Nov 27, 2024
On this episode of The Founder's Sandbox, Brenda speaks with Martin Tobias. Managing Partner of Incisive Ventures, an early-stage venture capital firm focused on investing in the first institutional round of technology companies that reduce friction at scale.
Martin is a 3X venture-funded CEO raising over $500M as CEO with two IPOs who has also invested in hundreds of companies and is a limited partner in over a dozen VC funds.
They speak about Resilience: Why starting a company today is awesome.
You can find out more about Martin at:
https://www.linkedin.com/in/martintobias/
Transcript:
00:04
Hi, I'm pleased to announce something very special to me, a new
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00:32
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01:01
As a thank you to Founders Sandbox listeners, you can use code
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Thank you.
01:19
Welcome back to the Founders Sandbox. I am Brenda McCabe, your
host, now into its third season. The monthly podcast reaches
entrepreneurs and entrepreneurs and business owners who learn about
building resilient, scalable, and sustainable businesses with great
corporate governance. I like to assist, and my mission is
very simple, entrepreneurs and entrepreneurs in building
those scalable, well-governed, and resilient businesses. And the
guest to the podcast,
01:49
are also founders, business owners, investors, professional service
providers who like me want to use the power of the enterprise,
small, medium or large, to affect change in the world. Through
storytelling with each one of my guests on topics that are going to
touch on resilience, purpose-driven enterprises and sustainable
growth, my goal is to provide a fun sandbox environment where we
can equip one startup founder at a time to build a better
world.
02:19
through great corporate governance. Today, I'm absolutely delighted
to have as my guest, Martin Tobias. Martin, thank you for joining
me. you're joining me. I wear many hats. I've been a follower of
yours for years. We're both in the enterprise SaaS space. You're
joining the podcast today. We have a full load of questions here,
but as managing partner and founder of Insights of Ventures and
02:48
There's lot to unpack here. defined it as an early stage venture
capital firm focused on investing in the first institutional round
of technology companies that reduce friction at scale. Yeah. So
we're going to get into what does that actually mean for my
listeners. And you're also a blogger at Insights Ventures,
right? Yeah. And a personal blog as well. And fairly active on
Twitter. uh Excellent.
03:16
I always appreciate the connections I make on Twitter. And
when I go to real life events too, I was at a conference last week
and like 20 people walked up to me and said, I follow you on
Twitter. And I wanted to say, hi, this is amazing. Isn't it
amazing what digital footprint can do? And it was, you
know, I've known you for years and it wasn't until I subscribed to
um your blog at Insights Adventures. um And it was in
June or July this year, uh one of your blog posts.
03:46
really resonated with me and that's the title of the episode.
I always have a title around resilience, sustainable or
scalable em and purpose-driven. It's a resilience. Why starting a
company today is awesome. That was the title of this blog and
um I thought what a better time than now to have you as a
guest because it's a tough market out there.
04:12
and your own experiences leaving corporate life and
then having your first startup and then as a CEO
founder building, scaling, selling, had some ups and downs.
Just the hindsight that you can bring, you've been
through quite a few economic cycles as an FI and just
bringing- three cycle investor, that's what they call us.
Oh my, so three, you heard it here, three cycle investor.
Three cycle investor.
04:41
Excellent. So before I jump into the topic of why starting a
company today is awesome, paint a picture of Martin's deep
experience. was previously at Accenture and Microsoft and as a
former venture partner at Ignition Partners. Martin is a three
times venture funded CEO raising over 500 million as CEO with two
IPOs. And you have also invested in hundreds of companies
05:10
and is a limited partner in over a dozen VC funds. Martin was an
early investor in Google DocuSign deal and over a dozen unicorns.
So it's a privilege to have your uh presence here and your
insights. You're also a father of three daughters left one in
after med school, cyclist, surfer, quintessential California,
although you're not from California, poker player, life
hacker, and you tinker with motorcycles on the weekends.
