20VC AppDynamic's Jyoti Bansal on The Sale vs IPO Process with AppDynamics' $3.7Bn Exit & The 3 Simple Things VCs Look For When Investing In Startups

In this episode of "20 minutes VC," host Harry Stebings interviews Jyoti Bansal, the accomplished former founder and CEO of AppDynamics, now leading Big Labs and Harness IO. Bansal shares his entrepreneurial journey, highlighting the challenges he faced as an immigrant entrepreneur in the U.S. and his "burn" to solve pressing problems, which led to the creation of AppDynamics and its subsequent $3.7 billion acquisition by Cisco. Bansal emphasizes the importance of building for the long term, assembling a passionate and adaptable team, and securing a competitive advantage through product excellence and market knowledge. He also touches on his investment and mentorship philosophies, the criticality of celebrating milestones, and his current focus on enjoying the process of building innovative companies at Big Labs.

• Harry Stebbings introduces the podcast and highlights features such as the ability to tag episodes, find resources, and provide feedback.
• Jyoti Bansal, the former founder and CEO of AppDynamics and current founder and CEO of Big Labs and Harness IO, is introduced as the guest.

You are listening to the 20 minutes VC with the dulcet British tones of me, Harry Stebbings at htebbings with two b's on Snapchat. I always love to see you there. And even better, you can now download the 20 vc app.

This quote introduces the podcast and the host, Harry Stebbings, as well as the new 20 VC app for listeners.

And I'm super excited to welcome Jotty Bansal. Now, Jotty is the former founder and CEO of App Dynamics, back to the tune of over $350,000,000 in VC funding from the likes of Lightspeed, Greylock, and Kleiner Perkins, just to name a few.

Harry Stebbings introduces Jyoti Bansal, highlighting his previous success with AppDynamics and current ventures.

• Jyoti had to overcome immigration challenges to start a company in the U.S.
• The motivation to solve a problem led to the creation of AppDynamics.

Well, I had to wait to start a company, not just appdynamics. I had some other ideas that I wanted to start a company on, but I was in the US on an immigrant visa, and it's really hard because of the red tape here, for an immigrant entrepreneur to start a company.

Jyoti Bansal discusses the difficulties faced by immigrant entrepreneurs due to U.S. immigration policies.

There was this problem that everyone was building a lot of complex software. And to me, it was just like, some people need to know, if something goes wrong in the software, how are they going to fix it?

Jyoti identifies a widespread problem in software complexity and the need for solutions, which led to the founding of AppDynamics.

• Entrepreneurs must commit time, passion, and energy to build a billion-dollar company.
• Building a company is a long-term journey with multiple phases, including finding product-market fit and scaling.

What do I really mean by this is, as an entrepreneur, the first thing that you have to realize is that if you want to make a billion-dollar company, you have to commit time to it.

Jyoti emphasizes the long-term commitment required to build a successful, large-scale company.

Building anything of value or building a multibillion-dollar company will take eight to ten years, at least, in most cases more.

The quote outlines the typical time frame for building a highly valuable company, stressing the need for a long-term perspective.

• In the early stages, a variety of skills such as engineering, product, and sales are crucial.
• Core qualities sought in team members include intelligence, passion, drive, and coachability.

In the early days, I look for a lot of different kind of skills that I want to bring in the team.

Jyoti discusses the diverse skill sets needed in the foundational team of a startup.

They have to be very, very smart, they have to be very passionate and driven. There has to be some drive, because startups are hard.

The quote highlights the personal qualities Jyoti looks for in team members beyond their professional skills.

• Jyoti Bansal emphasizes looking for individuals who are smart, driven, and capable of learning quickly.
• The ability to adapt is crucial as there is no set formula for success in startups.
• The dynamic nature of markets and industries necessitates intellectual flexibility in startup employees.

"Because startups, there is no formula and no formula of what will happen in your market, in your industry, in your space, things will change. So people who can learn and adapt, when I interview, I look at those as the three primary things, smart, driven, and people who can learn fast."

This quote highlights the importance of adaptability, intelligence, and drive in potential startup employees, as the unpredictable nature of startups requires these qualities for success.

• Jyoti Bansal does not believe in the idea that everyone in a startup should think alike.
• He advocates for cognitive diversity, especially when hiring people from different backgrounds such as sales or marketing.
• Core principles like intelligence and the ability to learn and adapt are still essential across all roles.

