In this second session of the CRO Confidential series, Founders Fund Partner Sam Blond chats with SaaStr CEO Jason Lemkin about whether tech founders still need to be based in SF, the current correction of the VC market, and what to look for in an investor.
Founders Are Flocking To Miami
When the pandemic hit, San Francisco became one of the strictest cities in the country with shutdown and quarantine protocols. Everything came to a halt. Employees went remote, restaurants closed for business, and the streets deserted.
Thankfully, the energy is rising again in the Bay area, but likely won’t ever return to pre-pandemic levels. The market has shifted, and senior talent at major firms like Founders Fund have fled to the warmer climate of Miami, Florida.
Miami has attracted founders, investors, and tech employees in a few short years. The rate of acceleration is impressive, yet the B2B element is still missing but is on its way.
On a percentage basis, does it compare to San Francisco? Not yet, but we hope to continue seeing it thrive.
The 2024 Pulse For B2B In San Francisco
People might wonder whether San Francisco will come back from the dark ages of the pandemic or if places like Miami or New York will take the lead.
Honestly, it’ll be challenging to completely replace San Francisco as the B2B hub.
San Francisco has a unique talent density unlike any other place in the world. This stands next to the fact that there is a trend of outflow of quality talent in the city, and there are challenges to living there.
Lemkin says, “If you’re a single founder and young, you may still love the vibe even if it’s a grittier SF than it used to be.”
The world has changed, and the hundreds of AEs and SDRs at the likes of Zenefits and Brex are never coming back. The lay troops will likely never return because they can’t afford to live there and don’t get the benefits. Founders might be back because they’re different, but who knows what the future holds.
The Future Is Not A One-Size-Fits-All Approach
Say you have a founder coming from Europe or Latin America. They have no kids or partners, and they’re in B2B. What would you tell them?
“If it was early 2020, I think the answer would have been SF,” Blond shares. “But today, it’s not one-size-fits-all. It could be New York. It could be Miami. It could be San Francisco.”
The one-size-fits-all approach worked once upon a time, but that’s no longer the case.
Twitter Says Growth and Valuations Have Plummeted — Is That True?
From the viewpoint of an aggressive fund, Blond separates the current trajectory into two categories.
- The Growth Stage
- The Earlier Stage
Many of the best companies raised a lot of money last year, and given what’s happened in the public markets, it isn’t easy to justify an up round. And because of this, growth-stage investing has really slowed or has almost been nonexistent. There are a couple of potential outliers like Rippling doing a round earlier this year that Founders Fund participated in, but that’s the exception.
On the earlier stage side, deal volume has slowed. That said, Founders Fund is always looking for great founders, great businesses, and great deals that continue to happen in the earlier stage.
Regardless of the general flight of quality, if you’re a fantastic team, founder, or business, you will still be able to raise money. The money is there. You just have to be strategic in how you access it.
The Postmates Effect
Before this year, there were a lot of new funds and new capital, and that money needed to go somewhere. More deals were happening, and many “zombie” companies that weren’t very good could still raise money. That won’t be the case moving forward, and this “correction” in the market is actually a good thing.
Take Postmates as an example. They aren’t a zombie company, but pre-covid, Postmates wouldn’t have been able to access as much VC money as they weren’t number one in the market. Thanks to economic circumstances and high valuations, it was able to become a unicorn, even at number 4 or 5 in the market.
Historically, we thought you had to be number 1 to make real money. Number 2, you could make a little, and 3, 4, and 5 were hopeless. That changed during the peak of the boom because so many companies got funded.
Now, we’re back to only wanting to invest in the number 1 in a segment or space.
What To Look For In An Investor
With Blond’s background at Ecosign, Zenefits, and Brex, he’s joined companies with relatively little revenue and left them when they were much larger. He shares his sweet spot as an investor and what someone should look for when planning to sell 10%, 15%, 20% of their company.
For Blond personally, Seed through Series C is the sweet spot, with around 10-50 employees and checks written ranging from $1M to $20M.
When looking for an investor, Blond recommends finding a VC who will add the most value, even if it’s limited. There are only so many CROs in the world, and most people on boards have no idea about sales and revenue.
“A little value is better than negative value and definitely better than no value,” says Lemkin.
You want an investor who knows what makes a good VP of sales and how to grow the company. If you’re going to sell, you might as well figure out what background can help you achieve your goals. Two important considerations are:
- Find people you can trust. Choosing someone you don’t trust is the worst.
- Figure out what value they add. Some people have an amazing Rolodex, and others need to know how to scale revenue.
No one wants a useless investor, so choose someone you trust who can dramatically accelerate the growth of the business through recruiting, hiring, outbound processes, and more.
The post CRO Confidential: How to Fundraise in Late 2022 with SaaStr CEO and Founder, Jason Lemkin and Sam Blond, Partner at Founders Fund (Pod 604 + Video) appeared first on SaaStr.
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