05:40
In the show notes for my listeners, you're going to have many
multiple points of access, Incisive Ventures, Twitter, as well as
Martin's LinkedIn profile. So let's move into the body of my
podcast. You and I are passive cross over the years while working
and investing in enterprise SaaS companies. Your blog that came out
in June, 2024 at Incisive Ventures,
06:10
How I lost 500 million and still won lessons from a CEO and a VC.
I knew that I wanted you on my podcast. So I
reached out and you um actually do answer your uh subscribers
immediately. You're in Paris, I think. I just speak in
the engagement. walk us through, share with, my listeners,
some of the highlights of your career that led you to become one, a
founder.
06:39
and then a managing partner on a VC fund. Well, one of the
things, I mean, some people say it different ways, but one of
the sort of advantages of having been a founder and investor for a
long time is that I got a lot of arrows in my back and I've
learned a lot of things. And I actually find it interesting
because people on Twitter or people in their bios, a lot of times
they just talk about all the positive things. But what
frankly I think sets
07:08
many people up for future success is what they learned from the
negative things that happened in their lives. um Because
hopefully those were learning experiences. um that one
of where I took my company public um and then made and lost a bunch
of money, um that's been a really formative uh experience for me
about how to invest going forward and understanding where you
are in the cycle. And the learning for me on that was,
07:37
You know, what I say about bubbles, first of all, it's better
to be in them than out of them, but it's also you need to be aware
of, you in a bubble? know, LoudEye Technologies, which I
started uh in 97 and we took public in 2000, um we were, it
turns out, the absolute last company to go public in the dot-com
boom. Here's a company with $10 million in revenue that got a
$2 billion market cap for a $10 million revenue company. um I
knew.
08:07
as a CEO that we were in a bubble. I knew the bubble was likely
bursting. I was trying to get that fucking company public before
the bubble burst. And it turns out we went public March 17th,
the peak of the NASDAQ was March 21st. We were literally the last
company to go public in the dot-com boom. So when you realize
you're in a bubble, first of all, try to take advantage of the
bubble. If you're a founder, if you're in a category where
people are throwing money around, take the money, but don't
believe your own hype.
08:36
and don't go spend the money like we've seen some people do in
crypto or some other enterprise software companies where they
continue donking off the money. You know, what we did at LoudEye,
we realized we were in a bubble. We were lucky to get the company
public. We have $110 million cash to the balance sheet. And then
the market goes to shit literally four days after we go public. So
what do you do? Do you keep spending, you know, this huge burn rate
and trying to sell and trying to get customers and all that
stuff?
09:05
Or do you sort of turtle and sort of change strategies and preserve
your cash? We ended up doing this, the latter, but we were able to
do that. The reaction time to a lot of founders to when bad
things happen, and you saw this when the retrenchment
happened like in the pandemic. lot of VCs were sending out stuff to
their CEOs like, cut the burn really fast. And it's
hard to cut the burn.
09:32
in those scenarios, you know, survival's the name of the game.
But anyway, so that company, you know, it's worth $2 billion
at the IPO. A year later, it was worth about $200 million. So
down 99%, like every dot-com company was. We both have scars in our
bodies from that time. A lot of people have scars. Yeah. I mean,
don't feel bad for me. I was fine. But one of the
learnings that I, because I had kind of
10:02
knew that we were in a bubble. One of the things that happened, uh
at the IPO, owned about 30 % of the company. So I had more
than $500 million of stock. But I did not change my life. I
didn't buy a new house. I didn't buy a new car. um I did nothing
different. It's just a number on a spreadsheet. I knew a lot
of people that did that. I have a friend whose company went public
during the dot com boom. was the COO of this e-commerce
software company.
10:32
his software was worth $120 million when it went public.
And the first thing he did is he took a $30 million margin
loan from his broker, went to Miami, bought a mansion, got a
Ferrari, and started living like he was a hundred millionaire. uh A
year later, his stock was down 99%. He gets a margin call, he lost
everything. I mean, uh I...
