20 VC 092 The Repeatable Playbook of SaaS with Ed Sim, Founding Partner @ BoldStart Ventures

In this episode of "20 minutes VC," host Harry Stebings interviews Ed Sim, the founding partner at Bold Start Ventures, exploring his extensive experience in early-stage SaaS investments. Sim discusses the evolution of enterprise investing, emphasizing the importance of understanding market pain and leveraging cloud infrastructure to scale companies efficiently. He highlights the shift from traditional enterprise startups needing significant capital to modern entrepreneurs favoring leaner seed funding to avoid dilution and pressure. Sim also touches on the rise of developer-driven enterprise solutions and the ongoing consumerization of enterprise software. The conversation delves into the changing venture capital landscape, with Sim noting the stratification of VC and the emergence of micro VCs. Despite the growth of crowdfunding platforms like AngelList, Sim remains confident in the relationship-driven nature of VC, particularly for seasoned entrepreneurs. Additionally, Sim shares insights on deal sourcing, primarily through founder referrals, and the criteria for investing in potential billion-dollar markets.

• Harry Stebbings expresses gratitude to listeners for the show's success.
• Feedback from the audience has been overwhelmingly positive.
• The focus of the current week's show is on seed funding in SaaS (Software as a Service).
• Ed Sim is introduced as an expert in early-stage SaaS investments.

"This is the 20 minutes VC and I am your host, Harry Stebbings. And I wanted to say a special thank you to you today because the show has grown enormously and I just wanted to thank you all for listening. It really is fantastic to hear such great feedback and I'm just so thrilled that you're loving the show."

This quote is Harry Stebbings expressing his gratitude towards the audience for the support and positive feedback that has contributed to the show's growth. It sets the stage for the episode's focus on seed funding in SaaS.

"So who better to kick off the week than the king of SaaS seed funding, Ed Sim, founding partner at Bold Start Ventures."

Harry Stebbings introduces Ed Sim as the episode's guest, highlighting his expertise in SaaS seed funding and his role as a founding partner at Bold Start Ventures.

• Ed Sim has been a venture capitalist since 1996.
• He started another fund, Dawn Treader Ventures, in 1998 before founding Bold Start Ventures in 2010.
• His approach to VC was people and product-focused, as opposed to relying on financial models.
• Sim's previous funds had a mix of corporate and institutional investors.

"Sure. So I've been a vc, believe it or not, since 1996."

Ed Sim confirms his long-standing experience in venture capital, dating back to 1996.

"I started another fund called Dawn Treader Ventures back in 1998 and I was there from 1998 to 2010."

This quote gives a brief history of Ed Sim's career before Bold Start Ventures, including his tenure at Dawn Treader Ventures.

• Sim founded Bold Start Ventures to bring a Silicon Valley style of investing to New York.
• The focus was on early engagement and hands-on assistance with startups.
• The concept was to invest in enterprise tech entrepreneurs at the seed stage.
• Sim tested his hypothesis with an initial fund of $1 million, spread across ten investments.

"And when I was thinking about my next thing, I launched bold start in 2010."

Ed Sim shares the inception of Bold Start Ventures, indicating a new chapter in his VC career.

"So basically I just took a million dollars in and made ten investments of about 100,000 a pop."

Ed Sim describes the initial strategy for Bold Start Ventures, which involved making several small-scale investments to test the market.

• Sim disliked fundraising but approached it as building a startup.
• He validated his hypothesis with early successful exits from the initial portfolio.
• The success of the initial investments helped prove the viability of the seed stage investment model for enterprise tech.

"Fundraising sucks, and I tell entrepreneurs the same thing."

Ed Sim candidly shares his dislike for fundraising, which is a sentiment commonly shared by entrepreneurs.

"And so basically I just took a million dollars in and made ten investments of about 100,000 a pop."

This quote reiterates Sim's initial investment approach for Bold Start Ventures, emphasizing the startup-like nature of building the fund.

• There's a misconception that enterprise startups require more money early on than consumer startups.
• Ed Sim attributes this to the traditional enterprise startup model which needed significant funding before the advent of cloud computing and open source.
• The democratization of technology has allowed enterprise startups to scale with less initial capital.

"Because a traditional way of building an enterprise startup would usually require at least four or $5 million in an a round, up until the point that the newer entrepreneurs took advantage of the cloud and open source."

Ed Sim explains why enterprise startups were historically more capital-intensive and how technological advancements have changed the funding landscape.

"And that's number one. Number two is just the satisfaction of the world, right? I mean if you look back at history, I was investing in SaaS before it was called SaaS, and the ASP model, which for folks who are listening and haven't been around, it"

Although the quote is incomplete, Ed Sim is likely referencing the evolution of software delivery models, from ASP (Application Service Provider) to SaaS, and how this change has influenced investment strategies.

• In the early days, companies like Live Person had to invest heavily in building their own cloud infrastructure.
• A significant portion of funding went into infrastructure to ensure scalability and readiness for success.
• Now, with services like AWS, great engineers can leverage existing infrastructure to enter the market quickly and efficiently.

