20VC Why It Is BS That You Never Regret Paying A High Price To Get Into A Good Company, Why There Are Only 2 Price Points That Work in SaaS and Why eSports Will Be Bigger Than Traditional Sports in 5 Years Time with Jason Pressman @ Shasta Ventures

In this episode of the 20 minutes VC, host Harry Stebings interviews Jason Pressman, Managing Director at Shasta Ventures, known for investments in companies like Nest and Dollar Shave Club. Pressman, with a background as VP of Strategy and Operations at Walmart.com, discusses his transition to venture capital and how his experience at Walmart.com provided insight into consumer internet and SaaS businesses. He shares his views on the SaaS startup pricing model, emphasizing two viable price points, and the importance of strategic alignment with these models. Pressman also comments on the current IPO market, highlighting the impact of enterprise IPOs and the cyclical nature of public market interest. Additionally, he discusses the future of social networking, expressing optimism for vertical social networks and their potential for growth, citing examples like Nextdoor and Smule. The conversation also touches on the challenges of VC, such as the difficulty in rejecting numerous promising entrepreneurs due to limited investment opportunities.

• Harry Stebbings introduces Jason Pressman, a managing director at Shasta Ventures.
• Shasta Ventures has made notable investments in companies such as Nest, Dollar Shave Club, Smule, and Class Dojo.
• Jason Pressman has a track record of successful investments with ten portfolio companies being acquired.
• He serves on the boards of several companies including Zuora, Nextdoor, and Smule.
• Prior to Shasta Ventures, Pressman was VP of strategy and operations at Walmart.com, scaling the business significantly in five years.
• A thank you is given to Mike Abbot at Kleiner Perkins for introducing Harry to Jason.

"Jason is a managing director at Shasta Ventures who've made investments in the likes of Nest, Dollar, Shave Club, Smule, Class Dojo and more. With ten portfolio company investments being acquired under his belt, Jason invests in both enterprise and consumer, currently serving on the boards of criticism, subscription billing, Unicorn, Zuora, as well as Nextdoor and mobile music platform Smule."

This quote highlights Jason Pressman's role at Shasta Ventures and his investment experience across both enterprise and consumer sectors, as well as his board positions.

• Jason Pressman discusses his transition from Walmart.com to Shasta Ventures.
• Walmart.com served as a valuable training ground for VC due to its diverse internet businesses.
• At the time of his departure from Walmart.com, the internet was seen as a fading trend, but Pressman believed it was just the beginning.
• His experience at Walmart.com gave him insight into consumer internet behavior and the potential of the internet to deliver products and services.
• Pressman's role involved building a broad infrastructure, which later informed his investment decisions in SaaS and next-generation infrastructure.

"Being @walmart.com actually proved to be a really good training ground for being a VC for a variety of reasons."

This quote explains how Jason Pressman's experience at Walmart.com provided a strong foundation for his career in venture capital.

• Jason Pressman shares lessons from working at Walmart.com that he applies at Shasta Ventures.
• He recognized the early potential of consumer internet and SaaS during his time at Walmart.com.
• Pressman was an early adopter of SaaS, using coremetrics for analytics despite concerns about security.
• His belief in the growth of SaaS has been validated over time, with SaaS still representing a relatively small percentage of total software delivery.

"The second was the power of SaaS, and that was really, really important. I was one of the early adopters of cormetrics, which was an early what at the time called ASP application service provider."

Pressman recounts his early adoption of SaaS at Walmart.com, demonstrating his forward-thinking approach to technology and its influence on his investment strategy.

• Jason Pressman discusses the recent surge in enterprise IPOs, including Yext, Alteryx, Mulesoft, and Okta.
• He separates the overall IPO market trend from the specific increase in enterprise IPOs.
• The IPO market goes through natural cycles of interest from institutional investors.
• The current interest in growth stocks and stories is driving the IPO market, along with the enterprise sector's own momentum.

"I think there were two questions in there, one related to the overall IPO marketing opening, and then separately related to the enterprise IPOs."

In this quote, Pressman distinguishes between the general IPO market trends and the specific factors contributing to the rise of enterprise IPOs.## M&A Activity and Institutional Investment

• There was significant M&A activity in the previous year, with large-cap companies being acquired.
• Acquisitions of public companies like Demandware and LinkedIn removed growth vehicles from institutional portfolios.
• Institutional investors are seeking to add growth components back into their portfolios.
• The gap left by these acquisitions created pent-up demand among institutional investors.

"Just an enormous amount of companies that were the growth vehicles for institutional investors were taken out, particularly on the enterprise side."

