20VC Lightspeed's Arif Janmohamed on Why Market Risk Is The Most Dangerous Risk To Underwrite As A VC, How To Determine When to Stretch vs Not on Price Today & The $TRN of Market Cap Up For Grabs Today In Enterprise

In this episode of "20 Minutes VC," host Harry Stebbings interviews Arif Jan Mohammed, a partner at Lightspeed Venture Partners, a firm with an impressive portfolio including Snapchat and Affirm. Arif shares his journey from his early days in Silicon Valley to joining Lightspeed, emphasizing the importance of company design and go-to-market strategies for enterprise startups. He discusses how enterprise investing has evolved, with larger market opportunities leading to higher valuations. Arif also touches on the challenges of long feedback cycles in VC and the significance of market timing and execution. The conversation highlights Lightspeed's global perspective and its focus on ambitious platforms in the enterprise space.

• Harry Stebbings introduces the episode of "20 minutes vc," mentioning the opportunity for listeners to suggest guests or questions via Instagram.
• Harry highlights Arif Janmohamed's role as a partner at Lightspeed Venture Partners and his previous work experiences.
• Acknowledgements are given to Nicole Quinn, Jeremy Liu, and Alex Tauzig for their question suggestions.
• Promotions for Airbase, Clearbank, and Terminal are given, detailing their services for startups and engineering teams.

"This is the 20 minutes vc with me, Harry Stebbings, and if you'd like to suggest either guests or questions for future episodes, you can do that on Instagram at hstebbings 90 96 with two ubs."

Harry Stebbings invites listeners to suggest future guests or questions for the podcast via his Instagram handle.

"Arif Jan Mohammed, partner at Lightspeed Venture Partners, one of the leading firms of the last decade, with a portfolio including the likes of check this out, Snapchat, Mulesoft, Max Levchin's Affirm app, Dynamics and many more incredible companies."

Harry introduces Arif Janmohamed, highlighting his position at Lightspeed Venture Partners and the esteemed portfolio of the firm.

• Arif describes his Canadian roots and education in computer engineering.
• He recounts his initial move to Silicon Valley, enticed by its burgeoning tech scene and favorable climate.
• Arif's early career involved working at a robotics startup, then as a chip designer at Web TV, later acquired by Microsoft.
• He shares his preference for early-stage company involvement over large corporations.
• His venture capital interest was sparked by interactions with board members at Andes Networks, where he worked post-Microsoft.
• After Andes Networks was acquired, Arif pursued an MBA at Wharton to further his venture capital aspirations.
• He gained transaction experience in Cisco's corporate development group, working on deals like the acquisition of Webex.
• Arif joined Lightspeed in 2008, drawn by its ambition, focus on enterprise, early-stage investment ethos, and global perspective.

"Well, it's a lot of luck. It's a little bit of zigzagging and it's a little bit of making my own luck."

Arif attributes his career path to a combination of luck, non-linear progression, and proactive efforts to create opportunities.

"California was viewed as a place filled with people who eat kale and do a lot of yoga, but not necessarily a technology mecca."

Arif humorously contrasts the perception of California with its reality as a hub for technology and innovation.

"I really got addicted to the early stage high that you get from building."

Arif expresses his passion for the excitement and challenge of working with early-stage companies.

"I really wanted to learn the art and science of transactions."

Arif explains his motivation for joining Cisco's corporate development group to deepen his understanding of business transactions.

"Lightspeed back in 2008 was a smaller platform, but it was a very ambitious platform."

Arif reflects on Lightspeed's ambitious nature and growth potential, which attracted him to join the firm.

• Arif Janmohamed expresses his delight in joining the show.
• Harry Stebbings and Arif Janmohamed transition into the main discussion of the episode.

"Oh, thank you. I'm absolutely delighted to be here. Thank you."

Arif Janmohamed conveys his enthusiasm for participating in the podcast episode.

• Harry Stebbings discusses his belief in the global scope of technology innovation and company creation.
• Joined the venture space in 2008 and reflects on the eleven years of experience.
• Expresses humility and satisfaction with his career in venture capital.

"That technology innovation and company creation would be a global phenomenon, not just a localized phenomenon. So I joined in 2008. It's been eleven years, and I'm extremely happy to have been here and super humbled by everything I've seen over the last almost dozen years."

Harry Stebbings explains his perspective on technology innovation and company creation as a worldwide trend, not confined to any specific region. His career choice in 2008 and the subsequent years have affirmed this belief, and he expresses contentment and humility about his experiences.