"I mean a company like live person, we probably raised over $30 million in about twelve months. And 20 of that went to build our infrastructure because we wanted to build for success."

This quote highlights the high capital requirements for infrastructure development in the past, emphasizing the need for scalability and preparation for success.

"They can leverage kind of that AWS infrastructure, they can get to market very fast and efficiently."

The quote illustrates the shift in how companies can now use cloud services like AWS to reduce costs and time-to-market, allowing engineers to focus on solving market pain.

• West Coast investing focuses on people and entrepreneurs first.
• It involves funding companies at an early stage, sometimes before product development.
• This approach has now been adopted on the East Coast, where investors are willing to back entrepreneurs from the very beginning.

"And I think the west coast style investing is really focused on the people, the entrepreneurs."

This quote defines the West Coast style of investing as entrepreneur-centric, prioritizing the individual's potential to create a successful company.

"Maybe even before they've even built their product, was not here on the east coast 1015 years ago."

The quote indicates a shift in East Coast investing practices, now aligning with the West Coast's willingness to invest early in a company's lifecycle.

• The preference is for companies with multiple founders rather than single founders.
• Investment varies between repeat entrepreneurs and first-time founders.
• Repeat entrepreneurs tend to secure larger seed rounds.
• First-time founders' rounds are typically smaller, but deep domain expertise and engineering skills are critical.

"We never like single co-founded companies or single founders, number one."

This quote expresses a clear preference for teams with multiple founders, suggesting that collaboration is valued in the companies they choose to invest in.

"The key thing for us is making sure that these founders have deep domain expertise."

The quote underscores the importance of founders having a strong understanding of the industry and its challenges, which is crucial for creating effective solutions.

• Enterprise investment can be challenging without experience and a strong network.
• Recurring problems in enterprise over the years include customer service, marketing, sales, IT infrastructure, and security.
• Understanding the problem, speaking with potential buyers, and assessing the entrepreneur's ability to scale a solution are key metrics for investment decisions.

"Enterprise can be fucking hard."

This quote candidly acknowledges the difficulties of investing in the enterprise sector, which requires specific expertise and insight.

"So if you take that same problem set and if you've built a network over 20 years of buyers and partners that you can call and understand, hey, I've got a new company trying to start in this market segment."

The quote emphasizes the value of a well-established network in assessing and validating the potential of a new enterprise solution.

• The speaker's background in building quantitative trading models provided insight into the enterprise world.
• Enterprise is seen as an area where founders can have repeated success.
• In enterprise, it's possible to leverage existing relationships and customer bases for new ventures, which is harder in the consumer space.

"I just felt like I could understand the pain point better with enterprise."

This quote reflects the speaker's personal affinity and understanding of enterprise challenges, which influenced their career path in VC.

"You can take an enterprise founder...and in consumer, I think it's harder to be a repeat consumer entrepreneur."

The quote contrasts the enterprise and consumer spaces, highlighting the ability to build upon past successes and relationships in enterprise, as opposed to the more isolated ventures in consumer entrepreneurship.

• The speaker invests in entrepreneurs they believe in, as demonstrated by their recent investments.
• Deal sourcing is not discussed in detail, but it is suggested that it involves a referral network and domain expertise.

"So how do you approach deal sourcing? Is it mainly through your referral network? Is it through your domain expertise?"

This question implies that deal sourcing strategies could include leveraging a referral network and utilizing domain expertise, although the speaker does not provide a detailed response.

• Bolsterpoint Ventures has a strong focus on enterprise startups with 20 years of experience.
• They aim to be the first call for founders building enterprise startups, offering formulation of ideas and introduction to potential customers.
• The majority of their leads, about 75%, come from founders within their network.

"So by being very focused on the enterprise and having done it for 20 years, and my other partner having done it for 20 years and my other partner for ten, we have a pretty focused network."

This quote emphasizes Bolsterpoint Ventures' extensive experience and network within the enterprise sector, highlighting their desire to be deeply involved from the earliest stages of a startup's lifecycle.

• Bolsterpoint Ventures looks for potential billion-dollar markets when investing at the seed stage.
• They acknowledge the unpredictability of market size but focus on portfolio building with the potential for significant returns.
• They prefer intuitive judgment of market opportunities over relying on analyst reports, often looking for greenfield opportunities or reinvention of existing industries.

"I like to think it's going to be a billion dollar market. But look, you never really know."

This quote reflects the inherent uncertainty in predicting market sizes at the seed stage and the venture firm's approach to investing in what they believe could be substantial market opportunities.

• The seed funding landscape has grown significantly since 2010, with a proliferation of micro VCs.
• Bolsterpoint Ventures stays focused on their niche to remain competitive amid market noise.
• They emphasize the importance of being a leader in their space to succeed.

"There's a lot of noise in the market, which once again, I think is very important for us just to stay focused and not try to be all things to all people."