11:00
was aware that we were in a bubble and that the money wasn't real.
mean, and by the way, when you go public and you're the CEO of
public company like that, you can't fucking sell your shares
anyway. You're trading windows. You've got all these other
issues. If you start to sell, there's a negative signal in
the market. So you can't count that as real money. So the lesson
was, you know, don't believe your own hype. Don't count the money
until it's actual money. m
11:25
And just continue to make the best decisions you can
with the information that you have. em I like what you said too um
around just being aware that you're in a bubble. Be aware. if
you are in a bubble, take advantage of it. We just ended,
probably a year ago, ended probably the largest bull run in
venture capital ever. The ZERB period and all of that stuff.
11:52
Companies could rate with almost any business plan could raise
money every six months. And we are now over that. We are now in a
risk off environment. And there's a lot of founders out there. I
got one last week who's like, the round's closing on Friday. Can
you write a check in five days? And I'm like, what is it? 2021? Are
you kidding me? No, I can't. I'm passing.
12:20
Like we are in a risk off environment and a lot of people still
haven't changed their brain to realize that we are in a different
environment. And some CEOs are having a problem with it. They're
like, Hey, I got this crazy valuation in 2021. I've got to get it.
And I'm like, listen, the market changed around you. Like it's not
your fault. Your company still might be good. It might be doing
well, but the metrics have changed and you raise money in the
company.
12:50
that you're in the smartest CEOs that I know now, you know, they
take the dilution, they take the down round, they do the hard
stuff, they clean up the cap table, they do the hard work because I
mean, I just posted something about this on Twitter yesterday.
Okay. I've said it a couple of times. As CEO, you have one
job, one job, you know what that job is? Don't run out of money.
Don't run out of money. have run out of money. That's right.
And to do that job, you only have three tools.
13:20
You can sell something, you can cut expenses, or you can raise
capital. There's nothing else to do. People talk about your job is
culture, your job is this, okay, fine. All those are second order
things that you do if the money thing is working. And
if uh you have less than six months of cash in the bank, you
have to do some very different things.
13:48
You have to change your decision. going back to LoudEye,
so did it not sell to Nokia? Yes, it did. How did that
happen? um Well, the business was doing okay. mean, basically
it had $120 million of cash. We cut the burn and we sort of made it
through the dot com bust because we had cash with a smaller
team. And then we built some other applications, got some other
customers.
14:18
And basically, had the largest database. We actually ran all
of the back office music services for Amazon. When you listen
to 30-second sound samples before buying a song, those servers and
all those sound samples were created by Loud Eye. Loud Eye
was running digital download back end for some of the early music
services.
14:44
So we had a whole bunch, we were the only company that had
all five major record labels having legal digital
distribution rights through our servers. So what Nokia wanted in
the end is they wanted to get into music distribution on their
phones. And so they ended up buying it. So the company had enough
money to survive through the .com boom and end up selling. It
wasn't a great uh exit relative to the um prior market cap in the
company, um but you
15:12
people got jobs and it turned out okay. um Yeah. You know,
while we're on that topic, so I'm going to jump ahead. um So
LoudEye was your first startup coming out of- LoudEye was my first
startup coming out of Microsoft. I left Microsoft on Friday,
started LoudEye on Monday. Wow. And um in your LinkedIn
profile, you talk about, well, we were early to the market in terms
of technology, right? But I was right.
15:41
Can you apply that same kind of logic to what we're seeing in
generative AI? Well, so what I say about generative AI,
mean, almost all of these hype cycles that come on come
around, including digital media, which I was a part of, people
overestimate the impact in the short term and underestimate
the impact in the long term. OK. And that's what creates a
bubble.
16:07
People are like, this is gonna change everything. All the value is
just like, like Loud Eye being worth $2 billion, you know, for a
$10 million revenue company. That was a bubble. People were
overvaluing digital music at that time. But if you look at what's
happened to the music industry today, 15 years later, it's all
digital. There's nothing else. Like nobody buys CDs and
tapes. Like it's the way that people consume music.