• Discussion about the enterprise ecosystem's state today.
• A venture capitalist mentioned companies raising at 100x ARR in the enterprise space.
• Arif Janmohamed comments on whether enterprise investing has reached its peak due to hype.

"I don't think so. I think that the word is out. It's become very, very sexy. I think that a number of other great investors are realizing that you can actually build companies worth ten to $20 billion in the enterprise space."

Arif Janmohamed counters the notion that enterprise investing is past its peak, suggesting that the sector's potential to create highly valuable companies has become widely recognized, making it an attractive field for investors.

• Arif Janmohamed describes the current period as magical for the enterprise stack.
• New technologies like cloud, data, AI, and ML are driving changes.
• A trillion dollars of market cap is considered up for grabs.
• Companies that execute well, like Zoom, Slack, and Palo Alto Networks, achieve high market caps.

"And so I think what's happened is over the last decade, you've seen people's point of view around the enterprise stack really, really change."

Arif Janmohamed emphasizes the significant shift in perception regarding the enterprise stack over the past decade, highlighting the transformative impact of new technologies and the substantial market opportunities they present.

• Arif Janmohamed discusses the relevance of Series A valuations.
• Valuation matters but can be flexible for companies with exceptional teams and markets.
• Series A valuations have increased, but justifiable if the potential returns are high.

"Valuation always matters, in my opinion, but you can be less price sensitive on premium companies with premium markets."

Arif Janmohamed acknowledges the importance of valuation in venture capital but suggests a less price-sensitive approach for companies with strong teams and significant market opportunities, indicating a willingness to invest at a higher valuation for premium prospects.

• Arif Janmohamed reflects on changes in his price sensitivity over time.
• Emphasizes the potential outcome and team's ability to execute as key factors.
• Market risk is considered the most dangerous, and investments must justify the risk.

"Absolutely. I think more and more about what the outcome can be and about the team's ability to execute."

Arif Janmohamed confirms that his approach to price sensitivity has evolved, with a greater focus on the potential outcome and the team's execution capabilities. This shift reflects a strategic approach to venture capital investment decision-making.

• Arif Janmohamed stresses the significance of having a strong point of view on the market.
• It's preferable to invest in large, existing markets or believe in the growth of new markets.
• Teams may pivot to find the right market, but market size must be considered in valuations.

"I prefer to have a very strong point of view around market."

Arif Janmohamed highlights his preference for a well-defined perspective on market opportunities when investing, suggesting that a clear understanding of market dynamics is crucial for successful venture investment strategies.

• Arif Janmohamed discusses the future of consolidation in the enterprise market.
• Legacy vendors are adapting by acquiring innovative companies.
• New challengers are emerging with significant valuations, becoming incumbents themselves.

"I think the legacy vendors, they're smart, right? They're looking at this changing landscape."

Arif Janmohamed acknowledges the strategic moves of legacy vendors to remain relevant by acquiring new and innovative companies, indicating an ongoing evolution and consolidation in the enterprise market.

• Arif Janmohamed expresses caution towards market size and timing.
• Market timing is challenging but can be an opportunity if the market is large or expanding.

"Market timing is difficult, but it's an opportunity."

Arif Janmohamed admits the complexity of market timing in venture investing but views it as an opportunity, particularly when investing in markets that are either established and large or new and growing.

• Market timing is crucial when dollars shift from one technology or architecture to another, such as from on-premise to cloud.
• Companies that understand customer propensity to shift and build products for new markets can become outsized winners.
• The transition from on-premise to cloud architectures involved a shift in business models, consumption, and technology, which was not clear at the time it was happening.

"It depends on when call it a trend starts to tip and become more mainstream, and those companies that are very well positioned for the market tipping can become outsized winners."

The quote emphasizes the importance of being well-positioned before a market trend becomes mainstream to achieve significant success.

• Company design involves both art and science, extending beyond product design.
• Successful enterprise companies combine excellent product design with effective go-to-market strategies.
• Designing a company requires considering the team, product, and go-to-market approach holistically.
• Executives and employees must align with the designed go-to-market strategy to execute it successfully.

"Company design, in my mind, is an art and a science, and it transcends just product design."

This quote explains that company design is a complex process that goes beyond the product itself, encompassing the overall strategy and execution.

• Companies like Splunk and Palo Alto Networks have innovated in their go-to-market strategies to capture more market share.
• Splunk evolved their approach to target higher-level decision-makers, while Palo Alto Networks successfully utilized both direct sales and channel sales.
• Rubrik rapidly entered the market with an enterprise sales motion, disrupting legacy vendors in the data management and backup space.

