as you partnering with your ecosystem, uh, you know, your close partners. Today, it seems that you're investing much more freely, much more broadly. So of course, Anthropic, Mistral, close partners of the company, uh, Fall. Um, Basepower seems a little more, you know, out there from a-
- JSJohn Somorjai
Mm-hmm
- AIAlex Immerman
... you know, s-strategic fit. Curious to hear like how the, um, strategy has evolved over the years.
- JSJohn Somorjai
Okay. Uh, yeah, that's a great question because it really... It, there's been an evolution for sure. Um, but you know, when you think about it, the through line has always been the same, which is: How can we, uh, make sure we're finding the companies that will be delivering enterprise value, uh, whether it's today or in the future? And so, uh, it started off in two thousand nine when we invested in companies like, you know, that were part of our ecosystem, like DocuSign, like nCino, um, and, uh-
- AIAlex Immerman
They should closely fit with your s- with your software
- JSJohn Somorjai
... Twilio was another early investment.
- AIAlex Immerman
Makes complete sense.
- JSJohn Somorjai
And, um, and we integrated with them. We partnered close to them. We also did a lot of services, uh, uh, investments as well to build out our whole ecosystem of, of services partners regionally. And, um, and those were, were very successful. We then, um, ventured more into, uh, new areas where the industry was heading, like companies like Snowflake. That was a very, very critical, uh, investment that we made, um, uh, several rounds and then the IPO round. Uh, we also invested in cybersecurity because we could see, uh, how, um, that was going to become a massive problem for the industry, and we needed to stay current, so Wiz was one of our investments. Um, and then, uh, you know, I think when AI became so obvious as, as, uh, the, the next wave of the industry, we wanted to be very, very big in investing in the best companies there. We created the billion-dollar AI fund at the beginning of '23. But, uh, but in addition to Anthropic, we also invested in Mistral and Cohere, uh, in a, in several companies that were more at the, at the, um, infrastructure level, level. Um, we've invested in voice with Eleven Labs. We invested in video with Runway. Um, and now we're actually venturing into physical AI too, which I think is really a new, fun, and exciting area and very... You, you can see, um, with the improvements like with, with, in robotics, with dexterity and mobility, this is going to be a huge future for, um, for the industry, and so we wanna be there.
- AIAlex Immerman
Totally makes sense. I mean, very broad mandate. You know, it seems to cover all of technology wherever there, there is growth in, in, in the sector at large. How are you spending your time personally?
- JSJohn Somorjai
Um, I s- I divide my time, uh, between, uh, finding new, new companies to acquire, uh, the in- working with the integration team and making sure that the acquisitions are successful, uh, and then the ventures program. And so I'm, I'm split, uh, a lot. I, as I said to you, I've never been busier than I am now, but I think that's sort of a hallmark of how just the rapid evolution in the industry and how, how quickly technology innovation is happening these days, you just have to move faster and, and however fast you move, it's not even fast enough.
- AIAlex Immerman
Um, what, uh... I- in all these areas on, on the venture side, what are you most excited about right now?
- JSJohn Somorjai
Um, well, as I, you know, I, I think the robotics companies are, are just fascinating to see. Like, I, I absolutely love that. I have-- we have an investment in figure AI and the humanoids. We've got investments in physical intelligence, um, uh, Dynu Robotics, Skilled, and, uh, and a variety of other companies. We have Zipline, which does drone delivery, for example. So we're, we're venturing off into-
- AIAlex Immerman
We love many of those companies.
- JSJohn Somorjai
Yeah, and we're, so we're doing, um, um, things in new areas that aren't just about software. Um, but it's very clear they're going to be really important to the industry. And, and so I'm, I'm enjoying that. I would say I also, um, we have investments around the world, and so we're seeing some really interesting companies in, um, Japan, for example. Um, we invested in a robotics company there called Mugen, which is, like, really, really big in logistics and, um, in the, in the Japanese market. And, uh, we have investments in, um, l- many in Europe, in Israel, um, and, uh, and in other parts of Asia and Australia, for example. And so I think seeing the, the globalization of technology has been a real, uh, interesting vantage point.
- AIAlex Immerman
For, uh, the robotics side, I, I agree. It is really c- we're, we're starting to see, you know, the early signs of scaling laws within robotics, which is really exciting. And then, uh, a bunch of these companies have gone a, a bit more vertical in their go-to-market, and so we're starting to see revenue start to scale up, which is, which is really exciting. As you, uh, think about your investment aperture, uh, how often are you looking at companies and thinking, "Hey, potentially one day they could compete with Salesforce"? And would you invest in a company that, that might take that position?
