Sramana Mitra: Contrarian thinking is what builds the defensibility. Just to counter your point about what people are writing about, we have podcasts and roundtables. We’ve had hundreds of investors come and discuss their investment thesis the same way you are doing.
It’s actually interesting that some are willing to take the velocity risk as long as there is some validation. They’re willing to work with the entrepreneurs to figure out velocity. Some want all of that already proven. If everything is proven and you’re looking to just put in money into a proven investment thesis, that’s different.
Devdutt Yellurkar: In SaaS, it doesn’t require a lot of capital to get there. SaaS is such a huge category. Everything is dumped into that. We have SaaS companies that are building very complex products. The average customer size is $300,000 to $400,000. Obviously, you’re not going to get velocity there. There is enough of technology risk that we are willing to take for those kinds of companies.
Recently, I invested in a company that required $10 million just in the seed round because it was such a monumental technology risk. We are willing to take that depending on the quality of the entrepreneur. They didn’t even have a product.
Sramana Mitra: Would you take that risk on a first-time entrepreneur?
Devdutt Yellurkar: Yes, they are first-time entrepreneurs.
Sramana Mitra: That’s very good to know because that’s another hurdle that first-time entrepreneurs face. All the VCs want to invest their fat startup capital on repeat entrepreneurs. They don’t want to work with first-time entrepreneurs.
Devdutt Yellurkar: It is always easier to invest in people who have gone through the “MBA program”. Doing a startup is like doing an MBA.
Sramana Mitra: It’s much more than doing an MBA. Being a startup operator requires real mettle.
Devdutt Yellurkar: That’s exactly right. I haven’t done an MBA. Running a business teaches you a lot.
Sramana Mitra: Let’s talk a bit about the kinds of stuff that you have invested in. Give us a little bit of a view into how you’ve thought about it. You started talking about Zendesk that we know well. One of our biggest successes that came out of the program is one of Zendesk’s top competitor Freshdesk.
That company came to our program back in 2011. They had just started. They were in the program for three years. We got to know that space very well. It was the beginning of SaaS companies out of India. Zendesk is not out of India. It has European roots, right? How did you encounter them and at what stage?
Devdutt Yellurkar: That’s a great story. In late 2008, we were looking at that space. One of my partners at CRV was looking at a company in that space. He asked me to join him to do some work. We ended up looking up the space. I felt like the distribution models had inherently changed. I felt that people who were in their 30’s then had grown up on the internet. They have grown up buying their stuff on Amazon. They’re comfortable with email. They were able to search for and buy technology without having to deal with IT. That in 2008 was revolutionary.