This quote highlights the impact of mergers and acquisitions on institutional investment portfolios, specifically the removal of key growth companies.

• The robust IPO market is partly due to the absence of late-stage private market valuations.
• Large private funding rounds that were common in 2013-15 have decreased significantly.
• Companies are more open to public markets due to the lack of late-stage private funding options.

"The very late stage private market valuations and private rounds have largely gone away."

The quote explains the shift from private funding to public markets, indicating a change in how companies seek capital.

• There is sufficient demand for IPOs to continue, with pent-up demand from bankers and institutional investors.
• Lower growth rates in IPOs are not concerning and are seen as a healthy sign for the market.
• Good companies growing at reasonable rates now have liquidity opportunities through IPOs.

"I certainly think there's certainly demand, and we hear from the bankers and from institutional investors that there's tremendous pent up demand right now."

This quote indicates strong current demand for IPOs, suggesting a positive outlook for the market.

• A robust IPO market historically leads to increased capital allocation to venture funds from institutional and global investors.
• The influx of capital can result in higher valuations and potentially lower returns due to excess capital in the ecosystem.

"Historically, when the IPO market is robust and there's liquidity and good returns, the institutional investors and global investors that seek out venture, which in some instances are not pure institutional investors, do tend to increase the amount of capital they allocate to venture."

This quote discusses the historical trend where a strong IPO market leads to more venture capital investment, affecting overall market dynamics.

• VCs often increase investment during healthy IPO markets, with early-stage investment being particularly affected.
• The current state of the public markets has no direct bearing on the future liquidity market when early-stage investments mature.
• Despite this, VCs tend to invest more during open IPO markets, which is considered unwise for early-stage investments.

"It's remarkable to me that venture capitalists do that. And because when you're investing at an early stage, as we are now, we're investing for in companies that are typically we're going to hold for seven to nine years, sometimes even longer, ten plus years."

This quote criticizes the common VC practice of ramping up early-stage investments based on current public market conditions, despite the long-term nature of such investments.

• Price sensitivity is a nuanced aspect of venture capital, with market inefficiencies and the need to invest in good companies.
• Entry price matters, but for extraordinary companies, higher prices can be justified.
• Shifting investment stages based on market conditions helps manage investment pace and avoid herd mentality.

"I think entry price does matter, but you have to be kind of not pennywise and pound foolish, meaning that for great companies sometimes you have to pay a slightly higher price because there's a competitive dynamic."

This quote emphasizes the balance between being price sensitive and recognizing the value of investing in high-quality companies, even at a higher price point.## Price Sensitivity in Investment Decisions

• Price should not be the sole deciding factor for investment engagements.
• Market price within reason is considered acceptable for investments.
• Price sensitivity is applied to startup sales processes, particularly in SaaS startups.

someone we've known for a long time, or someone we want to be involved with, we try to not let price be the deciding factor. We will pay a market price within reason.

This quote emphasizes the importance of relationships and strategic alignment over price alone in investment decisions.

• Only two price points generally work for SaaS startups: approximately $10,000/year or $100,000/year.
• Price points dictate salesforce structure, executive compensation, and product expectations.
• Lower price point ($10,000/year) implies a high-velocity sales model, online lead generation, and a product that is largely self-served.
• Higher price point ($100,000/year) requires a more enterprise-focused sales model, a broader feature set, and higher customer support costs.
• Companies caught between these two price points often struggle with gross margins and customer acquisition costs.
• The two price points help strategically align a company's sales and product development efforts.

The reason I make that rule about there are really only two price points that work in SaaS startups is that there are a whole lot of things that come out of the price point that you go to market within a SaaS company...

This quote outlines the rationale behind the two effective price points for SaaS startups, highlighting the impact of pricing on company operations and strategy.

• Sales models and product features vary significantly between the two price points.
• At $10,000/year, companies employ inside sales, avoid deep enterprise features, and compensate salesforce based on target earnings.
• At $100,000/year, companies need a direct sales force, extensive enterprise features, and higher compensation for sales personnel.
• Misalignment of price points with sales models and features can lead to unsustainable SaaS business models.

Thousand dollars a year. You have a high velocity selling model... And if you're at the higher price point... that's a much more enterprise heavy sales model...

This quote contrasts the different sales models and feature expectations associated with the two price points, illustrating the importance of alignment for business success.

• SaaS startups can begin by selling to SMBs and then upscale, or they can target enterprises from the start.
• The choice of starting point depends on the market and the product feature set required.
• Recent trends show startups beginning with SMBs due to lower software development costs.
• Both approaches to market entry are viable, but must be aligned with the company's market strategy and product capabilities.