"I do think cognitive diversity is very important sometimes, actually, when I advise some founders who are from a technology background like me, like a product background, and I tell them, if you are interviewing salespeople and you're trying to look almost exactly the cognitive mindset that you have as an engineer, you may not get the best salespeople."

This quote explains that seeking cognitive diversity is crucial when hiring for different roles, as it can lead to a more effective team. Jyoti suggests that looking for a mindset similar to one's own, especially in different job functions, may not yield the best candidates.

• Jyoti Bansal's company was preparing for an IPO but received an acquisition offer from Cisco.
• The decision-making process involved multiple offers and considerations for the stakeholders' best interests.
• The final decision to sell was intense and stressful, with the management team considering the impact on all employees and shareholders.

"And as shareholders, as board, as management team, you always have to look at what is the right thing to do for the company, for all the shareholders. Right, because you have all your employees. And we looked at the offer and actually we decided to say no to the first offer. They came back with a second offer, which we said no to, and then they came back with a third offer, which at that point, it was the right thing to do for all shareholders involved, for all employees involved, for all stakeholders involved, for us to do it."

The quote describes the thorough and careful consideration given to the acquisition offers from Cisco, with the final acceptance being a decision made in the best interest of all parties involved.

• Jyoti Bansal was open to the idea of being a public market CEO due to the discipline and rigor it brings to a company.
• He believes that operating as a public company can be healthier for larger companies with a substantial number of employees.

"I do think operating as a public company is healthier than operating as a private company."

Jyoti expresses his belief that public companies benefit from the discipline and structure required by the public markets, which can be advantageous for larger organizations.

• Jyoti Bansal believes that to build a billion-dollar business, one must operate in a large market with competitors.
• An inside competitive advantage is necessary to outcompete in the market.
• He encouraged his teams at Appdynamics to view their respective functions—product, sales, and support—as individual competitive advantages.

"And if you want to outcompete, you have to have an inside competitor advantage of some kind."

This quote emphasizes the need for a unique competitive advantage within each department of a company to ensure overall success in a large and competitive market.

• Jyoti Bansal uses a bottom-up model to assess market creation.
• He focuses on the potential of a market rather than its immediate size, especially when investing or mentoring startups.

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• Jyoti Bansal mentions his new startup studio, Big Labs, and the announcement of its first initiative.

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• Jyoti Bansal evaluates the market for Harness based on potential customer count and their willingness to pay.
• He considers the intensity of the problem companies face and their budget for solutions.
• Bansal performs calculations to estimate market size, not just relying on current spending data.
• The business case or ROI for customers is crucial in assessing what they will pay for the service.

"And I look at the market, the way I look at that is how many companies have this problem potentially? And how much money are they going to pay to solve that problem?"

This quote explains the method of market evaluation which is based on potential customer problems and their budget for solutions, highlighting the importance of understanding the customer's perspective in market assessment.

• Jyoti Bansal faced initial challenges with VCs while starting AppDynamics, requiring pitches to 20 VCs to get the first offer.
• He learned that VCs look for billion-dollar company potential, external validation, and an inside advantage.
• The inside advantage involves unique knowledge, team, technology, or background that positions the company to win in the market.

"When I started AppDynamics, I did struggle with VCs in the beginning... VCs are looking for three things... can this be a billion dollar company... do you have some validation... and then it's why you."

This quote reflects the challenges in securing venture capital and the key factors VCs consider when evaluating a startup, emphasizing the need for a strong business case, proof of concept, and a unique competitive edge.

• Jyoti Bansal believes in executing at a world-class level without compromising quality.
• He interprets "move fast and break things" as a learning and adapting process, not literal breakage.
• The goal is to achieve world-class execution in essential business aspects using fast iteration and adaptation.
• Execution quality is non-negotiable, and goals should reflect high standards.

"You can't compromise on your quality of execution... It really depends on what is your goal of the execution... Execution is about that you have to make sure once you have found something that you want to do, you don't want to do anything half assed."

The quote discusses the importance of maintaining high-quality execution and setting ambitious goals, contradicting the idea that speed necessarily compromises quality.

• Jyoti Bansal stresses the importance of accountability and transparency in goal-setting to avoid a culture of fear.
• A transparent environment where decisions and outcomes are clear prevents fear.
• Failure to reach a stretch goal should not be punished if the effort and corrective actions are transparent.
• Bansal advocates for a culture of collaboration and shared accountability.