16:32
and things like Spotify and Amazon Music and so on are very big
businesses and it's totally transformed the way people experience
music. um So I think generative AI is very similar. Like, know, my
picture on Twitter was a generative AI thing and a lot of people
are playing around and trying things out and people are like, this
is kind of cool. Then the question is how much would I pay for that
and what's the real value of that in my life? I don't know.
So we're in this
17:02
the positive part of the hype cycle where people like this could
change everything, but they don't really know how it's gonna change
things in the future. So we are in an AI bubble, but I
definitely believe that AI is one of those few major
shifts. I wrote a post about that. I mean, there are some
fundamental shifts like mobile was a fundamental shift, mobile
first versus the enterprise, cloud versus owning your own
data centers, another fundamental shift in the architecture of how
people
17:30
build and deliver things. And AI is one of those kind of
impacts. um But what it's going to be, I mean, the way I look
at it, I think that the major uh AI companies, the LLMs and the
core function is going to be owned by the same people who own the
cloud. It's Microsoft, Google, Amazon, Facebook. um This is not an
opportunity for startups.
17:57
But if you look, and it's the same thing that happened with the
cloud infrastructure, mean, Azure and AWS, all big businesses. But
if you look at the value of the enterprise software
companies, which are built on top of the cloud, it's like 20,
30, 40 times more than the infrastructure layer. And we're in
the AI build out, we are in the early phases, like we were in
the early phases of cloud, where in the early phases of cloud Dell
and Cisco made all the money, the infrastructure guys.
18:27
But over time, the application people make a lot more money. And
that's going to happen in the same in AI, I think. We're in the
infrastructure phase where NVIDIA is getting something like
60 or 70 % of the money being deployed to um AI today.
applications that solve people's problems uh and generative
AI is one that can solve real business problems. For example,
18:54
doing personalized cold outreach emails at scale is a
generative AI thing. um That's something a lot of people want to do
that delivers value to businesses. uh There are other
generative uh AI things like these automatic note takers that
everybody uses in Zoom calls, uh automatic to-do list creations,
things like that. I think those will have real fundamental impacts
into how people work and make their lives easier uh in
the future.
19:23
Thank you. So we're still at the infrastructure um phase and
building large language models, right? Yeah. At scale. I do
want to mention, who had the big blip? Was it BART? um Their
generative AI model came out. There were huge biases in it. Yeah,
Google. And that went down $80 billion in one day.
19:47
Exactly. Yeah. Google screwed up there. We're in the early
innings of this. We're in the first inning or something. There's
going to be a lot of things that screw up. um But it'll all
get fixed. That bias will get fixed. That's just a training
problem. OK. So um in this third season, thank you again for
being my second guest on this third season of the Founder's
Sandbox. Many of my guests, um you're veterans of the corporate
world.
20:18
um and became either by purpose, mission, curiosity, or the love of
sharing their insights on building resilient companies, get
involved in the ecosystem of startups. Your corporate experience
was um over 10 years between Accenture and Microsoft. And you
went off to, as we've heard here, uh create your first
startup, LoudEye. What is it that makes you stay
in the game, I suck at golf.
20:49
You heard it here. I have retired three times. After Loud Eye went
public and I hired another CEO, my daughter who's 24 now was two at
the time. I had this giant number on my balance sheet and I didn't
buy a new house, but I'm like, well, maybe I'll just stay home.
21:14
maybe I'll just be a dad, right? Like I don't have to do anything.
So I went from working 80 hours a week to zero. And uh after about
a year, I knew every word of every Teletubbies song and I hadn't
had a conversation with an adult. And it was, I literally was
going crazy. um And so I said to myself, I love being a dad, but
there's gotta be more to it than that. mean, I gotta have hard
problems to solve. That's, know,
21:44
And I had hobbies, like I liked to work on my motorcycles and I
liked to surf. you know, I had a house in Hawaii. I,
you know, we went to Hawaii. I surf for like six months and I'm
like, love surf, but I can't surf all the time. Like I'm just
bored. um So I had, I went on this about 10 year journey of
like, what am I going to do when I grow up? And um what I
realized personally for me is that I need to have hard
problems to solve every day.