"I think Palo Alto Networks over the last five years has just demonstrated an ability to execute from a direct sales motion as well as from a channel motion to capture the market share and mind share of security professionals."

This quote highlights Palo Alto Networks' successful go-to-market execution, which has allowed them to capture significant market and mind share in their industry.

• Founders should identify their product's economic buyer and design their go-to-market strategy accordingly.
• It is challenging to scale an enterprise product down to SMBs and vice versa due to differing requirements like security and scalability.
• Startups often use a "land and expand" model, targeting mid-market for speed and enterprise for value, adjusting product offerings to match customer size and needs.
• Velocity and references from mid-market successes can help startups penetrate the enterprise market.

"Figure out who your economic buyer is for your product, for your innovation, and then execute on the best motion to sell into that economic buyer, whether it's an enterprise, whether it's a mid market, or whether it's an SMB."

The quote advises founders to tailor their go-to-market strategy based on the specific needs and buying behaviors of their target market segment.

• Evaluating a team's ability to execute on a go-to-market strategy varies by company stage.
• For Series A companies, past achievements can indicate future performance.
• For later-stage companies, data and customer feedback provide insights into sales strategy and product-market fit.
• Successful companies often have undeniable product-market fit, which investors seek to support.

"If it's a company that's at the later stages, call it series b or beyond, then you've got some data, then you can really understand how they land, what is their strategy, where are they landing?"

This quote suggests that for later-stage companies, actual performance data and strategic insights are available to assess the team's ability to execute the go-to-market strategy effectively.

• Arif Janmohamed mentions two influential books: "Stumbling on Happiness" and "How Not to Die."
• "Stumbling on Happiness" discusses how the brain fills in gaps in memory and projections, affecting decisions and happiness.
• "How Not to Die" focuses on dietary choices and their impact on health and longevity.

"It's called stumbling on happiness. And it really exposes how your brain can fill in blanks, either in memory or in the way that you foreproject, and how those blanks can actually affect outcomes and your reaction to those outcomes."

This quote explains the premise of "Stumbling on Happiness," which is about understanding how the brain's interpretations can influence one's life and decisions.

• John Thompson, former CEO of Symantec and chairman of Microsoft, is highly regarded for his enterprise expertise.
• He actively contributes to companies by hiring key personnel, opening doors to customers, and mentoring CEOs.
• His understanding of company design and management sets him apart.

"One of the folks that we work very closely with here at Lightspeed is a gentleman named John Thompson... He's incredibly insightful."

John Thompson's insightfulness and active role in companies he works with make him a valuable board member, contributing to his high regard in the industry.

• The role of a venture capitalist involves significant context switching among various tasks.
• Prioritization and organization are crucial due to the involvement with multiple portfolio companies and potential new investments.
• The long feedback cycles in venture capital require patience and a long-term focus.

"I absolutely love my job... but it's one in which there's a lot of context switching."

This quote highlights the complexity and dynamic nature of a venture capitalist's role, emphasizing the challenge of managing multiple responsibilities effectively.

"The thing that surprised me the most was really the long cycles of venture capital and the long, long feedback cycles."

Arif Janmohamed emphasizes the slow feedback loop in venture capital compared to operational roles, which requires a different mindset and patience.

• The enterprise sales cycle is a mix of art and science, with a focus on convincing stakeholders of a product's necessity.
• Changing enterprise buying behaviors is difficult but can lead to significant rewards once adoption occurs.
• Understanding and coaching founders through this process is part of Arif Janmohamed's role.

"The go to market motion is art and science... It's hard to change human behavior."

Arif Janmohamed acknowledges the complexity of enterprise sales cycles and the challenges in changing buying behaviors, while also recognizing the potential rewards.

• Trip Actions is a rapidly growing corporate travel management company, managing over a billion dollars in travel.
• Appsen uses AI and machine learning to detect fraud in expense reports and is now expanding into invoicing and contracting.
• These investments are exciting due to their innovative use of technology and significant market impact.

"We most recently announced a very big round in trip actions... Another company I'm super excited about is called Appsen."

Arif Janmohamed shares his excitement about recent investments, highlighting Trip Actions' growth and Appsen's practical application of AI in detecting fraud.

• The venture capital industry requires a passion for long-term investments and a willingness to learn from long feedback cycles.
• A venture capitalist's judgment and intuition are tested over extended periods, often taking years to validate.
• Continuous self-evaluation and learning from decisions are key to success in the venture capital field.

"You can prove that you can win deals, but it takes time to really learn whether you're good at winning the right deals."

This quote reflects the inherent uncertainty in the venture capital industry and the importance of patience and long-term focus in evaluating the success of investments.