You can start at the high end or you can start at the low end and build your way up. And I don't really think that there's a right answer.

This quote acknowledges the flexibility in market entry strategies for SaaS startups, suggesting that success depends on market fit and product design.

• The belief that the social networking era is over is considered incorrect.
• Social dynamics have proven to be powerful, and there is potential for growth and development in social applications.
• Vertical social networks are a promising area, leveraging social dynamics for niche markets.
• Examples of successful vertical social networks include Nextdoor for neighborhood interactions and Smule for music sharing and creation.
• Social networking is expected to evolve, with new use cases emerging, particularly in virtual reality (VR).

I think that's just wrong... But what a lot of the large social businesses social networks have shown is that social dynamics are very powerful.

This quote challenges the notion that social networking is a declining field, emphasizing the enduring power of social dynamics and the potential for innovation in the space.## Investment in Data World

• Data World is a platform for data scientists and data people.
• It focuses on collaboration and use of data sets online.
• The vision is to build a global hub for data professionals to upload, collaborate on, work with, and publish data sets.
• Data World utilizes social dynamics similar to other social platforms.

"A company called Data World, which is around data scientists and data people and how they collaborate with and use data sets online."

This quote explains the purpose of Data World and its target audience, highlighting the social aspect of data collaboration.

• Plays TV is a company in the esports category.
• Esports is predicted to potentially surpass the NFL in size within five years.
• Plays TV is a vertical social network built around gaming.
• It provides a downloadable client for PC gamers to record gameplay, create clips, and share them on social media.
• Plays TV has millions of users and is growing fast.

"Plays TV, which is in the esports category, which is an exploding emerging category."

This quote emphasizes the growth potential of esports and Plays TV's role within this emerging market.

• Esports has a broad audience and global reach thanks to the internet.
• The number of people playing and watching games globally is staggering.
• The belief is that esports will be larger than the NFL due to its accessibility and popularity.

"I do believe it will be larger certainly than the NFL it's pretty staggering the number of people that are playing games and watching gaming globally right now."

This quote reflects the speaker's confidence in the growth trajectory of esports and its potential to outgrow traditional sports leagues like the NFL.

• The book is a business management guide.
• It is frequently referenced by the speaker with CEOs and management teams.
• The book has had a significant impact on the speaker's professional approach.

"Why it's called First, Break All the Rules. It's a business book. It's about how to manage."

This quote identifies the speaker's favorite book and its relevance to business management practices.

• Teen Tsu's pitch for Zuwara was remarkable for its storytelling.
• Tsu painted a vision for the subscription economy and Zuwara's leadership in it.
• Zuwara has successfully executed this vision over the last decade.

"The series A pitch that Teen Tsu, the CEO of Zuwara, did."

This quote highlights the memorable nature of Teen Tsu's pitch and its lasting impression on the speaker.

• VR is an immersive and life-changing experience.
• The technology is in its early stages with great potential.
• Entrepreneurs are expected to create amazing things in VR.

"It is an earth shattering experience and we're in the early innings of it."

This quote conveys the speaker's enthusiasm for VR technology and its transformative potential.

• The speaker does not have a current favorite due to information overload.
• The speaker is open to recommendations and reads various sources.
• Massmart daily is suggested by another speaker as curated content.

"I honestly don't have one right now."

This quote reflects the speaker's dissatisfaction with the current state of information sources and their desire for quality content.

• Saying no to many amazing entrepreneurs is difficult.
• The firm invests in a limited number of companies annually.
• The speaker personally makes only a few investments each year.

"It's saying no to so many amazing people."

This quote captures the challenging aspect of venture capital, which is the necessity to decline many opportunities despite their potential.

• PlaysTV was chosen due to the founder's experience and the company's focus.
• Esports' rapid growth and the concept of vertical social networks influenced the decision.
• The investment aligns with the speaker's belief in the power of leveraging social dynamics.

"It's actually the company we talked about before, PlaysTV."

This quote ties back to the earlier discussion about PlaysTV and provides the rationale behind the investment decision.

• Jason expresses gratitude for being on the show.
• The host thanks Jason for his participation and Mike Abbott for the introduction.
• The host promotes following on Twitter and Snapchat.
• The host endorses WePay and Pipedrive as useful services.

"Awesome, Harry, thanks so much. I appreciate you taking the time. Truly my honor to be here."

This quote is a polite conclusion from the guest, expressing appreciation for the opportunity to participate in the podcast.