22:10
And I need to be in an electric simulator. I need to be around
other smart people. And being a venture capitalist lets me be
curious about a lot of different kinds. Because CEOs come in and
they're like, I'm going to change this industry. And then I know
nothing about that industry. I get to learn something and it's
great. But I get to help them with my experience as well, maybe
steer them in a little bit of a better direction or something like
that. So it gives me intellectual problems to solve every day.
22:38
um which keeps me engaged, but it also gives me a little bit of uh
flexibility, you know, not being the CEO who's responsible
for all the employees and everything every day. So for me,
being a VC has turned out to be the perfect work-life
balance uh thing for me. Thank you. That's quite insightful.
um And I liked how you said, you know,
23:05
I like being a dad, but I want to be stimulated, solve big
problems, be around smart people. And you went on a journey and
that journey has been what, 15 years, 20 About 15 years, yeah. I I
went back, I tried being a CEO again, I tried being an investor, I
tried being an advisor, I tried all different things and what I've
come to is being a VC. I love it, I love it. So you
have uh been CEO, Chairman and Board of Director. um
23:33
of our board director of companies. And I always
go back in the founder sandbox. I'm uh passionate about good
corporate governance. And the earlier you start, the better, right?
My background is when I was going to grad school, Enron blew up. I
was then at a pharmaceutical company uh and we had very
unethical behavior, collusion. And it was when Sarbanes-Oxley
was born, right?
24:02
So in the end 2001. So that has really informed me on working with
startups. So my last 15 years has been working with them from
ground zero to really have um good corporate governance, which is
informed decisions that do comply with legal regulatory financial,
but also just bringing in those advisors, either as advisory
board or fiduciary board of directors, surrounding yourself
by... um
24:30
wise people that have been in the trenches and you can benefit from
that. So I'd like to ask two questions because you've been in these
roles. um What is a CEO's perspective now that you have hindsight
and how to work effectively with the board of directors?
Well, let me make a couple of general comments and I
appreciate your focus on this sort of governance and stuff like
that because frankly, I think that we have in venture
24:58
gone off the rails on that with the explosion of late stage
capital, the introduction early stage to all safe notes where you
don't have price drowns, you don't have boards of directors.
You've basically delayed corporate governance longer
and longer and you can because of all this fucking money. And
you've got private companies that go private for 10, 15, 20 years
before they go public. And Bill Gurley talks about
this. There's a certain discipline. uh
25:28
that's imposed on a company being public. And by the way, growth
can happen in public companies. 98 % of the enterprise value
of Amazon and Microsoft and Google were created after the IPO. uh
so I think this, and I think one of the worst things that
happened in venture in early stage pre-seed and seed is the
invention of the safe note. Because the safe note is basically not
a liability on the balance sheet.
25:58
Grant the investors any rights on the board. There's no governance.
The CEOs can just collect these things and then run the
company any fucking way they want with their friends on the board
or whatever. So it, again, is a tool that enables you to delay
putting in correct governance. Now, some CEOs will say, well,
I want to do that because I'm just doing my own thing and I don't
want to listen to any of these guys. But OK, at some point, you're
going to have to grow up and uh be accountable uh to
the shareholders
26:28
who you took their money. um And the fact that you can delay
that is not necessarily a good thing. uh you know, I am a fan
of pricing rounds earlier, you know, maybe even a price
seed round. I'm fans of, I'm a fan of putting a board together
earlier rather than later. uh Maybe after you raise a million
dollars, you need a board.
26:56
Some people don't put boards together until the series A when
you're raising 15 or $20 million. I encourage my founders to
put boards together sooner. Now that doesn't mean you have to do
all the expensive audits and get an independent third party
auditing and blah, blah, blah. But just having the
discipline, for example, I have 74 companies in my portfolio,
pre-seed portfolio right now.
27:22
I would say less than 50 % of them send me monthly updates,
which is an incredibly low percent. uh if you had a board
that met every month or even once a quarter, you're sort of forced
to put stakeholder updates, just simple things like being honest
with the shareholders about what's going on in the company. If you
have a board and you have some cadence where you have to report to
them, then maybe you have to report to everybody else.
