Sramana Mitra: Some examples in your current portfolio.
Jeremy Schneider: There’s many. For example, PagerDuty is a company that we’re huge fans of and feel very lucky to work with. We met them through YCombinator but what made us really want them is, they had a great team.
Two is that Maynard struggled with this problem throughout his career. Every time he took on a new CIO role, one of the first things he has to do is to set up the alerting and on-call system to make sure that the infrastructure stayed up. When we heard Alex and Andrew pitching PagerDuty, we immediately knew that this was a pain point and something that CIOs and CTOs needed. That would be one example. Another recent example would be Wavefront. We knew their team from Yahoo! and from Twitter. We also knew some of the shared investors.
When we heard the pitch and saw the demo, it was immediately something that we knew would resonate with our CTOs and VP of Engineering in our network. We brought a couple of them in to come look at the technology with us. Every one walked away super impressed, so we knew this was a company we wanted to work with.
Sramana Mitra: How do you process the current investment climate where capital is moving further and further upstream? How does a seed investor mitigate the Series A gap?
Jonathan Pines: This is something important for founders to be aware of as they get started and build their business. The most important piece is to think ahead and have an understanding of what is going to be expected of them at the next stage.
This means a few things. One is that when we meet companies that we’re considering for a seed investment, we actually ask them what is their plan and milestones for a Series A. If they’ve actually done research and spoken to some Series A investors and can back up their view on what they can achieve, it’s extremely important and helpful.
The second piece is, after we invest in the company, this is something we try to help them along with. We’ve seen a number of companies going from the seed to Series A stage. We tend to, over time, build up a good amount of knowledge on what that takes and how they will be evaluated going forward. As they continue making progress, we try to keep checking over time if they’re on track. We try to help them develop their story and their storytelling and how they present themselves.
Finally, in cases where they’re getting close to going out and trying to raise further capital, we try to help them think about who to talk to that may really resonate with their story. In some cases, we can make some strong introductions to investors that we may already have a relationship with.
Sramana Mitra: How do you parse unicorn mania? As a seed investor, you could get buried under later-stage liquidation preferences. How do you protect yourself?
Jonathan Pines: We have seen some cases where founders raise ahead. They may raise a round that is slightly ahead of where they are. The way we think about that is, when you raise capital, you’re making a promise to investors. If you set certain expectations on the speed and amount of progress you’re going to make with your business and you don’t meet those expectations, that causes many different issues down the road. Our advice to founders is to be realistic about what they’re promising and to come up with a plan that is both attractive to an investor and aggressive enough without being so out of reach that they will then miss their numbers and milestones.