- JSJohn Somorjai
I think actually we probably should. Like, it's, it's good to stay close to where, uh, the technology is going, and maybe that company may turn into an acquisition target someday. So, you know, one of the things, just to give you some numbers, we, we've invested in more than seven hundred and fifty companies. We've acquired twenty-nine. So it's still, it's a relatively small number of companies, but I think if we ever see something really exciting that, you know, maybe it's an acquisition target in the future, maybe not, maybe it's just a great partner, you know, we wanna stay close to that company.
- AIAlex Immerman
Yeah, and y- I mean, you mentioned a good portion of those seven fifty are in areas that you wouldn't say are core strategic areas. Like robotics today doesn't strike me as, you know, the next thing in line in the Salesforce r-roadmap. Um, h-
- JSJohn Somorjai
But we wanna be partnering with them.
- AIAlex Immerman
But you wanna be partnering with them.
- JSJohn Somorjai
Yeah.
- AIAlex Immerman
How do, how, w- how do they think about the value proposition of partnering with Salesforce Ventures?
- JSJohn Somorjai
I think the, the biggest value add is probably how we can help them access customers. And, you know, we have, we have the broadest set of enterprise customers that are interested in buying-
- AIAlex Immerman
Sure
- JSJohn Somorjai
... technology, and so we help our portfolio companies get in front of these customers. Uh, I think we also provide a lot of meaningful advice, uh, from an operational lens around what is it like to build a business in this particular area. Um, and, uh, having, you know, been, been through so many, uh, stories, we can really help these entrepreneurs, uh, grow their businesses.
- 35:48 – 41:51
New CRM startups and a coming valuation reckoning
- AIAlex Immerman
If you were gonna start a company today and it was gonna attack Salesforce head-on, what are the openings that you see fit?
- JSJohn Somorjai
What I, what I would say is I don't know why there continue to be new CRM companies at this point. Like, it just, it is interesting, like how, uh-
- AIAlex Immerman
And, and why do you feel that way? There are a bunch of AI-native CRMs. There's Lightfield, Monaco. Curious your take.
- JSJohn Somorjai
I just think it's very hard to... First of all, there's so much great CRM technology in general. Um, and we are continually improving our products. It's just very hard to build something that's particular, particularly specialized and niche in that area right now. And so I'm not... I, I, uh, I have yet to see something that's so novel that it's going to turn into a, a large multi-billion dollar company in that space.
- AIAlex Immerman
Yeah, I mean, uh, my perspective would be maybe there's an opportunity downmarket from where you're tradition-- I, I know that you guys play in SMB too, but, uh, in terms of getting up and running quickly, bottoms up-
- JSJohn Somorjai
Yeah, may- maybe more very downmarket, yes
- AIAlex Immerman
... um, there could be, you know, could be-
- JSJohn Somorjai
I could see that
- AIAlex Immerman
... could be an opportunity.
- JSJohn Somorjai
But it's still, but it's still small, a small area, and, like, ven- you know, venture and the way we approach it is we only invest in big opportunities, and I think most VCs look at that. And so just to invest in small niche opportunities that might be a little different than what the incumbents are doing, I just don't get it.
- AIAlex Immerman
Fair enough. I, uh, I-- the parallel story might be, you know, Stripe started with, you know, small companies and was able to grow with a lot of them over time, and I imagine that these startups might have similar aspirations.
- JSJohn Somorjai
I, I just think there are too many of them. There are too many of them. There's too much funding going into them, and, uh, and I think the VC community should focus on, like, really new important areas that haven't been done before.
- AIAlex Immerman
And, um, as you think about the VC community at large, uh, we're, uh, in a unique funding moment in time. I'm curious, like, what you make of it, how, how you're making sense of, uh, valuations these days.