27:51
And frankly, in the early stages, what I found is the CEOs
who do monthly updates and communicate better tend to be the better
CEOs. And having a little bit of governance can maybe force
that communication and force that self-reflection on a regular
basis. And it's not a bad thing. It's a terrible thing when I
invest in a company I don't hear from the CEO for eight months and
the only question is, I need more money. It's like, well, you
haven't told me what the hell you were doing.
28:19
for the last eight months. Like, how am I supposed to give you
money? And you do have also a blog that speaks about
the ideal kind of report, right? Which is actually a
one page. Yeah, I mean, what I expect is it should not take
you more than an hour to put together. And if you don't have
an hour once a month to communicate to your shareholders, there's
something really, really wrong with you. Excellent. So.
um
28:49
I let's still stay on this question. You know, you've
been chairman, board of directors. talked about what, know,
what CEOs get out of having a board of directors sooner than later
as chairman. um And you've also been in public company. So what
have you seen that is world class and governance? oh
29:12
What have I seen that's world-class in governance?
29:17
I don't know. I could tell you all sorts of stories of
dysfunctional governance. Of course. But the world class, are there
term limits? Do you have to bring in certain domain experts? mean,
what is a world class board of directors? It probably evolves with
the business model. uh There's no right answer, right, I don't
think there's any right answer. uh some of the things that you have
to do in the public things, I'm not sure I like.
29:44
For example, the audit committee must be chaired by a person that's
an accountant. So that means you have to get an independent person.
And frankly, getting independent board members who don't have any
stake in the company, I mean, I've seen that be a very bad thing.
So I don't know that I would call that world class, best of class.
I think the best boards that I've been on are ones that are
30:10
know, shareholders in the company, I think it's bad for the board
to not be shareholders, um preferably shareholders who've written a
check versus gotten free shares as an advisor. um And that have a
bunch of, you know, connections that can, you know, help the
company and that have, has a chairman that is truly
independent and can be honest about what's really going on
in the company and honest with the CEO if he has to change
something.
30:40
um I see captive boards as uh a poor governance thing. uh It is an
evolving. It's evolving. um
30:56
You know, this last week, so this podcast is being recorded
the week of August 5th, 2024, for the record
here. So last week there was a landmark Google antitrust
verdict. um And I really wanted to take advantage. uh I lived in
Europe for long time. I love Financial Times. I read The Economist.
I read all the financial press. But the title from Financial Times
is
31:25
billions of dollars in payments that have flowed between the iPhone
maker, Apple, and the search giant, Google, could be at
risk. Taking advantage that I have you as my guest, Martin,
can you forecast or predict what the, because
there hasn't been kind of the next stage of the verdict,
what does Google have to do to demonstrate that they
are not a monopoly in the search business, right?
31:54
um to be determined. Would you want to kind of forecast what
may be some logical um next steps and how the sector may
evolve? Well, I'm still a Google shareholder, so maybe I have
a dog in this fight. But I think one of the worst things that
has happened and continues to happen in the tech business is
when the government comes in and tries to help.
32:26
This ruling is the most backward, stupid, misread ruling about the
antitrust in the world I've ever seen. I think it's a terrible
ruling. I hope it gets appealed because the core of antitrust is
the consumer hurt, not is something a monopoly. It's frankly not
illegal to be a monopoly. What's illegal is when consumers get
hurt.
32:54
how do consumers get hurt with a free service? It's free. So
anyway, we can argue all day about the validity of that. I
think what ends up happening is a fairly simple uh solution, which
is um what Apple should do is say, we will give consumers a choice
on um which one they want to do at the install and we
will pay.
33:22
and those vendors will pay us a per install fee for whoever gets
installed. So I guarantee you, 95 % of people will still choose
Google, but maybe Microsoft or Brave or one of these other ones
gets paid too. As long as Apple would allow a choice and not an
exclusivity, they're probably gonna get less money from Google
getting paid for install. And by the way, people can always change
it.