"You have to have accountability towards it... The culture of fear happens when the transparency goes out of the system... A culture of fear is the worst thing you ever want."

This quote highlights the relationship between accountability, transparency, and a positive work culture, suggesting that clear communication and shared responsibility can prevent fear and promote collaboration.

• Jyoti Bansal, despite the sale of AppDynamics, chose to start a new venture, Big Labs, rather than taking an extended break.
• The decision to return to entrepreneurship shortly after a major business success reflects Bansal's drive and dedication to innovation.

"So talk to me nine months after the app dynamic sale... why is now the right time to start a new company and get back in the saddle so quickly?"

This question from the interviewer addresses the motivation and timing behind Bansal's decision to start another company shortly after a successful exit, suggesting a strong entrepreneurial spirit and commitment to building new ventures.

• Jyoti Bansal expresses that he gets bored with the idea of retirement and prefers engaging in business activities.
• He enjoys solving large problems, building teams, competing in the market, and developing businesses.
• Bansal views his work as a fulfilling activity, not as a job from which to retire.

"The short answer is, I got bored. This is exactly what I like to do. I like to look at large problems, build teams, try to go and solve those problems, compete in the market, try to build up interesting business while doing it."

This quote explains Bansal's lack of interest in retirement and his passion for his work, which he finds more engaging and fulfilling than traditional retirement activities.

• Big Labs focuses on company creation and building rather than just investing.
• A running list of interesting problems is maintained, sourced from customer feedback and industry insights.
• Big Labs experiments with solutions, conducts market research, and validates ideas with customer feedback.
• Viable solutions with the potential to become billion-dollar companies are spun out and funded by Big Labs.

"Big Labs is more about company creation and company building. It's not about investing. Yes, we do. Big labs will invest. But the way we look at is we have a list of interesting problems that we want to experiment with."

This quote outlines the primary focus of Big Labs on creating and building companies, with investment as a secondary activity, emphasizing their problem-solving and experimental approach.

• Jyoti Bansal now has the luxury of being selective with venture capitalists (VCs).
• The top criterion for selecting VCs is self-awareness of their strengths and weaknesses.

"I primarily look for vcs who are self aware, who are aware of what they're good at, what they're not good at. That's my number one criteria."

Bansal explains his main criterion for choosing VCs to work with, highlighting the importance of self-awareness in potential investment partners.

• Bansal intends to take time to enjoy, cherish, and relax during the journey with Big Labs.
• He emphasizes the importance of celebrating small milestones for team morale and personal satisfaction.

"One thing I would do differently is to take time to enjoy, cherish and relax along the way."

This quote reflects Bansal's intention to appreciate the journey more with Big Labs, learning from his past experience with AppDynamics where he delayed celebration until major milestones were achieved.

• Bansal's early experience in a small town in India, working with his father's business, provided valuable insights.
• Understanding how businesses operate, succeed, fail, and the importance of customer relationships influenced his approach to business.

"The inflection point has been more about seeing how businesses work, how businesses succeed, how businesses fail."

This quote highlights the formative experiences that have shaped Bansal's business acumen and his understanding of the critical elements of business success.

• Bansal looks for individuals with big dreams, hunger, and willingness to learn.
• He uses these criteria to decide whom to mentor, as exemplified by his relationship with Spencer from Amplitude.

"I look for people who are dreaming big. Like when I met Spencer, the first thing I would talk to them is, okay, what is his goal? How big does he want to go? How big is he dreaming?"

Bansal shares his approach to mentoring, focusing on the mentee's ambition and desire to achieve significant goals.

• Jyoti Bansal aims to have fun while building companies and solving problems over the next five years.
• His focus remains on engaging with interesting challenges and enjoying the process.

"I want to have fun building interesting companies and solving interesting problems for the next five years."

This quote encapsulates Bansal's forward-looking goals, emphasizing his continuous drive to engage in meaningful and enjoyable work.

• Harry Stebbings invites listeners to learn more about Jyoti Bansal and the 20 Minute VC platform.
• Stebbings also promotes Namely and Eero, companies offering HR platforms and Wi-Fi systems, respectively.

"And you can find out more from Jotty on Twitter at jottiebansal SF likewise, we'd love to invite you behind the scenes at the 20 minutes vc and faster."

This quote serves as an invitation for listeners to engage further with Bansal and the 20 Minute VC platform, suggesting additional resources for audience engagement.