Why Most AI Startups Fail to Impress VCsㅣRajeev Dham, Sapphire Ventures

00:00it's true that at least 50% of the pitches that we hear are AI every vertical is being touched by both software and AI but that doesn't mean SAS is dead it's sort of why now what's different why does the world need another X what's the non AI part of your product tackle something that's a new problem area AI is not alone AI is not a differentiator hey I'm reie Dom I'm I am a general partner with sapphire Ventures Sapphire is a growth stage software B2B focused software investor we invest in US Europe and Israel we're managing over10 billion in capital partnering

00:43with companies like LinkedIn exact target DocuSign looker moft and more recently companies like monday.com and glean an Enterprise AI company I started my career actually not as an investor but an investment banker I worked for Goldman Sachs actually in their financial institutions Investment Banking you know your primary role is to advise companies on what you think they should be doing in response to a particular situation whether it be evaluating m&a or going public or raising some financing that's your job as an investment banker But ultimately even after a couple of years I realized

01:20instead of advising these companies what would it feel like to actually invest in them and then help really advise them from the board level having sort of some skin in the game and chips on the table of investing in companies that you're really excited about there's a lot of uncertainty but yet it's exciting because these are growth markets you're you're redefining a market or creating a new market feel like I'm a kid in the candy store and learning all the time from entrepreneurs what they're building why they're building it what's on the come and it's just really exciting to

01:49me on the market you want to make sure there's a good Market size ideally you want to make sure the company is an emerging especially at our stage an emerging leader or a Next Generation leader one thing we see is category leaders there's very few markets where there's three or four players and they're all roughly similar size often times the category leader just sucks the air uh out of a market because they attract the best employees they attract the best investors and the most amount of capital they get the best customers who tell other customers this is the

02:16only game in town and they're lead just compounds over time so we tend to look at not just Market size but positioning with that market one thing we're looking at recently given the saturation in this software and SAS space is sort of why now what's different okay maybe there's a company that has an AI angle and that's going to create some accelerated sort of growth over the long term but what else is there's something inflecting or something changing I like to say what's the energy in the market what is the end velocity in the market you may have a big Market size but

02:46everyone's happy with what they have and it's going to be hard to go sell new software into it what is the energy of adopting a new software and companies coming up for Renewal uh in that market I think is critical even if your business is scaling nicely taking a step back and understanding the context in the broader Market is there an underlying Trend or inflection point or a pocket in your competitive space or Market space that might be more interesting potentially and while your company's going nicely now there's another company or another pocket of the market that can lead to even higher

03:19growth we call it sort of missing out a little bit on the wave I think that's critical for some companies which is incredibly hard to do when your company's performing well and you want to just stick to that l but I think it's also important to understand that broader context and I've seen that multiple times where another company has a slightly different twist or approach is operating in a slightly different segment or pocket of the market that has more velocity and you can kind of take off with the whole the whole prize one thing I look for a lot and I talked to

03:46customers about is velocity what's the velocity of product improvements what is the velocity of changes that maybe a CEO or a c make on the go to market team how quickly are those changes made how decisive is this management team in making changes there there's this saying I'm sure someone said it like grow fast or die and I think that's kind of true in startup world there's something about the compounding nature of sort of growing fast you almost have to hit that escape velocity to make it out as a startup and become some sort of successful company CU if you don't the

04:18sort of laws of gravity of private SAS just sort of catch up to you and that's hard and there's a lot of pressure there becomes a lot of competition because people see your company growing fast so you got to just hit hit that escape velocity I think this velocity of decision- making that that you do across product and go to market in an organization what do you do when a potential client says we love your product but it's way too expensive do you give in on discounts right away or can you confidently defend your price hi I'm Peter on with over 15 years of sales

04:55experience at companies like Google Dropbox and Slack I'm obsessed over how to effectively answer questions like this in a way that builds trust that's why I created Peter on sales school with EO to equip startup Founders and sales professionals with the modern skills to excel in Enterprise B2B sales this online course offers real life examples and ready to use B2B sales Frameworks that you can incorporate immediately from crafting the most effective p deck to authentic customer Discovery and even negotiation I walk through how you could do it all and limited to just 10

05:38students I'm also offering one-on-one bespoke feedback on assignments ready to learn and grow your sales confidence check out the link in the description or find me at EO School recent marketing conditions are interesting is highly saturated with hundreds if not thousands I think the latest that was of rather large maybe 30 million to kind of 300 million ARR enterprise software assas businesses from infrastructures to application businesses there's a plethora of them that are out there in the private markets every single category is saturated and also getting funded by the

06:19way at the very early stages so if you're a Founder tackling something I would say really push yourself to say why does the world need another X or tackle something that's a new problem area tackle something that's you know never been done before or in a vertical that hasn't been touched before because by the way the other Trend I'm seeing is every vertical is being touched by both software and AI now ask yourself the why now why is this important why does the world need another one of these companies because ultimately investors are looking for that as well what's the

06:49difference in this narrative it's true that at least 50% of the pitches that we hear are AI already maybe even 60 70% but that doesn't mean SAS is dead to me those are still SAS companies AI is not alone AI is not a differentiator it may use AI as a technology enabler but it's not AI is not the product AI is just a small kind of piece of the product that they're leveraging in really creative ways like I said if AI is your full product there's probably something wrong and we probably won't invest you have to have an approach of some non-ai technology and Integrations workflows

07:29that are are different in and around that that I think are critical and so that's that's what people are looking for I invested in monday.com in 200 maybe 189 what was interesting to me about monday.com was you had two Founders in Iran and Roy who really just had incredible conviction in their own Direction and vision uh well one they they presented to me and a group on my colleagues and it was that night actually I booked a red eyee over to Tel Aviv flew out there to spend the whole day with them and they were shocked and surprised there was a plethora of companies here in Silicon Valley that

08:07were attacking the same Market with maybe more interesting Silicon Valley logos as customers but Monday and Roy Iran just had a different way of doing things I just saw that they just just had true belief in their vision and it was very well thought out why they would succeed it was that founder sort of conviction I saw that really left an impression on me that was just really unique in our time together I think people sometimes don't quite get that they think Road stage is just very formulaic everything's sort of working and you price the company and you try to

08:35get money in there's still a lot that has to work out even at later stages and at monday.com there was a lot that still had to work out but there's something that excited me there's something that stuck with me about that company and about that meeting that leaves me that energized to sleep 3 four hours a night for multiple nights and to me that's now become a signal I thought it was used to be a flaw maybe it still is but now it's a signal to me and that happened with Monday and that happened with many other other businesses since our business is pretty simple in some ways it's

09:02investing in people you like and you admire that just move you in some way I think every investor needs to adapt to the entrepreneur and founder that they're working with I think if if a VC is needing to operate the business that's not really the entrepreneur that a VC even wants to back in the first place we want to back an entrepreneur that says kind of get out of my way I know what I'm doing here but hey can you tell me how much I should compensate this sales person and can you tell me how many companies of yours operates in three different distinct go to market

09:34segments are there metrics or kpis can you introduce me to a CTO and your portfolio can you sit down with me talk about usage based pricing models versus seat-based pricing models and how that's evolving across your portfolio or what you think how would you think it appli those are the questions that VC should be there to answer versus going in deeply and really trying to operate the business dictate strategy too deeply uh themselves so again I try to adapt to the company and situation one thing I've realized from glean to Mondays an entrepreneur really wants to to walk

10:03with you similarly as an investor and a potential board member and just just ensure that you really are bought in to their Vision have true passion and conviction for their companies I think that's still um Paramount in terms of you know winning a deal and figuring out what you want to invest in