33:51
I think there's a fairly simple fix to become compliant in the
antitrust laws. It'll result in some lower revenue to Amazon, but
that's okay. I mean, they've got how many $200 billion of cash on
their balance sheet? Like they don't need the money. And Google is
facing much more. And the funny thing is, is here we have a ruling
about a prior thing, you know, five or six years ago, but look at
what's happened with perplexity and open AI.
34:20
The real threat to Google search is not whether or not they're on
Amazon. It's that AI is going to disrupt. I have switched
most of my searches from Google to Perplexity. And the funny thing
is the reason Google has been so great, I don't know if you were
around when Google launched, but when Google launched, there
were lots of bigger, Yahoo was a bigger search engine, AltaVista
was a bigger search engine. But what happened is that when you went
to the Google search box and you typed in your query,
34:49
the results were 10 times better than Yahoo or Alta Vista. And you
switched immediately. They have a better product. It has been a
better product for 20 years. They won the share with a better
product. You can argue whether they kept the share with any
competitive things, but their product is amazing. And what's
happening now is that these integrated AI bots are better products
than Google. Because Google's model has devolved.
35:17
into basically selling ads and trying to get you to click on buying
things. And sometimes I just want the answer.
Yeah. So the true competitor or upcoming competitors
are the perplexity, right? Perplexities, open AIs. I mean, and it's
all better for consumers because rather than having to navigate
through a bunch of sponsored posts, I can actually get the answer
to my query immediately.
35:45
which is really what you want. That's what you want in Search Most.
You don't really want a link. You don't want to be sold something.
You want an answer to a question that you have. And AI gives you
the answer. Right. And you know, the m verdict maybe came a
little bit too late. mean, Microsoft was already um fined in Europe
and had to unbundle, right? So it's giving options to the
consumers, right? Fine. Fine. Unbundle it. mean, yeah.
36:13
All that stuff will solve itself. I'm not worried about it.
I'm very excited about the next phase of innovation, which is
going to benefit consumers. And there'll be some disruption.
mean, it's not clear that Google's going to own AI.
Look at how they screwed up Bard in the beginning, oh which
is, as an investor, a very exciting time. Change is in the
air. I love it. I love it.
36:40
So Martin, I also like to have um my guest have
an opportunity to talk about how to reach you. What's
the best way to? The best way is to follow me on Twitter, Martin G.
Tobias. And uh on my bio, if you want to pitch me a company,
I have a link to where you can pitch me. um But I'm most active on
Twitter. I do not respond well. I have occasionally to
cold emails.
37:10
I prefer Twitter. All right. And my blog of course is incisive.VC.
You can sign up for the blog and see my investments that I write.
All right. So thank you. um Before we go, um coming back to the
founder sandbox, I do like to do a round of questions with each
guest on the meaning of resilience, scalable businesses
and purpose-driven businesses and your own words, please.
37:41
Resilience, what's resilience mean to you, Martin? Being able to
take a punch and get back up. um The founder is a
long hard term uh job. And I started investing only in
founders who have some kind of resilience practice. Because the
problem is not, can you burn the candle at both ends for as long as
possible? The problem is, what do do to reset yourself from the
stress?
38:07
That could be meditation, that could be working out, that could be
something. But what I've found is that if founders don't have a way
to reset from the stress to be able to be resilient, to come
back from down times, they're not going to make it long
as a startup founder. So for me, resilience means having some sort
of a practice to be able to reset your stress meter and come
back.
38:34
or another punch, because you're going to get another punch. And I
hope you like punches. That's very practical, what
you've just shared here. What about purpose-driven enterprise? Your
whole professional career as you've walked through here for my
listeners is very purpose-driven, right? I to be around smart
people, solve big problems. You actually have a nonprofit in the
environment. I do. I have a nonprofit called Retree, which helps
reforestation.