- JSJohn Somorjai
I think there's a lot of irresponsibility going on. I, I think that, um, there is, uh, there's... The valuations are, of course, way too high. But, um, but also just the, the buyer universe is so small. The e-- You know, how-- When you think about investing, you wanna think about, "What are my exit opportunities?" And not every company is going to go public. In fact, very, very few companies go public, probably one percent or less. And so it is, um... So the exit opportunity is critical. You wanna think about who could be buying it. And once you get above ten billion dollars, for example-
- AIAlex Immerman
There aren't that many buyers
- JSJohn Somorjai
... the buyer universe is so small, and yet how you're seeing so many of these, these enormous multi-billion dollar valued companies out there, and there simply is going to be, there will be a reckoning that happens. I don't know when, but it is, um, it, it is inevitable because there, a lot of these companies have valuations that are not sustainable, that they won't live in, they won't be able to grow into and are also, I think, going to be bad for their employees. And so this is, this is why I say it's a lit- it's irresponsible. And, uh, and unfortunately, uh, you know, you try to have this dialogue with entrepreneurs and they, they have, you know, they just want the highest valuation that they can possibly get, but that is not the best decision usually.
- AIAlex Immerman
And do you think, uh, so much of it is a result of just, like, power law thinking? Like, you know, Anthropic is likely to go out at a valuation north of a trillion, let's just say. Obviously, SpaceX at two trillion. Those companies grew to those valuations in, you know, certainly in Anthropic and then OpenAI's case, in a relatively short period of time.
- JSJohn Somorjai
Right. And those are generational companies.
- AIAlex Immerman
Absolutely.
- JSJohn Somorjai
And they're very, very rare, and when you f- when you find one of those, they're amazing, and that's why we invested in six rounds [chuckles] of Anthropic.
- AIAlex Immerman
Mm.
- JSJohn Somorjai
Um, because it was clear, it was clear from the first meeting we had with Dario and Daniela that these were special people. They were some of the most brilliant minds we'd ever met, and they were going to build something great. And so from that vantage point, it made sense to keep investing. But those companies are rare, and I see a lot of sort of mediocrity in, in, um, in entrepreneur- entrepreneurs and their ideas that are not going to become those generational companies. Uh, and they shouldn't be commanding the $10 billion plus valuations, but yet they get them. And so that's where I, I feel like, um, a little bit more discipline is warranted right now.
- AIAlex Immerman
I, I ag- I agree that in certain pockets of the ecosystem, uh, that exists. Um, I think part of my optimism comes from, like, what a top one percent outcome was 10 years from now, uh, 10 years ago is very different from what a top one percent outcome is today.
- JSJohn Somorjai
Yeah.
- AIAlex Immerman
Uh, even on the M&A side, you mentioned Wiz earlier, Cursor, um, so there have been these, these larger outcomes that drive the returns for the ecosystem at large.
- JSJohn Somorjai
Definitely. And I, you know, and I'm an optimist. I could not do my job if I wasn't an optimist. But just know that I see the thousands of companies every year that don't make it-
- AIAlex Immerman
Uh, t-
- JSJohn Somorjai
... because they all come to us to try to be acquired. And so we, we see, we see that, um, part of the industry that, you know, you don't read about in the press.
- AIAlex Immerman
Yeah.
- JSJohn Somorjai
The press doesn't like to cover those stories. And, uh, and so it's just an important fact when, when, when an entrepreneur is thinking about raising money, what's the right valuation, what's the appropriate way to build this business, uh, you know, they have to think about all of that.
- 41:51 – 46:00
What kills a deal
- AIAlex Immerman
You've been involved in some of the largest enterprise software transactions. Um, sometimes those deals go south and don't happen. What kills deals?
- JSJohn Somorjai
I think, uh, when, when you go through the diligence process, first of all, it's really important that you're ready and you're organized so that the data is flowing and it doesn't look like you're having trouble getting access to data. I think one of the things that we found is, um, a lot of times customer, uh, companies don't, um, have strong controls over their financials, or they don't have data on their customer contracts. They don't really understand what customer attrition really is. And I think one of the, one of the mistakes that a lot of, um, founders are making these days is they focus on one metric alone, which is ARR. And ARR is a wonderful metric, but it masks, um, attrition. And you re- it's really important that you think about what, um, what is the, and that you understand the attrition of your customers, and you do something about it. Um, because that is-- When you have a, when you meet with a company that has very high attrition, that usually means that there are a lot of Not just unhappy customers, but there might be some product quality issues as well. And so it is, um, one of the big red flags that we look for. I think another area is, how are you handling, um, your data privacy? Um, how are you handling your security? So security is the one function, uh, in all-- You know, we have 14 functions that we work with on all of our diligence processes, and security is the one function that can ho-hold up the red flag and say, "I'm killing this deal."