The quote indicates that amidst the crowded seed funding environment, maintaining a clear focus is key to Bolsterpoint Ventures' strategy for standing out and providing value.

• Bolsterpoint Ventures' value lies in their domain expertise and successful track record in scaling enterprise companies from seed to exit.
• They have a playbook for startups that has evolved with industry changes, such as lead generation and sales strategies.
• The firm believes in applying this playbook across their portfolio companies.

"I think the bottom line is we understand the cadence of a startup from the time that it's a single, two founders in a room coding to kind of exiting either through an IPO or even through selling your business."

This quote underlines the firm's deep understanding of the startup journey and their ability to guide companies through various growth stages based on their extensive experience.

• There is a stratification in the VC industry where successful firms have grown too large for small investments.
• Micro VCs have emerged to fill the gap, offering smaller, more efficient checks to entrepreneurs who require less capital and want to avoid heavy dilution and pressure.

"I almost feel like there's a stratification of VC in the sense that the very successful ones have gotten so large that they can't write smaller checks efficiently."

The quote discusses the shift in the VC industry, where larger firms are no longer able to serve the needs of early-stage startups, leading to the rise of micro VCs.

• Bolsterpoint Ventures is not concerned about the rise of crowdfunding and AngelList, viewing venture capital as a relationship-driven business.
• They acknowledge the role of crowdfunding for portions of funding rounds but believe seasoned entrepreneurs will continue to partner with familiar VCs.
• AngelList is seen as having a significant portion of private syndications, suggesting that many prefer to raise funds privately.

"I'm not worried about it at all in the least bit. I mean, if you look at a lot of the seasoned entrepreneurs, yeah, I think people keep talking about the automation of the world. I do think that VC is still a relationship driven business."

This quote reflects the speaker's confidence in the traditional VC model and the importance of relationships over automated platforms for fundraising among experienced entrepreneurs.

• The shift towards developer-driven enterprise is significant, with developers gaining more influence.
• Developers often trial new technologies and advocate for their adoption within the organization.
• The traditional monolithic IT infrastructure is being disrupted in favor of more agile, microservices-based approaches.
• Enterprises aim to build and release technology quickly, emulating companies like Google.
• The current state of enterprise IT is early in its evolution, suggesting significant opportunities ahead.

"I think developers are increasingly wielding more and more power in the enterprise these days."

This quote highlights the growing influence of developers in decision-making within enterprises.

"I like to think of the world as becoming, I almost call it the micro enterprise."

Ed Sim suggests a trend towards smaller, more modular enterprise solutions as opposed to large, monolithic systems.

• Valuations in New York tend to be lower than in Silicon Valley.
• Ed Sim expresses concern over high valuations, preferring more modest ones.
• Valuations in New York are generally below ten times the invested capital, varying based on the entrepreneur's background and the amount of capital raised.

"I'm getting seed stage sharps in the valley where people are talking about a twelve cap."

Ed Sim is commenting on the high valuation expectations in Silicon Valley.

"I would say that we're not at the twelve kind of cap stage here."

This quote indicates a more conservative approach to valuations on the East Coast, particularly in New York.

• Ed Sim values the information provided by Jason Calcanus's Launch Ticker.
• The Launch Ticker offers a concise summary of important industry news and updates.

"I love Jason Calcanus's launch ticker. It's just a summary of eight to ten."

Ed Sim appreciates the brief and informative updates provided by the Launch Ticker, which he finds useful for staying informed.

• The rise of developers as key influencers in software adoption is a notable trend.
• AI is being integrated across various segments of enterprise software.
• Messaging is transitioning from consumer to enterprise use, acting as a front end for applications and services.
• These trends are expected to be influential over the next five years.

"I think I'm seeing a lot of kind of AI, not AI platforms, but AI being infiltrated across every segment of enterprise software."

Ed Sim observes the widespread integration of AI technologies into enterprise software solutions.

• Slack is the most used app on Ed Sim's phone, utilized for both internal team communication and external communication with founders.
• Slack Line, a service that allows the creation of private external channels, is particularly useful for engaging with founders.
• Slack exemplifies the consumerization of traditional enterprise software.

"It is slack on messaging."

Ed Sim identifies Slack as his primary communication tool, reflecting its importance in business operations.

"It allows us to create private external channels with our founders."

The quote underlines the utility of Slack in maintaining communication channels with external stakeholders, such as company founders.

• Ed Sim's most recent investment is in a stealth-mode company focused on developer-centric security.
• The investment was driven by the founder's track record and the potential to balance rapid development with security.
• The company has already attracted beta customers, indicating early market interest.

"It's a repeat founder. We had funded his company in the past and he sold his company to Akamai."

Ed Sim's investment decision was influenced by the founder's proven success and experience.

"Some people don't think it can be done right. There's a tension between developing rapidly and then having security folks jump on board and slow things down."

This quote addresses the challenge of integrating security into the fast-paced development environment, which the invested company aims to solve.