39:03
What I found em is what I look for in an early uh CEO is some
personal stake in the problem that they're solving um that is
going to give them the reserve of purpose, which is an accelerant
to this resilience, right? You're going to have a hard time. And
what's going to get you through? Well, if you have a purpose
instead of just a mercenary type thing, the absolute worst pitch I
see
39:33
is an MBA from Harvard said he read a Gartner study about this
enterprise market and he wants to create a company in the top
right hand corner because I think the margins are blah, blah, blah.
He's done all this fucking analysis and he thinks this is an
opportunity. That's a mercenary, right? The mercenary is going to
get disheartened by all the problems along the way if it doesn't go
the way he wants to, this way his coddled freaking privileged life
has gone his whole life.
40:03
What I'm looking for is uh somebody that has a personal
stake in something. I just looked at a case management
software company for uh disabled children, autistic kids and
stuff like that. Basically the software that these field case
managers use is old, it's shitty, it's terrible. This guy's
son is autistic. They had a case manager.
40:30
They had problems getting all the reporting correct, the insurance
and all this stuff. He went around and looked for a problem,
other companies to buy, couldn't find it, ended up starting the
company just because he was so frustrated with the software that he
had to use, that he had to solve it himself. So he has a personal
stake in solving this problem, a personal insight into this
problem. Then the question becomes, is he a good software developer
and can he build a scalable channel and all this other stuff? But
I'm looking for that personal
40:59
stake in your problem. Beautiful. Thank you. And I loved that you
shared an example of a founder. Sustainable or scalable growth.
You've been through three cycles at least. What was that? The term
is called a three-time- Recycle investor. Because you were there
for the dot-com crash in 2000, the great financial crisis in 2008,
and then the pandemic in 2020.
41:28
Sustainable, it goes back to my original thing. I actually have a
problem with a lot of these sort of ESG labels or climate things
and all of that stuff. don't think that is sustainable. So a
sustainable business is a profitable business. Again, as a CEO, you
have one job, don't run out of money. And it's not sustainable to
lose money forever. So the most sustainable business is a
profitable business.
41:57
Now, if you want to, uh for marketing reasons or whatever, put a
bunch of non-financial metrics around your company, for marketing
purposes, that's fine. You know, much carbon you wanna save
or something like that, but um you better make sure you have
a solid financial sustainable business. A sustainable
business is a profitable business. have to solve a real problem for
a customer who has a budget.
42:26
who uh is gonna get more value out of paying you than anything
else. For example, I have a company called Vega Cloud. They are in
cloud waste management. They help enterprises who have big cloud
bills save money on their cloud bill. um One of their customers
pays them $3 million a year for the software, but they save that
company $48 million on their cloud bill.
42:56
So there is a like 17 X ROI. That customer is happy paying $3
million a year because they're saving 48 million. If you don't
deliver that kind of massive value to your customer, they will not
be your customer for long. And you want to have to do that. That is
a sustainable company is a company that delivers massive
value.
43:24
to their value-based agreements and like, yeah, it's a pricing
and willingness to from customers. Pricing and willingness to
pay. I think this is a giant problem right now with the
general B2B SaaS model, this per seat model, a per seat model that
has nothing to do with value. A lot of companies are looking at
their SaaS subscription prices and they're squeezing them down. You
saw it in the results of companies like Salesforce. Salesforce is
having to renegotiate because people are like, why am I paying
$1,000?
43:52
per seat, this guy's not getting the value, blah, blah, blah.
There's gonna be changes. reckoning Yeah, there is a reckoning
coming. There's a reckoning coming that's pivoting more around the
value of the software versus the per seat per year model. I think
there's a big change coming. And I think that's good because people
should only pay for things that deliver value. Last question,
Martin. Did you have fun in the sandbox today?
44:20
Yes, I did. I enjoyed this conversation and I appreciate your
bringing attention to governance and sustainability issues
for startups. Thank you, Martin. So to my listeners, if you like
this episode with Martin Tobias, sign up for the monthly release
that founders, business owners, corporate directors, investors and
professional service providers go to to learn about building strong
governance in resilient, scalable and purpose-driven companies to
make profits for good.
44:50
Signing off, thank you, Martin, again for joining me.