- AIAlex Immerman
Hmm.
- JSJohn Somorjai
And so if you have built your technology stack where it's easily, um, open to hacking, uh, that's gonna be a real problem for us. And so what you also wanna do and be prepared for is, you know, try, you know, red teaming your, um, your, your technology stack and see what happens before you go into diligence, because we're gonna do our own penetration testing and find the problems, and you definitely want to identify the vulnerabi- vulnerabilities before we do. Um, but so, you know, nothing, nothing goes better in a process when a company is totally buttoned up, when they have all their data accessible, when their tech is secure. Um, then the diligence process moves really, really rapidly, and we can get through it quickly and, and painlessly. But when they don't, that's when, you know, deals can die.
- AIAlex Immerman
Is there, uh, an example at the 11th hour of a deal not going through? Y-you can't... Of course, you can't name names, but, like, maybe a, a painstaking anecdote for you or for the founder.
- JSJohn Somorjai
I think that it usually doesn't happen at the 11th hour, but it-it'll happen, you know, after, after the term sheet is agreed and you've negotiated, you've negotiated price and, and, and ma-the major terms of a deal. But then you get into the deep diligence process. You know, we, we have, um, we have found problems where, uh, I'll g- One example was we were, uh, our p- uh, when we did the pen test, uh, we were able to not just access, um, all their source code, but even get into the CEO's laptop and get in-information about their employees. And so it was all-
- AIAlex Immerman
When you shared that back, it was pretty understandable
- JSJohn Somorjai
And we shared it back. Of course, we always share back what we find and try to help them fix the problems. But it was so bad, like some of the worst that we'd ever seen, that it was unrecoverable. We've had other, by the way, security incidents that are recoverable, and you can identify sort of what are the P0 problems, P1s, P2s, and have as a condition to close-- or, uh, maybe it's a condition of signing even, that we won't sign until these are fixed. We won't close until these other, others are fixed. And so, um, it all depends on how bad it is, but you've gotta have your house in order when you go through one of these processes.
- 46:00 – 48:24
Growing up with a pioneering chemist father
- AIAlex Immerman
Makes sense. There's, uh, an amazing photo of you and your mother online, uh, representing your father in 2023, uh, for his, uh, Faramy Award.
- JSJohn Somorjai
Mm-hmm.
- AIAlex Immerman
Um, your father was an extraordinary figure. He, uh, you know, survived the Holocaust, fled Europe, uh, you know, came, came here and, uh, had a, uh, incredible scientific career at Berkeley. Um, would love to just close with, uh, your experience growing up with your father, what he thought of your career, um, you know, h-how, how he shaped you.
- JSJohn Somorjai
Um, well, my father wanted me to be a chemist, to be clear. So he, you know, he founded-
- AIAlex Immerman
You came pretty close
- JSJohn Somorjai
... he founded a field of chemistry. Well, you could, you could argue M&A is a lot of chemistry in what we do.
- AIAlex Immerman
[chuckles]
- JSJohn Somorjai
But, um, uh, but yes, he founded a field of chemistry called surface chemistry and, uh, and also, uh, spent a lot of time in catalysis, uh, won many awards. We got to go to the White House when he won the National Medal of Science. It was very, uh... It's, it was incredible to grow up with a man like that, uh, and s- and, and meet with his colleagues too, and we had some of the most incredible, uh, minds in the world come to our house for dinner. My mother, uh, loved to host these incredible dinner parties, and so that was what life was like growing up, and it was, um, one where you were really, um, uh, encouraged to be curious, uh, and also think about the future. And so that was, um, that was really part of, of the way I grew up, and I think it's really shaped who I am today.
- AIAlex Immerman
Yeah, that, I mean, that does seem to have a lot of parallels to what you do and, uh, you know, maybe those dinner parties and hanging out with the chemists had some similarity to hanging out with the AI researchers of today.
- JSJohn Somorjai
That... Definitely. And, and I also, you know, had a father who loved to teach all the time, and he would teach at the dinner table. He would teach in the car rides. He would teach when he was driving me to school. And so it was, uh, you were just flooded with, with information and knowledge all the time. So it was-- He's, he was a remarkable man.
- AIAlex Immerman
Amazing. Well, thank you so much for, uh, spending the time with us today. This was really fun.
- JSJohn Somorjai
Yeah. Thank you, Alex.
Episode duration: 48:39
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